EC consultation on State aid for Northern Rock

DG Competition consultation (17 pages, PDF) on the UK's application for permission to continue providing restructuring State aid to the nationalised bank Northern Rock.

The description of the "search for a private sector solution" in 2007 and early 2008 is heavily redacted.

The European Commission is examining the restructuring plan under its rescue and restructuring guidelines (16 pages, PDF). The policy objective of the aid is therefore taken to be “to facilitate the development of certain economic activities”, including to ensure economic and social cohesion (but not much to do with the stability of the financial system).

These guidelines require "compensatory measures" to offset the impact on the market of preventing the firm in difficulty from exiting altogether. The Commission suggests that the UK Government's plans for reducing the size of Northern Rock do not go far enough in this respect, and that these reductions would need to be imposed on future owners if Northern Rock is privatised.

The consultation also raises doubts about the proportionality of the amount of aid proposed by the UK, and draws attention on a lack of information and evidence from the UK.

The document also contains a decision clearing some rescue aid and reporting that:

(47) The UK authorities also informed the Commission that existing shareholders will be compensated by a procedure for independent valuation of the shares on the assumption that all State support had been withdrawn and that no financial assistance would be provided by the State in future (apart from ordinary market assistance offered by the BoE subject to its usual terms). On this basis the purchase price paid would not contain State aid to the former shareholders of NR or to NR itself.

Responses by Thursday 3 July 2008.

For further information or advice please contact Franck Latrémolière.

Filed under DG Competition, HM Treasury, State aid.

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