Subject: State aid NN 11/2010 – Ireland
Rescue measure in favour of INBS,
The Commission wishes to inform the Irish authorities that, having examined the information
supplied by your authorities on the measure referred to above, it has decided to approve the
measure temporarily for six months.
(1) On 17 December 2009 the Irish authorities informed the Commission of their intention to
undertake rescue measures in favour of Irish Nationwide Building Society (hereinafter
(2) On 29 January 2010, the Irish authorities submitted a draft notification of the proposed
capital support measures in relation to INBS. As the aid already had been granted as of 22
December 2009 the case was registered as a Non-Notified aid.
(3) The Commission subsequently requested additional information on 1 February 2010.
(4) On 16 February 2010, the Irish authorities submitted the notification of proposed capital
support measures in relation to INBS.
(5) The Commission requested further information on the measures on 2, 9, 17 and 23
February and 1, 16 and 18 March 2010. It received further information on 4, 10 and 17
February and 1, 11, 12, 17 and 18 March 2010.
Mr Micheál MARTIN,
Minister for Foreign Affairs,
Department of Foreign Affairs
80, St. Stephen's Green,
Commission européenne, B-1049 Bruxelles – Europese Commissie, B-1049 Brussel – Belgium
Telephone: 32 (0) 2 299.11.11
2 DESCRIPTION OF THE MEASURE
2.1 The beneficiary
(6) INBS is a building society with a balance sheet total of EUR 14.1 billion as on 31
December 2008 ([…]∗ as per 31 December 2009, unaudited) and is thus the fifth largest
Irish financial institution in terms of balance sheet size. Building societies are mutual
organisations which have no shareholders but instead are owned by their members, who
are also their clients. Their objective is to collect deposits and provide loans. […].
(7) INBS offers traditional retail banking products to its members (savings and mortgages) in
line with its goal as a building society. Over the last eight years however, it has also
substantially increased its activities in commercial property lending mainly outside
Ireland. Its exposure to land and property development loans grew significantly, with a
compound annual growth rate (hereinafter "CAGR") for commercial lending of [20-30%]
for the period from 2001-2009 compared to a CAGR of [0-10%] for its retail mortgage
lending for the same period.
(8) INBS is mainly active in Ireland, where it has a branch network of 50 branch offices and
40 branch agents and the UK where it has no branch offices. It has a staff of
approximately 343 (as at 31 December 2008).
(9) NBS' entire loan book as on 31 December 2008 has a value of approximately EUR 11
billion, of which the commercial loan book makes up EUR 8.2 billion. Retail deposits
amount to EUR 6.7 billion. Impairments on the loan book over 2008 amounted to EUR
467 million. INBS recorded a loss over 2008 of around EUR 243 million.
(10) For 2009, the unaudited figures show that the total loan book amounts to approximately
[…], of which […] relates to commercial lending. Retail deposits have decreased to around
[…]. Impairments on the loan book over 2009 are expected to increase to approximately
(11) INBS, on 30 November 2009, obtained derogations from the Financial Regulator from the
normal capital requirements1 in respect of certain capital adequacy requirements. The
derogations were granted until 31 March 2010 or until the Bank’s capital ratios are
restored to a level adequate to enable it to comply with its capital ratio requirements prior
to the granting of the derogations, whichever occurs earlier. In particular the derogation
reduces the minimum total capital requirement of INBS from 11% to 8% and reduces the
Capital in the case of INBS according to the 2008 annual accounts consists solely out of retained earnings,
which qualify as core Tier-1 capital, see
risk weighting of loans classified as speculative property investment/development and
speculative construction activities from 150% to 100%.2
(12) INBS is one of the financial institutions covered by the Irish Guarantee Scheme for
financial institutions (hereinafter “the CIFS scheme”), which was adopted under the Credit
Institutions (Financial Support) Act 2008 and approved by the Commission on 13 October
2008.3 The total State-guaranteed funding (including deposits) for INBS as of 30 June
2009, under the CIFS Scheme was EUR […]. INBS also joined the Eligible Liabilities
Guarantee Scheme (hereinafter "ELG scheme")4 on 3 February 2010. According to the
estimates provided by the Irish authorities, the potential issuance of debt (including
deposits) under the new scheme by INBS will be […].
2.2 The events triggering the measures
(13) The decision by the Irish Government to make the State investment was taken in
consideration of the deterioration of the institution's financial position which came to light
in the context of the preparation of the publication of the end of the year 2009 accounts. In
the light of the size and activities of INBS (i.e. commercial property lending) this
deterioration is regarded by the Irish authorities as creating a significant risk of systemic
disturbance to the financial system in Ireland.
(14) As on 31 December 2008, the breakdown of INBS' loan book by sector was: real estate
(46%), construction (15%), other commercial (17%) and residential (22%). As a result
INBS' exposure to the property market is around 83% of its total loan book, which is
significantly above the exposure of traditional banks in Ireland. At the same date the
geographic breakdown of its loan book was: Ireland (47.4%), the United Kingdom
(42.1%) and rest of Europe (10.5%).
(15) Consequently, when the financial and economic crisis hit and property prices, especially
commercial property prices, fell dramatically in both Ireland and the UK, INBS was very
much exposed to losses in its loan book. As mentioned in paragraph (10), these losses
have forced it to take significant impairments over 2009, amounting to approximately […].
The losses INBS had to recognise also lead to a severe depletion of its capital base,
resulting in an estimated core Tier-1 ratio as at the end of December 2009 of […] (with
derogation), or […] (without derogation). INBS has furthermore been forced to take
impairments on the loan book for the first quarter of 2010.
For example, the risk weighted assets of INBS as at 31 December 2009 are […] absent the derogation while
they amount to […] with the derogation.
See Commission decision of 13 October 2008 in Case NN48/2008 "Guarantee Scheme for Banks in Ireland', OJ
C312, 6.12.2008, p.2.
See Commission decision of 20 November 2009 in Case N349/2009 "Credit Institutions Eligible Liability
Guarantee Scheme", not yet published.
(16) INBS will participate in the NAMA scheme established by the National Asset
Management Act 2009 in order to cleanse and repair its balance sheet. The NAMA
scheme was approved by the Commission on 26 February 2010.5 […]. It is anticipated that
approximately EUR 8.5 billion (gross of impairments) of INBS’ commercial loan
portfolio, representing a large proportion of its problem assets, will be transferred to
NAMA. Although the haircut applied to nominal value in the transfer to NAMA still
needs to be confirmed, it is currently estimated at […]. INBS' participation in NAMA will
facilitate the accelerated removal of high risk property-related assets. This, in combination
with the impairments already taken by INBS over 2009, will further decrease its capital
base ([…] as explained in paragraph (15)).
2.3 The measures
(17) INBS will receive a total capital injection of EUR 2.7 billion (which will decrease after
assets are transferred to NAMA), split between two measures. The exact amount of capital
injection will be subject to adjustments under the second measure.
The first measure
(18) INBS will receive a EUR 100 million capital injection (hereinafter "measure 1") through
the issuance of Special Investment Shares (hereinafter "SIS"). These are shares that can be
issued to the government pursuant to an amendment to the Building Societies Act 1989
that was introduced by the National Asset Management Act 2009. The change in
legislation was necessary in order to enable the Irish authorities to recapitalise building
societies, which had not been possible under the previous legislative framework.
(19) The rights attached to the SIS include the right of the Irish authorities to appoint and
remove the majority of the directors, including the Chairman and CEO. In addition, the
SIS will give to the Irish authorities privileged voting powers, resulting in the control of
INBS. For example, a resolution in writing signed by the Irish authorities shall be as valid
and effective as if the resolution had been passed at a general meeting; where the Irish
authorities vote in favour of any resolution, that resolution shall be treated has having
(20) The Irish authorities have submitted that the Financial Regulator has confirmed that the
SIS will constitute unsecured subordinated share capital and will qualify as core Tier-1
capital. In case INBS is wound-up or its assets or business are realised, the Irish
authorities will be repaid at par before the ordinary share members, while they will also be
entitled to the entire surplus which remains after the wound-up or realisation.6 In both
cases the ordinary share members will not receive anything of the surplus.
(21) The SIS can be redeemed by INBS only if it can replace the SIS by other core Tier-1
capital, it is not in breach of its capital requirements, the Irish authorities have given their
See Commission decision in Case N725/2009, "Irish asset relief – NAMA", not yet published.
Surplus means any assets remaining after (i) the repayment of INBS' creditors; (ii) the repayment, redemption or
return to the Irish authorities of State capital provided to INBS; (iii) the repayment, redemption or return of the
SIS; and (iv) the repayment to ordinary share members of sums standing to their credit in the accounts of INBS.
consent and all State capital provided to INBS has been repaid. The Irish authorities
confirmed that the redemption of the State capital also includes the repayment of an
amount equivalent to the value of the promissory note.7 The Irish authorities have
committed to obtain the prior approval of the Commission for the redemption of the SIS.
(22) INBS can pay a dividend on the SIS provided it has sufficient 'adjusted distributable
reserves' and does not breach its regulatory requirements.8
(23) The ordinary share members of INBS have been wiped-out as far as their economic
ownership rights are concerned. In case INBS were to convert from a building society into
a limited liability company, the SIS would be converted into ordinary shares with the
same rights attached as the SIS. The members who, absent the SIS, would receive an
amount of shares to reflect their economic ownership in the building society, would under
the terms of the SIS, not receive any shares upon conversion.
(24) The SIS acquired by the Irish authorities are perceived by the Irish authorities to be the
minimum appropriate level of investment in SIS in order to emphasise their commitment
to maintain INBS' solvency ratio and to make it possible for them to assume control of
The second measure
(25) INBS will receive a further capital injection of EUR 2.6 billion through a direct grant in
the form of a promissory note which is of sufficient size to ensure that INBS is in
compliance with its regulatory capital requirements as at 31 December 2009 (hereinafter
"measure 2"). The capital injection also takes into account the impairments INBS has been
forced to take in the three first months of 2010 until the date of issuance of the note. The
Irish authorities have submitted that their preliminary estimation is that they will reduce
the principal amount after the completion of assets transfer to NAMA, since the reduction
of INBS' assets will result in lower capital ratio requirements for the building society.
(26) The principal amount of the promissory note will be made available to INBS on the date
of issuance, which will be shortly after the adoption of this decision. The capital injection
will be taken into account in the accounts over 2009. This is possible because the Minister
for Finance in a letter dated 22 December 2009, informed INBS of the commitment of the
Irish authorities to inject capital in order to ensure that it will satisfy regulatory
(27) From an accounting perspective the promissory note will be an asset (receivable) on
INBS' balance sheet. On the liability side, the note shall furthermore qualify as core Tier-
1 capital from a regulatory perspective. The Irish Financial Regulator has confirmed that
the measure will qualify as core Tier-1 capital.
(28) Although the full principal amount will be available to INBS immediately, the amount
will be transferred to INBS in annual payments of a maximum of 10% over a 10-year
period. The principal amount of the instrument will therefore amortise over time. In order
to ensure that the value of the promissory note in the accounts of INBS (where it will be
This because the repayment of the note itself is not foreseen (see paragraph (25) to (32)).
Adjusted distributable reserves in this context are taken to mean the aggregate amount of accumulated retained
earnings and any other reserves and surpluses of INBS.
reported at present value) is not lower than its nominal value (which would result in a
reduction of core Tier-1 capital), the Irish authorities will pay every year a coupon on the
average (unpaid) principal amount during the preceding year. The Irish authorities intend
to accumulate the coupon and pay it after the payment of the principal amount. This will
have as a consequence that the duration of the payments made to INBS is increased by
four years to fourteen years in total. The coupon is a fixed rate which will discount the
principal repayments and accumulated coupon payments. The calculation of the coupon
will be based on a linear interpolation of Irish Government Bond Yields.9
(29) The principal amount of the promissory note will be adjusted downwards after INBS has
transferred its NAMA eligible assets to NAMA on the Final Reset Date, to take into
account the reduction in risk weighted assets (hereinafter "RWA") and thus the change in
INBS' capital ratios following this transfer. The Irish authorities have provided a
commitment that in case they intend to increase the amount of the promissory note, they
will notify this to the Commission. The adjustment of the note aims at providing INBS
with sufficient capital to meet its regulatory capital requirements at 31 December 2009, 31
March 2010 and the date when NAMA serves a completion notice on INBS. This is
expected to take place at the end of 2010. The Final Reset Date as defined by the Irish
authorities at the latest occurs when NAMA serves its completion notice to INBS. The
Irish authorities can also decide to fix the principal amount at a date prior to that.
(30) The promissory note is not remunerated by INBS; the Irish authorities will not obtain any
further rights in INBS and repayment of the note is not foreseen.
(31) The conditions attached to the promissory note include a dividend stopper on all capital
instruments of INBS and commercial constraints. These constraints require INBS to
engage in cost base reductions in conjunction with its restructuring plan, to recognise
impairments on its loan book and to comply with the same behavioural commitments to
which INBS is subject under the CIFS and ELG schemes (even in case the building
society no longer participates in the schemes or in case the schemes expire). The Irish
authorities can waive any of these behavioural conditions. The Irish authorities have
provided the commitment that they will seek prior approval from the Commission if they
intend to waive any of these behavioural safeguards.
(32) According to estimates provided by the Irish authorities, the measure will raise INBS' core
Tier-1 ratio from […] (without derogation), or […] (with derogation), to 4% and INBS'
total capital ratio from […] (without derogation), or […] (with derogation), to 14.1%.
Timing of the measures
(33) As regards the timing of measure 1 and 2, the Irish authorities have indicated that it is
necessary to implement measure 1 before measure 2 in order for the Irish authorities to
obtain the necessary rights associated with the SIS and protect their interests regarding the
substantial investment made.
The coupon on the promissory note will be set at the date of issuance. The Irish authorities provided an example
which demonstrated that the fixed coupon, if it had been set on 24 February 2010, would have been 4.16%.
(34) INBS will continue to be subject to the behavioural constraints and transparency and
reporting conditions imposed under the CIFS and the ELG schemes even in case the
building society does not longer participate in the schemes or in case the schemes expire.10
These include balance sheet growth constraints, controls over acquisition of shares in
other financial institutions, establishing subsidiaries and/or entering into new business,
compliance with targets on assets and liabilities and capital ratios set by the Financial
Regulator on consultation with the Minister for Finance, limitations on the payment of
dividends and controls on executive remuneration.
3 POSTION OF THE IRISH AUTHORITIES
(35) The Irish authorities accept that the INBS measures constitute State aid. However, the
Irish authorities are of the view that the INBS measures are compatible with the internal
market on the basis of Article 107(3)(b) of the Treaty on the Functioning of the European
Union (hereinafter "TFEU") as they are necessary in order to remedy a serious disturbance
in the Irish economy. In particular the Irish authorities submit that the INBS measures are
(i) appropriate; (ii) necessary and limited to the minimum amount necessary; and (iii)
proportionate as designed to minimize negative spill-over effects on competitors.
(36) Appropriate and well-targeted. The Irish authorities submit that INBS is systemically
important to the maintenance of stability of the financial system in Ireland. INBS is one of
the six core credit institutions in the State, which has been confirmed by the Irish Central
Bank. It has a balance sheet size of around EUR 13 billion and accounts for a material
share of customer deposits and lending in the Irish economy. The total number of
customers with loans with INBS is approximately […], of whom […] are Irish customers.
The total number of retail depositors in INBS is approximately […], of whom […] are
Irish customers. […].
(37) Necessary and limited to the minimum amount. The Irish authorities submit that the
measures (measure 1 and measure 2) are required as a matter of absolute urgency to
preserve the financial stability of INBS, in particular because no private investor could
enter in the capital of INBS considering its status of building society. In addition the
measures are limited in size to what is necessary to ensure that INBS meets its minimum
regulatory capital requirements as at 31 December 2009. According to Ireland the capital
injections through measures 1 and 2 provide INBS with the necessary capital to meet its
minimum capital requirements and will thus help preserve financial stability.
(38) Proportionate. The Irish authorities submit that the terms and conditions of the INBS
measures, together with the terms and conditions already imposed on INBS under the
CIFS scheme, contain an extensive range of safeguards against possible abuses and
distortions of competition. In particular INBS will continue to be subject to the
See Commission decision of 20 November 20009 in Case N 349/2009, Credit Institutions Eligible Liability
Guarantee Scheme, paragraphs 24-26, not yet published.
behavioural conditions and transparency and reporting conditions that have been imposed
under the CIFSs scheme and the ELG scheme.
(39) The Irish authorities have also provided the following commitments:
(i) To notify to Commission for approval any increase in the principal amount of the
promissory note which occurs on the Final Reset Date
(ii) To obtain the prior approval of the Commission for the redemption of the SIS;
(iii)To seek prior approval of the Commission before waiving any of the behavioural
constraints mentioned in paragraph (31);
(iv) To submit a restructuring plan in line with the principles laid down in Commission's
Communication on the return to viability and the assessment of the restructuring
measures in the financial sector (hereinafter "Restructuring Communication")11 and
the Commission Communication on "The application of State aid rules to measures
taken in relation to financial institutions in the context of the current global financial
crisis" (hereinafter "the Banking Communication")12. In line with the Recapitalisation
Communication, which provides that a restructuring plan should be presented six
months after the introduction of the measures13 (22 December 2009 in the present
case), a restructuring plan will therefore have be presented to the Commission before
22 June 2010.
4.1 Existence of State Aid
(40) The Commission first has to assess whether the measures constitute State aid within the
meaning of Article 107(1) TFEU. According to this provision, State aid is 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, in so far as it affects
trade between Member States. The Commission in this context observes that the Irish
authorities do not dispute that measures 1 and 2 constitute State aid.
(41) The Commission observes that in this case State resources are involved as measures 1 and
2 are entirely financed by the State.
(42) The Commission also has to assess whether the measures confer a selective advantage on
the beneficiary or beneficiaries of the aid. The Commission considers measure 1 and 2 to
be selective as they solely benefit INBS.
OJ C195, 19.8.2009, p. 9.
Commission Communication on "The application of State aid rules to measures taken in relation to financial
institutions in the context of the current global financial crisis", adopted on 13.10.2008, OJ C 270, 25.10.2008,
13 See paragraph (40) of the Commission's Communication on the recapitalisation of financial institutions in the
current financial crisis: limitation of aid to the minimum necessary and safeguards against undue distortion of
competition, OJ C 10, 15.01.2009, p. 2.
(43) The measures furthermore confer an advantage on INBS as it allows INBS to absorb its
impairments and […], while its competitors that are facing similar impairments have to
absorb these losses without government support. INBS, in contrast, will recover the
capital it has lost due to these impairments. Indeed, INBS will increase its capital base as
the measures will ensure that its capital base will be in line with regulatory requirements
that applied to INBS before it obtained derogations from the Financial Regulator, allowing
it to operate below these requirements.
(44) In addition, measure 2 has the effect of a de facto guarantee of capital adequacy provided
by the Irish authorities for a prolonged period of time (the additional adjustment period
will last until the Final Reset Date). It therefore confers an advantage on INBS as other
competitors will not benefit from such a measure and will have to find other, potentially
more expensive means, to maintain their capital position.
(45) The proposed recapitalisation would not have been provided by a market economy
investor expecting a reasonable return on his investment. For the proposed recapitalisation
the State is only investing because no market economy operator was willing to invest on
similar terms.14 As stated by the Irish authorities, the willingness to avoid a further
deterioration in INBS' financial position, which would represent a threat to the stability of
the financial system as a whole, has determined the State intervention, rather than the
possible return for the State as an investor. In addition measures 1 and 2 do not foresee
any remuneration for the State. The Commission therefore comes to the conclusion that
the measure provides a selective advantage to INBS.
(46) The Commission furthermore finds that measures 1 and 2 distort competition as they
allow INBS to obtain the capital necessary to absorb the substantial impairment losses.
The recapitalisation will thus help it to avoid severe financial difficulties, which could
result in the withdrawal of the building society from the market. Due to the intervention of
the Irish authorities however, INBS will be able to continue its activities on the Irish and
(47) The Commission finds that measure 1 and 2 are also able to affect trade between Member
States as INBS is competing on, amongst others, the Irish and UK retail savings markets,
the Irish and UK mortgage lending markets and the Irish and UK commercial lending
markets. In the Irish market, some of INBS' competitors are subsidiaries of foreign banks,
while in the UK market INBS competes with both UK-based banks and the subsidiaries of
foreign banks active on the UK market.
(48) Due to the above considerations, the Commission considers that measures 1 and 2 fulfil all
conditions laid down in Article 107(1) TFEU and, therefore, those measures qualify as
State aid to INBS. The Commission furthermore observes that the aid was effectively
granted on 22 December 2009, on the basis of the indication by the Minister for Finance
See paragraph 39 of Commission decision in Case N507/2008 – UK "Financial Support Measures to the
Banking Industry in the UK", OJ C 290, 13.11.2008, p. 4.
of his intention to recapitalise INBS. The commitment of the Minister for Finance to
provide INBS with additional capital has been taken into account in the annual report over
2009. The aid has therefore been implemented contrary to Article 108(3) TFEU.
4.2 Compatibility of the aid
(49) As regards compatibility of the aid provided to INBS through measures 1 and 2 with the
internal market, the Commission first needs to determine whether the aid can be assessed
under Article 107(3)(b) TFEU, i.e. whether the aid remedies a serious disturbance in the
economy of the Ireland. Subsequently, the Commission, using this legal basis, has to
assess whether the measures at issue are compatible with the internal market
4.2.1 Legal basis for the compatibility assessment
(50) Article 107(3)(b) TFEU provides for the possibility that aid falling within the scope of
Article 107(1) TFEU can be regarded as compatible with the internal market where it
"remedies a serious disturbance in the economy of a Member State".
(51) Given the present circumstances in the financial markets, the Commission considers that
the measures may be examined under Article 107(3)(b) TFEU.
(52) The Commission considers that market conditions deteriorated all over the world since the
last quarter of 2008. The Commission observes that Ireland in particular has been severely
hit by the financial and economic crisis. The economic downturn combined with the fall in
property prices and the exposure of the Irish banks to land and property development
loans have lead to significant impairments for Irish banks. Irish banks have furthermore
been faced with difficulties in obtaining funding and capital from the markets due to the
uncertainty associated with the property market in Ireland.
(53) The Irish authorities have shown that INBS has been faced with a severe deterioration in
its capital position as huge impairment provisions are required to cover the losses on its
loan book. Indeed, according to Irish authorities' estimates, without the proposed capital
injections, the core Tier-1 ratio would be […] (without derogation) and the total capital
ratio would be […] (without derogation) on 31 December 2009.
(54) Without the capital injection there would be […] with consequent severe adverse impacts
on other banks and the wider financial system in Ireland. This position has been confirmed
by the Irish Central Bank. According to the Irish Central Bank, it is essential that INBS, as
a systemically important financial institution, the stability of which is essential to the
maintenance of financial stability in the banking sector in Ireland, receives the
recapitalisation in order to avoid severe financial difficulties.
(55) For these reasons the Commission accepts that the recapitalisations in favour of INBS are
necessary to avoid a serious disturbance in the economy of Ireland
4.2.2 Compatibility assessment
(56) In line with point 15 of the Banking Communication, in order for an aid or aid scheme to
be compatible under Article 107(3)(b) TFEU it must comply with general criteria for
compatibility under Article 107(3) TFEU, which imply compliance with the following
a. Appropriateness: The aid has to be well targeted in order to be able to effectively
achieve the objective of remedying a serious disturbance in the economy. This would
not be the case if the measure were not appropriate to remedy the disturbance.
b. Necessity: The aid measure must, in its amount and form, be necessary to achieve the
objective. That implies that it must be of the minimum amount necessary to reach the
objective, and take the form most appropriate to remedy the disturbance.
c. Proportionality: The positive effects of the measure must be properly balanced
against the distortions of competition, in order for the distortions to be limited to the
minimum necessary to reach the measure's objectives.
(57) The Commission Communication on "The recapitalisation of financial institutions in the
current financial crisis: limitation of aid to the minimum necessary and safeguards against
undue distortion of competition" (hereinafter "the Recapitalisation Communication")16,
further elaborates on the three principles of the Banking Communication and states that
recapitalisations can contribute to the restoration of financial stability. In particular the
Recapitalisation Communication states that recapitalisations may be an appropriate
response to the problems of financial institutions […].17
126.96.36.199 Compatibility with the Banking and Recapitalisation Communications
a. Appropriateness of the Measures
(58) The measures, which both constitute recapitalisation measures and can therefore be
assessed together, aim at ensuring that INBS is in compliance with its regulatory capital
requirements18 as at 31 December 2009, 31 March 2010 and after the transfer of assets to
NAMA has taken place. They target in particular INBS' core Tier-1 ratio and total capital
ratio. The Commission considers that a capital injection is the most efficient and
straightforward measure as it directly improves the core Tier-1 and the total capital of the
See paragraph 41 of Commission decision in Case NN 51/2008 Guarantee scheme for banks in Denmark, OJ C
273, 28.10.2008, p.2.
Commission Communication on " The recapitalisation of financial institutions in the current financial crisis:
limitation of aid to the minimum necessary and safeguards against undue distortion of competition ", OJ C 10 of
15.01.2009, p. 2.
Recapitalisation Communication, […].
The Irish authorities submit that minimum regulatory capital levels are a minimum Total Capital Ratio target of
8%, and a minimum Core Tier 1 Capital Ratio of 4%.
(59) The Irish authorities submit that the financial regulator has confirmed that both measures
can be categorised as core Tier-1. These measures will result in an improvement of the
core Tier-1 ratio and the total capital ratio. Thanks to the measures, INBS will meet its
minimum regulatory capital requirements at this date and will no longer be in need of
derogations by the Financial Regulator regarding its capital requirements.
(60) The Irish authorities have stated that without a total capital injection of EUR 2.7 billion
(which could decrease upon the transfer of the eligible bank's assets to NAMA) […] with
consequent severe adverse impacts on other banks and the wider financial system in
Ireland. This position has been confirmed by the Irish Central Bank and the Financial
(61) The Commission considers that the measures are appropriate because they effectively
meet their objective to ensure that INBS is in compliance with its regulatory capital
requirements as at 31 December 2009, 31 March 2010 and after the transfer of assets to
NAMA has taken place, and effectively achieve the objective of preventing the failure of
INBS. The measures furthermore ensure that financial stability in Ireland is maintained.
The Commission observes that the Central Bank and the Financial Regulator have
confirmed that the measures are necessary in order to safeguard financial stability in
Ireland. For these reasons, the Commission finds that the measures are appropriate.
b. Necessity – limitation of the aid to the minimum
(62) According to the Banking Communication, the aid measure must, in its amount and form,
be necessary to achieve the objective. That implies that the capital injection must be of the
minimum amount necessary to reach the objective. In this context, the Commission
observes that the amount of the measures will ensure that INBS will again fulfil its
regulatory capital requirements without derogations being necessary.
(63) As regards the remuneration INBS has to pay, the Commission observes that for measure
1, the investment through SIS, the State will only be remunerated if INBS is in a position
to pay out a dividend. The term sheet does not define at which price the SIS can be
redeemed and therefore does not explicitly include or exclude a premium to the nominal
value, which could be considered as a form of remuneration19. Measure 2 is not
remunerated and redemption is not foreseen. The Commission notes that paragraphs 15
and 44 of the Recapitalisation Communication explain that lower remuneration in duly
justified cases can be accepted in the short term for distressed banks on the condition that
this will be reflected in the restructuring plan.
(64) It is therefore necessary for the Commission to verify whether INBS is fundamentally
sound or not. The Recapitalisation Communication provides a number of indicators to
assess the risk profile of a financial institution, and whether the bank is fundamentally
sound or distressed: (i) capital adequacy and sustainability of the business model; (ii) size
The redemption can only occur with the agreement of the State, which in turn committed to obtain the
Commission's approval before accepting any redemption.
of the recapitalisation; (iii) current CDS spreads; and (iv) the current rating of the financial
institution and its outlook.20
(65) Capital adequacy and sustainability of the business model. The Irish authorities estimate
that the core Tier-1 capital ratio would have been as low as […] (without derogation) at 31
December 2009 without the recapitalisation. Total capital ratio would have been as low as
[…] (without derogation). Although the Financial Regulator granted derogations to INBS
on 30 November 2009, reducing the total capital requirement from 11% to 8% and
allowing a reduction of the risk weighting of particular assets, INBS is not in a position to
respect its capital requirements. In addition, INBS is the most important contributor to
NAMA in relative terms, planning to transfer […] of its commercial loan portfolio (or […]
of its commercial and retail loan book). This illustrates the weakness of the business
model of INBS. Finally, INBS […] of its combined deposit book between 1 January 2009
and 30 September 2009, reflecting the loss of confidence by customers.
(66) Size of the recapitalisation. The Irish authorities estimate that the RWA of INBS as at 31
December 2009, amount to […] with the derogation, and […] without the derogation. The
Irish authorities estimate the measures will account for up to EUR 2.7 billion in total
(excluding the potential decrease of this amount after assets are transferred to NAMA),
leading to a recapitalisation corresponding to [>10%] (with derogation) or [>10%]
(without derogation) of the RWA respectively. This figure is […] times higher than the
2% threshold mentioned in the Recapitalisation Communication.
(67) Current rating of the financial institution and its outlook. The current credit rating status
of INBS from Moody's is ''Baa3/P3'' deposit rating and a "E+" financial strength rating.
The current credit rating status of INBS from Fitch is long-term ''BBB-'' and short term
''F1+'', and therefore only one grade above junk bonds.
(68) Current CDS spreads. The Irish authorities have informed the Commission that INBS
does not have its own CDS spread. This criterion can therefore not be applied to the
present case and the Commission must therefore base its assessment on the information
available for the three other indicators. The Commission considers that the lack of
information on this indicator does not preclude it from making an assessment on INBS'
(69) Based on the forgoing indicators, the Commission has come to the conclusion that INBS
is not fundamentally sound, and that it is in a particularly distressed financial situation
according to the criteria laid down in the Annex to the Recapitalisation Communication.
In particular, INBS cannot meet its regulatory capital requirements, it has lost confidence
of many customers, its ratings are significantly degraded, and the recapitalisation
measures will account for more than [>10%] of its RWA.
(70) Having established that INBS is a financial institution in distress, which without the State
intervention […] could endanger financial stability in Ireland, the Commission therefore
considers it justified that no remuneration is paid for the two measures. This is in line also
See the Annex to the Recapitalisation Communication.
with the Commission's previous decisional practice.21 INBS is currently not in a position
to pay the remuneration required for distressed banks as indicated in the Restructuring
Communication. The Commission furthermore notes that the Irish authorities have
committed to submit a restructuring plan for INBS that will take into account the lack of
remuneration paid for the capital injections.
Obligation to submit a restructuring plan or a liquidation plan
(71) The Recapitalisation Communication states that financial institutions that receive a capital
injection while they are not fundamentally sound, such as INBS, are under the obligation
to submit a far-reaching restructuring plan or a liquidation plan within six months of
(72) In the present case, the Commission considers that the recapitalisation measures were
granted on 22 December 2009, when the Minister for Finance informed INBS of the
commitment of the Irish authorities to inject capital in order to ensure that it will satisfy
regulatory requirements. The fact that this letter of the Minister of Finance constitutes a
firm promise is further evidenced by the fact that it is taken into account by INBS' auditors
in the preparation of the 2009 accounts.
(73) The extent to which INBS will need to restructure its activities is increased by the fact that
the recapitalisation measures do not foresee any remuneration for the State. Paragraph 15
of the Recapitalisation Communication allows an exception to the general requirement of
remuneration for recapitalisations only in the short term, and only under the assumption
and condition that the costs of public intervention and the competitive impact of the State
intervention will be reflected in the compensatory measures within the restructuring plan.
c. Proportionality – measures limiting negative spill-over effects
(74) The Commission observes that INBS in the context of the CIFS and ELG schemes is
subject to several behavioural constraints set out in paragraphs (31) and (34) which aim to
limit the distortion of competition. As regards the behavioural constraints in paragraph
(31) (the dividend stopper, obligations regarding cost reduction and recognition of
impairments and the constraints of the CIFS and ELG schemes) the Commission observes
that although these can be waived pursuant to the terms of the promissory note, the Irish
authorities have provided the commitment to seek prior Commission approval in case they
intend to waive these constraints. Taking into consideration the level of distress INBS is
facing combined with the need to maintain financial stability in Ireland, the Commission
considers these measures at this time to be sufficient to be able to temporarily approve
measures 1 and 2 as rescue aid.
The same approach was taken in point 64 of Commission's decision of 26 June 2009, in case N 356/2009,
Recapitalisation of Anglo Irish bank, OJ C 235, 30.9.2009.
Recapitalisation Communication, paragraph 44.
(75) The Commission thus concludes that the recapitalisation measures are: (i) appropriate to
[…]; (ii) necessary as they are limited to the minimum; (iii) that INBS is a distressed bank;
(iv) that the fact that INBS does not pay remuneration is justified under the circumstances;
(v) INBS is under the obligation to submit a restructuring plan before 22 June 2010, which
has to reflect the level of distress of the bank, the size of the State recapitalisation, and the
absence of remuneration for the State; and (vi) there are sufficient measures limiting the
negative spill-over effects for other competitors to enable the Commission to temporarily
approve the recapitalisation as emergency aid. The Commission can therefore temporarily
approve measures 1 and 2 for six months.
188.8.131.52 Viability review and restructuring plan
(76) As regards the need for an assessment of the institution's balance sheet and activities, the
Recapitalisation Communication states in paragraph 44 that the use of recapitalisation for
a distressed bank can only be accepted on the condition of a far-reaching restructuring.
The Commission furthermore observes that the aid provided to INBS is a multiple of 2%
of its RWA, confirming that an in-depth restructuring would be required. The Commission
furthermore observes that the Irish authorities have committed to submit a restructuring
plan for INBS.
(77) The Commission therefore requires the Irish authorities to submit a restructuring plan for
INBS taking into account all aid measures INBS has received that fulfils the requirements
of the Restructuring Communication23 as regards return to viability, burden-sharing and
own contribution and measures limiting the distortion of competition. The restructuring
plan should be submitted to the Commission before 22 June 2010.24
• The Commission concludes that the EUR 100 million capital injection through SIS and the
EUR 2.6 billion capital injection in the form of a promissory note constitute State aid
pursuant to Article 107(1) TFEU.
• The Commission regrets that Ireland put the aid in question into effect, in breach of Article
108(3) of the Treaty on the Functioning of the European Union.
• The Commission nevertheless finds that the rescue measures in favour of INBS are
temporarily compatible with the internal market for reasons of financial stability. The rescue
measures in favour of INBS are accordingly approved for six months as of the date they were
put into effect (i.e. 22 December 2009) or, if Ireland submits a restructuring plan before that
date, until the Commission has adopted a final decision on the restructuring plan.
Communication from the Commission "The return to viability and the assessment of restructuring measures in
the financial sector in the current crisis under the State aid rules", OJ C195, 19.8.2009, p. 9.
Which is six months following the letter from the Irish Minister for Finance of 22 December 2010
• The Commission requires the Irish authorities to submit an in-depth restructuring plan at the
latest by 22 June 2010 that takes into account the very high aid amount granted to INBS.
If this letter contains confidential information which should not be disclosed to third parties,
please inform the Commission within fifteen working days of the date of receipt. If the
Commission does not receive a reasoned request by that deadline, you will be deemed to agree to
the disclosure to third parties and to the publication of the full text of the letter in the authentic
language on the Internet site:
Your request should be sent by registered letter or fax to:
Directorate-General for Competition
State Aid Greffe
Rue Joseph II 70
Fax No: (+32)-2-296.12.42
For the Commission
Vice-President of the Commission