Lenders must draw up restructuring plans starting next year in return for government capital injections or asset transfers to so-called bad banks under European Union measures announced today.
Every bank in the EU “having recourse to state support in the form of capital or impaired asset measures will have to submit a restructuring plan,” the European Commission said in an e-mailed statement. Until now “this was limited to distressed banks.”
Joaquin Almunia, the EU’s competition commissioner, said the measure is part of a plan to phase out crisis aid rules for banks, “to prepare a gradual return” to normal market functioning. “The remaining risk of renewed stress is a valid reason to proceed with care and caution,” he said.
Banks in the 27-nation EU used around 1.1 trillion euros ($1.44 trillion) of state loans or guarantees last year, the commission said today. The EU’s antitrust agency, which checks whether subsidies distort competition in the region, granted approval for the measures as part of its response to the biggest financial crisis since the Great Depression.
EU policymakers are trying to wean banks off government help to avoid harming competition. Almunia extended the crisis rules into 2011, telling reporters he hoped to end them in a year’s time or “when normal conditions come back.” That could see new state aid guidelines for the financial industry starting on Jan. 1, 2012, he said.
Tougher conditions for bailing out banks are a way for politicians to “rattle the sabers and make sure they can say the banks have a way out of government support longer term,” said Christopher Wheeler, a banking analyst with Mediobanca SpA in London.
Europe’s debt crisis has also forced the European Central Bank to extend unlimited lending to euro-area banks into 2011, postponing its exit from the so-called non-standard measures. The ECB is seeking to reduce commercial banks’ reliance on its extra funding, introduced to help battle the financial crisis, and see them return to the interbank market.
The commission has already sought divestments to compensate for the state help that banks received. Commerzbank AG last year agreed to sell off some 45 percent of its balance sheet, including a commercial-property unit, and to suspend dividend payments to win EU approval for a taxpayer-funded rescue.
Lloyds Banking Group Plc, Britain’s biggest mortgage lender, had to sell insurance units and some branches and Royal Bank of Scotland Group Plc pledged to reduce its balance sheet by 40 percent and to sell more than 300 branches, insurance units and other assets in return for receiving state aid.
While EU regulators want bank investors to take on some of the costs of a bailout, Almunia said he was not able to “establish a general rule with precise conditions for burden-sharing” that would require bank bondholders to contribute. Each decision had to be case by case, he said.
Almunia said yesterday he’s in “difficult” negotiations with WestLB AG and Bayerische Landesbank, two lenders owned by German regions, over their restructuring plans. He must also approve the restructuring of 42 others, including Anglo Irish Bank Corp. which Ireland nationalized in 2009 and Allied Irish Banks Plc, the country’s second-largest bank.
Antitrust regulators have signaled they may further increase fees that banks pay for state guarantees on their borrowings from mid-2011.
The guarantees help lenders obtain funding, providing a backstop for creditors and bondholders. Governments set the fees, which can’t fall below a minimum level determined by the EU’s executive arm.
Spanish and Irish lenders including Allied Irish and Anglo Irish are covered by state guarantees until June. 30. Ireland’s so-called Eligible Liabilities Guarantee, covers 147 billion euros of liabilities, including 116 billion euros of deposits, as of Sept. 30, according to the National Treasury Management Agency.
In Germany, Commerzbank, Aareal Bank AG and IKB Deutsche Industriebank AG are among several banks using guarantees.