2008/719/EC: Commission Decision of 30 April 2008 on State aid C 56/06 (ex NN 77/06) implemented by Austria for the privatisation of Bank Burgenland (notified under document number C(2008) 1625) (Text with EEA relevance)
Date: 2008-04-30
Institutions: European Commission
Subjects: Austria, State aid, aid for restructuring, bank, control of State aid, invitation to tender, privatisation, public sector

L 239/32

EN

Official Journal of the European Union

6.9.2008

COMMISSION DECISION

of 30 April 2008

on State aid C 56/06 (ex NN 77/06)

implemented by Austria for the privatisation of Bank

Burgenland

(notified under document number C(2008) 1625)

(Only the German version is authentic)

(Text with EEA relevance)

(2008/719/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty
and in particular
Community,
Article 88(2) thereof,

establishing the European
subparagraph of
the

first

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
pursuant to the provisions cited above (1) and having regard to
their comments,

Whereas:

(1)

(2)

I. PROCEDURE

On 4 April 2006, the Commission received a complaint
from a Ukrainian/Austrian investors’ consortium (here­
inafter called ‘the Consortium’) (2) claiming that Austria
had infringed the State aid rules in the privatisation
process of Hypo Bank Burgenland AG (hereinafter
called ‘BB’).
In particular, the tender procedure, which
allegedly had been unfair, untransparent and discrimi­
natory towards the complainant, had resulted in the
sale of BB, not to the highest bidder (the complainant),
but to the Austrian insurance company Grazer Wechsel­
seitige Versicherung AG together with GW Beteiligung­
serwerbs- und –verwaltungs-G.m.b.H. (hereinafter called
‘GRAWE’).

A first request for information was sent to Austria on
12 April 2006. On 25 April 2006 Austria requested an
extension of the time limit, which was partially granted
by letter dated 28 April 2006. Austria answered by
letters dated 15 May 2006 and 1 June 2006. A
meeting was held with the Austrian authorities on
27 June 2006. A second request for information was
sent on 17 July 2006 and the complete reply received
on 18 September 2006.

(3)

(4)

(5)

(6)

(7)

In the meantime, by e-mail and letters dated 21 April
2006 and 2 June 2006, the Commission received further
information from the Consortium.

the Commission
By letter dated 21 December 2006,
informed Austria that
it had decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty
in respect of the measure.

The Commission Decision to initiate the formal investi­
gation procedure (hereinafter also called ‘the opening
decision’) was published in the Official
the
European Union (3). The Commission invited interested
parties to submit their comments on the measure.

Journal of

The Commission received comments from interested
parties. A Hungarian party submitted information both
within, and also — without giving particular reasons —
outside the deadline set by the decision. The comments
received within the deadline were sent on 22, 26 and
27 February 2007 and on 9 March 2007. Further infor­
mation from that
interested party was received after
expiry of the deadline on 19 and 28 March 2007.

The successful bidder GRAWE — the potential aid bene­
ficiary — also provided comments. These comments
were sent on 9 March 2007, together with a request
for an extension of time, which was granted. GRAWE
submitted further comments by letter dated 19 April
2007;
the complete file including annexes arrived at
the Commission on 26 April 2007. After a meeting
with the Commission on 8 January 2008, GRAWE
submitted more comments on 5 February 2008.

(8)

Austria submitted its own comments after the opening of
the formal
investigation procedure on 1 March 2007,
after a time extension had been granted.

(1) OJ C 28, 8.2.2007, p. 8.
(2) For a detailed description see below.

(3) See footnote 1.

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Official Journal of the European Union

L 239/33

(9)

(Hungarian
All comments received within the initial
party) or extended (GRAWE) deadline were forwarded
to Austria, which was given the opportunity to react.
Its comments were received by letter dated 5 June
the
2007. At a later
Commission sent all other information received outside
the deadline by GRAWE or the Hungarian third party to
Austria for comments.

stage, on 8 February 2008,

(10) A number of meetings were held with Austria, GRAWE
and the Ukrainian authorities. The last meeting with
Austria took place on 1 April 2008. More comments
from Austria were
dated
received
14 December 2007 and 23 January, 25 February,
5 March and 9 April 2008.

e-mails

by

(11) On 22 March 2007, the complainant, which had not
commented on the decision to initiate the formal inves­
tigation procedure, provided the Commission with an
update on the state of play with one of
its court
proceedings in Austria (decision of the Vienna Higher
Regional Court
(Oberlandesgericht) dated 5 February
2007 and subsequent appeal by the complainant to the
Supreme Court (Oberster Gerichtshof) of Austria). The
complainant had filed a number of
actions with
Austrian courts which have all been unsuccessful so far.

(12)

II. DETAILED DESCRIPTION OF THE AID

1. The Consortium (the complainant)

is an Austro-Ukrainian consortium
The complainant
which, at the time of the sale of BB, consisted of two
Ukrainian joint-stock companies, Ukrpodshipnik and
Ilyich, and two Austrian companies, SLAV AG and
SLAV Finanzbeteiligung GmbH,
the latter one having
been founded specifically for the purpose of acquiring
BB. Ukrpodshipnik and Ilyich are major Ukrainian
groups employing nearly 100 000 staff and having a
total annual
turnover of about USD 4 billion in
various fields such as steel production, shipbuilding,
pipelines, metal processing and power stations. Ukropod­
shipnik is also active in the financial markets via
Commercial Bank Active Bank Ltd (hereinafter called
‘Active Bank’), which has operated since 2002 under a
full banking licence in Ukraine. SLAV AG was founded in
Vienna in 1992 as a subsidiary of the Ukrpodshipnik
corporation, operating as a trading company. Its shares
are quoted on the Vienna stock exchange. The fact that
there was a reorganisation between the members of the
Consortium after the sale which led to SLAV AG now

being the owner of the Ukraine-based companies is irre­
levant to the assessment of this case.

(13)

Through the intended acquisition of BB, the Consortium
was pursuing two major strategic objectives. First, being
already active in the financial market sector in Ukraine,
the Consortium wished to grow in this business segment.
Secondly, with it exporting a large part of its products
across the world, BB would have provided access to the
international
and supported the
Consortium’s international expansion. The business plan
for BB drawn up by the Consortium reflected these
strategic objectives and would, therefore, have changed
BB’s regional focus.

financial markets

(14) Neither

the

the

disposal of

information at

the
Commission nor comments by third parties submitted
following the opening of
the procedure called the
economic viability of the Consortium into question. In
the investigation, no information was
the course of
received indicating that the Consortium would not be a
serious undertaking, until, at a very late stage in the
investigation,
drew the
Commission’s attention to a German case in which the
(here­
Bundesanstalt
inafter called ‘BaFin’) had prevented the sale of shares
in a German bank to an undisclosed Ukrainian group,
in view of doubts surrounding the unclear origin of the
funds – an assessment which was confirmed by a
German administrative court (4).

Finanzdienstleistungsaufsicht

the Austrian

authorities

für

(15)

2. GRAWE (the beneficiary)

The buyer GRAWE consists of Grazer Wechselseitige
Versicherung AG and GW Beteiligungserwerbs- und
-verwaltungs-G.m.b.H. GRAWE is a well established
major Austrian financial services group. It is active in
insurance, banking and real estate both in Austria and
in a large number of Central European countries, with
subsidiaries in Slovenia, Croatia, Belgrade, Sarajevo, Banja
Luka, Hungary, Bulgaria, Romania, Ukraine, the Republic
of Moldova and Podgorica. Head offices are mostly
located in the national capital. Grazer Wechselseitige
forms of
Versicherung AG offers
insurance, but
and leasing
services.
Its headquarters are in Graz and there are
main offices in all provincial capitals. Annual premium
income in 2006 came to about EUR 660 million and the
insurance contracts managed amounted to
number of
3,3 million.

all
also proposes

the usual
financial

(4) See press release No 7/2008 of 22 February 2008 of the Frankfurt

am Main Administrative Court, provided by Austria
(www.vg-frankfurt.justiz.hessen.de).

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(16)

stakes

in two entities

In 2006 Grazer Wechselseitige Versicherung AG held
direct
in the banking and
investment
sector. The major one was a 43,43 %
interest in HYPO Group Alpe Adria, a financing group
in the Alps-to-Adriatic region. Hypo Group Alpe Adria
has offices in Austria, Bosnia and Herzegovina, Bulgaria,
Croatia, Germany, Hungary,
the
former Yugoslav Republic of Macedonia, Montenegro,
It employs more than
Serbia, Slovenia and Ukraine.
than 1,1 million
6 500 people
customers and had more than EUR 30 billion of assets
in 2006. In 1989 GRAWE acquired Capital Bank, an
independent institution, specialising in recent years in
private banking and investment banking with about 70
investment funds under management.

Italy, Liechtenstein,

to serve more

(20)

Prior to the sale, BB operated under a full banking licence
in the Province of Burgenland and in western Hungary,
where it had a wholly owned subsidiary, Sopron Bank
RT. Founded as a regional mortgage bank, BB’s task had
been to promote monetary and credit transactions in the
Province of Burgenland. Historically,
its main business
had been to grant mortgage loans and issue mortgage
bonds and municipal bonds. At the time of the sale, it
acted as a universal bank and offered all other banking
and financial services.

(17)

The business plan drawn up by GRAWE for the acqui­
sition of BB did not provide for any change in BB’s
business model or for the integration of BB into the
existing banking activities of the group.

(18)

its holding in
In 2007 GRAWE sold about 15 % of
HYPO Group Alpe Adria and realised considerable
In using the existing loss carry-over of
book profits.
EUR […] (*) million (5) of BB, GRAWE made
tax
savings (6) which it used to offset
the net purchase
price of EUR […] million (7) paid for BB.

3. Hypo Bank Burgenland AG (BB)

(19) Until it was sold, HYPO Bank Burgenland AG was a joint
stock corporation under Austrian law with its registered
office in Eisenstadt, Austria. Before the sale of BB to the
Austrian insurance group GRAWE, which is the aid
shareholders’
measure
the Federal Province of
meeting of March 2005,
Burgenland
of
Burgenland’) held 100 % of
the equity (8). BB group
importance with a balance sheet
was of only regional
value of some EUR 3,3 billion in 2005.

in question,

(hereinafter

and since

Province

called

‘the

the

(*) Business secret.
(5) Loss carry-over as of 31 December 2004.
(6) The corporation tax rate in Austria is 25 %.
(7) Four real estate companies with a nominal value of EUR […]
million were directly transferred to the Land prior to closing at a
price of EUR […] million.

(8) At the shareholders' meeting in March 2005 it was decided to
merge the free float shares and to compensate the free float share­
holders owning 6,79 % of the equity.

(21) Until

leading

its privatisation, BB still benefited from so-called
Ausfallhaftung (9). Following an agreement between the
to Commission
Commission and Austria
Decision C(2003) 1329 final (10), Ausfallhaftung had to
be abolished by 1 April 2007. As a general rule, all
liabilities existing on 2 April 2003 continue to be
covered by Ausfallhaftung until
their maturity expires.
After that, Ausfallhaftung can be maintained between
2 April 2003 and 1 April 2007 for newly created
liabilities provided their maturity does not go beyond
30 September 2017. However, the privatisation of BB
had the effect that this transitional period ended prema­
turely, on the day of closing of the deal with GRAWE,
i.e. on 12 May 2006 (11). New liabilities incurred after
that date are no longer covered by Ausfallhaftung. On
31 December 2005, liabilities covered by Ausfallhaftung
amounted to approximately EUR 3,1 billion, not
including the issue of the additional bonds described in
paragraph 44.

(22) As a result of past losses, BB had tax losses to carry over
of approximately EUR 376,9 million as at 31 December
2004. Since 1 January 2005, Austrian tax law allows
to offset profits
companies (within the same group)
and losses against each other.
It depends on the
company’s specific structure to what extent this can be
done.

(9) Ausfallhaftung (deficiency liability) is a guarantee measure for public
credit institutions which, in April 2003, covered about 27 savings
banks and seven Landeshypothekenbanken (public mortgage banks). It
gives rise to a guarantee obligation whereby, in the event of the
insolvency or liquidation of a credit institution, the guarantor (the
State, the province or the municipality) is obliged to step in. The
bank's creditors have direct claims against the guarantor, which,
however, is required to perform only if the bank's assets are insuf­
ficient to satisfy the creditors. Ausfallhaftung is limited neither in
time nor in amount. BB does not pay any consideration for the
guarantee.

(10) OJ C 175, 24.7.2003, p. 8. Austria accepted the appropriate
measures suggested in the Decision by letter dated 15 May 2003,
registered as received on 21 May 2003.

(11) According to Section 4, paragraph 7 of the Law on the public
mortgage bank of Burgenland, the transitional period for liabilities
covered by Ausfallhaftung will cease to exist for all new liabilities if
Bank Burgenland (or the majority of its shares) is sold before the
end of the transitional period agreed with the Commission.

(23)

(24)

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4. The restructuring of BB

(25)

decision’),

the Commission

By Decision of 7 May 2004 (12) (hereinafter called ‘the
restructuring
approved
restructuring aid for BB totalling EUR 360 million
two measures: a guarantee agreement
consisting of
dated 20 June 2000 between the Province of Burgenland
and BB (EUR 171 million plus 5 % interest (13) and a
framework agreement dated 23 October 2000, which
consists of a claims waiver on the part of Bank Austria
for BB totalling EUR 189 million, a better-fortune
agreement between these two contracting parties (14)
and a guarantee agreement on the part of the Province
of Burgenland for BB amounting to EUR 189 million (15).

The amendments regarding the use of annual profits to
reduce the amounts guaranteed would not have taken
effect
if BB had not been privatised. As long as the
Province of Burgenland remained the owner of BB, the
the
two guarantees would have remained unchanged,
amounts guaranteed would have been further reduced
by BB’s annual profits and BB’s better-fortune obligation
would have remained unchanged.

The restructuring Decision included the following retro­
spective amendments to the guarantee agreement of
20 June 2000 and the framework agreement. The
guarantee agreement of 20 June 2000 was modified so
that BB’s annual operating profits will no longer be used
to reduce the amount covered by the guarantee provided
by the Province of Burgenland and BB will be able to call
on the guarantee at the earliest when the annual accounts
for the financial year 2025 are closed. The Province of
Burgenland will have the right
to make the open
guarantee payment
to BB in full or only in part as
from the moment when the annual accounts for the
financial
framework
agreement of 23 October 2000 was amended as
follows: BB’s annual profits will no longer be used to
meet the better-fortune obligation towards Bank Austria
AG. The Province of Burgenland will meet the better-
fortune obligation towards Bank Austria and will pay
the amounts
the guarantee
still outstanding under
agreement immediately prior to the privatisation of BB
with a one-off payment.

year 2010 are

closed. The

(12) Commission Decision 2005/691/EC on State aid C 44/03 (ex NN
for Bank

158/01) which Austria is planning to implement
Burgenland AG (OJ L 263, 8.10.2005, p. 8).

(13) The guarantee agreement relates to the loan commitments of the
HOWE complex. BB's annual operating profits are used to cover the
amount of the guarantee. Accordingly, the amount of the guarantee
will be reduced by the amount of BB's annual profits where these
are not needed to distribute preference dividends. BB will be able to
call on the guarantee provided by the Province of Burgenland at the
earliest when the annual accounts for the financial year 2010 are
closed.

(14) The claims waiver is in exchange for an interest-bearing better-
fortune clause on the part of BB and provides for repayment of
the full amount of Bank Austria's claim, plus interest,
in seven
instalments starting on 30 June 2004. From that date, BB had
therefore to repay the amount of the claims waiver plus interest
accrued up to that date. The redemption of the better-fortune clause
is based on BB's annual profits.

(15) In the event of BB being unable to meet its better-fortune obli­
gation, the Province of Burgenland has assumed an irrevocable
deficiency guarantee towards Bank Austria AG which is effective
for each year in the period 2004-10 and under which the Province
of Burgenland must cover any shortfall towards Bank Austria AG.
Under this agreement, both BB and the Province of Burgenland are
free to meet the better-fortune obligation towards Bank Austria AG
ahead of the deadlines set.

(26)

BB’s privatisation was an essential component of
the
restructuring plan approved by the Commission. The
Province of Burgenland regarded BB’s privatisation as
the bank’s long-term
the best possible guarantee of
viability.

(27)

Following the Commission Decision and starting in
2003, the Province of Burgenland made two attempts
to sell and privatise BB, both of which failed. The third
attempt — the aid measure described below — started
with an announcement
in the media on 18 October
2005.

5. The privatisation of BB

5.1. The privatisation process

(28)

The Commission notes that
the parties which were
involved in the sale of BB differ in their description of
the sales process. However, the Commission considers
that the following elements of the sale of BB, as set
out in the opening decision and as supplemented by
comments of
comments of Austria
the
GRAWE, are uncontroversial.

and the

(29)

In 2005 the Province of Burgenland launched a third
tender procedure to privatise BB. The international
investment bank HSBC Trinkaus & Burkhardt KGaA,
Düsseldorf,
jointly with HSBC plc, London (together
hereinafter called ‘HSBC’), which were commissioned to
carry out the privatisation process, publicly announced
the intention to sell BB in the Official Journal of Vienna
(Amtsblatt zur Wiener Zeitung) on 18 October 2005 at a
national
level and in the English-language edition of
Financial Times Europe on 19 October 2005 at an inter­
national
level and asked parties interested in acquiring
shares in BB to come forward.

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(30) While 24 potential bidders both within and outside the
European Union reacted to the announcement, only 14
officially signalled their interest in tendering and were
therefore provided with a ‘process letter’
in order to
In the
enter
process letter, the potential bidders were asked for an
indicative, non-binding offer to buy the bank before
6 December 2005.

the tender process.

the next phase of

leading to a binding offer

(31) Only three of the 14 potential bidders came forward
with indicative offers on time, which were pitched at
EUR 65 million, EUR 100 million and EUR 140
million respectively (16), and entered the second phase
for which the
aimed at
deadline was
second
in particular, a due diligence phase to
phase included,
be
room from
carried out
7 January to 30 January 2006, supplemented by a
number of presentations and meetings. The bidders
also had the opportunity to ask questions during and
after the due diligence process.

set at 6 February 2006. This

in an Internet data

(32) On 6 February 2006 two bidders submitted a binding
offer, GRAWE on the one hand, and the Consortium on
the other.

issue of only EUR 320 million of additional bonds before
the privatisation. The issue was effected under Ausfall­
haftung. Capital Bank, a subsidiary of GRAWE, subscribed
to EUR 350 million of the total EUR 700 million bonds.

5.2. The selection criteria in the process letter

(36)

The following criteria for evaluating the offers were based
on a decision of the Government of the Province of
Burgenland of 6 September 2005 and were enumerated
in the process letter:

(a)

the purchase price and reliability of
price payment;

the purchase

(b) maintenance of the autonomy of BB;

(c) continued operation of BB and, at the same time,

avoidance of use of Ausfallhaftung;

(d) willingness
increases;

to

conduct

any

necessary

capital

(33) With these two bidders the binding offers were indivi­
dually negotiated further. These negotiations ended on
4 March 2006.

(e)

transaction security;

(34) On 5 March 2006 the Province of Burgenland awarded
the contract
to GRAWE despite the purchase price
offered by GRAWE (EUR 100,3 million) being signifi­
cantly lower than the price offered by the Consortium
(EUR 155 million). The decision was based on a written
recommendation by HSBC (hereinafter called ‘the recom­
mendation’) dated 4 March 2006, supplemented by oral
explanations to the members of the Government of the
Province of Burgenland on the day of the decision. The
Government of
the Province of Burgenland formally
agreed to the sale on 7 March 2006. The closing of
the deal took place on 12 May 2006.

(35) On the eve of closing, BB issued bonds to the amount of
EUR 700 million. A forecast in 2005 had foreseen the

(16) A fourth bidder made an indicative offer of EUR 115,5 million, but
out of time and incomplete. The offer was therefore not considered
any further.

(f) considerations of

time in carrying out

the trans­

action.

(37)

The process letter further stated that the shareholder of
BB would, on the basis of the recommendation, make a
discretionary choice as to which bidders could enter the
second phase of the sales process.

5.3. The warranty clause in the contract with GRAWE

(38)

in the

context of

The contract with GRAWE contains a warranty by the
Province of Burgenland that
the State aid rules are
the guarantee
infringed neither
agreements which are the subject matter of the restruc­
turing decision, nor in the context of the sales contract
itself. This warranty is supplemented by a clause which
entitles the buyer GRAWE to be compensated by the
Province of Burgenland in respect of any recovery
ordered by the Commission in a negative decision.
If
the State aid rules were to prohibit such an adjustment
of the sales price, the buyer could, according to this
clause, rescind the contract.

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5.4. The recommendation by HSBC

(39)

the

the Consortium. However,

recommendation compares

two offers by
The
the
GRAWE and the Consortium on the basis of
selection criteria mentioned above.
that
It points out
the purchase price would lead to a decision in favour
of
the other
criteria — reliability of
the purchase price payment,
continued operation of the bank and avoidance of use
and transaction
of Ausfallhaftung,
security — HSBC recommends a sale to GRAWE (see
paragraphs 27 to 29 of
the opening decision for
further details).

in view of

increases

capital

III. DECISION TO INITIATE THE FORMAL INVESTI­
GATION PROCEDURE UNDER ARTICLE 88(2) OF THE
EC TREATY

(40)

The Commission decided to open the formal
investi­
gation procedure under Article 88(2) of the EC Treaty
for the following main reasons.

(41) Applying the principles set out in the XXIIIrd Report on
Competition Policy (17),
the Commission could not
establish that the sale had taken place free of aid, espe­
cially as it was obvious that
the Consortium, while
submitting a substantially higher offer, was not chosen
as the buyer of BB by the Province of Burgenland. In
addition, there were a number of discrepancies in the
way the bidding procedure was described by the
complainant on the one hand and Austria on the other.

Doubts related to the tender procedure

(42) As to the tender procedure, the Commission expressed
doubts as to whether it could be regarded as transparent,
unconditional and non-discriminatory. The Commission
especially doubted whether the bidders had been treated
in the same way during the tender procedure and also
whether a private vendor would have imposed some of
the conditions attached to the sale as set out in HSBC’s
process letter.

moreover, the further criterion of ‘refinancing of BB after
the sale’, which was stressed during the negotiations, was
not included in the list (see paragraphs 65 to 69 of the
opening decision for further details).

Other considerations

(44)

Furthermore,
possibility
an economic
conferred on GRAWE, for the following reasons.

the Commission could not rule out the
advantage had been

that

(a)

the price difference, indicating that the market price
had not been paid in selling BB to GRAWE;

(b) the issue of further bonds worth EUR 380 million
covered by Ausfallhaftung, which was not an element
of the business plan of BB which had been given to
the potential buyers and which apparently had not
been offered to the Consortium;

(c)

the uncertainty whether higher bids might have been
offered or whether other competitors might have
participated in the sale, had the conditions referred
to above not been imposed.

(45)

The Commission also mentioned the potential effect of
the tax loss carry-over on the economic value of the
respective offers. The warranty clause contained in the
contract with GRAWE was a further matter for concern.

(46) On the stipulation in the contract concerning compen­
sation for early discharge (Vorfälligkeitsentschädigung) of
the
the
Commission wondered whether
restructuring
decision had been fully complied with by Austria.

agreement of 20 June 2000,

guarantee

the

(43)

The Commission expressed further doubts on the trans­
parency of the final selection, given that there was no
indication as to how the criteria would be weighted;

IV. COMMENTS FROM INTERESTED PARTIES

(47)

The Commission received comments from the bene­
ficiary GRAWE and from a Hungarian third party (18).
The comments from GRAWE support and supplement
Austria’s arguments and these are dealt with together
below.

(17) European Commission, XXIIIrd Report on Competition Policy

(18) The factual information provided by the complainant need not be

1993, paragraphs 402 et seq.

dealt with in this context.

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(48)

to an alleged earlier

The Hungarian interested party submitted a number of
documents which refer
fraud
concerning primarily the business of BB in Hungary,
where its subsidiary Sopron Bank RT is situated. It main­
tained that the fraud could be kept secret only by selling
BB to an Austrian bidder. Numerous documents were
provided, relating especially to a number of Hungary-
based subsidiaries linked with BB, such as extracts from
trade registers, the founding charters of the undertakings
annual meetings or other
concerned, minutes of
company data, covering periods clearly prior to the sale
of BB. The Commission was unable to establish any
relevant link between these documents and the privati­
sation procedure it had to assess under the State aid
rules. These comments could therefore not be taken
into account.

V. COMMENTS FROM AUSTRIA AND GRAWE

(49) Austria stressed and supplemented the arguments which
had already been presented before the Commission
decided to open the formal
investigation procedure. In
this, Austria was largely supported by GRAWE.

1. Admissibility

the
(50) On procedural grounds, Austria maintained that
this
Commission should not go into the details of
the Consortium, which had not yet
complaint as
entered
and was
European banking market
the
therefore not even a competitor, could not be regarded
as an ‘interested party’ within the meaning of Article 1(h)
of Council Regulation (EC) No 659/1999 of 22 March
1999 laying down detailed rules for the application of
Article 93 [now Article 88] of the EC Treaty (19). Any
alleged discrimination would, rather, be linked with the
freedom of establishment and the free movement of
capital; entry into the European banking market could
not be obtained via
aid procedure. The
a State
Commission should also take into consideration the
fact that the Consortium was not active subsequent to
the Commission’s opening decision and had made it
publicly known that it no longer had any interest in
acquiring the bank.

(51)

The Commission would be exceeding its discretionary
powers by examining this case. Austria stressed that
the Austrian courts had dealt extensively with the case
under State aid law, had intensively heard witnesses, had
fully evaluated the facts and had concluded that an open,
fair and transparent tender procedure had been carried
out. The Commission should have endorsed this view
instead of opening a formal investigation procedure.

(19) OJ L 83, 27.3.1999, p. 1.

2. General

issues related to the tender procedure

and its outcome

The circumstances of the tender

(52) Austria stressed that there had been an open, fair and
transparent tender procedure, confirmed by the courts in
Austria dealing with the matter. The final decision was
not taken before 4 March 2006. All parties had been
given the same opportunities to obtain the information
they needed for their due diligence, even if the parties did
not use it in the same way.

(53)

Even though there had been strong reservations against
the Consortium from the start, it was legitimate to keep
the Consortium in the tender procedure as long as
possible, instead of excluding it on the basis of the indi­
cative offers. Such behaviour was in keeping with that of
a private vendor, who would thus increase competition
between the bidders in order to drive the price as high as
possible.
In addition, Austria had kept expecting the
Consortium to put itself forward as a financially strong
business partner, as it had announced during the nego­
tiations. Such a partner could have changed the situation
substantially.

(54) GRAWE submitted that it could not perceive that it had
been treated in a preferential manner during the tender
procedure, either by the Province of Burgenland or by
the Austrian Financial Market Authority (FMA).

The recommendation

(55) Austria pointed out that HSBC’s recommendation was no
more than a summary of the privatisation process and
could not in itself be regarded as the only basis for the
decision taken. The recommendation was only intended
to give a short overview of the procedure and the offers.
Its findings had been complemented by oral explanations
given to the decision makers. Austria supplemented this
information by providing a note which had been drafted
by HSBC for the Province of Burgenland to help it
prepare its reply to the Commission’s first request for
information of 12 April 2006, and in which the
findings were further commented on. According to
Austria, the recommendation should not be regarded as
an expert opinion on the value of the bank, which was
not required by European law. The decision made on
5 March 2006 was
instead based on experience
acquired in the course of the privatisation process, the
recommendation, oral valuations and confidential expla­
nations by HSBC representatives.

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The comparability of the offers by GRAWE and the
Consortium

(56) A number of elements in both the submissions by
Austria and the comments by GRAWE address the
comparability of the offers made by the two bidders.

the

had

misinterpreted

the 4guarantee

(57) As far as the compensation for early discharge (Vorfällig­
agreement of
keitsentschädigung) of
the
20 June 2000 is concerned, Austria argued that
Commission
relevant
arrangements provided for in the offers of both final
bidders. The compensation related to the fact that the
Province of Burgenland would be making its payments
under the guarantee agreement several years earlier than
planned (20). This was not an element of the purchase
apparently assumed by the Commission.
price,
Furthermore,
earlier
scheme did not
decision on the restructuring of BB into question, but
helped reduce the aid which had at
the time been
authorised by the Commission.

call

the

the

as

under Ausfallhaftung.

worth mentioning in the process letter, as this would not
have been decisive for the sale. However, both bidders
had been informed during the due diligence and the issue
would have taken place regardless of the identity of the
buyer. GRAWE alone had incorporated this in its draft
contract. Austria stressed that the issue of an additional
EUR 380 million of bonds was done in order to benefit
as much as possible from the favourable refinancing
conditions
been
mentioned repeatedly in the course of the negotiations
with the Consortium. Indeed, had BB been sold to the
Consortium, it would have profited from the better refi­
nancing conditions to a considerably higher extent than
GRAWE as buyer. Austria argued that the refinancing
conditions of BB in the event of a sale to the Consortium
would have been more costly, given that GRAWE was
rated and the Consortium was not only not rated, but
had its seat in Ukraine and BB could therefore expect at
most refinancing conditions for a — hypothetical —
rating of ‘BB’ or ‘B’, if at all.

This

had

(58)

sales

In regard to the warranty clauses and the warranty
periods provided for
contracts with
in the
GRAWE and the Consortium, Austria argued that they
were the result of the individually conducted negotiations
with each party. The different arrangements in regard to
the limits of liability, the amounts of exemption and the
warranty periods (two years for the Consortium and
three years for GRAWE) did not discriminate between
bidders.

(59) Only the draft contract with the Consortium stipulated
an annual fee of EUR 100 000 for Ausfallhaftung, to be
paid until 2017 to the Province of Burgenland. In expla­
the contract with
nation, Austria pointed out
GRAWE did not stipulate an annual
fee as this was
already included in the sales price offered by GRAWE.

that

(60)

Concerning the issue of new bonds, Austria argued that
the decision of
the management board to issue new
bonds to the amount of EUR 380 million, comple­
menting the prior decision — based on the planning
in BB’s business plan — to issue bonds worth EUR
320 million in September 2005, had been independent
of
the forthcoming privatisation and from the future
owner of BB. The Province of Burgenland did not
think that the issue of those additional bonds had been

(20) As stated above, according to the amended guarantee agreement of
20 June 2000 the Province of Burgenland had the right to make the
open guarantee payment to BB in full or in part as from the
moment when the annual accounts for the financial year 2010
are closed.

(61)

In regard to the special arrangement with GRAWE to
transfer four of BB’s real estate subsidiaries back to the
Province of Burgenland prior to closing at their book
value of EUR 25 million, Austria pointed out
that,
given that BB’s auditor confirmed on 31 December
2005 that the market value of the property would be
equal to its book value, this transfer would have only a
liquidity effect. This liquidity effect therefore did not need
to be taken into account in the comparison of the two
offers.

(62) An advance payment of EUR 15 million into a trust
account with Ukraine-based Active Bank on the day of
signing of the contract was offered by the Consortium.
GRAWE had to transfer the sales price in full on the day
of closing.

The warranty clause concerning State aid in the
contract with GRAWE

(63) Austria took the view that the clause, which was also
part of the draft contract with the Consortium (21), was
standard in any sales contract in such transactions as part
of the sales conditions and price and was in line with the
State aid rules. It was in the legitimate interest of BB’s
buyer, who had not been willing to bid a higher price
and might be asked to pay more through a recovery
order as a consequence of a State aid decision. Besides,
the Commission should also take into account the fact
that the clause included a right of the buyer to withdraw
from the contract if the clause was invalid under the
State aid rules.

(21) However, the warranty in the draft contract with the Consortium
did not include a guarantee that the sales contract itself was free of
aid.

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long as

(64) According to GRAWE, the Commission’s doubts were
irrelevant as
there was no recovery order.
GRAWE stressed that the buyer in a tender procedure
had very limited means to prevent behaviour by a public
to a State aid
seller
assessment. GRAWE considered that such a clause gave
the State even more reason to comply with the State aid
rules and was therefore in turn in the Commission’s
interest.

that was potentially relevant

3. The market conformity of the sales price paid by
GRAWE

(65) According to Austria, the existence of an open and trans­
tender procedure which produced the market
parent
price was demonstrated by the fact that three bidders
forward with an indicative offer, of which
came
GRAWE’s offer was
that
second. This
GRAWE’s offer had not been below BB’s market value.

indicated

the range of EUR 50-70 million depending on the
value attributed to the tax loss carry-over. The value
of
to EUR 33,4
million (22);

the equity would then amount

(b) an evaluation of the stand-alone value of BB carried
out by gmc-unitreu Wirtschaftsprüfungs- und Steuer­
beratungs GmbH on the occasion of the acquisition
of all the shares by the Province of Burgenland in
order to prepare the ground for the privatisation of
BB. On the basis of figures similar to those used by
HSBC, the study concluded that on 30 June 2004 BB
was worth between EUR 44,4 million and EUR 53,9
million (23);

(c)

the Consortium’s own assessment, which assumed a
stand-alone equity value of BB in the range of EUR
50-75 million.

(66) Austria referred to the outcome of the second attempt to
privatise BB. All four offers at the time had been within a
range of EUR 85 million to EUR 93 million. The EUR
100,3 million paid by GRAWE could therefore also be
considered to be in line with market conditions.

(69)

In addition, Austria argued that the bidders had priced in
the conditions of
the tender procedure and therefore
both offers had been higher than the actual market value.

(67) According to the State aid rules, Austria was not obliged
to sell the bank in an open tender procedure at all but
was free to choose either an open tender procedure or an
expert evaluation. As long as the sales price was in
keeping with these prior evaluations, State aid was not
involved.
the Commission had disre­
garded the fact
that Austria had already presented a
number of studies in the early phase of the investigation
confirming its view that the price paid by GRAWE had
been in line with market conditions.

In this context,

(68) Austria and GRAWE backed up their arguments by
referring to the following studies and documents:

(a) an indicative evaluation of BB made by HSBC: this
study concluded that, if BB was privatised and sold to
a buyer of good credit standing, its value would be in

(70) Austria offered to commission a further study by an
independent expert in order to establish that a price in
line with market conditions had been paid.

4. The role of Ausfallhaftung in the sale of BB

(71)

and the

importance of Ausfallhaftung

Throughout the investigation Austria repeatedly stressed
the
ensuing
financial
interest of the Province of Burgenland in the
sale of BB, and in this was supported by GRAWE. The
‘continued operation of Bank Burgenland
criterion of
and, at the same time, avoidance of the use of Ausfall­
haftung’ was one of the conditions Austria had made
public in the tender procedure and hence was known
to all
and
GRAWE presented the following arguments in particular.

connection, Austria

concerned.

In this

(22) HSBC took into account only the tax loss carry-over that BB could
actually use on the basis of its own business. In this connection,
HSBC assumed that the buyer's good rating would more or less
automatically apply also to BB (so-called ‘transfer of good credit
standing’ — ‘Bonitätstransfer’). In total, HSBC valued BB using three
scenarios,
scenario based on continued
ownership of BB by the Province of Burgenland, with no privati­
sation taking place, and a scenario based on a future owner with no
credit standing/rating (such as the Consortium).

including a

further

(23) A tax loss carry-over of EUR 5,6 million was taken into account.

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(72)

(73)

ignoring the separation of powers

The basis for Ausfallhaftung could be found in statute.
However, as a company limited by shares (‘AG’), BB
form and the guarantee itself
had a private-law legal
was a private-law institution (Section 1356 of
the
General Civil Code); the conditions and extent of the
liability of the Province of Burgenland were therefore
governed by private-law provisions. The State had acted
as owner of Bank Burgenland and not in its public-law
capacity. In not accepting this argument, the Commission
in Austria
was
between the legislature (the source of Ausfallhaftung),
on the one hand, and the executive (the Province of
Burgenland, which had taken the decision to sell BB),
on the other. The relationship between the Province of
Burgenland and BB could be likened to the situation of a
parent company giving a guarantee for its subsidiary in
the form of a comfort letter (Patronatserklärung). Such a
guarantee would be taken into account when selling a
subsidiary, as would any other off-balance sheet risk.
Austria further supported this view by referring to a
judgment of
the Austrian Supreme Court of 4 April
2006 (24).

Furthermore, the Commission and Austria had agreed on
the abolition of the guarantee as existing aid after a
transitional period. Until
its abolition, Ausfallhaftung
‘legalised’, which should also allow the
would be
Province of Burgenland to take it
into consideration
when selling BB. The guarantee had not been granted
by the Province of Burgenland with a view to the priva­
tisation process and Austria had had no legal means of
discharging itself from its guarantee prior to the sale of
BB. If the risk associated with Ausfallhaftung could not be
the
taken into account under
Commission would
the
effectively
Province of Burgenland from privatising BB. This would
contradict
the
Commission’s
earlier decision on BB and would
unlawfully restrict Member States' freedom to privatise
their assets.

circumstances,
preventing

privatisation

requirement

these

the

be

in

(74) Austria’s view was confirmed by the Commission’s own
practice and by the European Courts. In particular, the
liabilities and off-
Commission had recognised that
balance sheet risks could be taken into account in a
privatisation procedure (25).
In Gröditzer Stahlwerke,
the
Court of
the European Communities also
implicitly recognised that a guarantee given by the
State, which was relevant to the liquidation of the under­

Justice of

(24) Judgment of

the Austrian Supreme Court of 4 April 2006, 1
Ob251/05a, also provided by GRAWE, in which it was held that
Ausfallhaftung was inseparably linked with the Province of Burgen­
land's role as shareholder.

(25) Commission Decision of 8 September 1999 on aid granted by
France to Stardust Marine (OJ L 206, 15.8.2000, p. 6), paragraph
82; Commission Decision of 11 April 2000 on the aid granted by
Italy to Centrale del Latte di Roma (OJ L 265, 19.10.2000, p. 15),
paragraph 91.

taking, should be taken into account (26). The recognition
of Ausfallhaftung as existing aid was therefore relevant.

(75)

The risk that Ausfallhaftung might be called upon
depended on the future risk profile of the bank and,
therefore, on the risk profile of
its new owner. The
Province of Burgenland had considered the risk associ­
ated with the Consortium as owner to be unacceptable.
The fact that BB remained under the supervision of the
FMA did not change this prognosis, as
the FMA
intervened only ex post.

The liquidation scenario presented by Austria

(76) Austria provided a calculation for the amount guaranteed
by Ausfallhaftung and a liquidation scenario. It pointed
out
the approach used in the calculation was
identical to the one presented to the Commission in
the procedure leading to the restructuring decision.

that

(77) GRAWE submitted that it was wrong to use a liquidation
scenario in this context as the Province of Burgenland
had to decide, not on a liquidation of BB, but on which
buyer it should choose. The liquidation scenario had
been intended for a different situation (decision on
restructuring aid). In addition, in a situation of Ausfall­
haftung, the Province of Burgenland would not be able to
demand the liquidation of all assets, as all creditors could
address the Province directly with their claims.

The refinancing of BB after its sale

of

the

that

(78) Austria linked this element to the criterion of ‘continued
operation of BB and, at the same time, avoidance of the
guarantee’, maintaining
use
the
announcement of
the sale of BB to the Consortium
might have led to an increase in BB’s refinancing needs
and a significant liquidity outflow, and eventually might
have triggered Ausfallhaftung. BB’s liquidity in the wake of
the sale had been a crucial factor in the decision-making.
The Consortium had also not excluded the possibility of
deposit withdrawal by clients or the cancellation of inter-
bank credit lines, albeit to a significantly lesser extent
than estimated by Austria. While
the Consortium
expected a maximum of EUR 500 million of with­
drawals, Austria submitted calculations which quantified
the net liquidity outflow at, at best, EUR 750 million
and, at worst, EUR 1,25 billion. The Consortium bore
it could secure the refi­
the burden of proving that
it had
nancing, but had failed to discharge it. Instead,
intent’
merely provided non-binding ‘letters of
from
various banks.

(26) Judgment of the Court of

C-334/99 Gröditzer Stahlwerke
136 et seq.

Justice of 28 January 2003 in Case
[2003] ECR I-1139, paragraphs

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(79) Austria further underlined that it would have been less
concerned on this score had the Consortium presented a
financially strong business partner, as it had announced
during the negotiations.

(83)

Back in 1994 SLAV International Bank AG had applied
for a banking licence in Austria. The application was
rejected on 17 November 1997. One of the grounds
for rejection had been that the Ukrainian fund which
was the owner at the time did not apply International
Accounting Standards (IAS). Apart from a small member
of the Consortium, Active Bank Ltd with activities in
Ukraine only, no banking activities had been carried on
within the group thus far. None of the Consortium’s
members was rated by an internationally recognised
rating agency. In contrast, in GRAWE Bank Burgenland
would be gaining an experienced partner in the banking
and capital market sector that had an ‘A’ rating and was
well known to the FMA.

(84)

Similarly, Austria referred to its experience during the
two earlier unsuccessful attempts at privatising BB. Espe­
cially during the second attempt, which ended in failure
in August 2005, a Lithuania-based bank with a Russian
owner had taken part and Austria had reason to believe
that the FMA would have forbidden such a deal.

(85) Austria also noted that the decision would be more time-
a
to
the
consuming
memorandum of understanding as a basis for mutual
cooperation and information exchange between the
FMA and the Ukrainian National Bank.

non-existence

owing

of

(86)

Furthermore, in order to preserve its good reputation, it
was in GRAWE’s interests to intervene in the event of BB
experiencing difficulties. The same could not be said of
the Consortium. In addition, Austria stressed that, with a
Ukraine-based owner, BB would never obtain a rating
‘A’
to GRAWE’s
rather a rating
similar
between ‘BB’ and ‘B’,
in accordance with the principle
that an undertaking cannot secure a better rating than
the country in which it is established.

rating, but

6. Further elements of the prognosis of the Province
of Burgenland

(87) Austria also presented a note by HSBC confirming all
considerations by the Province of Burgenland as to the
probability that the FMA would authorize the deal and
that Ausfallhaftung might be availed of in the event of a
decision in favour of GRAWE. The price difference was
far outweighed by the much smaller risk in the event of a
sale to GRAWE.

5. Issues regarding the authorisation of the sale by
the FMA

(80) Austria explained that, according to Section 20 of the
Banking Act, the FMA could only carry out the so-called
‘fit & proper test’ of the buyer of a bank when the parties
had already entered into a binding agreement. A
hypothetical evaluation of more than one potential
buyer would exceed the FMA’s powers. For the same
reason, it was not possible to provide the Commission
ex post with such an evaluation, as requested in the
opening decision. Consequently, the FMA had refused
to examine the documents both of the Consortium and
of GRAWE, as both potential buyers had provided the
FMA with documents in order to obtain permission prior
to the sale (27). The FMA was required to evaluate any
deal in an unbiased manner.

the

concerning

In contrast,

(81) Austria stated that it had nevertheless tried to obtain a
statement
two remaining bidders.
Informally, the FMA had indicated that an evaluation of
GRAWE, which was well known to the authority, would
the
probably only take a few weeks.
evaluation of the Consortium also involved other auth­
orities outside the European Union and would therefore
presumably take more than three months. However, the
FMA was bound by law to react within three months;
sale would be deemed authorised.
otherwise
Therefore, a sale to the Consortium would inevitably
lead to the FMA provisionally prohibiting the sale as a
first step. The FMA could, however, continue with the
examination and, if necessary, revoke its earlier refusal.
The whole process could take up to a year. According to
the FMA, the outcome would have been ‘entirely open’.

the

(82) Against

stressed that

this background, Austria

the
Province of Burgenland had needed to sell BB on the
basis of its own prognosis of the FMA’s final decision.
However, Austria had considered that the FMA would
never have allowed a sale to the Consortium. The main
considerations underlying the prognosis by the Province
of Burgenland had been as follows:

(27) The FMA was addressed by the Consortium by letter dated
6 December 2005 and by GRAWE by letter dated 10 January
2006. Both parties were subsequently informed by the FMA that
it could not deal with their letters at that time.

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The Consortium’s business plan was also a matter for
concern.
late in the
It had not been submitted until
process on 27 February 2006 and provided for the inte­
gration of Ukraine-based Active Bank Ltd. Indeed, the
to
a
this
Consortium made
acquiring BB. However,
a number of
there were
elements in this business plan which the Province of
Burgenland considered highly dangerous to BB’s very
existence.

condition precedent

sale of shares in a German bank to a Ukrainian group.
Austria did not maintain that
the Ukrainian group
concerned by this case was the Consortium, but it never­
theless found its own prognosis to be supported by the
decision, which it had taken BaFin 13 months to reach.

In particular, only a very small part of the new capital
pledged by the Consortium had been earmarked for
strengthening the regional activities of BB (EUR 17
the rest
million out of a total of EUR 85 million),
Bank.
being
According to the business plan, the future main centre
of gravity of the business was to be in Ukraine instead of
in the Province of Burgenland — a situation which
involved exchange risks.

for Ukraine-based Active

intended

(90) Also, the Province of Burgenland had never been able to
find out how the Consortium intended to integrate
the value of which was over-estimated.
Active Bank,
For prudential
the Province of Burgenland
assumed a worst-case scenario for BB in which a
failure of Active Bank would seriously jeopardise BB
and, ultimately, even result in BB’s insolvency.

reasons,

(91)

Based on that business plan, the Province of Burgenland
would not have sold BB even if the Consortium had been
the only bidder (28).

(94)

In Austria’s view,
the question of a timely sale was
closely linked to the required transaction security. A
failure of
the third privatisation round would have
endangered the bank and might in the aftermath even
have led to BB’S insolvency, triggering Ausfallhaftung.

7. Other risk evaluation methods presented by
Austria and GRAWE

(95) Austria submitted further explanations of the recommen­
dation by HSBC, which follows an approach based on
total guaranteed liabilities. A moderate increase in the
probability that Ausfallhaftung might be triggered if BB
were sold to the Consortium was sufficient to outweigh
the difference between the two offers and hence pointed
to a decision in favour of GRAWE.

(96) GRAWE, supported by Austria, submitted an expert
opinion based on an option pricing model to explain
and justify the sale to GRAWE. This expert opinion
came to the conclusion that, even assuming a small
the assets
increase of 1,83 % in the volatility of
following the sale of BB to the Consortium,
the
resulting risk to the Province of Burgenland in terms of
Ausfallhaftung would be increased considerably. Hence
the decision to sell BB to GRAWE was justified.

(92)

Furthermore, Austria had been concerned about the fact
that the FMA would have needed considerably more time
to evaluate a sale to the Consortium. A timely privati­
sation of BB was required by the decision concerning the
restructuring of BB. In addition, GRAWE had limited the
validity of its offer to 31 March 2006. The Province of
Burgenland therefore risked being left without a buyer if
the FMA prohibited the sale.

(97)

(93) On 5 March 2008 Austria referred to a German court
judgment confirming a BaFin decision prohibiting the

(28) Austria and GRAWE placed particular emphasis on this point,
referring to similar findings by the Eisenstadt Regional Court.

Very late in the procedure, on 22 February 2008, Austria
submitted an analysis of how the capital markets valued
a guarantee such as Ausfallhaftung. A more detailed expo­
sition of the approach taken in the analysis, produced by
Morgan Stanley, was provided on 9 April 2008. The
analysis started from the assumption that the Province
of Burgenland could re-insure itself on the capital
markets against the risk of Ausfallhaftung by means of
a credit default swap. Austria argued that the results of
the analysis showed that the decision by the Province of
Burgenland was justified. It estimated the cost of such
insurance at EUR 51,3-64,1 million in the event of a sale
of BB to GRAWE and at EUR 521,6 million in the event
of a sale of BB to the Consortium. Morgan Stanley’s
estimates were lower (EUR 354 million as at 12 May
2006), but were still said to support Austria’s findings.

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8. Compatibility of the aid with the common market

(98) Austria did not submit any comments on the compati­

bility of the aid with the common market.

of the decisions it was provided with is actually based on
State aid law (30).

(99) GRAWE argued that the measure,

aid,

should be

if considered to be
State
found compatible with the
common market in the light of Article 87(3)(c) of the
EC Treaty. The privatisation of BB was closely bound up
with the earlier
restructuring decision, according to
which BB should continue to operate as a regional
bank in the Province of Burgenland.
Judging by its
business plan, the Consortium as owner did not foresee
such an orientation. This would additionally have
endangered the proper implementation of the restruc­
turing decision.

VI. LEGAL ASSESSMENT OF THE AID

1. Admissibility

(100) First of all, the Commission would recall that, according
to Article 10(1) of Council Regulation (EC) No
659/1999, it must examine information from whatever
source regarding alleged unlawful aid. Austria therefore
assumes the existence of a margin of discretion which in
reality the Commission does not enjoy, being bound by
law to deal with a complaint such as that lodged by the
Consortium. As GRAWE’s only competitor in the final
stage of
the
Consortium is undoubtedly an ‘interested party’ within
the meaning of Article 1(h) of
the above-mentioned
Regulation. Subsequent developments — such as press
reports suggesting that the Consortium had abandoned
its initial plans to buy the bank — have no influence on
the Commission’s obligation to continue with its inves­
tigation. In this respect the Commission would point out
that
its
complaint (29).

the tender procedure for acquiring BB,

Consortium has

not withdrawn

the

(101) The Commission would point out that the national court
decisions referred to by Austria neither predefine nor
limit its competence to assess the case under Articles
87 and 88 of
the
Commission would also note that the outcome of none

the EC Treaty.

respect,

In this

(29) Considerations related to the freedom of establishment, mentioned
by Austria, need not be addressed in the context of the State aid
procedure. See paragraph 314 of the judgment of the Court of First
Instance of 12 February 2008 in Case T-289/03 BUPA, not yet
reported, to be found at www.curia.europa.eu

2. Existence of State aid within the meaning of
Article 87(1) of the EC Treaty

(102) As provided in Article 87(1) of the EC Treaty, any aid
granted by a Member State or through state resources in
any form whatsoever which distorts or threatens to
distort competition by favouring certain undertakings
or the production of certain goods shall, in so far as it
affects trade between Member States, be incompatible
with the common market. The privatisation of BB has
to fulfil all the criteria of this Article in order to qualify
as State aid.

2.1. State aid in the context of privatisation – the legal

framework

(103) As set out in the opening decision, the Commission’s
assessment in the context of a privatisation starts from
a number of principles which are set out in the XXIIIrd
Report on Competition Policy (herein after called ‘the
Competition Report’) and subsequent practice (31).

(104) One of the circumstances set out in the report which
allows the Commission to assume, without further exa­
mination, that no State aid is involved is that the under­
taking is sold to the highest bidder. However, it is evident
in this case that BB has not been sold to the highest
bidder. This is sufficient in itself to justify the decision
to initiate the formal investigation procedure (32).

(105) Another important element to consider in the privati­
sation context is the conditions attached to such a sale.
In the opening decision, the Commission referred to the
importance attached to this in the Competition Report
when requiring, as a condition of accepting a privati­
sation to be free of aid, that ‘a competitive tender must
be held that is open to all comers, transparent and not
conditional on the performance of other acts such as the
acquisition of assets other than those bid for or the
continued operation of certain businesses’.

(30) See, for example, decision of the Eisenstadt Regional Court, 27 Cg
90/06 p-40 of 20 May 2006, especially p. 28 and decision of the
Vienna Higher Regional Court, 2 R 150/06b, of 5 February 2007,
especially p. 15, both of which make it clear that it is not necessary
to adopt a position on the existence of State aid.

(31) See European Commission, XXIIIrd Report on Competition Policy
1993, paragraphs 402 et seq.; see also paragraphs 61 et seq. of the
opening decision.

(32) See also Competition Report, paragraphs 402 et seq.

6.9.2008

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Official Journal of the European Union

L 239/45

(106) The Commission also pointed to its subsequent Stardust
Marine decision,
further emphasised the
in which it
importance of the ‘non-discriminatory’ character of the
procedure (33). In line with the Communication on State
land and buildings by public authori­
aid in sales of
ties (34) (hereinafter called ‘the Communication on sales
of land’), the Commission now takes the approach that
conditions in principle can be imposed,
if all potential
buyers would have to, and be able to, meet that obli­
the buyer’s
gation,
business (35).
the Commission had
context,
noted that the selection criteria chosen for the sale of
the bank could imply conditions and have to be
evaluated as such (see paragraphs 141-143 below for
details).

the nature of

irrespective of

In this

(107) During the

investigation procedure, Austria
formal
from the assumption that
firstly,
seemed to proceed,
the Communication on sales of
land can be directly
applied to the privatisation of an undertaking and,
secondly, Austria seemed to assume that a potentially
faulty tender procedure could be overcome by falling
back on prior independent evaluations which had been
carried out in the context of the privatisation of BB.
Austria even proposed to commission a new study on
the market value of BB.

(108) The specific relevance of the conditions attached to the
transaction is considered in paragraphs 141-143. As a
general observation on the first point, however, it has to
be noted that it is necessary to distinguish between the
rules as regards privatisations and the rules concerning
the sale of land and buildings. While not imposing a call
for tenders as the only possible procedure for a privati­
sation, the Competition Report explicitly refers to priva­
tisations and provides guidance on the prerequisites of a
procedure ensuring that privatisation does not entail
State aid. The Competition Report does not state that
an independent evaluation of the entity to be privatised,
to
carried out before the sale, would be sufficient
establish that a sale at
that price would then be
considered automatically as being free of aid. This is
particularly evident where there has in fact been a
bidding process.

(109) The possibility of establishing the market price by
evaluation is only mentioned in the Communication on
sales of land as a means of establishing the market price

(33) Commission Decision 2000/513/EC of 8 September 1999 on aid
granted by France to Stardust Marine (OJ L 206, 15.8.2000, p. 6),
paragraph 7. The subsequent annulment of this decision by the
Court of Justice does not refer to this point.

(34) OJ C 209, 10.7.1997, p. 3.
(35) See Section II 1.(c) of the Communication.

in the absence of a bidding procedure. Even in the case
of a land sale, it follows from the terms and the structure
of the Communication on sales of land that a Member
State cannot justify selling to a person other than the
highest bidder by reference to an evaluation. In the case
of the sale of land as in the case of a privatisation, a
bidding procedure must be considered to result
in a
market price being established.

(110) However, the Commission is of the opinion that this is
not the situation in this case, even supposing — for the
sake of argument — that Austria’s view on the ‘applica­
bility’ of the Communication on sales of land could be
endorsed. It is true that the Communication on sales of
land accepts both an open tender and an ex-ante
evaluation as valid means of demonstrating the absence
of State aid. However, this latter approach is a priori only
admissible if the evaluation is carried out prior to the
sale. Once the Province of Burgenland opted for an open
tender which produced valid offers on the market,
it
to accept any prior evaluation
would be inconsistent
and to set aside higher offers, as suggested by Austria
in the second point mentioned in paragraph 107.

(111) The proposal of Austria would only need to be
considered if
the tender procedure
the outcome of
needed to be set aside owing to the absence of an
open, transparent and unconditional tender.

(112)

fully exclude that

In this respect, the Commission considers that the tender
produced two valid offers, although the Commission
cannot
the offers might even have
been higher had the conditions not been applied to the
sale (the impact of the conditions will be discussed in
greater detail in paragraphs 141-143). In the presence of
both independent evaluations and a higher binding offer
to buy BB,
it is clearly the latter which gives a better
proxy of the market value of the sales project, since it
reflects not merely a hypothetical assessment, but an
actual offer.

(113) Based on this, any prior evaluation of the value of BB
presented by Austria has become irrelevant
the
this case (36). Furthermore, an ex-post
assessment of
is of no relevance
evaluation, as proposed by Austria,
in the presence of this tender and the valid offers it
produced.

for

(36) This applies especially to HSBC's evaluation in the recommendation
to the Province of Burgenland, the evaluation of BB's stand-alone-
value by gmc-unitreu in the context of BB's restructuring prior to
any privatisation attempt, and the Consortium's own stand-alone
evaluation of BB (which is of no consequence as the Consortium is
free to take the value of further factors into account, specific to the
Consortium alone).

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(114)

In view of the conditions applied, the Commission notes
also that, even if the company was sold to the highest
bidder for a price significantly higher than its estimated
value, there may still be State aid involved if the price the
private investor paid is lower than it would have been in
the absence of such conditions (37).

(120) The Province of Burgenland was confronted with a bid
by the Consortium which at face value outweighed the
offer of GRAWE by EUR 54,7 million. A private market
operator might nevertheless exceptionally accept
the
lower bid if:

(115)

In conclusion, the Commission has to assess the privati­
sation of BB in the light of Article 87(1) of the EC
Treaty, without
reference to the Communication on
sales of land or the Competition Report, given the fact
that the presumption ‘free of aid’ according to the latter
does not apply.

2.2. Existence of State aid

states. The

(116) The Province of Burgenland is one of nine Austrian
Province of
federal
resources of
Burgenland can in principle be considered as ‘granted
by a Member State or through state resources’ within
the meaning of Article 87(1) of the EC Treaty.

the

the Commission notes GRAWE’s cross-
(117) Furthermore,
any
activities,
international
and
border
advantage from state resources would affect competition
in the banking sector and have an impact on intra-
Community trade (38).

that

so

(118) However, the sale of BB to GRAWE only involves State
aid if the Province of Burgenland did not behave like a
market economy operator,
thus providing a selective
advantage to the buyer. This would be the case if the
Province of Burgenland did not behave like a private
seller and accepted a sales price below the market
value of BB. In assessing this question, the Commission
applies the ‘private vendor test’.

(119)

In applying this principle, it is necessary to evaluate the
actual tender procedure and the offers it produced in
order to find whether and to what extent an advantage
has been granted to GRAWE. In principle, there are two
elements here which could be
an
advantage. First, selling the company to the second
highest bidder,
the
conditions on the value of the company to all bidders.

and second,

influence of

source of

the

the

(37) Commission Decision 2000/628/EC of 11 April 2000 on the aid
granted by Italy to Centrale del Latte di Roma (OJ L 265,
19.10.2000, p. 15), paragraph 82.

(38) See also the Commission Decision of 27 June 2007 in Case
C50/2006 BAWAG (OJ L 83, 26.3.2008, p. 7), paragraph 125.

(a)

first, it was obvious that the sale to the highest bidder
was not realisable; and

(b) second, it was justified in taking into account factors
other than price. Although the successful bid was at
face value not the highest one, this is not in itself
the
irrefutable evidence of aid. The concept of
‘highest bid’ can be interpreted more broadly to
take differences in off-balance-sheet risks between
bids into account (39).

(121) The first aspect depends essentially on whether

the
Province of Burgenland could count on receiving
the purchase price, which is generally
payment of
known as
and
transaction security
whether the Consortium could be expected to obtain
the necessary permission from the Financial Market
Authority (or any other authority involved in the deal)
(second element).

element)

(first

(122) The second aspect depends on whether other factors are
present, such as guarantees or off-balance-sheet risks,
which can be taken into account by the public seller,
the Province of Burgenland, and which would outweigh
the price difference with the highest bid.

The first element of
security

the first aspect:

transaction

(123) Concerning transaction security as the first element of
the first aspect, the Commission stresses for reasons of
clarity that this refers to the ability of the buyer to pay
the purchase price and — in this context — nothing
more (40). The Commission agrees with Austria that this
is a vital element of the sales process. No private vendor
could be expected to choose a buyer when there was a
realistic possibility that the purchase price would not be
paid.

(39) Commission Decision of 8 September 1999 on aid granted by
(OJ L 206, 15.8.2000, p. 6)

to Stardust Marine

France
paragraph 78.

(40) Austria uses the term ‘transaction security’ also in order to explain
that a lengthy examination by the FMA was to be avoided as
prolonged uncertainty would have put the viability of BB at risk.

6.9.2008

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Official Journal of the European Union

L 239/47

(124)

In the whole course of the procedure, Austria did not
the Consortium would not be capable of
argue that
paying the purchase price.
the economic
In view of
power of the companies of the Consortium (described
in paragraph 12), the Commission sees no reason to
doubt
the EUR 155 million
purchase price was feasible. The Consortium proposed
an advance payment of EUR 15 million into a trust
account with Ukraine-based Active Bank in order to
demonstrate its ability to pay the EUR 155 million.

the financing of

that

have adversely influenced its assessment, let alone have
led necessarily to a negative outcome.

(129)

In the absence of such statements by the FMA or other
accept Austria’s
evidence,
argument that the FMA would certainly have prohibited
a deal with the Consortium.

the Commission cannot

The second element of the first aspect: approval of the
FMA

(125)

It is also evident that a private market seller would not
choose a buyer who would in all probability not obtain
the necessary permission from the FMA (or any other
authority involved in the deal). Austria argued that the
FMA would never have authorized a sale of BB to the
Consortium – not even if this bid had been the only
offer. According to Austria, GRAWE’s offer, even if it
had not been the highest bid, had been the ‘best bid’.

the Banking Act

(126) From a procedural point of view, the Commission does
not dispute that the FMA was prohibited by Austrian law
to carry out the so-called ‘fit & proper test’ based on
Section 20 of
the two
potential bidders;
it is indeed a common requirement
in any comparable procedure that a specific buyer has
to be identified before regulatory approval can be given.
It is therefore coherent that the FMA rejected both the
Consortium’s and GRAWE’s ‘applications’ for approval
prior to the sales decision. Based on Austrian law, the
Commission also accepts that an ex-post statement by
the FMA was not possible.

in view of

(127) The Commission notes, however, that the FMA, while
providing factual
information on its procedures or the
earlier application of SLAV AG, never openly endorsed
Austria’s views in that regard, but confirmed to the
Commission that the outcome of its investigation had
been ‘completely open’.

(128)

the case in point, on elements

In this context, the Commission also notes that the FMA
refrained from making general statements, independently
it would have
of
considered crucial
for
example,
rating. There are
therefore no elements whatsoever indicating that this or
any other considerations advanced by Austria would

to its assessment — such as,

the existence of a buyer

sufficient

(130) Also, the mere length of the FMA procedure – less than
three months for GRAWE, but up to one year for the
Consortium — is not
to disqualify the
Consortium. Austria pointed out that BB would have
suffered from prolonged uncertainty, ending up as a
bank in difficulty. However, neither in principle nor in
concreto can the Commission accept this argument.
In
principle, this would be tantamount to discriminating
against any bidder outside the European Union — even
maybe from another Member State, as this reasoning
could equally be applied to any potential purchaser
presently unknown to the FMA,
i.e. any non-Austrian
undertaking. As to the case in point, the Commission
notes that BB was not in difficulty at the time of sale.
As the sales procedures had been ongoing since 2003,
the urgency is also not sufficiently explained.
In this
that GRAWE had put a time
context,
is also not acceptable, since this
limit on its offer
to influence
would afford numerous opportunities
tender procedures in a discriminatory fashion.

the argument

earlier

in the

case (41). However,

(131) Referring to the Province of Burgenland’s own consid­
erations in order to second-guess the FMA’s decision, the
Commission also cannot accept Austria’s reference to an
earlier application for a banking licence made by a prede­
cessor of SLAV AG in 1994. The Commission would
point out that the two situations are not comparable,
even though the ‘fit & proper-test’ to be carried out in
connection with the sale of BB is part of the — much
wider — requirements of a full banking licence, as was
the
applied for
ownership structure of the former applicant was quite
different and the political situation in Ukraine has also
changed considerably since. In addition, the only reason
forward by Austria as to why permission was
put
withheld — non-application of International Accounting
Standards (IAS) by the fund owning the undertaking —
seems to be of a purely formal nature and there was
nothing to indicate that compliance with IAS was still
an issue for the differently composed consortium at the
time of the sale of BB. As the FMA is legally bound to
evaluate a new application in an unbiased manner, the
Commission does not think that this earlier procedure
relating to a different party would have had any influence
if
the Province of Burgenland had sold BB to the
Consortium.

(41) Both situations are covered by Section 20 of the Banking Act or

parts thereof.

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6.9.2008

the FMA had implied that

(132) The Commission also has to reject the unsubstantiated
claims which Austria has made in order to disqualify the
Consortium as a credible buyer. The Commission’s
to be based on facts. This point
Decision needs
the reference made by Austria to the
first,
concerns,
second privatisation procedure, where, according to
Austria,
the sale to a
Lithuania-based bank with a Russian owner would not
have been permitted. Not only was this allegation not
substantiated but also it referred to a completely different
party. Second, the Austrian authorities referred at a very
late stage in the procedure to the German court
judgment confirming a BaFin decision prohibiting a
sale of shares in a German bank to an unidentified
Ukrainian group (42). This information would not have
been available at the relevant time and could thus not
have played any part in a possible decision of the FMA.
Last but not least, as already noted, the Commission
notes that the FMA is bound to examine each case on
its own merits.

(133) On the basis of the above, the Commission concludes
that there is neither any evidence nor any indication that
the FMA would have forbidden a sale to the Consortium.
A private market vendor would therefore not have
disqualified the Consortium on this basis.

The second aspect: the influence of Ausfallhaftung on
the sales decision

(134) As in any other case, the Commission confirms that only
those factors can be considered which would have been
economy
taken into consideration by
investor (43).
from
This
potential
liability to pay state aid as these would have
not been incurred by a market economy investor (44). As
far as the privatisation of BB is concerned, the decisive
element in this respect is the existence of Ausfallhaftung,
which Austria puts forward to justify the sale to GRAWE.

a market

stemming

excludes

risks

decision, taking Ausfallhaftung into account would mix
up the role of the Province of Burgenland as grantor
of the aid and the role of the Province of Burgenland
as seller of the bank.

(136) The Commission first has

to reject

all Austria’s
arguments which call the categorisation of Ausfallhaftung
as (existing) State aid into question.
In the light of
Commission Decision C(2003) 1329 final on the
abolition on Ausfallhaftung (45), which followed an
agreement between Austria and the Commission and
which was not
the
European Courts, this argument is not acceptable. Had
Austria — as it would appear in the course of these
proceedings — indeed disagreed with the categorisation
of Ausfallhaftung as State aid, it was free to challenge this
before the Court of Justice.

challenged by Austria before

(137) Furthermore,

in response to Austria’s argument

that
existing aid is legal,
it should be stressed that existing
aid is still aid given by a public authority. All Court
decisions so far clearly set out the basic principle that
the role of the State as seller of an undertaking and the
role of the State and its obligations as a public authority
should not be mixed up when applying the market-
economy investor test (46). There is no precedent
to
back up Austria’s view that a market economy investor
would have taken into account a guarantee categorised as
state aid: ex hypothesi, no market investor would have
issued a guarantee that did not conform to the market
investor principle and the decision on the abolition of
that Ausfallhaftung was not
Ausfallhaftung
granted on market terms. The Court of Justice has held
that specific guarantees, which were considered to be
illegal aid, could not be taken into account when calcu­
lating the potential costs of liquidation (47). This does not
mean that a contrario an existing aid measure could be
taken into account. The Commission considers that it is
not relevant whether the aid was illegal or existing. As
long as the measure qualifies as aid, no private vendor
would have granted it and would not therefore have
taken such a measure into consideration (48).

confirms

(135) The Commission is of the opinion that Ausfallhaftung is
an element which should not have been considered by
the Province of Burgenland. As stated in the opening

(42) The Commission would point out that the press release provided by
Austria to substantiate this information does not mention the
identity of
indeed be entirely
different from the Consortium.

the Ukrainian group.

It might

(43) Judgment of the Court of Justice in Joined Cases C-278/92, C-
279/92 and C-280/92 Spain v Commission (Hytasa) [1994] ECR I-
4103, paragraph 22.

(44) See Case C-334/99 Gröditzer Stahlwerke, paragraphs 134 et seq.

(45) OJ C 175, 24.7.2003, p. 8; for details, see above.
(46) See, for example, the judgment of the Court of Justice in Case C-

334/99 Gröditzer Stahlwerke, paragraph 134.

(47) See,
138.

for example, Case C-334/99 Gröditzer Stahlwerke, paragraph

(48) Reference can also be made to the judgment of the Court of First
Instance in Case T-11/95 BP Chemicals [1998] ECR II-3235, para­
graphs 170-171, 179-180 and 198. According to this ruling, if the
State grants aid and intervenes shortly afterwards in the company
claiming that the second intervention complies with the market
economy investor principle (MEIP), the Commission still needs to
assess the second intervention in the light of the MEIP, taking into
account the effects of the first aid measure. If aid may have reper­
cussions on subsequent interventions of the State, it is also coherent
to assume that
the existence of State aid may influence the
behaviour of the Province of Burgenland when selling BB.

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Official Journal of the European Union

L 239/49

(138)

the Province of
It might have been different
Burgenland had granted a commercial guarantee, as a
private investor and not as state aid. This is however
not the case here.

if

Regional Court, as evidenced by its ruling of 20 May
2006 (50).

(139) Austria did not mention any other factors, such as off-
balance-sheet
than Ausfall­
risks or guarantees other
haftung, which could have been taken into account for
the evaluation of the bids.

(140)

In view of these findings, given that ‘continued operation
of BB and, at the same time, avoidance of the use of
Ausfallhaftung’ was one, if not the decisive element in the
Province of Burgenland’s decision to sell BB to GRAWE
regardless of its lower bid, the Commission finds that
Austria did not behave as a private market vendor
would have done. The economic advantage to GRAWE
is
to the difference between the
Consortium’s bid and the actual sales price (49).

equal

least

at

2.3. The conditions attached to the sale of BB

to what extent

(141) Even if the existence of aid is already proven by the
choice of the lower bid in this case, the Commission
also had to consider
the different
conditions of the tender might have affected the sales
price. As stated, the Commission had doubted in the
opening decision that the tender had been open, trans­
parent
the
Commission had expressed doubts regarding the impact
of the conditions on potential bidders who might have
refrained from bidding and regarding the impact of the
conditions on the price offered by the bidders (those bids
being potentially lower than in an unconditional tender).

non-discriminatory;

furthermore,

and

investigation procedure,

(142) On the basis of the information obtained during the
the Commission finds
formal
that the Consortium, from a purely procedural point of
view (due diligence, possibility of meetings, FMA) does
not seem to have been disfavoured by the HSBC experts
the tender procedure. The
mandated to carry out
Commission finds
this view also confirmed by the
extensive fact-finding carried out by the Eisenstadt

(49) To what extent the prices need to be adjusted in order to be

comparable is discussed in section VI.5.

in fact

(143) The Commission evaluated the impact of the conditions
on the offers. The conditions set out in the privatisation
procedure might suggest that the Province of Burgenland
did not endeavour to obtain the highest price for the
bank. The Commission has no grounds to consider
that
this restricted the number of bidders or
influenced the price. No comments by third parties
they had initially been
were received indicating that
interested in buying BB, but had been deterred from
continuing with the tender process in view of
these
conditions in the process letter. The tender had also
been made public sufficiently. Even if some of
the
the tender are still questionable
other conditions of
(‘time constraints’,
‘willingness to conduct any necessary
capital increases’ and ‘maintenance of the autonomy of
BB’),
the offers is not
apparent. The Commission has therefore not found any
that a procedure
evidence or
allowing the full potential of BB to be realised would
have led to a higher bid. Nor did the Consortium
the conditions in the process letter had
suggest
that
reduced the level of
its own bid. The Consortium,
while accepting that the purchase price and transaction
security were a valid criterion for any seller, pointed out
that a condition such as ‘continued operation of BB and,
at the same time, avoidance of the use of Ausfallhaftung’
or ‘willingness to conduct any necessary capital increases’
would not be enforceable in the future. Consequently, in
this particular case where the tender produced two valid
offers (51) and in view of the non-detectable impact of the
conditions on the sales price,
is
considered to be a good proxy of the market price (52).

their impact on the value of

indications to suggest

the higher offer

2.4. Other considerations concerning ‘Ausfallhaftung’

(144) Although the Commission cannot

accept Austria’s
position on the relevance of Ausfallhaftung to this case,
it has dealt with the arguments Austria provided in
relation to this — wrong — presumption. However,
the Commission found that, even if Austria’s position
was followed and the existence of Ausfallhaftung was
taken into account, this would still not turn GRAWE’s
bid into the ‘best bid’.

(50) Eisenstadt Regional Court, 20 May 2006, 27 Cg 90/06 p – 40.
(51) Austria also complained that in the Craiova case the Commission
disregarded the tender and used the net asset value, because
conditions were attached to the tender. It argued that, similarly,
the Commission should also accept an expert valuation in this
case.
is considered that both cases are not
comparable as in Craiova the conditions were such that the tender
(with only one bid) could not be used any more to determine the
market price, while in this case there were two competitive bids
which provide a good proxy of the market price.

In this respect

it

(52) See also the Commission Decision of 8 September 1999 on aid
granted by France to Stardust Marine (OJ L 206, 15.8.2000, p. 6),
paragraph 82, where a similar approach was taken. This particular
issue was not raised in the subsequent annulment of the decision by
the Court of Justice.

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Official Journal of the European Union

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(145)

Liquidity withdrawal
Consortium and consideration of Ausfallhaftung

in the wake of a sale to the

In the event of BB being liquidated, its assets would be
evaluated and the revenues used to reimburse creditors. If
the assets were
the revenues from the liquidation of
insufficient to reimburse the creditors, BB’s own funds
of about EUR 90 million would be depleted. Any
remaining shortfall would be allocated equally among
the outstanding liabilities and thus result in default for
the creditors. Ausfallhaftung, as a direct claim by BB’s
creditors against
the Province of Burgenland, would
create the obligation for the Province of Burgenland to
step in and fully compensate the creditors for the default
of the liabilities covered by Ausfallhaftung. The share of
the liabilities covered by Ausfallhaftung will decrease from
100 % at the time the deal was closed (May 2006) to
nearly 0 % in 2017.

control.
emphasise

of the view that even in a crisis situation the expected
liquidity outflow could be compensated by an efficient
and preventive liquidity management of BB and the
In this
resulting net outflow kept under
that
the Commission would
context
preventive measures could have been taken by BB and
the owner to limit the liquidity outflow and notes that
the Province of Burgenland had already committed itself
to raising EUR 380 million of new liquidity for BB by
issuing new bonds covered by Ausfallhaftung before the
sale of the bank. The Commission cannot concur with
Austria’s argument that the issue of additional bonds,
providing BB with additional liquidity in the amount of
EUR 380 million, would not have been a decisive factor
for any of the bidders for the bank, when at the same
time Austria argues that the expected liquidity squeeze
was a reason not to sell BB to the Consortium. One
might also argue that the Province of Burgenland could
have solved the liquidity issue, if considered significant,
by issuing additional bonds in the amount of the missing
liquidity, as they did in the event for GRAWE by issuing
the additional EUR 380 million.

(146) Such a possible liquidation of BB could be sparked by
difficulties of the bank either to refinance itself in the
capital markets
regulatory
requirements, such as minimum capital ratios.

comply with

or

to

soon as

emerged as

(147) Austria argued that the liquidity problem would espe­
cially have
to the
Consortium was announced in the press. The net
outflow would have ranged from EUR 500 million at
best
to EUR 1,25 billion at worst. The Consortium
would not have proved capable of providing new
liquidity on such a scale. Therefore the sale of BB to
the Consortium was not even an option.

sale

the

(148) The Commission recognises that the announcement of
the sale of BB to the Consortium by the Province of
Burgenland could have resulted in the withdrawal of
deposits and inter-banking lines, but
the calculations
presented by Austria seem to be wrong for a number
of reasons. Based on comparable events, the assumption
of withdrawals of 50 – 60 % of deposits is unrealistic (53).
The liquidity outflow for new business in such a crisis
situation would be limited by BB to the minimum
required (54). Furthermore,
the calculations
submitted by Austria, tradable assets are not or only
outflow
partly
positions are incomprehensible (56). The Commission is

liquidated (55)

looking at

liquidity

some

and

(53) Even in the BAWAG case, where the bank was confronted with a
bank run after management fraud, deposit withdrawals were limited
to 20-30 %.

(54) The liquidity forecast foresees EUR 300 million for the acquisition

of new shares/securities and inter-banking lines.

(55) In a situation where liquidity needs to be generated BB would sell
shares and other tradable securities, which can be easily sold
without losses, in order to generate free liquidity.

(56) The effect of the cancellation of swaps with mutual put agreement
on the liquidity is assumed to be negative and in the amount of the
nominal value of the swaps.

(149)

the above,

In view of
the Commission assumes that
insolvency or liquidation of BB would originate more
in regulatory reasons
than in a liquidity shortage
following the announcement of the deal. Austria argues
that the insolvency risk in the event of a sale of BB to the
Consortium would be substantially higher than with
GRAWE as new owner. GRAWE would continue BB’s
regional business focused on retail and wholesale and
not change the current business model. According to
the business plan submitted by the Consortium, BB’s
business model would have
risky
direction including such activities as international trade
finance. The possible integration of Active Bank into BB
would have exposed BB to exchange rate fluctuations of
the euro against the Ukrainian Hrywnja, which are very
expensive to hedge. Austria also argued that other factors
such as lack of experience in the banking sector and the
lower rating of the Consortium would have significantly
increased the risk of insolvency of BB.

taken a more

(150) The Commission recognises that it is highly hypothetical
to predict the long-term development of BB in the two
sales scenarios. The Province of Burgenland has to accept
that once it sells BB to a new owner, regardless of
whether this is GRAWE or the Consortium, it has only
a very limited influence on the new strategic orientation
of the bank. In this context it is important to note that
the future business model of BB cannot be defined in the
sales contract in a binding way, but it is the new owner’s
responsibility to decide the new strategic orientation of
the bank,
increases and
future integrations of other companies.

including the required capital

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(151) Even so, the new owners are limited in their business
management by existing banking regulations. On the one
hand, as an Austria-based bank operating with an
Austrian banking licence, BB continues to be supervised
by the Austrian banking regulator and has therefore to
fulfil the same regulatory requirements (e.g. minimum
capital ratios) as other European banks. On the other
hand,
financial
network, BB needs at least an investment grade rating
in order to obtain inter-bank refinancing. Thus BB is
also exposed to the own funds requirements of
the
rating agencies. Higher risk taking must
therefore be
accompanied by adequate new own capital, which must
be injected by the owners.

an integral part of

the global

as

(152) The Commission likewise cannot concur with Austria’s
argument that it is indispensable that BB’s future owner
should have extensive banking experience. It is not the
owners’ role to manage BB, it is for BB’s management to
do so. Furthermore the Commission does not understand
why BB’s rating after the sale should be identical to that
of GRAWE or the Ukrainian State, as put forward by
Austria. On the one hand, GRAWE did not claim to
give a general guarantee (Patronatserklärung) for BB and
the bank will therefore be primarily rated on the basis of
its own performance. On the other hand, BB remains an
Austrian bank located in Austria and hence the alleged B-
rating of the Ukrainian State — which might play a role
in the case of a bank located in that State — is prima facie
irrelevant. In this context it is also important to note that
BB will continue to be covered by the Ausfallhaftung
guarantee.

(153) Notwithstanding this, it cannot be entirely ruled out that
BB, whoever the new owner may be, might face serious
difficulties in the future and insolvency/liquidation might
become unavoidable. In such a scenario it is important to
understand that BB is a very small bank (significantly less
than 1 % of the size of major European banks by balance
sheet) and that the liquidation of BB would have a minor
or even negligible impact on the Austrian or European
banking system. The sale of BB’s assets in the amount of
approximately EUR 3,5 billion (credits, bonds, shares,
derivatives, real estate) on the global financial markets
would not lead to a dysfunctioning of the market and
therefore the markets and especially the prices of assets
would remain stable.

(154) Austria submitted a liquidation scenario. The liquidation
scenario assumes that the liquidation of the assets will
occur in 2006 and that the achievable price of the assets
depends on their weighted risk. The adjustments made
are in the range of 2 % for 0 % risk-weighted assets

liquidation

(RWA) up to 20 % for 100 % RWA. The liquidation
scenario includes adjustments of EUR 90 million for
the
items. After
deduction of the own funds, the scenario arrives at the
conclusion that Ausfallhaftung and therefore the Province
of Burgenland would have to step in with around EUR
270 million in a liquidation scenario.

off-balance-sheet

of

(155) The Commission agrees with the general methodology of
the liquidation scenario provided by Austria in order to
obtain a first estimate of the potential losses involved in
an insolvency of BB. The Commission is, however, of the
opinion that the adjustments made on the assets are too
high (e.g. 10–20 % adjustments on mortgage-backed
credits which can be securitised and sold in packages)
and cannot understand the off-balance-sheet adjustments.
Furthermore, Austria assumed a 100 % probability that
liquidation will take place in 2006 and therefore took
into account the nominal values of the assets. Such a
scenario does not appear to be realistic.

to compensate for

in order
the Consortium’s bid,

(156) Reflecting these comments in the liquidation scenario,
the Commission would conclude that each per cent of
probability that Ausfallhaftung will be triggered in the
future could be taken into account with a maximum of
EUR 1 million by the Province of Burgenland. This
means
the price
that,
difference of
the probability of
an insolvency of BB with the Consortium as new
to be assumed to be more than 50 %
owner has
higher than in the case of GRAWE. The Commission
does not see any grounds for such an assumption and
the Province of
therefore
Burgenland
into
account as an evaluation factor, GRAWE’s bid was not
the best offer.

even if
taken Ausfallhaftung

concludes
could

that,
have

Other methodologies
GRAWE

presented

by Austria

and

(157) Austria and GRAWE also submitted other methods (57) of
risks involved with the two
evaluating the different
bidders. The Commission considers that
the general
methodology applied in the liquidation scenario best
reflects the specific conditions of an insolvency case
and it is therefore not only the most appropriate, but
also the most transparent and comprehensible method of
estimating the risks stemming from Ausfallhaftung. Those
further methods presented by Austria are not relevant
and, moreover, either not comprehensible, based on
improper assumptions or not applicable to the specific
conditions of the case.

(57) Evaluation of HSBC,

finance-based scientific approach, capital-

market-orientated approach.

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2.5. The warranty clause concerning State aid in the contract

with GRAWE

is obliged

(158) The sales contract between the Province of Burgenland
and GRAWE furthermore contains a warranty clause
which stipulates — among other things — that
the
Province of Burgenland
to reimburse
GRAWE such amount as the Commission might fix in
a recovery decision (and all related procedural costs for
the buyer). Although the buyer retains a right to rescind
the contract if an adjustment of the purchase price is
illegal, this element of the purchase contract needs to
be highlighted in a decision. First, such a warranty
clause, negotiated after the tender procedure, changes
the conditions of the sale for the particular buyer and
might have induced GRAWE to come forward with a
higher bid; second and even more importantly, such a
warranty clause amounts to a circumvention of any
recovery decision the Commission might
take. This
strongly contrasts with the obligation of Member States
to implement Commission Decisions and to cooperate
with the Commission. Therefore, this clause should not
be applied, as otherwise it would amount to new state
aid to GRAWE.

2.6. Final conclusion on the existence of State aid

(159)

In conclusion, the sale of BB to GRAWE constitutes State
aid within the meaning of Article 87(1) of the EC Treaty.

3. Compatibility with the common market

(160)

In the opening decision, the Commission indicated that,
on the basis of the information available, none of the
reasons for declaring the aid compatible according to
Article 87(2) or (3) seemed to apply.

(161) Austria concentrated on demonstrating that the measure
did not constitute State aid. The only arguments as to a
the aid with the common
potential compatibility of
market have been put forward by the beneficiary.
In
GRAWE’s opinion, the earlier decision on restructuring
aid to BB implied that even a privatised BB — privati­
sation having been a precondition for declaring the aid
compatible with the common market — should keep its
regional orientation. Only GRAWE’s business plan
fulfilled this requirement.

(162) The Commission considers that the restructuring decision
by no means supports this argument. Apart from the
operational,
functional and financial measures offered
by Austria and agreed by the Commission, privatisation
to secure the bank’s long-term
is a further element
viability. The earlier decision examines the effects of a

liquidation of BB, and in this context the
hypothetical
Commission concedes that ‘it would appear conceivable
that basic financial services would be in short supply in
certain rural regions in Burgenland’ (58). However, this
statement does not imply a condition of such kind in
the privatisation process, which is not mentioned
elsewhere.

(163) On the basis of
finding is
compatible with the common market.

the Commission’s initial
confirmed. The aid cannot be declared

the above,

4. Full effectiveness of Commission Decision
2005/691/EC on the restructuring of Bank
Burgenland

(164)

In the decision to initiate the formal
investigation
procedure, the Commission doubted whether the early
discharge of the guarantee agreement of 20 June 2000,
as approved in the Commission Decision of 7 May 2004,
was permissible, as this might be in conflict with the
decision on the restructuring of BB. However, having
examined this issue further, the Commission finds that
the arrangement is indeed consistent with that decision.

5. Recovery

(165) Since the measure was implemented without prior noti­
fication to the Commission and is incompatible with the
state aid rules, Austria should be required to recover the
aid from the beneficiary.

(166) The amount

to be recovered should be such as to
eliminate the aid. Based on the findings in section VI
2.2 and 2.3,
the aid in this case amounts to the
difference between the Consortium’s bid and the actual
sales price.

as

to be made

(167) Following this approach, the calculation of this difference
is, however, not equal to the face value of the two offers,
which would amount to EUR 54,7 million. In order to
render the two bids completely comparable, adjustments
have
consequence of different
a
the
arrangements with GRAWE
contractual
Consortium. Both offers include a number of ancillary
conditions which have to be quantified and compared
with the relevant condition in the competitive bid. The
above-
Commission considers,
mentioned difference between the two offers needs to
be adjusted in the following manner by Austria when
recovering the aid amount:

therefore,

that

and

the

(58) See paragraph 80 of the restructuring decision.

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L 239/53

(168) As

the

regards

compensation related to the

early
discharge of the guarantee agreement of 20 June 2000,
the payment by the Province of Burgenland to the
Consortium in the amount of EUR 15 million is EUR
2,1 million higher than the EUR 12,9 million payment to
GRAWE. Thus
the
difference between the Consortium’s bid and the actual
sales price by EUR 2,1 million has to be made.

an adjustment which reduces

(169) The quantification of

the

the

impact of

the different
arrangements on the limits of liability, the amounts of
exemption and the warranty periods is complex. Austria
approach negotiated with
argued that overall
GRAWE and the Consortium was balanced and did not
confer an appreciable advantage on either bidder. The
Commission agrees with Austria that the impact of the
warranty arrangements on the price difference is minor
its quantification is
but nevertheless considers
that
the available information,
necessary. On the basis of
the Commission is not able to assess whether
the
different warranty arrangements confer an advantage on
one of the bidders and, therefore, Austria will have to
all warranty
comparative overview of
provide
arrangements. In addition, Austria will need to quantify
the financial
these arrangements on the
impact of
purchase prices proposed by both bidders.

a

(170) The EUR 100 000 annual provision to be paid for the
continued Ausfallhaftung guarantee by the Consortium
until 2017 constitutes an additional revenue stream for
the Province of Burgenland and therefore requires an
adjustment which increases the difference between the
Consortium’s bid and the actual sales price by the
present value of the provisions paid until 2017.

between the Consortium’s bid and the actual
sales
price. The basis for the calculation is the interest rate
paid by BB for the additional bonds in the amount of
EUR 380 million compared with the costs of refinancing
BB after the closing.

(172) The Commission has not received any information which
enables it to finally assess whether the arrangement to
transfer four of BB’s real estate subsidiaries back to the
Province of Burgenland prior to closing at their book
value of EUR 25 million constitutes an advantage
which requires an adjustment to the difference between
the Consortium’s bid and the actual sales price. This
could be the case if the market value of the property
than its book value. Austria
were lower or higher
to provide an evaluation by an independent
needs
expert, appointed by an independent body, of
the
market value of the property of BB’s four real estate
subsidiaries. This evaluation should take into account
rentals which can be received on the market.

(173) The Commission is of the view that, as long as the
interest on the agreed advance payment of EUR 15
million by the Consortium into a trust account with
Ukraine-based Active Bank for the period between the
day of the signing of the contract and the closing is
credited to the Consortium,
it does not require any
adjustment.

(174) As to the issue raised in the opening decision of the tax
loss carry-over, the Commission assessed whether it has
to be taken into account for the quantification of the aid
amount and concludes that this is not the case. Never­
the
theless,
potential benefit to third parties of the tax loss carry-
over should have been considered in any evaluation of
BB (best-owner approach).

the Commission is of

the opinion that

(171) The issue of new additional bonds in the amount of EUR
380 million under the state guarantee was mentioned
neither in the process letter nor in the draft contract
the view that
with GRAWE. The Commission is of
such an arrangement was of considerable importance in
the sale process and should have been mentioned in the
draft contract with the Consortium. Furthermore the
Consortium confirmed that it did not take into account
in its offer.
the issuance of additional new bonds
Therefore the Commission is of
the
advantage granted to GRAWE related to the refinancing
advantage resulting from the additional EUR 380 million
requires an adjustment which increases the difference

the view that

VII. CONCLUSION

(175) The Commission finds that Austria has unlawfully im­
plemented the aid to GRAWE in relation to the privati­
sation of BB in breach of Article 88(3) of the EC Treaty.
The aid is incompatible with the common market. The
full aid amount has to be quantified by Austria on the
basis of
the difference between the two final offers
submitted as part of the tender procedure, appropriately
adjusted as indicated above,

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HAS ADOPTED THIS DECISION:

Article 1

in breach of
The State aid unlawfully granted by Austria,
Article 88(3) of the EC Treaty, in favour of GRAWE is incom­
patible with the common market. The aid corresponds to the
difference between the two final offers submitted as part of the
tender procedure, appropriately adjusted in accordance with the
parameters set out by in paragraphs 167-174 of this Decision.

Article 2

Austria shall recover the aid referred to in Article 1 from

1.
the beneficiary.

2.
The sums to be recovered shall bear interest from the date
on which they were put at the disposal of the beneficiary until
their actual recovery.

The interest shall be calculated on a compound basis in

3.
accordance with Regulation (EC) No 794/2004.

(a)

the total amount (principal and recovery interest) to be
recovered from the beneficiary, established in accordance
with the parameters set out in this Decision, together with
a detailed explanation of the method used to calculate this
amount and the evaluation of the property by an inde­
pendent expert;

(b) a detailed description of the measures already taken and

planned to comply with this Decision;

(c) documents demonstrating that

the beneficiary has been

ordered to repay the aid.

2.
Austria shall keep the Commission informed of progress
with the national measures taken to implement this Decision
until recovery of the aid referred to in Article 1 has been
immediately submit, at the Commission’s
completed.
information on the measures already taken and
request,
planned to comply with this Decision.
It shall also provide
detailed information on the amounts of aid and recovery
interest already recovered from the beneficiary

It shall

Article 3

Recovery of
1.
immediate and effective.

the aid referred to in Article 1 shall be

Article 5

This Decision is addressed to the Republic of Austria.

Austria shall ensure that

2.
within four months of the date of its notification.

this Decision is implemented

Article 4

1. Within two months of notification of
shall
Austria
Commission:

following

submit

the

this Decision,
information to the

Done at Brussels, 30 April 2008.

For the Commission

Neelie KROES
Member of the Commission