Opinion of the European Central Bank of 22 November 2011 on the recapitalisation of credit institutions by the State (CON/2011/95)
Date: 2011-11-22
Institutions: European Central Bank
Subjects: Portugal, capital increase, credit institution, financial stability, market capitalisation, national law, share

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 22 November 2011  

on the recapitalisation of credit institutions by the State  

(CON/2011/95) 

Introduction and legal basis  

On 9 November 2011, the European Central Bank (ECB) received a request from the Portuguese Ministry 

of State and for Finance for an opinion on a draft law amending and republishing Law No 63-A/2008 of 

24  November,  which  adopted  measures  reinforcing  the  financial  robustness  of  credit  institutions  in  the 

context of the initiative for financial stability and liquidity supply (hereinafter the ‘draft law’).  

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

functioning  of  the  European  Union  and  on  the  third  and  sixth  indents  of  Article 2(1)  of  Council 

Decision 98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions1, as the draft law relates to the Banco de Portugal (BdP) 

and  to  the  rules  applicable  to  financial  institutions  insofar  as  they  materially  influence  the  stability  of 

financial  institutions  and  markets.  In  accordance  with  the  first  sentence  of  Article 17.5  of  the  Rules  of 

Procedure of the European Central Bank, the Governing Council has adopted this opinion. 

1.  

Purpose and background of the draft law 

1.1  The  draft  law  is  one  of  the  actions  considered  necessary  under  the  Economic  Adjustment 

Programme for Portugal, with a view to restoring confidence in the banking sector and achieving 

financial stability in the Portuguese economy.   

1.2  The  draft  law  will  establish  the  conditions  and  procedures  for  providing  temporary  support  from 

public sources to viable credit institutions to bolster the resilience of the banking sector. To achieve 

this  goal,  banks  have  been  asked  to  further  strengthen  their  capital  buffers  to  raise  core  Tier  1 

capital  ratio  to  9%  by  the  end  of  2011  and  to  10%  by  the  end  of  2012.  Subsequently,  on 

26 October 2011,  the  European  Banking  Authority  (EBA)  announced  measures  aimed  at 

addressing the increase in systemic risk triggered by the sovereign debt crisis in the euro area. In 

particular,  banks  are  required  to  strengthen  their  capital  positions  by  building  up  a  temporary 

capital buffer against sovereign debt exposures to reflect market prices by the end of June 2012. All 

credit institutions with a head office in Portugal, regardless of the legal form in which they were 

incorporated, may benefit from public recapitalisation on the basis of the draft law.  

1  

OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
                                                 
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1.3  Capitalisation  may  have  recourse  to  financial  instruments  or  resources  eligible  for  Core  Tier  1 

capital,  through  (a)  acquiring  the  credit  institution’s  own  shares  or  other  equity  stakes; 

(b) increasing  the  share  capital  through  the  issuance  of  (i)  special  shares  to  the  State;  or 
(ii) ordinary  shares2  to  the  shareholders  and/or  the  public3;  and  (c)  other  financial  instruments  or 

resources eligible for Core Tier 1 capital under the applicable eligibility conditions. According to 

the draft law, the shares issued under the draft law are special shares, subject to the ordinary shares 

regime, except that they grant the State a priority dividend. The State may only exercise its voting 

rights  in  matters  pertaining  to  amendments  to  the  articles  of  association,  mergers,  split-ups, 

conversion  or  dissolution  of  the  credit  institution  or  other  matters  in  which  the  law  or  the 

institution’s by-laws require a qualified majority. The issuance of ordinary shares with voting rights 

is also envisaged by the draft law if the State’s stake exceeds a certain threshold to be determined 

by the implementing legislation. 

1.4  Access to public investment depends on the submission to the BdP of a recapitalisation plan by the 

credit  institution.  Such  a  plan  must  provide  for  the  necessary  and  appropriate  measures  for  that 

purpose,  including  the  timetable,  and  demonstrate  that  the  credit  institution  meets  conditions  of 

soundness  and  solvency  thus  allowing  its  activity  to  continue.  The  State  may  under  certain 

conditions appoint one representative to the administration and supervisory bodies of the institution 

that should among others: (i) ensure verification of compliance with the recapitalisation plan and 

other  obligations  of  the  credit  institution  under  the  recapitalisation  legal  framework;  (ii)  prepare 

and send monthly situation assessment reports to the BdP and the Minister for Finance and inform 

them of any relevant facts. As long as a credit institution benefits from public investment, it will be 

subject to the terms, conditions and financial charges set out in the ministerial decision approving 

the recapitalisation operation.  

1.5  

In  principle,  recapitalisation  will  be  voluntary,  and  public  disinvestment  is  to  occur  within  three 

years  unless  market  conditions  justify  an  extension  by  up  to  another  two  years.  If  a  credit 

institution does not meet the required Core Tier 1 capital ratio and does not request recapitalisation 

on  its  own  initiative,  or  if  it  does  not  submit  a  recapitalisation  plan  compliant  with  the  BdP’s 

guidelines,  the  latter  may  require  the  credit  institution  to  submit  a  recapitalisation  plan  with 

recourse to public capital, under the control of the BdP. If the credit institution does not comply, 

the BdP may (i) appoint a transitional administration to run the credit institution, (ii) withdraw the 

institution’s banking licence which will imply its winding-up, or (iii) apply any resolution measures 

foreseen in the Legal Framework for Credit Institutions and Financial Companies. 

1.6  Provided that the credit institution ensures maintenance of a proper Core Tier 1 capital ratio, public 

disinvestment must take place within three years in accordance with the market conditions. During 

such  time,  the  State  may  only  dispose  partially  or  entirely  of  its  stake  in  the  credit  institution  to 

shareholders  of  the  institution  on  the  date  of  disinvestment,  and  in  accordance  with  pre-emptive 

2 
3  

 Referred to as ‘common shares’ under some legal systems. 
The State may underwrite or guarantee the placement of the issue in whole or in part. 

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right rules. The shares constituting the State’s stake will automatically convert to ordinary shares at 

the time of disinvestment. If public disinvestment does not take place within three years, or at any 

time in the event of non-fulfilment of a recapitalisation plan, the State will have increased powers. 

As a final rule, public disinvestment must occur within five years at the latest.  

2.  General observations  

2.1  The ECB was not consulted on Law No 63-A/2008 which the draft law amends. Furthermore, the 

ECB  understands  that  the  current  text  of  the  draft  law  is  evolving  and  that  it  may  have  to  be 

amended in the light of future developments. Moreover, the ECB notes that the draft law will be 

implemented  by  means  of  a  ‘portaria’  (hereinafter  the  ‘Ministerial  Order’)  on  which  the  ECB 

expects to be consulted in due time, due to the many important issues not yet contained in the draft 

law that it will address. It trusts that the observations contained in this opinion will be considered in 

connection with the drafting of the Ministerial Order. 

2.2.  The  ECB  welcomes  the  draft  law  and  its  approach  directed  at  restoring  the  solvency  of  viable 

banks. The draft law delegates to implementing legislation the setting of the threshold above which 

the State may exercise the voting rights connected to its participation in the credit institution. The 

ECB understands that even in this case, the beneficiary credit institution must be a viable bank. To 

the  extent  that  special  shares  with  limited  voting  rights  constitute  a  special  class  of  shares  not 

envisaged  by  the  Companies  Code,  the  ECB  invites  the  Portuguese  authorities  to  consider 

specifying in the draft law, instead of the Ministerial Order, the shareholding threshold that would 

result in the conversion of a certain portion of shares held by the State from special shares, with 

limited voting rights attached, into ordinary shares with full voting rights. This would be beneficial 

to legal certainty and transparency.  

2.3  The  draft  law  defines  the  ‘State’  for  the  purpose  of  the  draft  law  as  including  any  entity  whose 
capital is fully held by the State4. Under this wide definition, the State’s capital injection into the 

credit  institution  could  also  be  undertaken  by  a  State-owned  company  such  as  another  publicly-

owned bank. As any such entity could be a competitor of the State-supported institution, the ECB 

questions whether this was the legislator’s intention.  

2.4  Finally,  the draft  law  should  specify  that  any  recapitalisation  from  public  resources  will  be  made 

exclusively  by  means  of  a  cash  transfer,  other  than  by  means  of  new  bonds  or  other  debt 

instruments issued by the State which can be used as collateral in credit operations with the BdP.  

3. 

Nature of the shares to be issued under the draft law 

3.1  The  draft  law  provides  that  the  special  shares  are  subject  to  the  ordinary  share  regime  under  the 

Companies Code, but that they do have special restrictions attached to them while temporarily held 

4  

Article 22 of the draft law.  

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by  the  State5.  However,  the  ECB  understands  that  the  special  shares  are  to  be  treated  as  another 

class of shares and that attached to the special shares will be the right to appoint one non-executive 

director to the Board of the institution according to Article 14(2) of the draft law. If that is the case, 

the  State  as  the  special  shareholder  will  not  be  in  the  same  position  as  the  other  ordinary 

shareholders  as  regards  the  rights  it  can  exercise.  In  view  of  the  credit  institution  now  having 

different classes of shareholders, its statutes may need to be amended. It will also be necessary for 

the voting and other rights and powers of the non-executive director to be further specified.   

3.2  Article 14(1)(a) provides that the credit institution covered by the public investment is subject to a 

Ministerial decision with regard to the use of means provided within the scope of strengthening the 

equity capital, in particular the contribution of such credit institution to financing the economy and 

small and  medium-sized enterprises. The ECB understands that this provision intends only to set 

out general obligations and should not lead the State to direct the allocation of credit by such credit 

institution. In particular, the credit institutions covered by the public investment should retain the 

ability to prioritise lending to the productive sectors of the economy, and not, for instance, State-

owned undertakings. To the extent that this provision may be understood as allowing the State to 

interfere  with  the  day-to-day  business  of  the  credit  institution,  it  is  inconsistent  with  the  State’s 

special shares carrying limited voting rights aimed at ensuring that the State does not intervene in 

the day-to-day business of the credit institution. If this provision was to be retained in the draft law, 

the ECB recommends clearly confining its scope to the adoption of guidelines of a general nature, 

to  eliminate  the  possibility  of  interpreting  this  provision  as  requiring  the  recapitalised  credit 

institution to finance a specific entity and a specific amount of such financing. 

4. 

 Shareholder rights 

4.1  The  draft  law  derogates  from  certain  provisions  of  the  Companies  Code.  It  is  important  for 

fundamental  shareholder  rights  not  to  be  infringed  while  the  credit  institution  is  still  being 
supervised as a going concern and the conditions for its resolution have not been triggered6. It is 

also  particularly  important,  in  a  period  when  markets  are  unsettled,  for  current  shareholders  of 

institutions which may need to be recapitalised under the draft law to have legal certainty as to their 

rights  under  the  recapitalisation  regime.  In  this  respect  the  ECB  appreciates  that  the  draft  law 

requires the capital increase and the recapitalisation plan to be submitted to and approved by the 
shareholder  meeting7.  Nonetheless  the  Portuguese  authorities  are  invited  to  consider  further 
clarifying a number of relevant provisions with a view to Directive 77/91/EEC8.  

5  
6 
7  
8  

Article 4 of the draft law. 
See Title VIII  of the Legal Framework for Credit Institutions and Financial Companies as it currently reads. 
Articles 4(5) and 9(2) of the draft law. 
Second Council Directive 77/91/EEC of the Council of 13 December 1976 on coordination of safeguards which, for the 
protection of the interests of members and others, are required by Member States of companies within the meaning of the 
second paragraph of Article 58 of the Treaty, in respect of the formulation of public limited liability companies and the 
maintenance and alteration of their capital, with a view to making such safeguards equivalent (OJ L 26, 31.1.1997, p 1).  

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4.2  The draft law specifies that an increase of capital by subscription for special shares may only take 

place under certain conditions, which could be read as setting aside the procedure of the Companies 
Code regarding the issuance of subscribed shares9.  

4.3  Furthermore, the draft law appears to empower the shareholder meeting to mandate the institution’s 

Board  to  take  any  decision  regarding  implementing  measures  under  the  draft  law,  including 
increasing capital by any amount required10. The ECB considers that if the maximum amount of the 

increase  is  laid  down  by  the  credit  institution’s  statutes,  and  there  is  no  legislatively  prescribed 
maximum, the shareholders’ agreed maximum amount should be respected11. 

4.4  Under the draft law, in the event of a shareholder meeting convened specifically for the approval of 

the  recapitalisation  plan,  the  convocation  must  be  issued  to  shareholders  not  later  than  14  days 
before  the  meeting12.  Under  Directive  2007/36/EC13  such  reduced  convocation  period  is  only 

available if the company ‘offers the facility for shareholders to vote by electronic means accessible 

to  all  shareholders’  and  that  the  shareholder  meeting  has  taken  a  decision  on  the  matter  which 
meets the conditions set down in the Directive14. 

4.5  Finally,  the  ECB  notes  that  Article  8(3)  appears  to  go  further  than  necessary  to  safeguard  pre-

emptive  rights  of  the  existing  shareholders.  According  to  Directive  77/91/EEC,  the  aim  of  pre-

emptive rights is to offer shareholders the right to acquire new shares in proportion to their existing 

shareholdings. The ECB sees no compelling reason to rule out the possibility of selling shares to 

third parties after the pre-emptive rights of existing shareholders have been exhausted by means of 

law.  Furthermore,  to  the  extent  that  the  draft  law  departs  from  the  Companies  Code,  it  may  be 

necessary to specify the time frame during which the existing shareholders may exercise their pre-

emptive rights according to Article 8(3). 

5. 

Other issues 

5.1  The ECB understands that the recapitalisation plan referred to in the draft law15 is synonymous with 

the  restructuring  plan  that  will  be  required  from  the  State-supported  institution  by  the  European 

Commission in compliance with its State aid rules.  

5.2  The draft law provides that acquisition by the State of shareholdings or assets in credit institutions 
will  not  be  considered  a  concentration  of  companies16.  The  draft  law  should  clarify  how  this 

provision  relates  to  the  exclusive  competence  of  the  Commission  to  assess  Union-wide  mergers. 

The draft law further provides that insofar as public intervention is maintained under the draft law, 

9  
10  
11  
12  
13 

14   
15  
16 

Article 4(4) of the draft law.  
Article 9(4) of the draft law.  
See Article 25(2) of Directive 77/91/EEC. 
Article 10 of the draft law.  
Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of 
shareholders in listed companies (OJ L 184, 14.7.2007, p. 17) 
See Article 5 of the Directive. 
Articles 9 and 12 of the draft law.  
Article 20(1) of the draft law.  

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certain  aspects  must  be  considered.  This  provision  should  be  further  clarified,  as  it  is  currently 

unclear what it addresses.  

5.3  The ECB notes that the Ministerial Order implementing the draft law will specify the methods for 

determining the purchase price of the shares to be subscribed by the State. The ECB recommends 

that the delegated authority, in laying down the relevant rules to determine the fair value, should 

abide  by  the  general  principles  of  lowering  the  taxpayers’  burden  and  ensuring  reasonable 

expectations of State remuneration in compliance with the relevant Union law. 

5.4  Finally,  under  ordinary  circumstances  the  State  must  divest  its  special  shareholding  in  the  credit 
institution  within  three  years17.  The  ECB  considers  that  this  period  could  also  be  more  closely 

aligned  with  the  European  Commission’s  developing  practice  as  regards  the  duration  of  a 
restructuring plan18. Finally, the ECB recommends extending the scope of Article 17, which refers 

to the bank solvency support facility (EUR 12 billion) under the Economic Adjustment Programme 

of  Portugal  as  the  sole  source  of  public  financing  to  be  used  for  the  purposes  of  capital  increase 

under this draft law. Such provision may prove to be too restrictive, in case other sources of public 

financing could be usefully relied on.  

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 22 November 2011. 

[signed] 

The President of the ECB 

Mario DRAGHI 

17  
18  

Article 24 of the draft law.  
See Commission Communication on the return to viability and the assessment of restructuring measures in the financial 
sector in the current crisis under the State aid rules, (OJ C 195, 19.8,2009, p. 9), in particular paragraph 15. 

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