The European Commission has approved, under EC Treaty state aid rules, the €5 billion risk shield for German bank WestLB and accompanying measures, following an in-depth investigation opened in October 2008.
The European Commission has approved, under EC Treaty state aid rules, the €5 billion risk shield for German bank WestLB and accompanying measures, following an in-depth investigation opened in October 2008. The risk shield was authorised by the Commission as temporary rescue aid on 30 April 2008. Germany asked for a prolongation of the measure, together with accompanying measures. In light of the far-reaching measures to be implemented to restore WestLB's long-term viability without undue distortions of competition, the Commission concluded that the aid was compatible with the Single Market. In particular, WestLB will refocus on less risky activities and reduce its size by half.
Competition Commissioner Neelie Kroes said: “After a constructive dialogue with the German authorities, I am confident that the comprehensive plan they have submitted will ensure that the viable parts of the bank will be preserved in the best interests of West LB's owners, personnel, and ultimately tax payers. This decision opens up possibilities for a wider restructuring of the German Landesbanks
WestLB AG, based in North Rhine-Westphalia (NRW), had total assets of €286.6 billion as at 31 December 2007. In its capacity as a German Landesbank, WestLB acts as central bank and link to global financial markets for savings banks in NRW and Brandenburg, as well as being a commercial bank operating on an international scale.
On 30 April 2008, the Commission authorised a risk shield by the State of North Rhine-Westphalia to protect the bank against the volatility of its €23 billion structured investment portfolio.
On 8 August 2008, Germany notified a restructuring plan for WestLB and requested the prolongation of the risk shield. On 1 October 2008, the Commission opened a formal investigation procedure, to analyse whether the measures would enable WestLB to return to long-term viability without undue distortions of competition.The latest amendments to the viability plan submitted by Germany show a considerable reorientation of WestLB's business into less risky activities. Under the plan, WestLB will in particular entirely stop certain risky business activities, e.g. proprietary trading, thereby reducing its assets by 50%. In future, the bank may maintain its activities in three core business areas:
so-called 'transaction banking' (i.e. the treatment of payments)
loans to medium-sized companies and its savings banks partnership ('Verbund Mittelstand') and
corporate banking (e.g. loans to large companies), capital market activities (including financial instruments trading) and structured finance (e.g. financing of large projects).
Finally, Germany committed to change the bank's ownership structure through a public tender procedure before the end of 2011.
The Commission is also satisfied that the state support is limited to the minimum necessary and that measures such as the substantial reduction of locations at which WestLB will be present and the sale of a majority of its shareholdings will minimise the potential distortions of competition.
The Commission's decision is conditional upon the approval of the restructuring plan by the statutory bodies of all of WestLB's owners.