Toespraak eurocommissaris Almunia over uitbreiding onderzoek naar staatssteun WestLB (en)

Good afternoon

I would like to present to you, and to explain, the decision adopted by the Commission, today, to extend the in-depth investigation into the State support granted to WestLB.

You may recall that, after the Decision adopted in May 2009, a new investigation procedure was opened in December 2009, when the Commission temporarily approved the establishment of a so-called bad bank for toxic and non-strategic assets. That decision was prolonged in June 2010, as the required valuation of the assets was still ongoing.

We have now finished our assessment of this asset relief measure, and came to the conclusion that there is a potential additional benefit (state aid) to WestLB in the amount of €3.4 billion.

This amount is neither remunerated, nor clawed-back, nor taken into account in any other form.

In addition, WestLB received a capital injection of € 3 billion. Thus, we are of the opinion that additional restructuring efforts mitigating distortions of competition are required that go well beyond the measures stipulated in the May 2009 decision.

For the time being, we are simply not in a position to conclude that the State aid received by WestLB is compatible with the EU rules.

Finally, we have increased doubts regarding the viability of WestLB. In particular, we do have strong doubts that WestLB, without further restructuring, would be able to cope with any additional burden.

Since Germany disagrees with the Commission's valuation, we need to extend our investigation in order to provide for a transparent procedure that gives interested parties the opportunity to comment.

Allow me to explain how we arrived at this conclusion.

As you know, a bad bank for WestLB was set up in December 2009; after a series of state interventions to keep WestLB afloat.

Overall, assets in the nominal amount of about €77 billion were hived-off at the book value of around €68 billion in two steps in December 2009 and April 2010. The portfolio comprised structured securities, derivatives and diverse loan portfolios.

In order to enable WestLB to provide the bad bank with equity, it received a €3 billion capital injection. In addition, the public shareholders provided guarantees to cover eventual losses of the bad bank in the overall amount of €14 billion plus further, unlimited risk assumptions.

Using the valuation methodology described in the Impaired Asset Communication of February 2009 and based on prudent assumptions and estimates that we have applied consistently in previous cases, our experts have determined that the transfer value of the assets transferred is € 6.95 billion above Real Economic Value.

Taking into account several mitigating factors, in particular the equity of the bad bank - most of it stemming from the capital injection -, we find that there is a potential additional loss of €3.4 billion that is not covered.

Germany claims that the bad bank's equity of around €3.1 billion is sufficient to cover all future losses. However, the bad bank has already lost more than one third of this former equity, within only 10 months of its establishment, as a result of impairment charges and risk provisioning.

The Commission fears that this will not be the only loss and that additional State guarantees will be drawn.

I want to be crystal clear: at this stage, I do not find that the conditions set in the May 2009 decision are sufficient any longer to consider the support compatible with EU State aid rules.

I also do not believe that WestLB has been particular successful in implementing the conditions established in that Decision. I will come back in a minute to this point.

Furthermore, the Commission has serious doubts that the current restructuring plan is apt to restore WestLB's viability. As we are faced with additional aid, we must reassess first and foremost whether the bank will be viable in the future without any further state aid.

I should say that the need for more burden sharing and measures to mitigate competition distortions stems already from the fact that WestLB needed additional aid several times since the May 2009 decision.

When it comes to the implementation of May 2009 decision, WestLB has not fulfilled the conditions we set in it.

The bank reduced its international presence and made some divestments.

However, by far the largest "divestment" was the bad bank, which turned out to require a large additional aid.

WestLB has announced that it will not sell, in the agreed time, WestImmo, which is the only substantial subsidiary, although we already granted a comfortable extension to the initial timetable.

We acknowledge market conditions remain difficult, but this has not prevented other banks from divesting their own assets, as a result of also being rescued.

I am not convinced that WestLB achieved the balance sheet total and risk reductions that were agreed in May 2009. In particular, trading activities still appear to have a major impact on the profit & loss statement.

For the time being, the measures implemented by WestLB with regard to burden sharing and mitigating competition distortions are wholly inappropriate given the overall state aid involved.

The Impaired Asset Communication is clear that requires a claw-back and/or additional in-depth restructuring in the case of a transfer of assets above their real economic value.

The viability issue

On the crucial issue of viability, let me say that our doubts have increased since May 2009. This is because the dependency on earnings from wholesale business and investment banking - that are necessary volatile - has increased.

The Commission has doubts that WestLB needs to maintain an important market position in global structured finance and capital markets. Based on the currently available information and on the unfortunate track record of WestLB, the Commission currently strongly doubts that a viable business model can be built on such a strategy.

In conclusion, given the additional aid stemming from the asset relief measure, WestLB needs to contribute more to the cost of its rescue to limit the bill for the taxpayer and compensate for the distortions of competition. A revised restructuring plan has been requested repeatedly by the Commission since December - and committed by Germany - but has never been submitted.

I will wait for a reply of the German government to today's decision extending the procedure and the comments of the interested parties.

I am at your disposal for any questions you may have.