9 October 2012

ESM Guideline on Dividend Policy

Introduction
The ESM is an international financial institution based on authorized capital. The initial stock of
authorized capital is set at EUR 700bn, of which EUR 80bn is paid-in capital. In addition to the 80bn
paid-in capital, the ESM shall also establish a reserve fund in accordance with Article 24(1) of the
ESM Treaty.
Any net income of the ESM due to its lending and investment operations shall be transferred to the
reserve fund. In addition, proceeds of the financial sanctions from ESM Members under the
multilateral surveillance procedure, the excessive deficit procedure, and/or the excessive imbalances
procedure, shall be transferred to the reserve fund, in accordance with Article 24(2) of the ESM
Treaty.
Dividend payments shall not exceed the amount available at the end of the last budget year.
Dividends are distributed pro rata to the contributions to the paid-in capital, taking into account the
possible acceleration of payments (Art. 23(1) of the ESM Treaty).

1. Rules of dividend payments
When ESM has reached its full lending capacity and in case no financial assistance is provided to one
of its Members, in accordance with Article 23(2), proceeds from the investment of the ESM paid-in
capital (or eventually from the reserve fund) shall be returned to the ESM Members according to
their respective contributions to the paid-in capital, after deductions for operational costs.
In case the ESM has provided financial assistance to one of its Members, the Board of Directors may
on the basis of a proposal by the Managing Director decide by simple majority to distribute dividends
after deductions of operational costs (Art. 23(1)). These dividends emerge from the investment
returns, fees paid to ESM or other profits. Operational costs not covered through financial support
facilities to ESM members may be deducted from investment returns. Upon receipt of the dividend,
ESM Members receiving financial assistance may be required by the Managing Director (i) to apply
an amount equal to the dividend received to repay a portion of the financial assistance outstanding
subject to respecting payment obligations viz a viz other lenders or (ii) to apply an amount equal to
the dividend received to meet outstanding capital calls due to ESM. Alternatively the amount of the
dividend received shall be taken into account in assessing the future funding needs of such ESM
Member.
The Managing Director shall submit a proposal on the amounts of dividend payments on a regular
basis. When submitting the proposal the Managing Director shall also present an assessment of the
capital requirements related to the lending capacity to the Board of Directors. The accumulation of
reserves is a crucial mechanism to ensure that the long-term effective lending capacity of ESM
remains aligned with economic and financial developments. The Managing Director shall also
propose the treatment of dividend payments for ESM Members receiving financial assistance. Based
on this proposal and the additional assessment of the capital requirements, the Board of Directors
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shall decide on the amount of dividends to be disbursed from the existing reserves and the
treatment of dividend payments for countries under a programme.
In case ESM Members approve an enlargement of the lending capacity and an increase in the
amount of paid-in capital in accordance with Article 10(1) and the completion of their applicable
national procedures, they may authorize and instruct ESM prior to the disbursement of their
respective dividends to use the amounts for the increase in their share of paid-in capital. Otherwise
the dividends shall be transferred to the ESM Members. Transfers shall be made within the
appropriate time period required to unwind investment positions, however, in any case not later
than two months after the decision has been taken.
2. Restrictions on dividend payments
In line with Article 23(1), dividends shall not be distributed during the phasing-in period during which
the paid-in capital is built up; when the amount of paid-in capital and the reserve fund do not exceed
the level required for the ESM to maintain its lending capacity, proceeds shall be used to serve the
reserve fund to support the full lending capacity of the ESM.
In addition, dividend payments will not be made during a period in which proceeds from the
investment are required to avoid a payment shortfall to creditors (Art 23(1)). Therefore dividend
payments will not be possible in case the warning procedure, to be implemented under the ESM risk
policy and referred to in the terms and conditions of capital calls, detects a risk of a payment
shortfall or significant risk of a loss. The Board of Governors and the Board of Directors will be
notified by the Managing Director, when a capital call under Article 9(3) of the Treaty is made, that
no dividend payments will be permissible. After capital calls have been served and the emergency
situation has been resolved, the Managing Director will inform the Board of Governors and the
Board of Directors that the general option of dividend payments is restored.

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