State aid clearance of UK bank support measures

European Commission decision (12 pages, PDF) authorising the UK measures to support banks under Article 87(3)(b) (the serious disturbance provision).

Comments. The extent of the UK Government's commitment to prohibit ordinary equity dividends whilst its preference shares are outstanding (a subject of press speculation) remains unclear:

31 ... Where preference shares are acquired the UK authorities have committed to incentivising the earliest possible redemption of the shares. They will do this through a package in which no dividend can be paid out on the ordinary shares whilst any preference shares issued to the UK Authorities remain outstanding and/or a required return on capital provided in the form of preference shares (or PIBS) in the region of 12% per annum.

What does “and/or” mean here?

This was a quickly-written decision (dated Monday 13 October 2008, presumably before redactions), so it is perhaps not be not a huge surprise that there should be some inconsistencies in it. According to paragraph 12(e), the beneficiary banks have committed “to maintain, over the next three years, the availability and active marketing of competitively priced lending to homeowners and to small businesses, at a level at least equivalent to that of 2007” (emphasis supplied) — something that was also highlighted by the UK Government as a claimed benefit of its intervention for home buyers and businesses. But at paragraph 53 of the decision the Commission seems to think that this particular promise prevents State-funded expansion:

53. Moreover, the behavioural commitments, indicated above in point 12, in particular to maintain its activities at the level at 2007, should ensure that the institutions do not engage in aggressive commercial strategies or expansion of its activities or other purposes that would imply undue distortions of competition. In that context the limitation in lending growth with reference to the total size of the balance sheet of the financial institution is also observed positively.

The second sentence quoted above does appear to refer to a restriction on growth, albeit not a very clearly specified one from the point of view of external observers or competitors: see paragraph 12(g). And there might be a missing "s" at the end of "financial institution" or some Commission confusion between individual and aggregate limits. Franck

For further information or advice please contact Franck Latrémolière.

Filed under DG Competition, State aid.

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