(1)

By SANI notification No 6332 of 18 October 2011, registered on 20 October 2011, Latvia pre-notified to the Commission a LVL 16 million (EUR 22,65 million) (2) loan in favour of A/S Air Baltic Corporation (‘airBaltic’ or ‘the company’). The Latvian authorities were of the view that the loan did not constitute state aid but nonetheless pre-notified it for reasons of legal certainty and transparency. This pre-notification was registered with reference number SA.33799 (2011/PN).

(2)

A meeting with the Latvian authorities and their advisers took place on 27 October 2011, after which the Latvian authorities submitted supplementary information by letter of 7 November 2011. The Commission requested additional information by e-mails of 16 November 2011, 17 November 2011, 1 December 2011, and 9 December 2011, to which the Latvian authorities respectively replied by e-mails of 16 November 2011, 22 November 2011, 7 December 2011, and 13 December 2011.

(3)

On 4 January 2012, Latvia submitted additional information and explained that the LVL 16 million loan — referred to in paragraph 1.1 above — had been provided to the company already on 21 October 2011 without prior Commission authorisation. In addition, on 13 December 2011, the Latvian State decided to increase the capital of the company and on 14 December 2011 it granted a second loan to airBaltic.

(4)

In view of the fact that the measure had been granted to the company and of a complaint received on 9 January 2012 (see section 1.2 below), the Latvian authorities withdrew their pre-notification by e-mail of 21 February 2012. State aid case SA.33799 (2011/PN) was administratively closed on 27 February 2012.

(5)

On 9 January 2012, the Commission received a complaint lodged by the private company SIA Baltijas aviācijas sistēmas (‘BAS’ or ‘the complainant’), former shareholder of airBaltic, in relation to a number of measures allegedly provided to airBaltic by the Latvian State.

(6)

By letter of 23 January 2012, the Commission sent the complaint for comments to Latvia, who replied on 13 March 2012. By letter of 14 May 2012, the Commission requested additional information from Latvia, provided on 16 July 2012.

(7)

By letter of 18 July 2012, registered on 20 July 2012, the Commission received a new complaint from Mrs Inga Piterniece, former member of the board of BAS, regarding an additional measure allegedly granted by the Latvian State to airBaltic. By e-mail of 24 July 2012, the Commission sent the new complaint for comments to Latvia, who replied on 22 August and 4 September 2012.

(8)

Meetings with the Latvian authorities, their advisers and representatives of airBaltic took place on 5 July and 17 August 2012.

(9)

By letter dated 20 November 2012, the Commission informed Latvia that it had decided to initiate the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union (‘TFEU’) in respect of the aid (‘the opening decision’). Latvia submitted comments on the opening decision by letter dated 23 January 2013. The Commission requested information to Latvia by letter of 6 March 2013, replied to on 8 April 2013. In addition, a meeting with the Latvian authorities took place on 25 June 2013, after which Latvia submitted additional information on 14 August, 18 September, 9 and 25 October 2013. Additional meetings with the Latvian authorities and their legal representatives took place on 22 October and 22 November 2013, as well as on 10 January 2014. Latvia submitted additional information on 7 and 8 November, 2, 13 and 20 December 2013, and on 28 and 31 January, 28 February, 24 and 26 March, 9 April and 16 May 2014.

(10)

The Commission decision to initiate the procedure was published in the Official Journal of the European Union (3) on 8 March 2013. The Commission invited interested parties to submit their comments on the measures.

(11)

The Commission received observations from Ryanair and airBaltic, as well as three individuals on behalf of creditors of airBaltic (FLS, AB Jet and Eurobalt Junipro). The Commission forwarded these observations to Latvia, which was given the opportunity to react; Latvia's comments were received by letter dated 27 May 2013.

(12)

By letter dated 4 July 2014, Latvia agreed to waive its rights deriving from Article 342 TFEU in conjunction with Article 3 of the EC Regulation (EC) No 1/1958 and to have the present decision adopted and notified in English.

(13)

The air transport market in Latvia has rapidly expanded since Latvia joined the EU. Between 2003 and 2007, the annual average growth of passengers at Riga International Airport — including point-to-point and transfer passengers — reached 47 %, passing from approximately 700 000 passengers in 2003 to 3,2 million in 2007. The entry of low-cost carriers, especially Ryanair, contributed to the market growth as substantial new demand was created with the opening of new routes.

(14)

The global economic crisis of 2008-2009 severely hit the economic growth of Latvia and as a consequence its air transport market. As a result of the crisis, the number of point-to-point passengers in Latvia decreased from 3,2 million in 2008 to 2,7 million in 2009, although the total number of passengers continued to grow thanks to transfer passengers.

(15)

As of 2010, overall market growth resumed, reaching an average 12 % annual growth. While the point-to-point passenger market has increased on average 9 % annually, the increase in the transfer passenger market reached 18 % per year. Going forward, it is expected that the Latvian air transport market will continue to grow at an annual growth rate of 7 % between 2012 and 2015.

(16)

Riga International Airport is the leader in the Baltic region. In 2011, approximately 5,1 million passengers travelled to/from Riga, compared to 1,9 million passengers travelling to/from Tallinn and 1,7 million passengers travelling to/from Vilnius. In 2011, airBaltic carried 66 % of the passengers flying via Riga, while Ryanair, second largest operator and main competitor of airBaltic, carried 20 %. 15 other companies operated to/from Riga (full-service providers and low-cost carriers) accounting for 14 % of all passengers. (4)

(17)

airBaltic was established in 1995 through a joint venture between Scandinavian Airlines SAS and the Latvian State. In January 2009, SAS sold its entire stake in the company (47,2 %) to BAS.

(18)

From information published in the press, it appears that BAS was set up as a private company wholly owned by Mr Bertolt Flick until December 2010, when 50 % of its shares were transferred to the Bahamas-registered Taurus Asset Management Fund Ltd (‘Taurus’). (5)

(19)

As of October 2011, airBaltic's shareholders were the Latvian State — through the Ministry of Transport — with 52,6 % of the shares and BAS with 47,2 %, the rest (0,2 %) being held by the Russian airline Transaero. At the time, the president and CEO of airBaltic was Mr Bertolt Flick. Since 1 November 2011, the CEO of airBaltic is Mr Martin Gauss, former CEO of Malév.

(20)

On the basis of the information provided by the Latvian authorities, it appears that BAS had pledged its 47,2 % shareholding in airBaltic as collateral to Latvijas Krājbanka, the Latvian subsidiary of the Lithuanian bank Snoras (6). On 16 November 2011, Snoras collapsed and was nationalised (7). On 17 November 2011, the Finance and Capital Markets Commission of Latvia (‘FCMC’) ordered a limitation of the banking operations of Latvijas Krājbanka in excess of EUR 100 000 (8). By order of the FCMC of 21 November 2011, the operations of Latvijas Krājbanka were suspended and a management of trustees was appointed (9).

(21)

According to the information provided, it appears that BAS defaulted on some of its financial obligations towards Latvijas Krājbanka. As a result, on 30 November 2011, Latvijas Krājbanka sold all except one of the airBaltic shares previously owned by BAS to the Ministry of Transport at their nominal value, totalling LVL 224 453 (EUR 317 787). (10) As a result, Latvia's shareholding in airBaltic increased to 99,8 %, while BAS retained just one share.

(22)

It also appears from the press that the shareholders of BAS had also pledged their shares in BAS as security with Latvijas Krājbanka (11). On 6 February 2012, in the context of insolvency proceedings relating to BAS, (12) a subsidiary of Latvijas Krājbanka took over BAS' shares from its prior shareholders and appointed a new management.

(23)

Finally, it appears that on 8 June 2012 the Latvian State purchased from BAS its sole share in airBaltic for LVL 1. Therefore, as of this date, BAS is no longer shareholder of airBaltic (13).

(24)

In relation to the financial situation of airBaltic, the Latvian authorities have explained that the difficulties of the company started in 2008, due to the global economic recession and the drastic oil price increase. As a result, in 2008 airBaltic had losses of LVL 28 million (EUR 39,64 million). In 2009, the company however turned back to profits of LVL 14 million (EUR 19,82 million). (14) In 2010, airBaltic again made losses of LVL 34,2 million (EUR 48,42 million). In June 2011, the Latvian Minister of Economy said that airBaltic operated with a loss of LVL 18 million (EUR 25,48 million) in the first five months of 2011 and was close to bankruptcy. (15) airBaltic filed for legal protection from its creditors on 21 September 2011. (16) The audited results for 2011 show a loss of LVL 83,5 million (EUR 118,22 million).

(25)

On 27 August 2012, Latvia published an invitation for potential investors to express their interest in acquiring 50 % minus one vote of airBaltic's capital, (*1) although transactions of a different nature were not excluded. The main criteria for choosing an investor would be the ability to support airBaltic's development, the investor's reputation and experience as well as its financial resources. The process is aimed for conclusion during 2014.

(26)

On the basis of an agreement dated 3 October 2011 (‘the Agreement’), Latvia agreed to provide to airBaltic a loan of LVL 16 million (EUR 22,65 million) (‘the first State loan’, measure 1) alongside another loan of LVL 14 million (EUR 19,82 million) from BAS (‘the BAS loan’). The conditions of both loans were linked and identical, and the initial interest rate was set at [11 — 13] (17) %. However, at the time of granting the loan to airBaltic, BAS waived its right to have the BAS loan collateralised.

(27)

The Agreement also stipulated that no later than 15 December 2011, the State would grant an additional loan to airBaltic for an undetermined amount in proportion to its voting rights, on identical conditions to the first State loan. Both State loans were to be capitalised if a number of conditions were met, among which the approval by the board of airBaltic of a business/restructuring plan.

(28)

Article 7 of the Agreement provided for the conditions of the future capital increase of airBaltic. In particular, Article 7.3 stated that ‘the State loan and BAS loan […] may be added to the sum to be capitalised’. Under Article 7.4, BAS undertook to vote for the capitalisation of the loan and for the capital increase. In case BAS would not fulfil its commitments, Article 7.4 provided the State the right to purchase from BAS its shares in airBaltic for LVL 1. (18)

(29)

Latvia granted the first State loan to airBaltic on 21 October 2011 (see recital 3 above). BAS granted the BAS loan on 1 November 2011.

(30)

On 13 December 2011, once Latvia's shareholding in airBaltic had increased to 99,8 % (see recital 21 above), the Latvian Government decided to authorise an interest rate cut for the first State loan from [11 — 13] % to [2 — 4] %. Since the first State loan and the BAS loan were linked (see recital 26 above), the same interest rate cut was applied to the latter.

(31)

On 13 December 2011, at the same time as the interest rate cut of the first State loan (see recital 30 above), the Latvian Government decided to provide a convertible loan to airBaltic of LVL 67 million (EUR 94,86 million) at an interest rate of [9 — 11] % divided into two tranches (‘the second State loan’, measure 2) (19).

(32)

The first tranche of the second State loan of LVL 41.6 million (EUR 58,89 million) was immediately made available to airBaltic by agreement of 14 December 2011. The second tranche of LVL 25,4 million (EUR 35,96 million) was made available to the company on 14 December 2012, i.e. after the Commission had adopted its opening decision.

(33)

During airBaltic's shareholders' meeting of 22 December 2011, the Latvian State and BAS — despite it having only one share in the company at that time — agreed to a capital increase of LVL 110 million (EUR 155,74 million) (‘the capital increase’, measure 3). This was to be achieved through conversion into capital of the first State loan, the first tranche of the second State loan and the BAS loan, together with a cash contribution from BAS of LVL 37,7 million (EUR 53,38 million).

(34)

The Latvian State executed its decision to participate in airBaltic's capital increase on 29 December 2011 and proceeded to convert into capital the first State loan and the first tranche of the second State loan.

(35)

By letter of 4 January 2012, the Ministry of Transport of Latvia requested that BAS participate in the capital increase by converting the BAS loan and injecting the cash. Despite the requests of the Latvian authorities, BAS did not seem inclined to fulfil the agreement reached at the shareholders' meeting. Indeed, by letters dated 6 to 26 January 2012, BAS contested the State's acquisition from Latvijas Krājbanka of the airBaltic shares that BAS previously owned (see recital 21 above) and requested that the State refrain from adopting decisions concerning changes in airBaltic's capital. On 19 January 2012 the FCMC issued a formal prohibition to BAS and airBaltic on including the BAS loan as part of the capital increase

(36)

By 30 January 2012, i.e. the end of the first stage of the subscription implementation period for the capital increase, BAS had neither converted its loan nor injected the cash.

(37)

The complaint filed with the Commission on 9 January 2012 concerned the first and second State loans as well as the capital increase. In addition, BAS complained about two other measures potentially entailing aid to airBaltic, namely the acquisition by the State of 0 %-coupon bonds from airBaltic in April 2010 (measure 4) and the payment of EUR 2,8 million by Latvijas Krājbanka to airBaltic on 21 and 22 November 2011 (measure 5).

(38)

Latvia explained that measure 4 entailed the acquisition of LVL 30 million (EUR 42,47 million) of 0 %-coupon bonds from airBaltic in by the majority shareholders of airBaltic at the time, i.e. the Latvian State and BAS. The part corresponding to Latvia was not directly subscribed by the Ministry of Transport — the actual owner of airBaltic's shares — but by the Latvian State Radio and Television Centre (‘LVRTC’), a 100 % State-owned company. The bonds were acquired with a nominal value of LVL 1 each and had no interest, and were purchased by Latvia and BAS in proportion to their shareholding. This would result in the Latvian State acquiring 0 %-interest bonds from airBaltic in an amount of approximately LVL 15,78 million (EUR 22,34 million) and BAS acquiring approximately LVL 14,22 million (EUR 20,13 million). The bonds are to be converted into capital on 1 July 2015, at a rate of one share per bond.

(39)

As regards measure 5, the Latvian authorities explained that no payments were made to airBaltic on 21 and 22 November 2011 as alleged by the complainant. However, airBaltic submitted three payment orders to Latvijas Krājbanka prior to the decisions of the FCMC of 17 November 2011 to limit banking operations above EUR 100 000 and to halt all operations of Latvijas Krājbanka on 21 November 2011 (see recital 20 above). These orders were executed by Latvijas Krājbanka days after. In particular, the operations at stake were two payments of USD […] million to IATA Clearing House and of EUR […] million to Riga International Airport executed on 25 November 2011, and a transfer of EUR […] million to an alternative bank account of airBaltic in Swedbank on 30 November 2011.

(40)

In March 2012, airBaltic adopted a plan entitled ‘reShape’. It foresees a number of measures, including the purchase of more efficient planes (20) and the closure of certain routes, which would allow the company to break-even in 2014 in the realistic and optimistic scenarios. However, in the pessimistic scenario, airBaltic would have negative EBIT until at least 2016.

(41)

The reShape plan foresees that on top of the LVL 83 million (EUR 117.51 million) already committed to the company, (21) additional financing of LVL [45 — 55] million (EUR [64 — 78] million) will be needed […] in the realistic scenario. This amount would go down to LVL [5 — 15] million (EUR [7 — 21] million) in the optimistic scenario but would increase to LVL [135 — 145] million (EUR [192 — 206] million) in the pessimistic one.

(42)

Apart from Latvia and BAS, a number of other investors were also parties to the Agreement. These investors agreed to grant two syndicated loans to airBaltic for EUR 35 million each at an initial interest rate of [5 — 7] %. Syndicated loan 1 was supposed to be provided by Latvijas Krājbanka and the Lithuanian bank Snoras. Syndicated loan 2 was supposed to be provided by several companies, among others Taurus. These syndicated loans were to be granted in order to novate several claims that those private investors held against airBaltic. In case BAS would not fulfil its commitments under the Agreement, in line with its Article 7.4, the investors who were to grant to airBaltic the syndicated loan 2 — including BAS' shareholder Taurus — agreed to ‘assign and to hand over to the State or its nominated company for the sum of LVL 1 all claims which stem from […] the outstanding [syndicated] loan nr 2’.

(43)

On 18 July 2012, the Commission received an additional complaint (see recital 7 above) regarding the obligation of the investors under Article 7.4 of the Agreement to assign and to hand over to the State or its nominated company all claims stemming from syndicated loan 2 for just LVL 1 (see recital 28 above). The complainant alleges that by letters of 9 February 2012 and 12 June 2012 the Latvian State had decided that a claim of EUR 5 million towards airBaltic for syndicated loan 2 — the part granted by Taurus, out of a total of EUR 35 million — is to be assigned to airBaltic for a price of LVL 1 (measure 6).

(44)

On 20 November 2012, the Commission decided to open the formal investigation procedure. In its opening decision, the Commission came to the preliminary view that airBaltic could be considered a firm in difficulty at the time the measures identified were provided. It also expressed doubts as regards the six measures under assessment and came to the preliminary conclusion that all of them entailed state aid.

(45)

The Commission first noted that the first State loan (measure 1) was provided by the State at the same time as the BAS loan — in proportion to their shareholdings — and at identical conditions, which at first sight would seem to suggest that the loans had been granted on pari passu terms. However, the Commission observed that it could not assess the first State loan and the BAS loan in isolation but in the overall context of the provisions of the Agreement. Accordingly, the Commission noted that from the Agreement it did not result that, in addition to the BAS loan, BAS also had to issue a convertible loan to airBaltic alongside the second State loan and that the State had made commitments that were different and economically more significant than those taken by BAS. The Commission also observed that the decision of BAS to invest in airBaltic was taken in a context in which the public authorities had already demonstrated their willingness to financially support the company.

(46)

In relation to the interest rate of the first State loan and the cut on the interest rate of [5-15] percentage points occurred in December 2011 (see recital 30 above), the Commission considered it doubtful that the rates applied would be at market level in view of the significant difficulties of airBaltic at the time.

(47)

With regard to the second State loan (measure 2) the Commission first observed that it was already foreseen in the Agreement, albeit with an undetermined amount and subject to a number of factors. According to the Commission, the second State loan could not be considered pari passu since from the Agreement it did not follow — contrary to what Latvia argued — that, in addition to the BAS loan, BAS also had to issue a convertible loan to airBaltic. Moreover, the Commission highlighted that when Latvia decided to provide the second State loan to airBaltic, there was no possible concomitance on the side of BAS since it was under no obligation to provide any other loan to airBaltic.

(48)

In relation to the interest rate of the second State loan ([9 — 11] %), the Commission expressed doubts that a private investor would have provided the company with a loan at such an interest rate in view of the difficulties that airBaltic was facing and the fact that the collateral used was the same as that granted in relation to the first State loan.

(49)

Pertaining to the capital increase agreed on 22 December 2011 (measure 3), the Commission noted that at the time the recapitalisation decision was taken, BAS had lost all except one of its shares in airBaltic (since the State had acquired them from Latvijas Krājbanka). As a result, the State increased its shareholding in the company to 99,8 % (see recital 21 above). Therefore, the conversion made little economic sense for BAS, who — in order to regain its former shareholding — was requested not only to convert into capital the BAS loan but also to inject LVL 37,7 million (EUR 53,38 million) in cash, all this with limited possibilities that the equity would provide any return in the short- to medium-term in view of the difficulties of the company. Moreover, the Commission expressed doubts on the date at which measure 3 was actually granted.

(50)

The Commission also noted that BAS and the State had a certain period of time — presumably until 30 January 2012, i.e. the end of the first stage of the subscription implementation period for the capital increase — to inject the capital in airBaltic. The State however did so on 29 or 30 December 2011, while BAS eventually never converted its loan or injected the cash. According to the Commission, before converting the loans, Latvia should have waited until it was reasonably assured that BAS would also do so. On this basis, the Commission was of the view that measure 3 did not appear to be MEIP-conform.

(51)

In relation to the acquisition of LVL 30 million (EUR 42,47 million) of 0 %-coupon bonds from airBaltic in April 2010 (measure 4), the Commission highlighted that these bonds, in view of their characteristics, were comparable to a capital injection. Given that profitability was excluded from the outset since no interest was attached to the bonds and that future profitability upon conversion appeared unlikely in view of the difficulties of the company, the situation of the airline industry, and the absence at the time of a plan for bringing the company back to profitability, the Commission raised doubts about the market-conformity of measure 4. In addition, the Commission was not able to exclude that BAS acquired the bonds because of the strong interest shown by Latvia in airBaltic before the bond issuance.

(52)

Concerning the EUR 2,8 million payments by Latvijas Krājbanka (measure 5), the Commission could not conclude with certainty whether — at the time these payments occurred — the actions of Latvijas Krājbanka, being a 100 % State-owned bank as, were independent of those of the State. In this respect, the Commission observed that Latvia had provided no evidence that airBaltic submitted the payment and transfer orders before the FCMC decision of 17 November 2011 to limit banking operations per client above EUR 100 000.

(53)

Finally, regarding the EUR 5 million claim attributed to airBaltic (measure 6), the Commission explained in its opening decision that by virtue of Article 7.4 of the Agreement, Latvia had decided that a claim of EUR 5 million towards airBaltic for syndicated loan 2 — the part granted by Taurus, of a total of EUR 35 million — was to be assigned to airBaltic for a price of LVL 1. The Commission highlighted that in economic terms this operation was very similar to a debt waiver, by means of which Latvia was freeing airBaltic from its obligation to pay interests and to reimburse part of syndicated loan 2 to the bearer of the claim. In addition, the Commission concluded that measure 6 was not MEIP-conform since airBaltic was not entitled under the Agreement to get the credit in exchange of LVL 1.

(54)

In relation to the rest of the claims under syndicated loan 2 totalling LVL 30 million (EUR 42,47 million) (see recital 42 above), the Commission noted that the reasoning above would apply mutatis mutandis to these claims.

(55)

The Commission therefore came to the preliminary conclusion that the six measures under assessment entailed unlawful state aid, since they had been granted in breach of the notification and stand-still obligations established in Article 108(3) TFEU.

(56)

The Commission also expressed doubts on the compatibility with the internal market of the six measures under assessment, in particular since the Latvian authorities did not provide any possible grounds for compatibility. Of the possible compatibility grounds, the Commission preliminarily considered — in view of the difficulties of airBaltic — that they only applicable criteria were those concerning aid for rescuing and restructuring firms in difficulty under Article 107(3)(c) TFEU on the basis of the Community guidelines on State aid for rescuing and restructuring firms in difficulty (22) (‘the R&R Guidelines’). In this respect, on the basis of the information available at the time, the Commission was of the view that the conditions for rescue aid did not seem to be met, and that the reShape plan did not include any of the necessary elements for it to be considered a restructuring plan in the sense of section 3.2 of the R&R Guidelines.

(57)

In its comments on the Commission's opening decision, Latvia notes that measures 1, 2, 3 and 6 were interdependent and that they derive from the Agreement, thus constituting essentially one and the same financial transaction which must be assessed at the time when the Agreement was entered into, i.e. 3 October 2011. On this basis, Latvia concludes that these measures are concomitant and MEIP-conform, thereby excluding state aid.

(58)

Latvia argues that BAS was the initiator of the Agreement and actually asked the State to participate in the capital increase. Eventually, the State agreed to the investment subject to strict conditions laid down in the Agreement. One of the key elements of the Agreement was an injection by the State and BAS of around LVL 100 million (EUR 141,58 million) in two stages: (i) LVL 30 million (EUR 42,47 million) in the form of the first State loan and the BAS loan, and (ii) approximately LVL 70 million (EUR 99,1 million) to be provided by the State and BAS according to their shareholding. Therefore, according to Latvia, BAS was under a contractual obligation to inject additional capital into airBaltic in proportion to its shareholding. Latvia derives this conclusion from Article 7.2 of the Agreement, which establishes that the State would provide a second loan to airBaltic ‘in proportion to its voting rights’, which in Latvia's view means that BAS had to inject money also in proportion to its shareholding.

(59)

Latvia also notes that the Agreement provides for a number of contingency measures aimed at protecting the financial interests of the State in case BAS would fail not fulfil its obligations: (i) the right for the State to acquire the shares from BAS in exchange of LVL 1, (ii) the obligation for the private investors that granted syndicated loan 2 to airBaltic to attribute their claims against airBaltic to the State under certain circumstances, and (iii) the obligation for the investors to compensate airBaltic for certain off-balance sheets liabilities amounting to approximately EUR […] million (23). The fact that BAS and the investors accepted these contingency measures is, in Latvia's opinion, proof that the investors were confident that BAS would fulfil its obligations. On this basis, Latvia considers that measures 1, 2 and 3 were concomitant and MEIP-rational. In addition, since measure 6 was a corollary of the contingency measures, Latvia claims that this measure does not entail aid either.

(60)

In addition, as regards measure 1, Latvia adds that the interest rate was in line with the MEIP and the Reference Rate Communication (24) and argues that the lowering of the interest rate from [11 — 13] % to [2 — 4] % was economically rational for the State in order to reduce the funding costs of airBaltic (which at time it already owned at 99,8 %). Concerning measure 2, Latvia is of the opinion that the interest rate was in line with the MEIP.

(61)

Concerning measure 3, the Latvian authorities argue that the conversion into capital of the first State loan and the first tranche of the second State loan was done on the basis of the concomitant decision by BAS to convert the BAS loan and to inject LVL 37,7 million (EUR 53,38 million) in cash, reached at airBaltic's shareholders meeting of 22 December 2011. The Latvian authorities reiterate that measures 1, 2 and 3 should not be assessed in isolation but only in conjunction with the wider transaction they form an inseparable part of. Since this transaction was agreed by BAS and the State in full concomitance, Latvia excludes the presence of aid. Latvia further argues that the fact that BAS did not fulfil its commitment within the maximum deadline (i.e. 30 January 2012) is irrelevant and that the State had no option but to convert the first State loan and the first tranche of the second State loan into capital — it did so on 29 December 2011. Moreover, Latvia explains that the State took all possible steps towards forcing BAS to fulfil its commitment.

(62)

In what relates to measure 6, Latvia adds that the attribution of the claims to airBaltic was a corollary of the measures foreseen in Article 7.4 of the Agreement. According to Latvia, this ensures that the entire Agreement is pari passu, since the assignment of the claim to airBaltic guarantee that the private investors make a proportionate contribution to the financial injection into airBaltic.

(63)

Concerning measure 4, Latvia is of the opinion that the issuance of 0 %-coupon bonds was carried out concomitantly by the State and BAS under identical conditions and thereby excludes the presence of state aid. Latvia also explains that the decision to issue bonds was taken at the initiative of BAS. As regards the fact that these bonds offered no profit, Latvia claims that the Commission should take into account the so-called ‘owner effect’ and consider that the State, as shareholder of airBaltic, had different incentives than an outsider investor.

(64)

Finally, as regards measure 5, Latvia is of the opinion that no State resources were involved and that in any event the actions of the FCMC would not be imputable to the State.

(65)

In view of its opinion that no state aid was present, Latvia did not initially provide arguments on the compatibility of the measures with the internal market. However, during the course of the formal investigation procedure, Latvia provided arguments in this respect and noted that if state aid was present, it would be compatible restructuring aid under the R&R Guidelines.

(66)

On this basis, Latvia submitted in December 2013 a restructuring plan according to which the restructuring of airBaltic started in April 2011, when a first version of the plan was submitted to the company's management. This document identified some of the weaknesses of airBaltic and established that EUR [175 — 185] million in capital were needed. This first version of the plan evolved into the reShape plan of March 2012, which according to Latvia was a preliminary step to the restructuring plan submitted in December 2013.

(67)

The restructuring plan foresees a 5-year restructuring period from April 2011 to April 2016 and total restructuring costs of LVL [150 — 170] million (EUR [214 — 242] million). The restructuring plan foresees three types of restructuring measures: (i) optimisation of revenues and costs for the existing operations; (ii) network reconfiguration, resulting in adjustment of destinations, frequencies and timing; and (iii) network and fleet optimisation. The restructuring plan includes a total of 26 initiatives addressing revenue and costs, coupled with additional initiatives in the area of network reconfiguration and fleet renewal. As regards the restoration of airBaltic's viability, the plan expects that with these initiatives the company will break-even in 2014 and remain profitable thereafter, with EBIT reaching LVL [1 — 3] million (EUR [1,4 — 4,2] million) in 2014 and LVL [9 — 12] million (EUR [12,8 — 17] million) in 2016. The restructuring plan also includes revised financial forecasts on the basis of realistic, pessimistic and optimistic scenarios, which are subject to a sensitivity analysis in order to assess the risks and their possible impact.

(68)

The plan also puts forward a number of compensatory measures: (i) fleet reduction by 27 %; (ii) the surrender of 14 profitable routes; and (iii) the surrender of […] slot pairs in coordinated airports. Between 2011 and 2016, airBaltic will reduce its capacity by [17 — 20] % in terms of ASK (25) ([7 — 10] % when considering profitable routes only). According to Latvia, such capacity reduction would be in line with past cases. In addition, the restructuring plan includes the release of […] slot pairs as the result of the closure of several routes.

(69)

The restructuring plan estimates the restructuring costs at LVL [150 — 170] million (EUR [214 — 242] million), which will be used for repayment of third-party loans, to compensate losses resulting from the phase-out and disposal of certain aircraft, redundancy payments the purchase of new aircraft, etc.

(70)

In view of total restructuring costs, the proposed own contribution of airBaltic according to the restructuring plan amounts to LVL [100 — 110] million (EUR [141 — 155] million), i.e. [60 — 70] % of the total restructuring costs. According to the restructuring plan, the own contribution would results from several injections from private parties (including a liquidity facility and advance payments), private loans, a lease agreement for new aircraft and a partial write-off of debt with two banks.

(71)

During the formal investigation procedure, the Commission received comments from Ryanair and airBaltic, as well as three individuals on behalf of creditors of airBaltic.

(72)

Ryanair agrees with the Commission's preliminary findings that the measures under assessment are inconsistent with the market economy investor principle (‘MEIP’) and incompatible with the internal market. Ryanair however argues that the Commission's assessment of the MEIP was not complete in the opening decision, since the Commission should have considered whether a private investor would have opted for liquidating airBaltic upfront instead of providing it with additional capital (26). Ryanair also argues that the Commission should have assessed in its opening decisions whether the liquidation of airBaltic was more profitable for the State than the provision of additional funds. Although Ryanair considers that it had no sufficient information to comment on the reShape plan, it notes its doubts that airBaltic would return to profitability and considered that the company should have been liquidated.

(73)

Ryanair also argues that any aid to airBaltic would harm its market position since Ryanair operates 13 routes from Riga, of which more than half in direct competition with airBaltic.

(74)

airBaltic highlights in its comments that the reasons for the difficulties of the company were due to the conduct of the previous management and the unfortunate decisions of Mr Flick before October 2011, who — according to airBaltic — focused on a commercial strategy based solely on expansion and not on profitability. Also, airBaltic explains that the previous management of the company entered into many disadvantageous contracts and concluded transaction without business rationale, besides setting up an opaque corporate and organisational structure.

(75)

Also according to airBaltic, when Latvia decided to participate and to execute the Agreement, it acted as a rational private investor. airBaltic notes that Latvia's investment was concomitant to that of BAS and that it had required severe sacrifices from BAS and other private investors. In addition, the Agreement included sufficient safeguards to ensure that Latvia's interest were fully protected against BAS; using these safeguards was — according to airBaltic — more rational for Latvia than to breach its investment commitments, thereby causing the company to go bankrupt, destroying the value of the existing shareholders and exposing itself to damage claims by the private investors. On this basis, airBaltic concludes that the decision of Latvia to enter into the Agreement does not contain elements of state aid.

(76)

As regards the acquisition by the State of 0 %-coupon bonds from airBaltic in April 2010 (measure 4), airBaltic is of the opinion that it was economically rational and a fully concomitant investment of the State and BAS and thereby concludes that it did not entail state aid. In relation to the payment of EUR 2,8 million by Latvijas Krājbanka to airBaltic on 21 and 22 November 2011 (measure 5), airBaltic considers that these were decisions taken in the course of airBaltic's business and that they concern private funds, thereby excluding the presence of State resources.

(77)

Finally, airBaltic highlights the role of airBaltic in keeping Latvia connected with the rest of the EU and provides some information on the implementation of the reShape plan by the new management of the company.

(78)

As regards the comments provided by three individuals on behalf of creditors of airBaltic, they had a similar structure. The creditors complain in general terms about the measures subject to the opening decision, in particular as regards to measure 6. In addition, they made reference to certain unpaid debts of airBaltic which apparently had their origin in the Agreement and which allegedly had led some of the creditors into insolvency.

(79)

In its observations on the comments of third parties, Latvia agreed with airBaltic's views that the measures under assessment did not entail state aid.

(80)

In relation to Ryanair's comments, Latvia observes that the case-law highlighted by Ryanair — suggesting that the State should have liquidated airBaltic instead of providing it with funds — is not applicable, since at the time the State was not a major creditor of airBaltic but merely a shareholder. According to Latvia, the private creditor test is not adequate to assess the rationality of the State's investment decisions in this case. In addition, Latvia argues that when it decided to enter into the Agreement it chose to suffer losses in the short-term with a view to return to profitability in the long-term and these investment decisions were taken at the initiative of BAS. Latvia also notes that the losses of airBaltic had been reduced and dismisses the arguments of Ryanair as groundless.

(81)

Finally, in what relates to the comments of the individuals on behalf of creditors of airBaltic, Latvia considers that they are unrelated to the measures set out in the opening decision and that they seemed to be aimed at improving the creditors' position in their commercial litigations with airBaltic.

(82)

This decision addresses as a preliminary point the issue of whether airBaltic is a firm in difficulty in the meaning of the R&R Guidelines (section 7.1 below). It then analyses whether the measures under examination entail state aid to airBaltic within the meaning of Article 107(1) TFEU (section 7.2 below) and whether any such aid is lawful (section 7.3 below) and compatible with the internal market (section 7.4 below).

(83)

As already indicated in the opening decision, the Latvian authorities themselves explain that the difficulties of airBaltic started in 2008, due to the global economic recession and the drastic oil price increase. As a result, in 2008 airBaltic made losses of LVL 28 million (EUR 39,64 million). In 2009 the company made profits of LVL 6 million (EUR 8,49 million). However, in 2010, airBaltic once again incurred losses, of LVL 34,2 million (EUR 48,42 million), which increased to LVL 84,7 million (EUR 119,2 million) in 2011. The Commission recalls that the Latvian Minister of Economy stated in June 2011 that airBaltic was close to bankruptcy (27), while the press reported that the company filed for legal protection from its creditors on 21 September 2011 (28).

(84)

The audited annual accounts of airBaltic show that the company had negative equity during the period 2009-2012, which moreover increased every year. Indeed, airBaltic had negative equity of LVL 19,2 million (EUR 27,18 million) in 2009, which increased to LVL 23,3 million (EUR 32,99 million) in 2010, to LVL 105,6 million (EUR 149,51 million) in 2011 and to LVL 125,1 million (EUR 177,12 million) in 2012.

Table

AirBaltic's key financial data 2007 — June 2011 (LVL thousands)

(85)

Point 10(c) of the R&R Guidelines stipulates that a company is regarded as being in difficulty where it ‘fulfils the criteria under its domestic law for being the subject of collective insolvency proceedings’. This appeared to be the case of airBaltic at least as of 21 September 2011 — if not earlier — when it filed for legal protection from its creditors. The Commission however notes that the court allegedly rejected the legal protection a few days later, apparently because of the negotiations between Latvia and BAS that culminated in the Agreement. Irrespective of this, the Commission considers that, in any event, it would appear that airBaltic is a firm in difficulty within the meaning of point 11 of the R&R Guidelines

(86)

In accordance with that provision, a firm may be considered to be in difficulty ‘where the usual signs of a firm being in difficulty are present, such as increasing losses, diminishing turnover, growing stock inventories, excess capacity, declining cash flow, mounting debt, rising interest charges and falling or nil net asset value’. From the table above it emerges clearly that airBaltic has been loss-making since 2008 (with the exception of 2009). However, it appears that airBaltic was able to achieve a profit in 2009 only due to the extraordinary drop in fuel prices. Therefore, as indicated in the opening decision, it appears that the return to profitability in 2009 was a one-off occurrence due to extraordinary circumstances and not a structural trend. The company's debt and financial expenses increased significantly between 2008 and 2009 but in particular between 2009 and 2010, when the cost of financing increased from LVL 3,8 million (EUR 5,38 million) to LVL 17,4 million (EUR 24,64 million) (29). It also results that the cost-related variables of airBaltic increased at a rate of [5-10] % per year, that is, faster than the revenue-related variables which increased at [2 — 7] % annually. Finally, the Commission reiterates the finding in the opening decision that the losses of airBaltic were of such magnitude that in 2010 its negative equity amounted to approximately LVL 23,3 million (EUR 32,99 million), which increased to approximately LVL 105,6 million (EUR 149,51 million) due the additional losses incurred in 2011. Considering all of the factors mentioned above, it appears that the criteria in point 11 of the R&R Guidelines are met.

(87)

The Commission therefore comes to the conclusion that airBaltic was a firm in difficulty within the meaning of the R&R Guidelines at least from 2011.

(88)

By virtue of Article 107(1) TFEU, 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 or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.

(89)

In order to conclude whether state aid is present, the Commission must assess whether the cumulative criteria laid down in Article 107(1) TFEU (i.e. transfer of State resources, selective advantage, potential distortion of competition and effect on intra-EU trade) are met for each of the six measures being assessed.

(90)

Latvia argues that measure 1 must be assessed together with measures 2, 3 and 6 since they were agreed on the same date, i.e. 3 October 2011, at a point in time when Latvia and BAS were both major shareholders of airBaltic.

(91)

The Commission agrees with the Latvian authorities that the first State loan (measure 1) and the BAS loan cannot be assessed in isolation and must therefore be viewed as part of the overall context of the Agreement, on the basis of which both loans were provided. However, the Commission disagrees with the argument of Latvia that the other measures must be assessed together as a single transaction.

(92)

The Commission is of the opinion that on 3 October 2011, when the Agreement was entered into, BAS and the State committed with absolute certainty to provide the first State loan (measure 1) and the BAS loan. Those measures may therefore be said to have been granted at that date. However, the exact amounts of the second State loan (measure 2) and of the capital increase (measure 3) cannot be ascertained with certainty from the information in the Agreement. In particular, as regards measure 2, the Agreement merely states that Latvia would provide a loan in proportion to its shareholding but does not quantify it. In this respect, the Commission observes that Article 7.1 of the Agreement states that the foreseeable equity increase (resulting from capitalisation of the first and second State loans and the BAS loan, together with an additional cash contribution from BAS) would not exceed LVL 100 million (EUR 141,58 million). However, the following points should be noted. First, only the first State loan and the BAS loan were quantified in the Agreement, at respectively LVL 16 million and LVL 14 million. The figure of LVL 100 million was merely a forecast, an estimate of what might be required or expected in terms of equity increase by the end of the year; the amount of the equity increase was not clearly determined in the Agreement. Indeed, the actual amount of the equity increase agreed in December 2011 was in fact LVL 110 million (see recital 33 above), i.e. in excess of what had been foreseen in the Agreement. The Commission is of the view that the amounts of Measures 2 and 3 were not determined or ascertainable on 3 October 2011.

(93)

Similarly, as regards measure 6, the Commission observes that when the Agreement was entered into on 3 October 2011, the State did not know whether it would need to make use of Article 7.4 of the Agreement and have the claims of private investors assigned to it. In addition, the State was not obliged to assign to airBaltic the claims resulting from syndicated loan 2. The assignment of the claims of private investors to the State was a mere eventuality subject to BAS not fulfilling its obligations under the Agreement, something which was not known and which there was no reason to suspect on 3 October 2011. For this reason, measure 6 cannot be considered as having been granted at the moment the Agreement was signed and cannot therefore be considered as pari passu with the first State loan and the BAS loan.

(94)

In addition, Latvia argues that most of the claims of the private investors which were supposed to be novated in the two syndicated loans were unsecured, and that had the State let the company go bankrupt, the private investors would have sued the State for damages, which would have been more costly for the State than providing the rest of measures to airBaltic.

(95)

In the Commission's view, the claim that the private investors would have sued the State asking for damages is purely hypothetical and not supported by any evidence. In addition, nothing shows that Latvia actually took into account these considerations when providing support to airBaltic.

(96)

In view of the above, the Commission comes to the conclusion that the argument of concomitance raised by the Latvian authorities does not stand. For this reason, the Commission concludes that measures 1, 2, 3 and 6 cannot be considered as constituting a single transaction decided on 3 October 2011 and will therefore assess them separately.

(97)

The Commission notes that the first State loan was provided directly by Latvia through the State Treasury upon request of the Ministry of Transport. This is expressly stated in the Agreement. It is therefore clear that measure 1 entails State resources and that it is imputable to the State. Latvia does not contest this point.

(98)

In order to assess whether measure 1 entailed an undue selective advantage to airBaltic, the Commission first observes that the first State loan and the BAS loan were agreed on 3 October 2011, i.e. the date of signature of the Agreement. At that moment in time, Latvia and BAS were the major shareholders of the company and the loans were provided in proportion to their shareholding (52,6 % and 47,2 % respectively), and with identical and linked conditions.

(99)

As indicated in recital 45 above, the Commission had observed in the opening decision that BAS' decision to invest in airBaltic may have been influenced by the willingness of the public authorities to financially support the company. However, while it is true that the Latvian Government had expressed its interest in maintaining airBaltic as the national carrier, (30) the Commission observes that the support of the Latvian State was under negotiation and was still undetermined and subject to conditions. On this basis, the Commission cannot exclude that the first State loan and the BAS loan were provided concomitantly, thereby excluding the presence of aid. As the General Court has clarified, ‘simultaneity cannot in itself, even where significant private investments have been made, suffice for a finding that there has been no aid within the meaning of Article [107(1) TFEU] without taking into consideration the other relevant facts and points of law’ (31).

(100)

The Commission has therefore also assessed whether the agreed interest rate of [11 — 13] % for the first State loan (and the BAS loan) can be considered to be at market level.

(101)

During the course of the formal investigation procedure, Latvia submitted evidence regarding the value of the collateral (trademarks and receivables) which was assessed by the independent auditor […] as part of an audit of the company initiated in the summer of 2011. As the receivables (as of 30 September 2011) were part of the relevant financial information, they were also subject to evaluation by […]. As regards the trademarks, their value was based on the price at which airBaltic had bought back the trademarks from BAS. In order to determine the liquidation value of the collateral, Latvia applied a […] % discount rate in accordance with the Latvian Treasury's internal collateral valuation methodology, which the Commission considers to be adequate in view of the nature of the collateral. On this basis, the liquidation value of the collateral was LVL [15 — 25] million (EUR [21,3 — 35,5] million) which was [15 — 25] % higher than the amount of the first State loan.

(102)

In addition, the Commission observes that in view of the significant collateral on the first State loan, applying an interest rate of [11 — 13] % would be in line with the Reference Rate Communication. (32) The assertion that an interest rate of [11 — 13] % was market confirm is moreover reinforced by the fact that BAS (a private investor) had waived its right to have the BAS loan collateralised (see recital 26 above): the BAS loan was therefore more risky than the State loan but was granted at the same interest rate.

(103)

Bearing in mind the level of collateralisation and the interest rate applied, the Commission concludes that measure 1 did not entail a selective advantage to airBaltic and that the presence of state aid can be excluded, without it being necessary to assess further whether the rest of the cumulative conditions of Article 107(1) TFEU would be met (33).

(104)

On 13 December 2011, i.e. once Latvia's shareholding in airBaltic had increased to 99,8 % (see paragraph (21) above), the Latvian Government decided to authorise a cut in the interest rate on the first State loan — and thus also of the BAS loan — of [9 — 11] percentage points corresponding to the risk premium, from [11 — 13] % to [2 — 4] %.

(105)

Latvia considers that the reduction of the interest rate was justified because the loan was risk-free, given that the liquidation value of the collateral was estimated to be LVL [15 — 25] million (EUR [21,3 — 35,5] million), i.e. [15 — 25] % higher than the amount of the first State loan (see recital 101 above).

(106)

The Commission is not convinced by the arguments of Latvia when it claims that by lowering the interest rate, the State reduced the funding costs of airBaltic (since the interest rate of the BAS loan was also reduced), which at the time was almost exclusively owned by the State at 99,8 %. This was — according to Latvia — a rational decision for the State since the foregone revenues for the State in the form of interest were compensated by the advantage that the State, as a majority shareholder of airBaltic, derived from the company having to pay lower interest.

(107)

On the other hand, the Commission recalls that at the time the first State loan and the BAS loan were granted, the Agreement stipulated that the conditions of both were identical and linked, and therefore any change in one of the loans would result in an identical change on the other loan. The reduction of the interest rate is therefore mirrored for both loans and the very significant level of collateralisation of the loan and the fact that the BAS loan was not collateralised remain unchanged. Since BAS had agreed up front to link the conditions of the BAS loan to those of the first State loan, the Commission has no reasons to consider that this would not be a market-conform decision.

(108)

On this basis, the Commission concludes that even taking into account the reduction of the interest rate, measure 1 did not entail a selective advantage to airBaltic and the presence of state aid can be excluded.

(109)

The second State loan was provided directly by Latvia through the State Treasury, by means of a decision of the Latvian Government of 13 December 2011 authorising the Ministry of Finance to provide in the State budget for a convertible loan to airBaltic of LVL 67 million (EUR 94,86 million). Therefore, measure 2 entails State resources and is imputable to the State.

(110)

The Commission observes that at the time when the second State loan was provided, i.e. 13 December 2011, BAS had lost its entire shareholding in airBaltic, with the exception of one share, and the State now owned 99,8 % of the company. Therefore, the State and BAS were no longer in a comparable position as shareholders.

(111)

Latvia argues that pursuant to Article 7.2 of the Agreement, which states that Latvia would provide a loan to airBaltic ‘in proportion to its shareholding’, BAS was obliged to provide funds to airBaltic in an amount corresponding to its number of shares. This was to be done by BAS at the time of the capital injection of December 2011 in the form of cash. The Commission notes, however, that on 13 December 2011 BAS only had one share in airBaltic. It follows that the State should have adopted the position of a prudent market economy investor and assessed whether, given the change in circumstances concerning the shareholdings, BAS had any incentive to inject cash into the company at the time of the capital increase. In fact, the State had foreseen this possibility and included in the Agreement several contingency measures — in particular in Article 7.4 — in case BAS failed to fulfil its commitments. Moreover, as Latvia acknowledges, the second tranche of the second State loan was to be released in the event that BAS failed to provide additional funds.

(112)

Article 7.4 of the Agreement gave the State the right to purchase from BAS all its shares in airBaltic for LVL 1. At the time the Agreement was signed, this meant a guarantee for the State that BAS would fulfil its commitments or else would lose all its shares in airBaltic. However, the situation changed radically on 30 November 2011, when Latvijas Krājbanka sold all except one of the airBaltic shares owned by BAS to the Latvian State (see recital 21 above). In this new context, Article 7.4 was deprived of its meaning. Indeed, with only one share, BAS had little incentive to fulfil its obligations: the consequence of not doing so would simply mean losing its only share in airBaltic. A prudent market operator would have carefully considered providing additional funds to airBaltic under those new circumstances and, at the very least, would have asked the other party (i.e. BAS) for assurance that it would indeed commit funds to the company. The Commission notes in addition that it seems unlikely that such assurance would have been given since BAS would have needed to inject a very high amount of money — much more than it could have originally estimated — in order to regain its former shareholding of 47,2 % or any other meaningful level of shares in airBaltic.

(113)

Latvia also indicates that the second State loan was granted at market terms, thereby excluding any undue advantage to airBaltic.

(114)

As regards the collateral, Latvia noted that the second State loan had the same collateral as the first State loan, i.e. receivables and the trademarks of airBaltic. As explained in paragraph (101) above, the liquidation value of the collateral was estimated at LVL [15 — 25] million (EUR [21,3 — 35,5] million).It thus appears that the level of collateralisation available for the second State loan would be low. Moreover, there is no reason to suppose that a private market operator would accept that security already in place on the first State loan would be reduced below at least 100 %.

(115)

In order to ascertain the market conformity of the rate applied to the first tranche of the second State loan, the Commission will use as the best available proxy the rate resulting from the application of the Reference Rate Communication. The base rate for Latvia on 13 December 2011 was 2,2 %. To this figure, a margin should be added depending on the rating of the beneficiary and the collateralisation of the loan. As indicated in the preceding paragraph, the level of collateralisation is low. Given the difficulties of airBaltic at the time, it follows from the Reference Rate Communication that a margin of 1 000 basis points should be added to the base rate, resulting in a rate of 12,2 %. It therefore appears that the interest rate of [9 — 11] % on the first tranche of the second State loan cannot be considered to be market conform.

(116)

The second tranche of the second State loan was made available to the company on 14 December 2012 at an interest rate of [6 — 8] %. Latvia argues that this interest rate is above the one resulting from the Reference Rate Communication and is therefore MEIP-conform.

(117)

According to the Reference Rate Communication, the applicable base rate for Latvia on 14 December 2012 was 1,91 %. The margin to be added to that base rate depends on the rating of the beneficiary and the level of collateralisation. As explained in section 7.1 above, the Commission is of the view that airBaltic was a firm in difficulty since at least 2011. In addition, the second tranche had as collateral the receivables and the trademarks of airBaltic. The arguments about the insufficiency of the collateral would apply mutatis mutandis, and thus a margin of 1 000 basis points should be added. The resulting reference rate would therefore be 11,91 %, well above the [6 — 8] % actually applied.

(118)

Bearing all of the above in mind, the Commission considers that a prudent market economy operator would not have provided the second State loan to airBaltic.

(119)

On this basis, the Commission concludes that measure 2 conferred an undue advantage on airBaltic. This advantage was selective in nature given that its sole beneficiary was airBaltic.

(120)

The Commission must also consider whether measure 2 was likely to distort competition and affect trade between Member States, by providing airBaltic with an advantage over competitors not receiving public support. It seems clear that measure 2 was able to affect intra-EU trade and competition as airBaltic competes with other EU airlines, in particular since the entry into force of the third stage of liberalisation of air transport (‘third package’) on 1 January 1993. In addition, for travel of relatively shorter distances within the EU, air travel is in competition with road and rail transport, and therefore road and rail carriers might also be affected.

(121)

Measure 2 thus enabled airBaltic to continue operating so that it did not have to face the consequences normally deriving from its difficult financial situation. Based on the considerations set out above, the Commission comes to the conclusion that measure 2 involved state aid for the benefit of airBaltic within the meaning of Article 107(1) TFEU.

(122)

As indicated above, the first State loan and the first tranche of the second State loan entail State resources and are imputable to the State. Their conversion into capital was decided by the Ministry of Transport of Latvia, i.e. 99,8 % shareholder in airBaltic since 30 November 2011. Therefore, measure 3 also entails State resources and is imputable to the State.

(123)

The Commission does not share the views of the Latvian authorities that measure 3 does not entail aid. In the first place, the Commission reiterates that the conclusions reached in section 7.2.1 above are applicable to measure 3. In addition, the Commission considers that measure 3 was granted not on 22 December 2011 (i.e. the date of the shareholders' meeting of airBaltic) but on 29 December 2011, date on which the State converted its loans. Indeed, according to the information provided by the Latvian authorities during the formal investigation procedure, according to the applicable rules BAS and the State had until 30 January 2012 to formalise the conversion decided at airBaltic's shareholders meeting.

(124)

The Commission also notes that on 29 December 2011, Latvia could have had reasonable doubts as to the willingness of BAS to fulfil its commitments. Indeed, BAS had already given indications that it would not convert its loan: Latvia itself admits that the second tranche of the second State loan, decided on 13 December 2011, was foreseen precisely to account for the eventuality that BAS would not fulfil its commitments. Moreover, since 30 November 2011 the State and BAS were no longer in a comparable position as shareholders since BAS had lost its entire shareholding in airBaltic with the exception of one share and the State owned 99,8 % of the company.

(125)

In view of those developments, the State, before actually converting the State loans, should have inferred — or at least had reasons to suspect — from BAS' actions that it did not intend to fulfil its obligations (see recital 35 above). Moreover, since BAS had lost all its shares in airBaltic except one, the remedy provided for in Article 7.4 of the Agreement — i.e. the right for the State to purchase from BAS all its shares in airBaltic for LVL 1 — had been deprived of meaning: the State had lost the means by which it could have forced BAS to abide by what it had agreed to.

(126)

Bearing the elements indicated above in mind, the Commission comes to the conclusion that a prudent market economy operator would not have converted its loans into capital before being sure that the other party would convert its loan and inject the cash, and in that context would have carefully assessed the incentives of the other party to fulfil its commitments.

(127)

Moreover, the Commission observes that, even if it had respected the agreement reached at the shareholders meeting, BAS would not have regained its former shareholding in airBaltic. In order to reach a 47,2 % stake, BAS would have had to invest much more than the amounts agreed to at that meeting. Therefore, the Commission is of the view that the State, had it acted in accordance with the MEIP, should have carefully considered whether BAS would invest significant amounts of money — the BAS loan and cash amounting to LVL 37,7 million (EUR 53,38 million) — in order to get a minority shareholding in airBaltic.

(128)

As an additional argument, Latvia explains that BAS' obligation to inject the cash and convert the BAS loan was confirmed by the existence of a guarantee by a Russian entrepreneur, Mr Vladimir Antonov, who agreed to make the necessary payments on behalf of BAS. (34) However, it appears from the information available to the Commission that the guarantee was never in fact provided.

(129)

Latvia also indicates that the preconditions for the capitalisation of the State loans required by Article 7.2 of the Agreement were met on 13 December 2011, when it was presented with a business plan showing a return to profitability of airBaltic in 2015 and suggests that the decision to convert the State loans into capital was therefore MEIP-conform. The Commission however remains unconvinced of Latvia's arguments, since the plan was not complete and would not have ben relied upon by a rational private operator in order to inject significant amounts of capital into a firm in difficulty.

(130)

On the basis of the above, the Commission concludes that Latvia did not act on pari passu terms when converting its loans and therefore increasing airBaltic's capital. The State's behaviour was moreover not in line with the MEIP test. Therefore, airBaltic received an undue advantage resulting from measure 3, which is selective as the company was the sole beneficiary.

(131)

The Commission must also consider whether measure 3 was likely to distort competition and affect trade between Member States, by providing airBaltic with an advantage over competitors not receiving public support. The conclusions reached in recital 120 above apply mutatis mutandis.

(132)

The Commission thus concludes that the conversion into capital of the first State loan and the first tranche of the second State loan entailed State aid to airBaltic within the meaning of Article 107(1) TFEU.

(133)

As already indicated in the opening decision, it follows from the 30 April 2010 agreement formalising the purchase of the 0 %-coupon bonds that the purchaser LVRTC (see recital 38 above) acted on behalf of the Latvian State. In addition, Latvia has argued that bonds were purchased by the LVRTC for budgetary reasons. It is therefore clear that measure 4 entails State resources and that it is imputable to the State, points which furthermore Latvia does not contest.

(134)

In the course of the formal investigation procedure Latvia provided evidence demonstrating that both the State and BAS acquired the bonds in proportion to their shareholding in airBaltic and on the same conditions. In addition, it appears that the State did not provide funding to airBaltic before April 2010, while BAS had actually invested significant amounts in the company before that date. Finally, it emerged from the investigation that the bond issuance agreement was adopted at the initiative of BAS and airBaltic's management, which had already suggested to the State in April and June 2009 a capital increase in the company in proportion to their shareholdings.

(135)

As highlighted in the opening decision, the Commission is of the opinion that the purchase of 0 %-coupon bonds was not a typical investment by a prudent market operator. However, the Commission notes that Latvia and BAS were at the time major shareholders of airBaltic and their investment decision should be assessed from this perspective and not from that of a purely external investor. Indeed, it appears rational to conclude that the owners of airBaltic were not looking for short-term profit at the time but were interested in keeping the company afloat.

(136)

On the basis of the above, the Commission comes to the conclusion that Latvia acted as a prudent market operator when purchasing 0 %-coupon bonds together with the private investor BAS. The Commission therefore excludes the presence of an undue advantage in relation to measure 4, and assessment of the other cumulative conditions laid down in Article 107(1) TFEU concerning the presence of state aid is superfluous.

(137)

Measure 5 relates to the payment of EUR 2,8 million by Latvijas Krājbanka to airBaltic on 21 and 22 November 2011. As explained in recital 39 above, airBaltic submitted three payment orders to Latvijas Krājbanka prior to the decisions of the FCMC of 17 November 2011 to limit banking operations above EUR 100,000 and of 21 November 2011 to halt all operations of Latvijas Krājbanka. Latvia considers that no State resources were involved given that the operations concerned three payment orders of airBaltic to IATA Clearing House, Riga International Airport and an alternative bank account of airBaltic in a different bank (see recital 39 above). These were, according to Latvia, mere common banking operations concerning private funds of airBaltic. Latvia also argues that the decisions of the FCMC were not imputable to the State.

(138)

Latvia has explained that the transfer of funds had their origin in payment orders submitted by airBaltic before the FCMC ordered the suspension of the activities of Latvijas Krājbanka on 21 November 2011. Latvijas Krājbanka executed the transactions on 25 and 30 November 2011.

(139)

Moreover, pursuant to the Law on the FCMC of 1 June 2000, the FCMC takes its decisions without having to take account of any requirement or instruction of any other public authority. In addition, the funding of the FCMC is not dependent upon the State, as the FCMC's activities are financed through payments by parties active on the Latvian financial and capital markets. It also appears from the applicable laws that the State is not involved in the execution of the enforcement powers and rights of the FCMC relating to its supervision of credit institutions.

(140)

On the basis of the evidence before it, the Commission is of the view that the trustees appointed by the FCMC acted independently of the State, which would exclude imputability of their actions to Latvia.

(141)

On the basis of the above, the Commission concludes that measure 5 did not entail state aid within the meaning of Article 107(1) TFEU.

(142)

The follow-up complaint received on 18 July 2012 refers to the obligation of the investors under Article 7.4 of the Agreement to hand over to the State or its nominated company — under certain circumstances — the outstanding claims stemming from syndicated loan 2 in exchange for LVL 1 (see recital 42 above).

(143)

In accordance with Article 7.4 of the Agreement, Taurus assigned to Latvia a EUR 5 million claim it had against airBaltic for LVL 1. Subsequently, Latvia assigned the claim to airBaltic.

(144)

In relation to the remaining claims, amounting to EUR 30 million (EUR 42,47 million), which were supposed to be novated within the framework of syndicated loan 2, the Latvian authorities requested the investors by letter of 9 February 2012 to assign to it their respective claims in exchange for 1 LVL each. Furthermore, Latvia brought an action before the Riga Regional Court in relation to three of the investors in order to enforce Article 7.4 of the Agreement. Latvia has indicated its intention to also attribute these claims to airBaltic.

(145)

Latvia argues that the assignment of the EUR 5 million claim to airBaltic was a contingency measure aimed at protecting the State's financial interests and should be seen as a pari passu measure under the Agreement, and thus exclude State aid.

(146)

The Commission notes that it follows clearly from Article 7.4 of the Agreement that the relevant claims were to be assigned or handed over ‘to the State or its nominated company for the sum of LVL 1’. Therefore, since the decision to attribute the EUR 5 million claim to airBaltic was taken by the State, this decision is imputable to it and entails State resources.

(147)

It emerged during the course of the formal investigation procedure that the agreements for the syndicated loans were never signed. However, it appears from the evidence submitted by Latvia that the courts recognised the validity of the Agreement as regards the obligation of the private investors to assign to the State or its nominated company the claims resulting from syndicated loan 2.

(148)

In this respect, Latvia indicates that, according to several judgments of the Latvian courts, the owner of the EUR 5 million claim is not entitled to request repayment of this amount but only to claim shares in airBaltic reflecting a EUR 5 million advance payment into the share capital of the company. Since the State already owned 99,8 % of the shares of airBaltic, Latvia argues that the entitlement to additional shares does not represent any meaningful economic value for the State.

(149)

The Commission notes that contrary to what Latvia suggests, while the courts may have recognised the right of the State to take over the claims resulting from syndicated loan 2 in line with Article 7.4 of the Agreement, this does not mean that Latvia was obliged to attribute this claim to airBaltic. The Commission notes that a prudent market economy operator would have not assigned the claim to airBaltic for LVL 1. Latvia has not provided evidence as to why the State was better off granting the claim to airBaltic than keeping it or using it for some other purpose. As a result of the assignment, Latvia placed the company in a more favourable position than its competitors.

(150)

Furthermore, the Commission does not agree with the arguments of the Latvian authorities and highlights that any additional share in airBaltic would have an additional value to the State, even if small, such that the presence of aid cannot be excluded. (35) In addition, by granting the claim to airBaltic, the State gave up not only to the claim but also any right to interest at a rate of [5 — 7] % thereon.

(151)

Finally, Latvia argues that measure 6 should be considered as having been granted, for State aid law purposes, on 3 October 2011, i.e. at the date of signature of the Agreement, together with measures 1, 2 and 3.

(152)

The Commission reiterates the conclusions reached in section 7.2.1 above, that is, when the Agreement was entered into on 3 October 2011, the State did not know whether it would need to make use of Article 7.4 of the Agreement. In addition, the State was not obliged to assign to airBaltic the claims affected by the application of that provision.

(153)

Finally, the Commission observes that Latvia has not substantiated its claim that the purpose of Article 7.4 of the Agreement was to safeguard the State's investment in airBaltic by preventing any harm to the State in case of default of BAS.

(154)

The Commission thus concludes that by providing measure 6, the State did not act as a market economy investor, nor was the operation pari passu with measures 1, 2 and 3. Therefore, the Commission is of the opinion that measure 6 conferred an undue advantage on airBaltic. This advantage was selective in nature given that its sole beneficiary was airBaltic.

(155)

For the reasons set out in recital 120 above, measure 6 was likely to distort competition and affect trade between Member States.

(156)

On account of the arguments above, the Commission comes to the conclusion that measure 6 involved state aid for the benefit of airBaltic within the meaning of Article 107(1) TFEU.

(157)

The Commission concludes that measures 1, 4 and 5 did not entail state aid for the reasons set out above.

(158)

However, the Commission considers that measures 2, 3 and 6 constituted state aid to airBaltic. In order to determine the amount of aid already disbursed to airBaltic, the Commission observes that measure 3 consisted of the capitalisation of the first State loan of LVL 16 million (EUR 22,65 million) and the first tranche of the second State loan of LVL 41,6 million (EUR 58,89 million). The second tranche of the second State loan of LVL 25,4 million (EUR 35,96 million) made available to airBaltic on 14 December 2012 — i.e. the remaining part of measure 2 which had not been capitalised — should be added to that amount, together with the EUR 5 million attributed to airBaltic as measure 6. The overall total amount of State aid granted to airBaltic is therefore approximately LVL 86,53 million (EUR 122,51 million).

(159)

Article 108(3) TFEU states that a Member State shall not put an aid measure into effect before the Commission has adopted a decision authorising this measure.

(160)

The Commission observes that Latvia granted measures 2, 3 and 6 to airBaltic without notifying them to the Commission for approval. The Commission regrets that Latvia did not comply with the stand-still obligation and therefore violated its obligation according to Article 108(3) TFEU.

(161)

As regards the intention of the Latvian authorities to grant to airBaltic EUR 30 million resulting from syndicated loan 2 and linked to measure 6, the Commission recalls the obligation of the Latvian authorities under Article 108(3) TFEU to inform the Commission, in sufficient time to enable it to submit its comments, of any plans to grant aid.

(162)

Insofar as measures 2, 3 and 6 constitute state aid within the meaning of Article 107(1) TFEU, their compatibility must be assessed in the light of the exceptions laid down in paragraphs 2 and 3 of that Article. As indicated in the opening decision, in view of the nature of the measures and of the difficulties of airBaltic, the only relevant compatibility criteria appear to be those concerning aid for rescuing and restructuring firms in difficulty under Article 107(3)(c) TFEU on the basis of the R&R Guidelines, and in particular the provisions regarding restructuring aid.

(163)

The Latvian authorities were initially of the view that none of the measures entailed state aid. However, on the basis of the doubts raised by the Commission in its opening decision, Latvia provided compatibility arguments and argued that the measures constitute compatible restructuring aid.

(164)

In particular, Latvia provided an updated restructuring plan in December 2013, complemented by submissions of 28 January, 28 February and 24 March 2014. Latvia notes that the restructuring of airBaltic started on 18 April 2011, when a first plan was submitted to the company's management. This first plan, which was submitted to the Commission, identified some of the weaknesses of airBaltic and established that approximately EUR [175 — 185] million in share capital was needed to allow the company to renew its fleet and allow it to compete effectively with low-cost carriers. Latvia argues that as of April 2011, several actions were taken, including the closure of airBaltic's hub in Vilnius and the cancellation of routes, thereby starting airBaltic's restructuring process. In order to guarantee airBaltic's return to profitability, a comprehensive set of initiatives covering revenues, operations, network, fleet and overall organisation were developed at the later stage (the reShape plan).

(165)

This first plan was developed in 2011, and included the principal financial aspects of the restructuring. According to Latvia, this led to entering the Agreement and eventually resulted in the reShape plan of March 2012.

(166)

The arguments of Latvia will be assessed in the following sections.

(167)

According to point 33 of the R&R Guidelines, only firms in difficulty within the meaning of points 9 to 13 of the R&R Guidelines are eligible to receive restructuring aid. The Commission has already concluded that airBaltic was a firm in difficulty from at least 2011 (see recital 87 above).

(168)

Point 12 of the R&R Guidelines states that a newly created firm is not eligible for rescue or restructuring aid even if its initial financial position is unsecure. A firm is in principle considered as newly created for the first three years following the start of operations in the relevant field of activity. airBaltic was established in 1995 and cannot be regarded as a newly created firm. Also, airBaltic does not belong to a business group within the meaning of point 13 of the R&R Guidelines.

(169)

The Commission therefore concludes that airBaltic is eligible for restructuring aid.

(170)

The Commission notes that the restructuring of airBaltic started in April 2011, when the company's management prepared a first restructuring plan. This plan mainly focused on fleet optimisation and the need to replace the company's aircraft by more efficient planes, which is also a cornerstone of the later ReShape plan. At the same time, the Vilnius hub was closed. Several weeks later, upon review by […], the management of airBaltic included in the plan a headcount reduction of [8 — 12] %.

(171)

The 2011 plan was updated in the form of the reShape plan, referred to above and formally adopted during the first quarter of 2012. As noted in recital 164 above, the Latvian authorities submitted a restructuring plan to the Commission in December 2013, updating the reShape plan.

(172)

The Commission notes that the April 2011 restructuring plan set out the main needs of airBaltic. Although it was not fully developed, that plan constituted a first basis for determining the restructuring needs of airBaltic and ensuring that it would return to viability. It moreover constituted the basis for the reShape plan, which was under preparation at the time the Agreement was signed (i.e. 3 October 2011) and was finalised in March 2012.

(173)

In its past practice, the Commission has accepted that restructuring plans are defined over time and considered the initial plans as the starting point of the restructuring period. For instance, in the Varvaressos decision (36) the Commission considered that the measures granted to this firm between 2006 and 2009 were to be assessed as part of a restructuring continuum on the basis of a restructuring plan dated 2009 (covering the period 2006-2011). Similar to the airBaltic case, the 2009 restructuring plan of Varvaressos was the evolution of a ‘strategic and business plan’ dating from 2006.

(174)

According to point 34 of the R&R Guidelines, the grant of restructuring aid must be conditional on implementation of a restructuring plan which must be endorsed by the Commission in all cases of individual aid. Point 35 explains that the restructuring plan, the duration of which must be as short as possible, must restore the long-term viability of the firm within a reasonable timescale and on the basis of realistic assumptions as to future operating conditions.

(175)

Pursuant to point 36, the plan must describe the circumstances that led to the company's difficulties and take account of the present state and future market prospects with best-case, worst-case and base-case scenarios.

(176)

The plan must provide for a turnaround that will enable the company, after completing its restructuring, to cover all its costs including depreciation and financial charges. The expected return on capital must be high enough to enable the restructured firm to compete in the marketplace on its own merits (point (37).

(177)

The Commission observes that the restructuring plan describes the circumstances that led to airBaltic's difficulties, which were mainly caused by the global economic crisis of 2008-2009, which had a significant impact in the Baltic region, affecting also the airline sector.

(178)

In addition, the restructuring plan explains that the commercial strategy pursued in the past as well as a number of decisions by airBaltic's former management contributed further to the company's difficulties. In particular, as regards the commercial strategy of airBaltic, the restructuring plan highlights that in the past it had focused solely on expansion and not on profitability, thereby exposing the company to unsustainably high expenditure. The costs were moreover very much increased by reason of the fleet, which included four different types of aircraft, as well as the high costs of aircraft leasing. Routes were opened without adequately assessment of their profitability, and many of them were loss-making.

(179)

The restructuring plan covers a 5-year restructuring period starting in April 2011 and assumes a return of airBaltic to long-term viability by April 2016 at the latest, although according to the base-case scenario, airBaltic is expected to return to profitability in 2014. The duration of the restructuring is thus of a maximum of 5 years, in line with previous case practice in the passenger air transport sector (37). Indeed, the Commission has consistently been of the view that, in the current economic circumstances, it is important to avoid a mere short-term turnaround and instead create a solid base for future growth. In that context, the necessary stabilisation of operational and services performance will take several years.

(180)

The restructuring plan emphasises the change in the commercial strategy of airBaltic, which aims at becoming a hybrid airline, targeting higher yield customers through most of the services traditionally offered by network carriers while seeking cost efficiencies typically developed by low-cost carriers. This strategy has already been implemented to a very significant extent by the new management of the company since October 2011. In addition, the restructuring plan envisages three main types of restructuring measures: (i) optimisation of revenues and costs for existing operations; (ii) network reconfiguration, resulting in adjustment of destinations, frequencies and timing in order to optimise RASK and CASK (38) at route level; and (iii) network and fleet optimisation, with the objective to review and define the optimal network and fleet size. In total, 13 initiatives addressing revenues and 13 initiatives addressing costs were developed, while two additional initiatives were developed in the area of network reconfiguration and fleet renewal.

(181)

Concerning fleet optimisation, the Commission observes that the diverse and ageing fleet of airBaltic is less fuel efficient and more maintenance intensive than that of competitors, which translates into increasing costs. During 2012 and 2013, airBaltic decided to operate only part of its available aircraft in order to decrease costs. In 2013, in order to partly compensate the loss in capacity resulting from the removal of the Fokker and Boeing 757 fleets, airBaltic added two Q400 Bombardier planes to its fleet. Moreover, with a view to replacing the fleet, the current leasing contracts have been renegotiated at more favourable terms until the new Bombardier CS300 becomes available in […] or […]. By the end of 2014, airBaltic will operate 25 aircraft and it will continue at this level until the end of the restructuring period in 2016. In overall terms, there will be a 27 % reduction of the aircraft fleet during the restructuring period.

(182)

As regards the network reconfiguration, the Commission observes that in 2013 the new network delivered an extra LVL [16 — 21] million (EUR [22,7 — 29,8] million) at C1 level (39) compared to the previous year, inter alia, due to the cancellation of unprofitable routes (e.g. […]) and reduction in frequencies ([…] on […], […] and […]).

(183)

The revenue initiatives include the introduction of new fare structures or the optimisation of the baggage fee structure. In addition, online check-in will be promoted, while the cabin crew and the sales force will operate on flexible remuneration. As regards the costs initiatives, they include the renegotiation of fuel prices with current suppliers and of the contracts for engine checks and overhauls, leasing optimisation, and reduction of hangar costs and costs relating to crew hotel stays. Also the current agreements with ground-handling providers will be renegotiated.

(184)

Most of the restructuring measures described in the preceding paragraphs have already been implemented. As a result of the revenue optimisation initiatives and the initiatives to reduce costs, as well as the fleet renewal and the network reconfiguration, airBaltic finished 2012 with a negative EBIT of LVL 30 million (EUR 42,47 million) as opposed to a budgeted negative EBIT of LVL 38 million (EUR 53,8 million). In 2013, the negative EBIT was reduced to LVL 7,7 million (EUR 10,9 million), also above target. It is expected that the company will break-even in 2014 and will remain profitable thereafter, with EBIT reaching LVL [1 — 3] million (EUR [1,4 — 4,2] million) in 2014 and LVL [9 — 12] million (EUR [12,8 — 17] million) in 2016. The return on equity (ROE) is expected to reach [3 — 6] % by 2014 and [18 — 21] % by 2016.

(185)

The restructuring plan includes revised financial forecasts on the basis of realistic, pessimistic and optimistic scenarios based on reliable assumptions. For instance, the realistic scenario assumes a market growth of [6 — 8] %, while it limits the growth of airBaltic to [1 — 3] % in 2014 and to [2 — 4] % in 2015 and 2016, with an inflation rate of [1 — 3] % per year and increasing fuel costs, passing from [950 — 1000] USD/t in 2014 to [1 000 — 1 050] USD/t in 2016. The load factor ranges from [69 — 71] % in 2014 to [71 — 75] % in 2016. In this scenario, the implementation of the initiatives will allow airBaltic to break even in 2014 (with EBIT of LVL [1 — 3] million (EUR [1,4 — 4,2] million)), while the company will remain profitable thereafter, with EBIT of LVL [6 — 9] million (EUR [8,5 — 12,8] million) in 2015 and of LVL [9 — 12] million in 2016 (EUR [12,8 — 17] million).

(186)

In all scenarios, airBaltic's EBIT would be positive by 2016, ranging from LV [10 — 15] million (EUR [14,2 — 21,3] million) in the optimistic scenario to LVL [5 — 10] million (EUR [7,1 -14,2] million) in the pessimistic one. The scenarios are also subject to a sensitivity analysis in order to assess the risks and their possible impact by 2016, in particular considering currency risks (appreciation/depreciation of USD against LVL and EUR) and changes to the load factors, fuel market price, yield and number of passengers.

(187)

The Commission has assessed the restructuring plan and is of the view that it should enable airBaltic to achieve the expected return to long-term viability by April 2016 at the latest. The restructuring plan includes a detailed assessment of the circumstances leading to the difficulties of airBaltic, which are duly addressed as a result of the restructuring measures in the form of revenue and costs initiatives as well as initiatives in the area of network reconfiguration and fleet renewal.

(188)

In addition, the Commission considers that the restructuring plan submitted by Latvia duly quantifies the impact of the different restructuring measures, that the assumptions are adequate and appropriate to the context of the passenger air transport sector, and that viability is foreseen at adequate levels under all scenarios during the entire restructuring period. The sensitivity analysis is adequate and shows that the impact on EBIT of the factors taken into consideration would be limited.

(189)

Therefore, in view of the significant restructuring measures undertaken and the progress made to date, the Commission considers that the restructuring plan will enable airBaltic to restore its long-term viability within a reasonable timescale.

(190)

In addition, the evidence provided by Latvia shows that airBaltic is currently on track to meet most of the objectives fixed in the restructuring plan, which is an additional indicator of the reliability of the plan.

(191)

According to point 38 of the R&R Guidelines, compensatory measures must be taken in order to ensure that the adverse effects on trading conditions are reduced to an acceptable level. These measures may comprise divestment of assets, reductions in capacity or market presence or reduction of entry barriers on the markets concerned (point (39).

(192)

In this regard, closure of loss-making activities which would at any rate be necessary to restore viability will not be considered as a reduction of capacity or market presence for the purpose of the assessment of the compensatory measures (point (40).

(193)

Latvia proposes as compensatory measures for airBaltic the cancellation of profitable routes, which leads to a reduction in capacity, and the surrender of slot pairs at coordinated airports.

(194)

In addition to the abandon of unprofitable routes as required for a return to viability, the restructuring plan provides for the surrender of 14 profitable routes (40) in terms of the C1 contribution margin. It is the Commission's practice, to consider routes as profitable if they had a positive C1 contribution margin in the year preceding their surrender (41). The C1 contribution takes account of flight, passenger and distribution costs (i.e. variable costs) attributable to each individual route. The C1 contribution is the appropriate figure since it takes into account all costs which are directly linked to the route in question. Routes with a positive C1 contribution not only cover the variable costs of a route, but also contribute to the fixed costs of the company.

(195)

As regards capacity, the restructuring plan therefore provides that the total capacity of the company was [5 — 5,5] billion ASK in April 2011, while at the end of the restructuring period in April 2016, airBaltic's capacity is expected to be [4 — 4,5] billion ASK, i.e. an [17 — 20] % reduction. The Commission notes in this respect that mainly in the context of the return to long-term viability the fleet will be reduced from 34 aircraft in April 2011 to 25 aircraft by the end of 2014 and will remain at that level until the end of the restructuring period in April 2016 (see recital 181 above). When only profitable routes are considered, the capacity reduction is of [7 — 10] %.

(196)

In addition, the Commission observes that airBaltic has cancelled a number of routes operating from the fully coordinated (42) airports of […]. As a result, […] slots pairs in fully coordinated airports have been released in 2011 and 2012, which creates new business opportunities for competing airlines to operate routes to and from these airports and to increase their presence in them.

(197)

When assessing whether the compensatory measures are appropriate, the Commission will take account of the market structure and the conditions of competition to ensure that any such measure does not lead to deterioration in the structure of the market (point 39 of the R&R Guidelines). The compensatory measures must be in proportion to the distortive effects of the aid and, in particular, to the size and the relative importance of the firm on its market or markets. The degree of reduction must be established on a case-by-case basis (point 40 of the R&R Guidelines).

(198)

The Commission observes that airBaltic is a very small player in the European aviation market, representing 0,5 % of the output of the entire European airline industry.

(199)

In addition, the Commission comes to the view that the [7 — 10] % capacity reduction of airBaltic is not insignificant considering the relatively small size of airBaltic compared to the European airline industry's productive capacity and output in terms of passengers. For a relatively small carrier like airBaltic, further fleet and capacity reductions could endanger its return to long-term viability without providing any meaningful market opportunities for competitors. Moreover, although airBaltic is the largest air carrier in Latvia, its market share in Riga will decrease from [65 — 70] % in 2011 to [55 — 60] % in 2016.

(200)

Furthermore, the Commission observes that Latvia is an assisted area for regional investment aid purposes under Article 107(3)(a) TFEU (43). According to point 56 of the R&R Guidelines, ‘the conditions for authorising aid [in assisted areas] may be less stringent as regards the implementation of compensatory measures and the size of the beneficiary's contribution. If needs of regional development justify it, in cases in which a reduction of capacity or market presence appear to be the most appropriate measure to avoid undue distortions of competition, the required reduction will be smaller in assisted areas than in non-assisted areas’.

(201)

The Commission has also taken into account the particularities of the present case when assessing the appropriateness of the proposed compensatory measures, bearing in mind Latvia's peripheral geographical situation and its accessibility to the rest of the European Union. In this respect, the Commission notes that the large majority of Latvia's railway system uses Russian gauge which is wider than the Standard gauge used in most of the EU, thereby creating interoperability problems with neighbouring EU countries Sea transport also appears to offer a limited degree of substitutability with air transport, in particular for passenger transport. Finally, the Commission observes that the closest international airports reachable by land transport are those of Vilnius and Tallinn, which are around 300 km away from Riga, thereby not constituting convenient alternatives hubs, in particular for business passengers.

(202)

Therefore, the Commission is of the view that the compensatory measures adopted by airBaltic, i.e. the [7 — 10] % capacity reduction and the surrender of slots in coordinated airports, are acceptable in the circumstances of the present case. The compensatory measures proposed by Latvia are therefore sufficient under the R&R Guidelines in order to ensure that the adverse effects on trading conditions resulting from the granting of restructuring aid to airBaltic are reduced to an acceptable level.

(203)

According to point 43 of the R&R Guidelines, in order to limit the amount of aid to the strict minimum, a significant contribution to the restructuring costs from the beneficiary's own resources is necessary. This can include the sale of assets that are not essential to the firm's survival, or external financing at market conditions.

(204)

The own contribution must be real, i.e. actual, excluding all future profits such as cash flow (point 43 of the R&R Guidelines). Inherently, the own contribution must not include any further state aid. For large firms, the Commission usually considers a contribution of at least 50 % of the restructuring costs to be appropriate. However, in exceptional circumstances and in cases of particular hardship, the Commission may accept a lower contribution (point 44 of the R&R Guidelines).

(205)

The restructuring plan estimates the restructuring costs at LVL [150 — 170] million (EUR [214 — 242] million), based on the funds required for repayment of third-party loans (LVL [5 — 15] million (EUR [7,1 — 21,3] million)), compensation of losses resulting from the phase-out and disposal of certain aircraft (LVL [15 — 25] million (EUR [21,3 — 35,5] million)), provision for bad debts that the company would not be able to recover (LVL [5 — 10] million (EUR [7,1 — 15,3] million)), redundancy payments (LVL [1 — 4] million (EUR [1,4 — 5,6] million)), the purchase of new aircraft, in particular […] Bombardier Q400NG and […] Boeing 737-500 (for a total of LVL [50 — 60] million (EUR [71,1 — 85,3] million)), the repurchase of trademarks from BAS (LVL [5 — 15] million (EUR [7,1 — 21,3] million)), unforeseen off balance sheet liabilities resulting from a claim from […] (LVL [5 — 15] million (EUR [7,1 — 21,3] million)), and LVL [45 — 55] million (EUR [64 — 78,2] million) to buffer the expected losses until airBaltic returns to profitability.

(206)

In view of total restructuring costs of LVL [150 — 170] million (EUR [214 — 242] million), the proposed own contribution of airBaltic according to the restructuring plan amounts to LVL [100 — 110] million (EUR [141 — 155] million), i.e. [60 — 70] % of the total restructuring costs. The own contribution breaks down as follows:

(207)

Regarding the private financial injections mentioned in point (i) above, Latvia has demonstrated that BAS made advance payments into the equity of the company of LVL [7 — 9] million (EUR [10 — 13] million) between June and July 2011. The Commission is of the view that these payments constitute an own contribution within the meaning of point 43 of the R&R Guidelines, since BAS was a private market operator and the Commission has no reasons to consider that it was not acting in accordance with market logic. The same conclusion applies to the LVL [6 — 8] million (EUR [8,5 — 12,3] million) provided by Transatlantic Holdings in exchange for […] outstanding unpaid shares in airBaltic, which took place in September 2011.

(208)

As regards point (ii) above, the Commission is of the view that the loan of LVL 14 million (EUR 19,82 million) granted by BAS, i.e. the BAS loan, constitutes external financing at market terms which can be accepted as own contribution from a private investor that was shareholder of the company at the time.

(209)

As regards the lease agreements for new aircraft in the amount of LVL [45 — 55] million (EUR [64 — 78] million) (point (iii) above), the restructuring plan explains that in March 2013 airBaltic concluded new lease agreements for aircraft with private counterparties as part of its fleet reduction and optimisation programme. The agreements relate to the net-lease of […] Bombardier Dash 8 Q400NG aircraft for a period of 10 years for a total amount of approximately USD […] million (EUR […] million), i.e. a monthly rent of approximately USD […] (EUR […]).

(210)

According to the restructuring plan, the lease was granted at market conditions by […]. The monthly rent is intended to cover the amortisation of the purchase price minus residual value at the end of year 10 of the relevant aircraft (plus a certain mark-up to cover […] financing and operating costs as well as a profit margin), thereby effectively equalling the purchase price of the new aircraft.

(211)

The Commission notes that lease arrangements as such are a standard form of financing in the airline industry and may be equated to loans provided to a company undergoing restructuring. The fact that there is collateral covering a significant part of the loan does not preclude that the loan be considered as ‘own contribution’. In addition, Latvia has confirmed that the lease arrangements are subject to standard collateralisation (i.e. the ability to seize the plane in case of a default and a cash security deposit). Therefore, the lessor runs a certain degree of creditor risk given that it would suffer considerable losses in the event of a default by airBaltic, i.e. the immediate loss of income from rent, which continues until the aircraft can be re-leased to a new customer, as well as the costs incurred to reconfigure the aircraft for the next operator. (44)

(212)

On the basis of the above, the Commission notes that the lease agreements show that airBaltic was able to obtain external financing at market conditions. Therefore, the lease agreements can be regarded as proof that the market believes in the long term viability of airBaltic, given that the agreements are only secured by the standard type of collateral and the financier still runs a certain degree of risk. This is in line with point 43 of the R&R Guidelines, which states that the own contribution should originate from external financing at market conditions and is a sign that the market believes in the feasibility of the envisaged return to viability. The Commission hence considers the LVL [45 — 55] million (EUR [64 — 78] million) leases as part of the own contribution. This is moreover in line with past practice of the Commission, in, for example, the Czech Airlines case. (45)

(213)

However, the Commission has doubts as regards some of the types of own contribution proposed in the restructuring plan, as explained below.

(214)

As regards the advance payment into the equity of airBaltic of LVL […] million (EUR […] million) made by […] in July 2011, it appears from the information submitted by Latvia that this is directly related to measure 6, which, it has been concluded, entails state aid. Therefore, the advance payment into equity of airBaltic made by […] cannot be considered as own contribution, which must necessarily be free of aid.

(215)

In relation to the liquidity facility of LVL […] million (EUR […] million) granted by […] between April and June 2011 for the purchase of spare parts, the Latvian authorities have not provided evidence allowing the Commission to have a clear understanding of this measure and its significance in terms of belief in a return to viability of the beneficiary. The Commission is therefore unable to conclude with certainty that this facility is acceptable as own contribution.

(216)

As regards the vendor loan of LVL [5 — 15] million (EUR [7,1 — 21,3] million) from BAS to airBaltic for the repurchase of trademarks, Latvia has not provided any evidence that the loan was actually provided.

(217)

On the basis of the above, the Commission does not consider acceptable as own contribution the advance payment into the equity of airBaltic of LVL […] million (EUR […] million) made by […] in July 2011, the liquidity facility for LVL […] million (EUR […] million) granted by […] between April and June 2011 for the purchase of spare parts, and the vendor loan of LVL [5 — 15] million (EUR [7,1 — 21,3] million) from BAS to airBaltic for the repurchase of trademarks and the partial debt write-off of LVL […] million (EUR […] million). The Commission also doubts, in particular on the basis of the inconclusive information provided in that respect (unclear nature of the debts at issue, including several claims and the trademarks of airBaltic) whether the LVL […] million (EUR […] million) partial debt write-off by the two banks can count as own contribution.

(218)

In any event, the Commission notes that the other measures proposed as own contribution are nevertheless in line with point 43 of the R&R Guidelines and that the level of own contribution is therefore acceptable. They amount to LVL [75 — 85] million (EUR [107 — 120] million), which is equivalent to approximately [48 — 50] % of the restructuring costs. For a large firm like airBaltic, the level of own contribution should normally be 50 %. However, according to point 56 of the R&R Guidelines, the Commission may be less stringent as regards the size of the own contribution in assisted areas, as was the case for Latvia at the time the measures were granted (see recital 200 above).

(219)

Therefore, the Commission considers that the requirements of point 43 of the R&R Guidelines have been fulfilled.

(220)

Finally, point 72 of the R&R Guidelines, which provides that a company that has received rescue and restructuring aid in the past 10 years is not eligible for rescue or restructuring aid (the ‘one time, last time’ principle), must be respected.

(221)

Since measures 1, 4 and 5 do not entail state aid, they are not to be taken into account for the purposes of the ‘one time, last time’ principle. Moreover, the Latvian authorities have confirmed that airBaltic has not benefited from any rescue or restructuring aid in the past 10 years. The Commission therefore considers that the ‘one time, last time’ principle is respected.

(222)

In view of the above, the Commission finds that Latvia unlawfully implemented measures 2, 3 and 6 in favour of airBaltic, in breach of Article 108(3) of the Treaty on the Functioning of the European Union. However, the Commission considers that the measures and the restructuring plan meet the conditions required by the R&R Guidelines. The Commission therefore considers the aid compatible with the internal market.

(223)

Finally, the Commission notes that Latvia agreed to have the present decision adopted and notified in English.

(1)

By decision of 19 November 2008 the Commission approved a scheme entitled ‘Support Measures for the Credit Institutions in Greece’ (the ‘Greek Banks Support Scheme’) designed to ensure the stability of the Greek financial system. The Greek Banks Support Scheme allows for aid to be granted under its three constituent measures, a recapitalisation measure, a guarantee measure and a government bond loan measure (2).

(2)

Recital 14 of the Decision of 19 November 2008 recorded that a restructuring plan would be notified to the Commission in respect of the beneficiaries of the recapitalisation measure.

(3)

In May 2009, the Bank was recapitalised under the recapitalisation measure of the Greek Banks Support Scheme.

(4)

On 2 August 2010, the Greek authorities submitted a restructuring plan in respect of the Bank to the Commission. The Commission registered that plan, its subsequent updates as well as additional information submitted by the Greek authorities as Case SA.30342 (PN 26/10) and then Case SA.32788 (11/PN).

(5)

In December 2011, the Bank was again recapitalised by Greece under the recapitalisation measure. On 22 December 2011, the Commission approved the second recapitalisation of the Bank (3).

(6)

The Bank has repeatedly benefited from State guarantees on debt instruments and government bond loans under the Greek Banks Support Scheme (4). It also benefited from State-guaranteed emergency liquidity assistance (‘State-guaranteed ELA’).

(7)

On 18 March 2012, the Bank of Greece proceeded with the withdrawal of the licenses of three Cooperative Banks (‘the three Cooperative Banks’), namely the Cooperative Bank of Lesvos-Limnos (‘Lesvos-Limnos Bank’), the Cooperative Bank of Achaia (‘Achaia Bank’) and the Cooperative Bank of Lamia (‘Lamia Bank’) and put them into liquidation.

(8)

The Commission registered the information informally received from Greece on the resolution of the Cooperative Banks as Case SA.34534 (12/NN).

(9)

On 23 March 2012, the Bank of Greece proceeded with the transfer of selected liabilities of the three Cooperative Banks to the Bank and determined the amount of the funding gaps (5) which would be covered by the Hellenic Financial Stability Fund (‘HFSF’) pursuant to the law 4051/2012 (6). The funding gaps were equal to the value of the transferred liabilities since there was no transfer of assets of the three Cooperative Banks.

(10)

On 20 April 2012, the HFSF provided the Bank with a letter committing to participate in a planned share capital increase of the Bank. On 28 May 2012, the HFSF granted a bridge recapitalisation of EUR 7 430 million to the Bank (‘the first bridge recapitalisation’).

(11)

In May 2012, the Greek authorities notified to the Commission the commitment letter that had been provided by the HFSF to the Bank. The Commission registered it as a non-notified aid (Case SA.34824 (12/NN)) as the measure had already been implemented.

(12)

On 27 July 2012, the Commission opened a formal investigation procedure on the first bridge recapitalisation (‘the NBG Opening Decision’) (7).

(13)

In December 2012, the HFSF granted a second bridge recapitalisation of EUR 2 326 million to the Bank (‘the second bridge recapitalisation’) (8). The Greek authorities notified that measure to the Commission on 27 December 2012. The Commission registered those measures as case SA.36007 (13/NN).

(14)

In June 2013, the Bank announced the successful completion of its EUR 1 079 million rights issue (9) while the HFSF partially converted the first and second bridge recapitalisations into equity (‘the Spring 2013 recapitalisation’, which includes both the EUR 1 079 million rights issue and the conversion of the first and second bridge recapitalisations). The total amount of the Spring 2013 recapitalisation was EUR 9 756 million, out of which EUR 8 677 million was injected by the HFSF (the ‘HFSF's participation in the Spring 2013 recapitalisation’).

(15)

On 19 December 2013, the Greek authorities submitted information to the Commission regarding the terms of the Spring 2013 recapitalisation.

(16)

On 25 June 2014, the Greek authorities submitted a final restructuring plan for the Bank (‘the restructuring plan’) to the Commission. On the same date they provided information on the State-guaranteed ELA. They indicated that they wanted to continue providing the Bank with such liquidity support, as well as State guarantees on debt instruments and government bond loans under the Greek Banks Support Scheme. The Commission registered the notification under number SA.34824 (12/C).

(17)

The Commission had numerous meetings, teleconferences and electronic mail exchanges with representatives of the Greek authorities and the Bank.

(18)

Greece accepts that exceptionally this Decision is adopted in English only.

(19)

In July 2009, First Business Bank S.A. (‘FB Bank’) was recapitalised by Greece under the recapitalisation measure of the Greek Banks Support Scheme (10), for an amount of EUR 50 million.

(20)

In spring 2013, the Bank of Greece decided to proceed with the resolution of FB Bank through a Purchase & Assumption procedure (11).

(21)

On 1 May 2013, the Bank of Greece invited the four largest banks in Greece to submit non-binding offers for a portfolio of FB Bank's assets and liabilities. The Bank of Greece, in its letter to the bidders, stated that the HFSF would, on top of the funding gap, cover the capital needs of the acquirer which were related to the assets transferred from FB Bank.

(22)

On 8 May 2013, the Bank and another bank submitted their preliminary bids.

(23)

On 10 May 2013, the Bank revised its offer.

(24)

On the same date, the Bank of Greece proceeded with the resolution of FB Bank and the transfer of selected assets and liabilities to the Bank.

(25)

On 11 May 2013, the Greek authorities submitted information to the Commission regarding the resolution of FB Bank. The Commission registered that information and the subsequent submissions by the Greek authorities as Case SA.36658 (14/NN).

(26)

On 28 June 2013, the HFSF disbursed two-thirds of the funding gap as it was initially estimated.

(27)

On 29 July 2013, the Greek authorities notified to the Commission the financing of the funding gap for a total amount of approximately EUR 524 million, as estimated at the time of the resolution on the basis of data at 31 March 2013.

(28)

On 7 November 2013, the Bank of Greece finalised the calculation of the total funding gap, which amounted to EUR 457 million (12).

(29)

On 13 November 2013, the HFSF paid the remaining balance of the funding gap to the Bank.

(30)

On 25 June 2014, the Greek authorities notified the Commission that the Bank does not intend to ask the HFSF to inject the amount of capital needs created by the acquisition of FB Bank's assets into the Bank.

(31)

On 10 May 2013, the Bank of Greece appointed a Commissioner at Probank S.A. (‘Probank’).

(32)

In July 2013, the Bank of Greece decided to proceed with the resolution of Probank through a Purchase & Assumption procedure.

(33)

On 22 July 2013, the Bank of Greece invited the four largest banks in Greece to submit offers for a portfolio of Probank's assets and liabilities. The Bank of Greece, in its letter to the potential bidders, stated that the HFSF, would, on top of the funding gap, cover the capital needs of the acquirer which were related to the assets transferred from Probank.

(34)

On 24 July 2013, a bank submitted a draft offer and on 25 July 2013 the Bank submitted its binding offer.

(35)

On 26 July 2013, the Bank of Greece proceeded with the resolution of Probank and the transfer of selected assets and liabilities to the Bank.

(36)

On 29 July 2013, the Greek authorities notified to the Commission the financing of the funding gap for a total amount of EUR 238 million, as estimated by the Bank of Greece on the basis of data at 31 March 2013. The Commission registered that notification and subsequent information submitted by the Greek authorities as Case SA.37156 (14/NN).

(37)

On 9 August 2013, the HFSF disbursed two-thirds of the funding gap as it was initially estimated.

(38)

On 30 December 2013, the Bank of Greece finalised the calculation of the total funding gap, which amounted to EUR 563 million.

(39)

On 31 December 2013, the HFSF paid the remaining balance of the funding gap to the Bank.

(40)

On the same date, the Bank of Greece provided the Commission with further information on the finalisation of the funding gap.

(41)

On 25 June 2014, the Greek authorities notified the Commission that the Bank does not intend to ask the HFSF to inject the amount of capital needs created by the acquisition of Probank's assets into the Bank.

(42)

Greece's real gross domestic product (‘GDP’) fell by 20 % from 2008 to 2012, as shown in Table 1. As a result, Greek banks faced a rapidly increasing default rate on loans to Greek households and companies (13). Those developments have adversely affected the performance of the assets of Greek banks and generated large loan losses.

Table 1

Real GDP Growth in Greece, 2008-13

(43)

In addition, in February 2012, Greece implemented a private sector bond exchange known as Private Sector Involvement (‘the PSI programme’). Greek banks were involved in the PSI programme, in the course of which the Greek government offered existing private bondholders new securities (including new Greek Government Bonds (‘GGBs’), GDP-linked securities and PSI payment notes issued by the European Financial Stability Fund (‘EFSF’)) in exchange for existing GGBs, with a nominal discount of 53,5 % and longer maturities (14). The Greek authorities announced the results of that exchange of bonds on 9 March 2012 (15). The exchange resulted in significant losses for the bondholders (estimated by the Bank of Greece at 78 % of the face amount of old GGBs on average for the Greek banks) and capital needs which were retroactively booked in the Greek banks' 2011 financial statements.

Table 2

Total PSI losses of the main Greek banks (EUR million)

(44)

Since the Greek banks faced substantial capital shortfalls as a result of the PSI programme and the continuing recession, the Memorandum of Economic and Financial Policies (‘MEFP’) of the Second Adjustment Programme for Greece between the Greek government, the European Union, the International Monetary Fund (‘IMF’) and the European Central Bank (‘ECB’), dated 11 March 2012, made funds available for the recapitalisation of those banks. The Greek authorities estimated the total bank recapitalisation needs and resolution costs to be financed under that programme at EUR 50 billion (17). That amount was calculated on the basis of a stress test performed by the Bank of Greece for the period starting December 2011 and ending December 2014 (‘the stress test of 2012’), which relied on the loan losses forecast performed by Blackrock (18). The funds for the recapitalisation of the Greek banks are available through the HFSF. Table 3 summarises the calculation of capital needs for the main Greek banks as they result from the stress test of 2012.

Table 3

Stress test of 2012: Capital needs of the main Greek banks (EUR million)

(45)

According to the MEFP, ‘banks submitting viable capital raising plans will be given the opportunity to apply for and receive public support in a manner that preserves private sector incentives to inject capital and thus minimises the burden for taxpayers’ (19). The Bank of Greece found only the four largest banks (Eurobank, National Bank of Greece, Piraeus Bank and Alpha Bank) to be viable (20). They received a first recapitalisation from the HFSF in May 2012.

(46)

Domestic deposits in the banks in Greece decreased by 37 % in total between the end of 2009 and June 2012 due to the recession and political uncertainty. Those banks had to pay higher interest rates to try to retain deposits. The costs of deposits increased, reducing the net interest margin of the banks. As Greek banks were shut out from wholesale funding markets, they became entirely dependent on Eurosystem financing (21), a growing portion of which was in the form of State-guaranteed ELA granted by the Bank of Greece.

(47)

On 3 December 2012, Greece launched a buy-back programme on the new GGBs received by the investors in the framework of the PSI programme, at prices ranging from 30,2 % to 40,1 % of their nominal value (22). The Greek banks participated in that buy-back programme which crystallised further losses on their balance sheets, since most of the accounting loss (that is, the difference between market value and nominal value) booked on those new GGBs at the time of the PSI programme became definitive and irreversible (23).

(48)

In December 2012, the four largest Greek banks received a second bridge recapitalisation from the HFSF.

(49)

In spring 2013, the bridge recapitalisations of the four banks were converted into permanent recapitalisations in ordinary shares, with the HFSF holding more than 80 % of the shareholding of each of the four banks. For the banks which succeeded in attracting a pre-determined amount of private capital, the HFSF received non-voting shares and private investors who injected new money along with the HFSF were granted warrants on the shares acquired by the HFSF.

(50)

In July 2013, the Bank of Greece commissioned an advisor to carry out a diagnostic study on the loan portfolios of all Greek banks. That advisor carried out credit loss projections (‘CLPs’) on all domestic loan books of the Greek banks as well as on loans carrying Greek risk in foreign branches and subsidiaries over a three-and-a-half-year and a loan-lifetime horizon. The analysis provided CLPs under two macroeconomic scenarios, a baseline scenario and an adverse scenario. The CLPs for foreign loan portfolios were estimated by the Bank of Greece using some input from the advisor.

(51)

Based on the advisor's assessment of the CLPs, the Bank of Greece launched a new stress test exercise in autumn 2013 (‘the stress test of 2013’) to assess the robustness of the Greek banks' capital position under both a baseline and an adverse scenario. The Bank of Greece conducted the capital needs assessment with the technical support of a second advisor.

(52)

The key components of the capital needs assessment under the stress test of 2013 were (i) the CLPs (24) on banks' loan portfolios on a consolidated basis for Greek risk and foreign risk, net of existing loan reserves, and (ii) the estimated operating profitability of banks for the period from June 2013 to December 2016, based on a conservative adjustment of the restructuring plans which had been submitted to the Bank of Greece during the fourth quarter of 2013. Table 4 summarises the calculation of capital needs for the main Greek banks on a consolidated basis under the baseline scenario for that stress test of 2013.

Table 4

Stress test of 2013: Capital needs of the Greek banks on a consolidated basis in the baseline scenario (EUR million)

(53)

On 6 March 2014, the Bank of Greece announced the results of the stress test of 2013 and requested the banks to submit, by mid-April 2014, their capital raising plans to cover the capital needs under the baseline scenario.

(54)

Between the end of March 2013 and early May 2014, the four banks proceeded with capital increases.

(55)

The Bank provides universal banking services mainly in Greece, Turkey and other countries of Central, Eastern and South-Eastern Europe (Cyprus, Romania, Bulgaria, Serbia, Albania and the Former Yugoslav Republic of Macedonia (‘FYROM’)). It offers a full range of banking and financial products and services to households and businesses. It is active in retail, corporate and private banking, asset management, insurance, treasury, capital markets and other services. The Bank is incorporated in Greece and its shares are listed on the Athens Stock Exchange. On 30 September 2012, the Bank employed a total of 37 831 people (28), of which around one-third were employed in Greece, and one-third in Turkey, while the remaining third were employed in other countries, mainly in South-Eastern Europe.

(56)

The Bank participated in the PSI programme, exchanging GGBs and State-related loans with a face value of EUR 14 749 million. Its total PSI-related charge amounted to around EUR 11 735 million before tax and was entirely booked in its 2011 accounts (29). During the buy-back programme of December 2012, the Bank sold the new GGBs it had received in the framework of the PSI at a deep discount to nominal value. That sale crystallised its losses on the new GGBs.

(57)

The key figures of the Bank in December 2010, December 2011, December 2012 and December 2013 (consolidated data as per annual financial statements) are presented in Table 5.

Table 5

National Bank of Greece key figures, 2010, 2011, 2012 and 2013  (30)

(58)

Table 5 illustrates that, apart from the huge losses it booked in 2011 due to the PSI programme (EUR 11 735 million (32)), the Bank suffered from declining income (due, among other reasons, to the higher costs of deposits) and from high and rising impairment losses on its loan portfolios in Greece and abroad. The liquidity position of the Bank was hit by deposit outflows but its net loan-to-deposit ratio remained relatively low compared to other Greek banks (118 % at 31 December 2012 (33)).

(59)

Following the stress test of 2013, according to which the capital needs of the Bank were estimated at EUR 2 183 million in the baseline scenario, the Bank sought to raise EUR 2,5 billion of capital on the market.

(60)

On 6 May 2014, the Bank announced the launch of the book-building exercise (34) for an amount of EUR 2,5 billion (35).

(61)

On 9 May 2014, the Bank announced the issue and placement of 1 136,4 million new ordinary shares, at a price of EUR 2,20 per share, for total gross proceeds of EUR 2,5 billion (36). The share capital increase was carried out through the cancellation of pre-emption rights for existing shareholders, as decided by the general meeting of shareholders held in Athens on 10 May 2014 (37). The HFSF approved the share capital increase on the basis of two valuations reports carried out by independent experts as per law 3864 (38).

(62)

On 18 March 2012, the Bank of Greece noted that the three Cooperative Banks did not meet the capital adequacy requirements and concluded that they would not be able to increase their capital. Therefore, the Bank of Greece decided to withdraw their licenses and put them into liquidation.

(63)

The Bank of Greece considered that taking resolution measures and in particular the auctioning of the deposits in the context of the resolution framework (Article 63(D) of law 3601/2007) and the financing of the relevant funding gap was crucial to maintain the increases in depositors' confidence that had occurred in the aftermath of the successful conclusions of the PSI and the Second Adjustment Programme and that, despite the recent turnaround of the market sentiment, such sentiment was fragile. The Bank of Greece estimated that on 19 March 2012 the total amount of customer deposits (based on unaudited data at 30 September 2013) in those three Cooperative Banks amounted to approximately EUR 325 million.

(64)

The Bank of Greece proceeded with a Purchase & Assumption procedure whereby all deposits, including interbank deposits, and the claims and liabilities towards the Hellenic Deposit and Investment Guarantee Fund (‘HDIGF’) but no loans would be transferred to an acquirer. On 20 March 2012, the Bank of Greece invited the five largest Greek credit institutions at that time to submit their offers. The Bank and three other banks submitted binding offers. The Bank's offer was the preferred one, in terms of consideration and time required for the conclusion of the transfer. The Bank offered to pay as consideration an amount equal to […] (*1) % of the transferred deposits and estimated that the transfer could be completed within one working day.

(65)

On 23 March 2012, the Bank of Greece decided that the deposits and the claims and liabilities of Lesvos-Limnos Bank towards the HDIGF were to be transferred to the Bank (39). According to the Bank of Greece (40), the fair value of the transferred liabilities amounted to EUR […] million, while no assets were transferred. The consideration was calculated (41) at EUR […] million, that is to say, […] % of the transferred deposits. The funding gap was covered by the HFSF pursuant to Article 63D(13) of law 3601/2007. On 10 April 2012, the HFSF disbursed two-thirds of the total funding gap in EFSF Notes while it committed that the remaining amount would be paid upon the final determination of the funding gap. On 22 June 2012, the Bank of Greece determined that the final funding gap of Lesvos-Limnos Bank amounted to EUR 56,6 million. The HFSF covered the undisbursed part of the funding gap on 20 July 2012.

(66)

At the time of its resolution, Lesvos-Limnos Bank employed 37 people and had 3 branches. The Bank took over no branches of Lesvos-Limnos Bank and its employees were laid off.

(67)

On 23 March 2012, the Bank of Greece decided that the deposits and the claims and liabilities of Achaia Bank towards the HDIGF were to be transferred to the Bank (42). According to the Bank of Greece (43), the fair value of the transferred liabilities amounted to EUR […] million, while no assets were transferred. The consideration was calculated (44) at EUR […] million, that is to say, […] % of the capital of the transferred deposits. The funding gap was covered by the HFSF pursuant to Article 63(D)(13) of law 3601/2007. On 10 April 2012, the HFSF disbursed two-thirds of the total funding gap in EFSF Notes while it committed that the remaining amount would be paid upon the final determination of the funding gap. On 22 June 2012, the Bank of Greece determined that the final funding gap of Achaia Bank amounted to EUR 212,9 million. The HFSF covered the undisbursed part of the funding gap on 20 July 2012.

(68)

At the time of its resolution, Achaia Bank employed 103 people and had 13 branches. The Bank took over no branches of Achaia Bank and its employees were laid off.

(69)

On 23 March 2012, the Bank of Greece decided that the deposits and the claims and liabilities of Lamia Bank towards the HDIGF were transferred to the Bank (45). According to the Bank of Greece, the fair value of the transferred liabilities amounted to EUR […] million, while no assets were transferred. The consideration was calculated (46) at EUR […] million, that is to say, […] % of the capital of the transferred deposits. The funding gap was covered by the HFSF pursuant to Article 63D(13) of law 3601/2007. On 10 April 2012, the HFSF disbursed two-thirds of the total funding gap in EFSF Notes while it committed that the remaining amount would be paid upon the final determination of the funding gap. On 22 June 2012, the Bank of Greece determined that the final funding gap of Lamia Bank amounted to EUR 56,3 million. The HFSF covered the undisbursed part of the funding gap on 20 July 2012.

(70)

At the time of its resolution, Lamia Bank employed 47 people and had 5 branches. The Bank took over no branches of Lamia Bank and its employees were laid off.

(71)

The amounts of the funding gaps of the three Cooperative Banks are set out in Table 6.

Table 6

Final funding gaps of the three Cooperative Banks

(72)

FB Bank was a small bank with a total balance sheet of EUR 1,4 billion at the time of its resolution, and a market share of less than 1 % in loans and in deposits. FB Bank had 19 branches across Greece and employed 260 employees at 31 December 2012.

(73)

Under the Greek bank Support Scheme FB Bank received (i) a capital injection of EUR 50 million from the Greek State in July 2009, (ii) Greek Government Securities amounting to EUR 60 million in May 2012 (47) and (iii) a State guarantee for issued bonds with a nominal value of EUR 50 million in March 2011.

(74)

FB Bank participated in the PSI programme, exchanging GGBs with a face value of EUR 70 million. As illustrated in Table 2, its total PSI-related charge amounted to around EUR 49 million before tax. As illustrated in Table 3, the capital needs of FB Bank were estimated at EUR 168 million in the stress test of 2012.

(75)

On 8 November 2012, the Bank of Greece requested FB Bank to complete the capital increase by 30 April 2013 in order to restore its Core Tier 1 ratio.

(76)

As FB Bank failed to raise the required capital by 30 April 2013, the Bank of Greece decided to proceed with the withdrawal of the license of FB Bank and put it into liquidation.

(77)

The Bank of Greece considered that taking resolution measures through a Purchase & Assumption procedure, in particular the financing of the relevant funding gap and the associated coverage of the capital needs related to the transferred assets, was crucial to maintain the depositors' confidence in the Greek banking system and thus to preserve financial stability. The Bank of Greece estimated that on 31 December 2012 the total amount of customer deposits in FB Bank amounted to approximately EUR 1 278 million, of which only EUR 830 million were guaranteed by the HDIGF. Therefore, if FB Bank had been put into liquidation without the application of resolution measures, around EUR 448 million of deposits would not have been covered.

(78)

For those financial stability considerations, the Bank of Greece proceeded with the auction of the selected assets and liabilities of FB Bank, including deposits. However, the acquisition of FB Bank's assets could have created further capital needs for the acquirer and hence no bank would accept to acquire the selected assets and liabilities. The Bank of Greece, in its letter to the HFSF dated 8 May 2013, indicated that it considered it to be appropriate that the HFSF should cover those capital needs as part of the resolution costs. In its final binding bid dated 10 May 2013, the Bank requested that the capital needs created by the acquisition of the assets transferred from FB Bank be covered by the HFSF. The amount of those capital needs was estimated at around EUR 100 million by the Bank of Greece at the time of the resolution (48).

(79)

On 8 May 2013, only the Bank and another bank submitted non-binding offers. The bids of both banks were based on the understanding that the HFSF would cover both the funding gap and the capital needs related to the transferred assets. On 10 May 2013, the Bank submitted its final offer. The Bank of Greece decided to transfer the assets and liabilities of FB Bank to the Bank, whose offer was considered to be the preferred one.

(80)

Customer loans (other than those permanently in arrears) and most cash balances, as well as intangible assets and goodwill, property rights, contracts related to the lease or purchase of property, interbank liabilities and customer deposits were transferred to the Bank.

(81)

According to the initial assessment of the Bank of Greece at the time of the resolution (49), the value of the liabilities transferred from FB Bank to the Bank was estimated at EUR 1 402 million while the value of the transferred assets was estimated at EUR 878 million, the difference being the funding gap of EUR 524 million. The funding gap was covered pursuant to Article 63D(13) of law 3601/2007 by the HFSF, which on 28 June 2013 disbursed the two-thirds of the estimated funding gap, meaning EUR 349,6 million. After the finalisation of the calculation of the funding gap by the Bank of Greece on 7 November 2013 (50) at EUR 457 million, on 13 November 2013 (51) the HFSF paid to the Bank the balance of EUR 107,4 million.

(82)

Probank had a network of 112 branches across Greece and employed 1 087 people (52) at 31 March 2013.

(83)

The balance sheet of Probank was around EUR 3,2 billion at 30 June 2013 (53). Probank had a market share of 1,1 % in loans and a market share of 1,7 % in deposits at 31 March 2013.

(84)

Probank participated in the PSI programme, exchanging GGBs with a face value of EUR 415 million. As illustrated in Table 2, its total PSI-related charge amounted to around EUR 295 million before tax. As illustrated in Table 3, the capital needs of Probank were estimated at EUR 282 million in the stress test of 2012.

(85)

On 26 October 2012, the Bank of Greece requested Probank to increase its capital by EUR 282 million.

(86)

As Probank failed to increase its capital, in July 2013 the Bank of Greece decided to proceed with the withdrawal of its license and put it into liquidation (54). More precisely, the own funds of Probank were negative and were estimated at around EUR – 16 million based on data at 31 March 2013 on a consolidated basis. Therefore, Probank did not meet its minimum capital requirements and its own funds were lower than the minimum share capital for any bank, as set at Article 5(4)(a) of law 3601/2007.

(87)

The Bank of Greece considered that resolution measures were crucial to maintain depositors' confidence in the Greek banking system and thus to preserve financial stability. The Bank of Greece estimated that on 31 March 2013 the total amount of customer deposits in Probank amounted to approximately EUR 3 123 million, of which only EUR 1 998 million were guaranteed by the HDIGF. Therefore, if Probank had been put into liquidation without the application of resolution measures, around EUR 1 125 million of deposits would not have been covered.

(88)

For those financial stability considerations, the Bank of Greece proceeded with the auction of selected assets and liabilities of Probank, including deposits. However, the acquisition of Probank's assets could have created further capital needs for the acquirer and hence no bank would accept to acquire the selected assets and liabilities. Therefore, in its final binding bid dated 25 July 2013, the Bank requested that the capital needs created by the acquisition of the assets transferred from Probank be covered by the HFSF. The requested commitment to cover those capital needs was taken into account by the HFSF when assessing the bids received. The amount of those capital needs was estimated at EUR [180 to 280] million (55).

(89)

On 24 July 2013 another large Greek bank submitted a draft offer and on 25 July 2013 the Bank submitted its offer. The bids of both banks were based on the understanding that the HFSF would cover both the funding gap and the capital needs created by the transferred assets. The Bank of Greece decided to transfer the assets and liabilities of Probank to the Bank, whose offer was considered to be the preferred one.

(90)

Customer loans (other than the loans permanently in arrears) and most cash balances, as well as intangible assets and goodwill, property rights, contracts related to the lease or purchase of property, interbank liabilities and customer deposits were transferred to the Bank.

(91)

According to the initial assessment of the Bank of Greece at the time of the resolution (56), the value of the liabilities transferred from Probank to the Bank was estimated at EUR 3 198,9 million while the value of the transferred assets was estimated at EUR 2 961,4 million, the difference being the funding gap of EUR 237,6 million. The funding gap was covered pursuant to Article 63D(13) of law 3601/2007 by the HFSF, which on 9 August 2013, disbursed in cash two-thirds of the estimated funding gap, meaning EUR 158,4 million. The funding gap, the calculation of which was finalised by the Bank of Greece on 30 December 2013, amounted to EUR 562,7 (57). On 31 December 2013, the HFSF paid the Bank the balance of EUR 404,4 million in cash (58).

(92)

The Bank obtained several forms of aid under the recapitalisation measure, the guarantee measure and the government bond loan measure of the Greek Banks Support Scheme.

(93)

The Bank has benefited and continues to benefit from aid under the guarantee measure and the government bond loan measures. That aid will be described in this Decision as ‘measure L1’. As of 30 November 2013 (59), the guarantees granted to the Bank amounted to around EUR 14,8 billion. At that date, the outstanding loans of government bonds to the Bank amounted to EUR 847 million. As of 15 April 2011, the Bank had received loans of government bonds amounting to EUR 787 million and State guarantees amounting to EUR 12,9 billion.

(94)

In the restructuring plan for the Bank submitted by the Greek authorities to the Commission on 25 June 2014, the Greek authorities signalled their intention to continue granting guarantees and lending government bonds to the Bank under the Greek Banks Support Scheme during the restructuring period.

(95)

In May 2009 and December 2011, the Bank received from Greece under the recapitalisation measure capital injections of EUR 350 million and EUR 1 000 million respectively, totalling EUR 1 350 million (measure A), equivalent to around 2 % of the risk weighted assets (‘RWA’) of the Bank at that time.

(96)

The recapitalisation took the form of preference shares subscribed by Greece which had a coupon of 10 % and a maturity of five years. In 2010 the duration of the preference shares was extended while their remuneration was increased. From the end of the initial five-year period, if the preference shares are not redeemed and no decision has been taken by the general meeting of shareholders as to the redemption of those shares, the Greek Minister of Finance will increase the coupon by 2 % a year on a cumulative basis (that is to say, a coupon of 12 % for year six, 14 % for year seven, etc.…).

(97)

ELA is an exceptional measure enabling a solvent financial institution, facing temporary liquidity problems, to receive Eurosystem funding without such an operation being part of the single monetary policy. The interest rate paid by such a financial institution for ELA is […] basis points (‘bps’) higher than the interest it pays for regular ECB refinancing.

(98)

The Bank of Greece is responsible for the ELA programme, which means that any cost of, and the risks arising from, the provision of ELA are incurred by the Bank of Greece (60). Greece granted the Bank of Greece a State guarantee which applies to the total amount of ELA granted by the Bank of Greece. The adoption of Article 50(7) of law 3943/2011, which amended Article 65(1) of law 2362/1995, allowed the Minister of Finance to grant guarantees on behalf of the State to the Bank of Greece in order to safeguard the Bank of Greece's claims against the credit institutions. The banks benefiting from ELA have to pay a guarantee fee to the State amounting to […] bps.

(99)

At 31 January 2012 the Bank had benefited from EUR 8,6 billion of State-guaranteed ELA (61), while at 31 December 2012 the Bank had benefited from EUR 30,9 billion of State-guaranteed ELA (62).

(100)

Since 2012, the Bank has benefited from several capital support measures granted by the HFSF. Table 7 provides an overview of those aid measures.

Table 7

Aid measures granted to the Bank through the HFSF

(101)

Recitals 14 to 33 of the NBG Opening Decision give a detailed description of the first bridge recapitalisation of May (63) 2012 (measure B1). The background and main features of that measure are set out in this section.

(102)

On 20 April 2012, the HFSF provided a letter to the Bank committing to participate in a planned share capital increase of the Bank for an amount of up to EUR 6,9 billion.

(103)

Under measure B1, the HFSF transferred EUR 7,4 billion of EFSF bonds to the Bank on 28 May 2012, in line with the provisions for bridge recapitalisations laid down in the law 3864/2010 establishing the HFSF (the ‘HFSF law’). The Commission has already established in recital 50 of the NBG Opening Decision that ‘The bridge recapitalisation finalised on 28 May 2012 is the implementation of the obligation undertaken in the commitment letter and thus a continuation of the same aid’. Both the amounts provided in the commitment letter and in the first bridge recapitalisation were calculated by the Bank of Greece to ensure the Bank reached a total capital ratio of 8 % at 31 December 2011, the date of retroactive booking of the bridge recapitalisation in the Bank's records. As can be seen from Table 3, measure B1 did not cover entirely the capital needs identified by the stress test of 2012. The Bank was supposed to raise the capital through a future capital increase and the bridge recapitalisation was only intended to preserve the Bank's eligibility for ECB financing until that capital increase had taken place.

(104)

For the period between the date of the first bridge recapitalisation and the date of the conversion of the first bridge recapitalisation into ordinary shares and other convertible financial instruments, the pre-subscription agreement between the Bank and the HFSF stipulated that the Bank had to pay to the HFSF a 1 % annual fee on the nominal value of the EFSF notes and that any coupon payments and accrued interest to the EFSF notes for that period would count as an additional capital contribution by the HFSF to the Bank (64).

(105)

The Bank booked further losses in the autumn of 2012. Its capital therefore fell again below the minimum capital requirements for it to remain eligible for ECB refinancing.

(106)

A second bridge recapitalisation became necessary as a result. On 21 December 2012, the HFSF implemented a second bridge recapitalisation of EUR 2 326 million (measure B2), which was again paid by transferring EFSF bonds to the Bank.

(107)

The total of the two bridge recapitalisations (measures B1 and B2) meant that the total capital needs identified by the stress test of 2012 (EUR 9,76 billion (65)) were already disbursed by the HFSF at 21 December 2012.

(108)

On 22 May 2013 the Board of Directors of the Bank announced the issue of 2 274,1 million new shares with a nominal value of EUR 0,30 at a price of EUR 4,29 per share (66).

(109)

On 21 June 2013 (67) the Bank announced the full payment of the total increase in shares for a total amount of EUR 9 756 million, including premium amounts. The total private participation in the Bank's share capital increase amounted to EUR 1 079 million (68). The participation of the HFSF in the share capital increase of the Bank therefore amounted to EUR 8 677 million (measure B3).

(110)

That amount is equal to the sum of measures B1 and B2, after deduction of the amount of private participation. By means of the Bank's share capital increase, the first and second bridge recapitalisations (measures B1 and B2) were partially converted into a permanent recapitalisation.

(111)

The price of new shares was set at 50 % of the volume-weighted average stock price over the 50 trading days preceding the determination of the offer price. As a result of a reverse stock split and of a reduction of the Bank's share capital, both decided by the extraordinary general meeting of shareholders on 29 April 2012 (69), the price of new shares was set at EUR 4,29 per share.

(112)

Immediately after the Spring 2013 recapitalisation, the HFSF became the majority shareholder of the Bank with a stake of 84,39 % (70). The HFSF issued 245 779,6 million warrants and granted private investors one warrant for each share subscribed, for no consideration (71). Each warrant incorporates the right to buy 8,23 shares of the HFSF, at specified intervals and strike prices. The first exercise date is 26 December 2013, and then the warrants are exercisable every six months until 26 December 2017. The exercise price is equal to the subscription price of EUR 4,29 increased by an annual interest rate (4 % for year one, 5 % for year two, 6 % for year three, 7 % for year four and then 8 % annualised for the last six months) (72).

(113)

The HFSF law as amended in 2014 provides that only the warrant strike prices may be adjusted in the event of a rights issue. Additionally, the adjustment must take place ex post and only up to the amount of the proceeds realised from the sale of pre-emption rights of the HFSF. No adjustment is provided for in the event of a non-pre-emptive share capital increase.

(114)

As already mentioned in section 2.2.1, the funding gaps of Lesvos-Limnos bank, Achaia Bank and Lamia Bank of EUR 56,6 million, EUR 212,9 million and EUR 56,3 million respectively, were covered by the HFSF. Therefore, the total amount of the funding gaps was EUR 325,8 million.

(115)

Since 2009, FB Bank has benefited from several aid measures. Table 8 provides an overview of those aid measures.

Table 8

Overview of the aid measures to FB Bank

(116)

In July 2009, Greece injected EUR 50 million into FB Bank, equivalent to around 3 % of its RWA at that time. That capital injection was made under the recapitalisation measure which is part of the Greek Banks Support Scheme. The recapitalisation took the form of preference shares.

(117)

FB Bank has also benefited from liquidity support under the guarantee measure and the government bond loan measures which are part of the Greek Banks Support Scheme. In January 2009, FB Bank received Greek government securities amounting to EUR 60 million, which matured in December 2011 (Measure FB2). In May 2012 it received Greek government securities amounting to EUR 60 million, which were supposed to mature in April 2015 but were cancelled on 23 May 2013 (Measure FB3) (73). In March 2011, FB Bank also received a State guarantee for issued bonds with a nominal value of EUR 50 million.

(118)

The HFSF covered the funding gap (74) of assets transferred from FB Bank to the Bank. In line with the decisions of the Bank of Greece of 10 May and 7 November 2013, the HFSF paid the total amount of EUR 456,97 million in two instalments, on 26 July and on 13 November 2013 (75).

(119)

Under the resolution procedure, the HFSF committed to cover the capital needs arising from the acquisition of the assets transferred from FB Bank. Therefore the HFSF would be required to inject an amount of capital equivalent to 9 % of the transferred RWA into the Bank. At the time of the resolution, the capital needs related to the transferred assets were estimated at around EUR 100 million.

(120)

As already mentioned in recital 30, the HFSF will not inject any further capital into the Bank, as the Bank in its restructuring plan waives its right to request the HFSF to cover potential capital needs related to the transferred assets.

(121)

Probank has not benefited from any aid measure under the Greek Banks Support Scheme. Table 9 provides an overview of the other aid measures from which Probank has benefitted.

Table 9

Overview of the aid measures to Probank

(122)

The HFSF financed the funding gap of the assets transferred from Probank to the Bank. In line with the decisions of the Bank of Greece of 26 July and 30 December 2013, the HFSF paid the total amount of EUR 562,73 million in two instalments, on 9 August and 31 December 2013.

(123)

Under the resolution procedure, the HFSF committed to cover the capital needs of the buyer arising from the acquisition of the assets of Probank. Therefore the HFSF would be required to inject an amount of capital equivalent to 9 % of the transferred RWA into the Bank. At the time of the resolution, the capital needs related to the transferred assets were estimated at around EUR [180 to 280] million.

(124)

As already mentioned in recital 41, the HFSF will not inject any further capital into the Bank, as the Bank in its restructuring plan waives its right to request the HFSF to cover the potential capital needs related to the transferred assets.

(125)

On 25 June 2014, Greece submitted the restructuring plan of the Bank, which explains how the Bank, as a combined entity resulting from the acquisitions of FB Bank, Probank and the three Cooperative Banks, intends to restore its long-term viability.

(126)

Through the restructuring plan, the Bank will focus on its core banking activities in Greece and in Turkey.

(127)

Regarding Greece, the key priority of the Bank is to bring its Greek banking operations back to strong profitability and viability by the end of the restructuring period, namely 31 December 2018. To that end, the restructuring plan includes a number of measures aimed at improving the Bank's operational efficiency and net interest margin, as well as measures enhancing its capital position and balance sheet structure.

(128)

As regards operational efficiency, the Bank has already started a vast programme of rationalisation. From 31 December 2009 to 30 December 2012, the Bank reduced its physical presence in Greece. It reduced its number of branches from 575 in 2009 (76) to 511 in 2012 (77) and also reduced the workforce of the Greek banking activities (from 12 534 in December 2009 (78) to 11 230 in December 2012 (79)).

(129)

From December 2012 until the end of 2017, the Bank plans to further decrease the number of employees in Greece (from 13 675 to […]) (80) despite the impact of the acquisitions of FB Bank and Probank that employed 260 and 1087 employees (81) respectively. The difference between the workforce of the Greek banking activities at 31 December 2012 (11 230) and the total Greek workforce at the end of 2012 (13 675) is due to the headcounts of non-banking activities such as insurance (Ethniki Hellenic General Insurance S.A.), tourism (Astir Palace Vouliagmenis S.A.) or real estate (NBG Pangaea Reic).

(130)

From December 2012 until the end of 2017, the Bank will pursue the rationalisation of its domestic network. The number of branches will increase by […] from 511 to […]. It is recalled that in 2013 the Bank acquired the FB Bank and Probank networks with 19 and 112 branches respectively.

(131)

The increased efficiency in terms of branches and personnel will help to bring down the total cost of its Greek activities by […] % from EUR 1 301 million on a pro forma basis in 2012 to EUR […] million in 2017 (82). As a result, the expected cost-to-income ratio of its Greek banking activities will fall below […] % at the end of the restructuring period.

(132)

The restructuring plan also describes how the Bank will reduce its funding costs, which is key to the restoration of viability. The Bank expects to be able to pay lower interest rates on its deposits on the back of the more stable environment and, in particular, the anticipated stabilisation and recovery of the Greek economy, which is expected to grow again from 2014 onwards. Spreads on deposits (average of time deposits, sight deposits and savings rates) are expected to decrease in Greece. Similarly, the Bank's reliance on the State-guaranteed ELA and wider Eurosystem funding will decrease during the restructuring period.

(133)

The restructuring plan anticipates that the Bank will also strengthen its balance sheet. Its net loan-to-deposit ratio in Greece will further decrease, while its capital adequacy will improve (from a Core Tier 1 ratio of 8,4 % at group level at 31 December 2013).

(134)

Another priority of the Bank is the management of non-performing loans. The Bank will enhance its credit processes regarding both the origination of loans (better collateral coverage, reduced limits) and the management of non-performing loans. The rate of non-performing loans will […], with an expected rate of […] % at the end of the restructuring period (83). The cost of risk (loan loss impairments) will decrease from EUR 2 billion in 2012 to EUR […] billion in 2018 (84).

(135)

The improvement of operational efficiency, the increase in the net interest margin, and the decreasing cost of risk will enable the Bank to increase its profitability. The Bank anticipates that its profits in Greece will amount to EUR […] million and EUR […] million in 2014 and 2018 respectively. The return on equity will reach […] % in 2017 for the Greek activities (85), which is sufficient given the risk profile of the Bank at that date (86).

(136)

The Bank has already started to deleverage and restructure its international network. The number of branches in South-Eastern Europe has been reduced by 170 since 2009 (87).

(137)

The Bank will continue to restructure and deleverage its international network. In particular, the Bank will sell its foreign subsidiaries in […] and divest its branches in […]. Those divestments represented […] % of the Bank's assets outside Greece and Turkey, that is to say EUR […] million out of EUR 12,101 million at the end of 2012.

(138)

Branches in the […] and […] as well as the subsidiary in […] will be […].

(139)

As a result of those divestments, the net parent funding will be eliminated by the end of the restructuring period.

(140)

The Bank intends to reduce its ownership in Finansbank to 60 %[…].

(141)

[…] will provide Finansbank with […] and enhance the commitment of the Bank to provide […] to Finansbank over the restructuring period.

(142)

The Bank plans that Finansbank will grow significantly during the restructuring period. It will also implement a cost control plan. In 2014, Finansbank intends to […] and to […]. In the following years, the […], resulting in a decrease in the cost-to-income ratio from […] to […] at the end of the restructuring period (88).

(143)

The restructuring plan foresees close scrutiny of risks taken by Finansbank. It is expected that impairments will amount to less than […] % of customer loans from 2014 to 2018, with a return on assets expected at […] % in 2018. The return on equity of Finansbank will remain high throughout the period.

(144)

The Bank sold its Turkish insurance business (life and non-life) in 2012 at a capital gain of EUR […] million (89).

(145)

The Bank has reduced its ownership in its real estate subsidiary Pangea below 35 % with a positive impact on the Core Tier 1 ratio of the Bank (90).The Bank also plans to sell […] by […] and its private equity subsidiary by […].

(146)

The Bank succeeded in raising significant amounts of capital on the market and reduced thereby the State aid which it needed.

(147)

First, the Bank raised private capital in 2009 with a rights issue of EUR 1 247 million. In 2010 the Bank again raised EUR 1 815 million (91) in private capital from the market. As mentioned in recital 109, the Bank also managed to raise EUR 1 079 million in capital from private investors through the Spring 2013 recapitalisation. The shareholders, which included those who participated in the 2009 and 2010 capital increases, were heavily diluted by the Spring 2013 recapitalisation: the HFSF received 84,4 % of the Bank's shares and the new investors received 10,5 % of the shareholding, leaving the pre-existing shareholders with a shareholding of only 5,1 %. No dividend has been paid to ordinary shareholders since 2007 or to US preference shareholders since 2009 (92).

(148)

The Bank raised EUR 2,5 billion in capital from the market in May 2014. The Bank intends to […].

(149)

Regarding the contribution by hybrid and subordinated debt holders, on 3 January 2012 the Bank offered to buy back preferred securities at prices ranging from 45 % to 70 % of the nominal value of those securities. On that occasion, the Bank also bought back covered bonds. For each of those buy-backs, the price was determined on the basis of the market value of the instruments and contained a premium of not more than ten percentage points, which was added to encourage investors to participate in the buy-back. The acceptance rate was 44 % and the overall increase in capital amounted to about EUR 302 million (93).

(150)

Later in 2012 and 2013 the Bank launched additional liability management exercises on securities issued to investors, including covered bonds, hybrid instruments, Tier 2 instruments and preference shares issued in the United States. Those buybacks generated additional capital of EUR […] million. Overall, the Bank indicates that the total amount of capital generated by liability management exercises over recent years amounts to approximately EUR […] million (94). As a result of those buy-backs, the outstanding amount of subordinated and hybrid debt decreased to EUR 293 million at 31 December 2013.

(151)

On 25 June 2014, Greece gave a commitment that the Bank and its affiliates will implement the restructuring plan submitted on 25 June 2014 and gave further commitments regarding the implementation of the restructuring plan (‘the Commitments’). The Commitments, in the Annex, are summarised in this section.

(152)

First, Greece has given a commitment that the Bank will restructure its commercial operations in Greece, setting a maximum number of branches and employees as well as a maximum amount of total costs to be achieved by 31 December 2017 (95).

(153)

Greece has also given a commitment that the Bank will reduce the cost of deposits collected in Greece and will comply with a maximum ratio of net loans-to-deposits (96) by 31 December 2017 (97).

(154)

Regarding the Bank's foreign subsidiaries, Greece has given a commitment that the Bank will not provide […], and that it will divest a minority stake in that subsidiary. Greece has also given a commitment that the Bank will deleverage a number of foreign subsidiaries by 30 June 2018 (98).

(155)

Greece has given a commitment that the Bank will divest […] and its private equity subsidiary, as well as a number of securities. In addition, the Bank will not purchase non-investment grade securities, with limited exceptions (99).

(156)

Greece has given a number of commitments related to the corporate governance of the Bank. It gave a commitment to limit the remuneration of the Bank's employees and managers, […] (100).

(157)

Greece has also given a commitment that the Bank will enhance its credit policy, in order to ensure that decisions on granting and restructuring loans aim at maximising the viability and profitability of the Bank. Greece has given a commitment that the Bank will comply with high standards regarding the monitoring of credit risk as well as the restructuring of loans (101).

(158)

A number of commitments deal with the operations of the Bank with connected borrowers. Those commitments aim at ensuring that the Bank does not deviate from prudent banking practices when granting or restructuring loans to its employees, managers and shareholders, as well as to public entities, political parties and media companies (102).

(159)

Finally Greece has given a commitment that the Bank will comply with some behavioural limitations, such as a coupon and dividend ban, an acquisition ban and a ban on advertising State support (103).

(160)

Those commitments will be monitored until 31 December 2018 by a monitoring trustee.

(161)

Separately, Greece has indicated that it would seek the approval of the Commission prior to any buy-back of the warrants by the Bank or by any State entity including the HFSF (104).

(162)

On 27 July 2012, the Commission opened the formal investigation procedure in order to verify whether the conditions of the 2008 Banking Communication (105) were met regarding the appropriateness, necessity and proportionality of the first bridge recapitalisation provided by the HFSF in favour of the Bank (measure B1).

(163)

Regarding the appropriateness of the measure, since the aid came after prior recapitalisations and liquidity aid and given the protracted rescue period, the Commission expressed doubts as to whether all actions possible had been taken by the Bank to avoid a need for aid in the future (106). In addition, the Commission was not clear who would control the Bank once the first bridge recapitalisation was replaced by a permanent recapitalisation (107) as the Bank might come under the control either of the State or of minority private owners. The Commission noted that it would wish to ensure that the quality of the Bank's management and in particular its lending process should not deteriorate in either case.

(164)

Regarding the necessity of the first bridge recapitalisation, in recital 67 of the NBG Opening Decision the Commission questioned whether all the measures possible had been taken to avoid the Bank again needing aid in the future. Moreover, since the duration of the bridge recapitalisation period was uncertain the Commission could not reach a conclusion as to whether the remuneration was sufficient and complied with the remuneration and burden-sharing principles under State aid rules. Furthermore, as the terms of the conversion of the first bridge recapitalisation into a permanent recapitalisation were not known at the time the NBG Opening Decision was adopted, the Commission could not assess them.

(165)

Regarding the proportionality of the measure, the Commission expressed doubts as to whether the safeguards (State support advertisement ban, coupon and dividend ban, call option ban and buy-back ban as described in recital 71 of the NBG Opening Decision) were sufficient in relation to the first bridge recapitalisation. Furthermore, in recital 72 of the NBG Opening Decision the Commission stated that distortions of competition could be caused by the lack of rules preventing the HFSF from coordinating the four largest Greek banks (namely, the Bank, Alpha Bank, Eurobank and Piraeus Bank) and the absence of adequate safeguards to avoid them sharing commercially sensitive information. The Commission, therefore, proposed the appointment of a monitoring trustee, who would be physically present in the Bank.

(166)

On 3 January 2013, the Commission received comments from a Greek bank on the NBG Opening Decision. That Greek bank commented that the recapitalisation of Greek banks by the HFSF constituted, in principle, a welcome step towards a healthier and more viable banking system and expressed no objection to the recapitalisation of the Bank.

(167)

However, while expressing its entire support for the principle of the recapitalisation of Greek banks by the HFSF, that Greek bank explained that, in order to minimise distortions of competitions and to avoid discrimination, it expected recapitalisation by the HFSF to be open to all banks operating in Greece under similar conditions.

(168)

On 5 September 2012, Greece submitted comments which had been prepared by the Bank of Greece and the HFSF.

(169)

Regarding the appropriateness of the first bridge recapitalisation, the Bank of Greece noted that the amount of EUR 18 billion of capital with which the HFSF recapitalised the four largest Greek banks in May 2012 was less than the final amount which was needed in order for those banks to gradually reach and maintain a Core Tier 1 ratio set at 10 % and Core Tier 1 ratio set at 7 % under a three-year adverse stress scenario. It also noted that the first bridge recapitalisation was temporary given that the recapitalisation process would be concluded with share capital increases by those four banks.

(170)

The Bank of Greece also observed that the recapitalisation of the largest Greek banks is part of the longer term restructuring of the Greek banking sector. It noted that where a bank remains in private hands, the management will most probably remain the same, while if a bank becomes State-owned (that is to say, owned by the HFSF), the HFSF may appoint new management which, in any case, will be assessed by the Bank of Greece. The Bank of Greece noted that it assesses the corporate governance framework, the adequacy of management and the risk profile of every bank on an ongoing basis in order to ensure that excessive risks are not taken. It also pointed out that the HFSF had already appointed representatives in the Board of Directors of the recapitalised banks.

(171)

Regarding the necessity of the first bridge recapitalisation, the Bank of Greece observed that the Bank's recapitalisation was limited so as to ensure that the then applicable minimum capital requirements (8 %) were met. It also stated that the protracted period of time prior to the recapitalisations was due to the sharp deterioration of the operating environment in Greece and the impact of the PSI programme, to the complexity of the whole project and to the need to maximise private investors' participation in the share capital increases.

(172)

Regarding the proportionality of the first bridge recapitalisation, the Bank of Greece pointed out that the full implementation of the restructuring plan to be submitted to the Commission is safeguarded by the fact that the suspension of the voting rights of the HFSF will be lifted if, inter alia, the restructuring plan is substantively violated. The Bank of Greece also observed that the Bank's difficulties were not due either to an underestimation of risks by the Bank's management or to commercially aggressive actions.

(173)

Regarding the appropriateness of the first bridge recapitalisation, to address the issue of potential State interference if the State provides high amounts of State aid through the HFSF and the HFSF has full voting rights, the HFSF stated that the HFSF-funded banks are not considered to be public entities or under State control and that they will not be controlled by the State after they have been permanently recapitalised by the HFSF. The HFSF pointed out that it is a fully independent private-law legal entity with autonomy of decision. It is not subject to government control, pursuant to Article 16C(2) of the HFSF law, according to which the credit institutions to which the HFSF has provided capital support are not part of the broader public sector. It also referred to the governing structure of the HFSF.

(174)

As regards the intervention of the HFSF in the Bank's management, the HFSF noted that it would respect the Bank's autonomy and not interfere with its day-to-day management given that its role is limited to that laid down in the HFSF law. It stated that there would not be any State interference or coordination and that the decisions of the Bank regarding the lending process (inter alia on collateral, pricing and solvency of borrowers) would be taken on the basis of commercial criteria.

(175)

The HFSF pointed out that the HFSF law and the pre-subscription agreement set appropriate safeguards in order to prevent existing private shareholders from excessive risk-taking. It pointed to elements such as (i) the appointment of HFSF representatives as independent non-executive members of the Board of Directors of the Bank and their presence at committees, (ii) the HFSF carrying out due diligence in the Bank and (iii) the fact that, after the final recapitalisation, its voting rights would be restricted only for as long as the Bank complied with the terms of the restructuring plan.

(176)

Regarding the necessity of the first bridge recapitalisation and specifically regarding the level of the remuneration of aid, the HFSF stated that the remuneration had been agreed with the representatives of the Commission, the ECB and the IMF. That agreed level took into account that the first bridge recapitalisation would be converted into a permanent recapitalisation before 30 September 2012, a deadline which was set in March 2012 in the MEFP between the Commission, the ECB, the IMF and Greece.

(177)

Regarding the proportionality of the first bridge recapitalisation, the HFSF noted that the measures it adopted, such as those described in recital 175, are sufficient safeguards in view of the large amounts of aid received and the protracted rescue period. Moreover, the HFSF stated that there are appropriate measures in place in order to ensure that banks in which the HFSF participates do not share commercially sensitive information between them. Such measures include the appointment of different HFSF representatives to those banks, the mandates addressed to those representatives which specifically safeguard against the flow of information from one representative to another and clear internal instructions to those officers not to transmit commercially sensitive information of the banks. Moreover, the HFSF stated that it does not exercise its rights in relation to the banks in a manner which may prevent, restrict, distort or significantly lessen or impede effective competition. Lastly, the HFSF pointed out that the members of its Board of Directors and its employees are subject to strict confidentiality rules and fiduciary duties and are bound by provisions concerning professional secrecy with regards to its affairs.

(178)

The Commission first has to assess whether the State support related to the resolution of the three Cooperative Banks (meaning the financing of the funding gaps which enabled the transfer of the deposits) constitutes State aid within the meaning of Article 107(1) of the Treaty. According to that 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.

(179)

The Commission will start by assessing whether or not there was an advantage for the following potential beneficiaries: (i) the Cooperative Banks and the potentially transferred ‘activities’ to the Bank; and (ii) the Bank.

(180)

With regards to the three Cooperative Banks, the Commission notes that Lesvos-Limnos Bank, Achaia Bank and Lamia Bank have been put in liquidation and their banking licenses withdrawn. Therefore, they will no longer carry out economic activities on the banking market.

(181)

The State support, that is to say the financing of the funding gaps, would constitute State aid to the transferred claims and liabilities within the meaning of Article 107(1) of the Treaty only if they together constitute an undertaking. The concept of an undertaking encompasses every entity engaged in an economic activity, regardless of legal status and the way in which it is financed. Any activity consisting in offering goods or services on a given market is regarded as an economic activity. Therefore, in order to conclude whether there is aid to an undertaking, it should be assessed whether the transfer of claims and liabilities entail the transfer of an economic activity.

(182)

As already mentioned in section 2.2.1, following the resolution of the three Cooperative Banks, only the deposits and the claims and liabilities towards the HDIGF were transferred to the Bank. The three Cooperative Banks employed 187 employees and had 21 branches in total. It should be noted that there was no automatic transfer of branches or employment contracts or loans between the three Cooperative Banks and the Bank. Therefore, the fact that loans are not transferred to the Bank but remain with the three Cooperative Banks in liquidation, the fact that no branches were transferred and the lack of automatic transfer of labour contracts contribute (108) to the conclusion that there is no transfer of economic activity. The transferred liabilities (that is to say deposits) cannot be considered to be the beneficiary of State support, as they do not constitute an undertaking.

(183)

In summary, the three existing legal entities have been put into liquidation and no longer carry out any banking activities. At the same time, the transferred liabilities do not constitute an economic activity.

(184)

It is therefore concluded that the grant of EFSF bonds by the HFSF to the Bank to cover the funding gap of the acquired assets and liabilities of the three Cooperative Banks does not allow the continuation of the latter's economic activities. Therefore, the HFSF support does not constitute either aid to the liquidated entities or aid to the transferred assets and liabilities.

(185)

With regards to whether the sale of the three Cooperative Banks' assets and liabilities entails State aid to the Bank, the Commission must assess whether certain requirements are met and in particular whether (i) the sale process was open, unconditional and non-discriminatory; (ii) the sale took place on market terms; and (iii) the State maximised the sale price for the assets and liabilities involved (109).

(186)

As already mentioned in recital 64, the Bank of Greece only contacted the five largest Greek credit institutions operating in Greece at that time. The limited set of buyers contacted cannot exclude that the tender was open given that they were the only credit institutions likely to be interested in submitting an offer. Indeed, the package for sale only included deposits. Therefore, to benefit from synergies on those deposits, it is necessary to operate in the geographical area concerned. A bank with no presence in those areas could not offer services to depositors, thus deposit retention would be minimal and the acquirer would support the cost of acquiring the deposits for no benefit. The Bank of Greece could therefore reasonably assume within the short timeframe available to resolve the three Cooperative Banks that only credit institutions whose business models were consistent with being able to service those depositors would have an interest in acquiring those assets. The Bank and three other banks submitted binding offers. The Bank's offer was the preferred one in terms of consideration and time required for the conclusion of the transfer. The Bank offered to pay as consideration an amount equal to […] % of the transferred deposits and estimated that the transfer could be completed within one working day.

(187)

On the basis of the above, the Commission concludes that State aid to the Bank can be excluded, in line with point 20 of the Restructuring Communication and the Commission's decisional practice (110).

(188)

The State support involved in the sale of the three Cooperative Banks does not constitute State aid to the three Cooperative Banks, to the transferred assets or to the Bank. Therefore, the measure does not constitute aid within the meaning of Article 107(1) of the Treaty.

(189)

The Commission has to assess whether the measures constitute State aid within the meaning of Article 107(1) of the Treaty.

(190)

The EUR 50 million capital injection by Greece into FB Bank in July 2009 (measure FB1), the Greek government securities amounting to EUR 60 million in May 2012 (Measure FB2) and the State guarantee given to FB Bank for issued bonds with a nominal value of EUR 50 million in March 2011 (measure FB3) were granted under the Greek Banks Support Scheme (111). In the decision approving that scheme, the Commission concluded that measures granted under that scheme would constitute State aid.

(191)

Therefore, the Commission notes that the transferred activities would no longer exist without those measures. Those measures have contributed to the stabilisation and the continuance of the economic activities which were later transferred to the Bank and therefore the Commission considers that they have benefited the economic activities of FB Bank which were later transferred to the Bank and constitute State aid within the meaning of Article 107(1) of the Treaty.

(192)

The Commission notes that the HFSF is an entity set up and financed by Greece to support banks, and therefore measures FB4 and FB5 involve State resources. The Commission also notes that measures FB4 and FB5 are selective in nature, since they only benefit FB Bank's activities.

(193)

Moreover the Commission considers that measures FB4 and FB5 provide FB Bank's activities with a clear advantage by keeping them alive. The transfer order in that case is indeed a sale ‘en bloc’. While the equity and subordinated debt will not be transferred, the key productive banking assets will be transferred (branches, deposits and loans). Measure FB4 therefore provides the transferred activities with an advantage as it provides sufficient assets to cover its deposits and the transferred activities continue to exist due to the sale of FB Bank's assets en bloc.

(194)

Moreover, without measure FB5, the sale would not be possible because the transfer would have a potential negative impact on the acquirer's capital adequacy ratio. Therefore, the transferred activities would no longer exist and measures FB4 and FB5 thus provide them with a clear advantage.

(195)

The Commission considers that measures FB4 and FB5 do not comply with the market economy investor principle (‘MEIP’). In fact, the HFSF has no prospect of making a profit on its contribution: in exchange for its contribution, it received no claim against the Bank but only a claim against the entity under liquidation, that is to say FB Bank (112). Therefore, the HFSF will not probably fully recover the money contributed.

(196)

The selective advantage which measures FB4 and FB5 provide distorts competition by keeping one banking activity alive, allowing it to operate on the market and to compete with other banks, including subsidiaries of foreign banks, which are active in Greece or potentially interested in entering the Greek market. Hence, measures FB4 and FB5 have an effect on trade between Member States and potentially distort competition.

(197)

The Commission therefore concludes that the coverage by the HFSF of the funding gap of EUR 456,97 million related to the assets transferred from FB Bank to the Bank and the commitment of the HFSF to cover the capital needs related to those assets, which may amount to EUR 100 million, constitute State aid within the meaning of Article 107(1) of the Treaty.

(198)

As already explained in recital 193, the Commission considers FB Bank's activities as the beneficiary of measures FB4 and FB5, as the aid allowed the continuation of those economic activities within the Bank.

(199)

As to whether the sale of FB Bank's activities entails State aid to the Bank, in line with point 49 of the 2008 Banking Communication, the Commission needs to assess whether certain requirements are met. It needs to examine in particular whether (i) the sale process was open and non-discriminatory; (ii) the sale took place on market terms; and (iii) the financial institution or the government maximised the sale price for the assets and liabilities involved.

(200)

The Bank acquired the package of the assets and liabilities of FB Bank because it submitted the preferred offer in the framework of a non-discriminatory tender procedure open to other banks. The Bank of Greece decided to contact only the four largest banks operating in Greece, of which only the Bank and one other bank submitted non-binding offers. The Bank of Greece invited the two bidders to submit improved offers. The Bank of Greece selected NBG because its offer entailed lower resolution costs (113).

(201)

The Commission observes that the Bank of Greece only contacted four banks (114). The limited set of buyers contacted cannot exclude that the tender was open given the lack of other banks operating in Greece with sufficient size to absorb the tendered assets and with adequate capital at the time of resolution and given the limited interest, at the time of resolution, shown by foreign credit and financial institutions in engaging in banking activities in Greece. Moreover, the Bank of Greece determined in advance the portfolio of the assets and liabilities to be transferred and the timetable the offers should meet in order to be valid. The Commission considers that the sale process was open and non-discriminatory.

(202)

The negative price (that is to say, taking into account the funding gap and the coverage of the aforementioned capital needs) for the assets and liabilities of FB Bank does not preclude that the sale price reflects the market value of the business (115). The Commission has no reason to consider that the offer made and the price paid did not reflect the market price of the business. It is recalled that, under Greek law, the fair value of the transferred assets is initially estimated by the Bank of Greece and then verified and adjusted by external experts during the following six months. As a result, the Commission considers that the sale took place on market terms. On the basis of the above, in line with point 49 of the 2008 Banking Communication, point 20 of the Restructuring Communication and its decisional practice (116), the Commission concludes that State aid to the Bank can be excluded.

(203)

On the basis of recitals 190 to 197, the Commission considers that measures FB1, FB2, FB3, FB4 and FB5 all fulfil the conditions laid down in Article 107(1) of the Treaty and constitute State aid.

(204)

Therefore, the Commission concludes that the activities of FB Bank have received State aid in the form of capital support of EUR 606,97 million (measures FB1, FB4 and FB5), in addition to loans of Greek government securities of EUR 60 million (measure FB2) and State guarantees of EUR 50 million (measure FB3), as summarised in Table 10.

Table 10

Overview of the total aid to FB Bank's activities

(205)

Article 107(3)(b) of the Treaty empowers the Commission to find that aid is compatible with the internal market if it is intended ‘to remedy a serious disturbance in the economy of a Member State’.

(206)

The Commission has acknowledged that the global financial crisis can create a serious disturbance in the economy of a Member State and that measures supporting banks may remedy that disturbance. This has been confirmed in the 2008 Banking Communication, the Recapitalisation Communication, and the Restructuring Communication. The Commission still considers that requirements for State aid to be approved pursuant to Article 107(3)(b) of the Treaty are fulfilled in view of the reappearance of stress in financial markets. The Commission confirmed that view by adopting the 2011 Prolongation Communication (117) and the 2013 Banking Communication (118).

(207)

With respect to the Greek economy, in its decisions approving and prolonging the Greek Banks Support Scheme as well as in its approvals of State aid measures granted by Greece to individual banks, the Commission has acknowledged that there is a threat of serious disturbance in the Greek economy and that State support of banks is suitable to remedy that disturbance. Therefore, the legal basis for the assessment of the aid measures should be Article 107(3)(b) of the Treaty.

(208)

In line with point 15 of the 2008 Banking Communication, in order for an aid to be compatible under Article 107(3)(b) of the Treaty it must comply with the general criteria for compatibility:

(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. It 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. Therefore 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 achieve the measure's objectives.

(209)

During the financial crisis, the Commission has developed compatibility criteria for different types of aid measures. Principles for assessing aid measures were first laid down in the 2008 Banking Communication.

(210)

The Recapitalisation Communication sets out further guidance on the level of remuneration required for State capital injections.

(211)

Finally, the Commission has explained in the Restructuring Communication how it will assess restructuring plans. In its assessment of the restructuring plan of the Bank under the Restructuring Communication, the Commission will take into account all the measures listed in Table 10.

(212)

Measures FB1, FB2 and FB3 were granted under the Greek Banks Support Scheme. The measures included under that scheme have already been assessed as compatible with the internal market in the Commission's Decision of 19 November 2008.

(213)

As regards the appropriateness of measures FB4 and FB5, the Commission considers that those measures are appropriate because they safeguarded the depositors of FB Bank and therefore safeguarded financial stability. Those activities would not have been able to continue without the aid from the HFSF, as FB Bank had a negative equity at the time of the resolution and in the then prevailing difficult market conditions no bank would have acquired a portfolio of assets and liabilities with negative value and which would have worsened its capital adequacy position. The measures thereby ensured that financial stability in Greece would be maintained. On that basis, the Commission finds that the measures are appropriate as rescue aid.

(214)

According to the 2008 Banking Communication, the aid measure must, in its amount and form, be necessary to achieve the objective of the measure. It implies that a capital injection must be of the minimum amount necessary to reach that objective.

(215)

As the Bank of Greece stated in its letter of 8 May 2013, despite the small size of FB Bank, the withdrawal of its license without the application of resolution measures could have damaged depositors' confidence in the Greek banking system and thus an impact on financial stability. Moreover, the Bank of Greece added that among the different resolution options, it favoured the resolution of FB Bank through the application of the Purchase & Assumption procedure in line with the MEFP of December 2012. It considered that that procedure offered an immediate and definite solution to the problems faced by FB Bank. The Commission considers that those financial stability elements support the necessity of measures FB4 and FB5.

(216)

As regards the amount of the intervention, the Bank of Greece in its decision 10/1/10.5.2013 stated that a transfer order of selected assets and liabilities was the preferred solution as it minimised the resolution cost. That decision was also in line with the MEFP of March 2012. Moreover, the Commission observes that the final amount of the funding gap was carefully assessed by the Greek authorities, which took into account the valuation report prepared by a statutory auditor. The contribution exactly covered the difference between the fair value of the transferred assets and the value of the liabilities. Moreover, the HFSF committed to cover the capital needs only up to 9 % of the transferred assets, as estimated by the Bank of Greece. The fact that only the Bank, among the two bidders, agreed to revise its offer supports the conclusion that the contribution was not excessive.

(217)

Furthermore, the equity of FB Bank was not transferred and was therefore left in the liquidated entity, that is to say FB Bank. Therefore, the shareholders will suffer a full loss and the contribution of the HFSF is not inflated by the cost of rescuing them.

(218)

As regards the remuneration of the aid, as previously indicated in recital 195, the HFSF will most probably not fully recover the amount of money contributed (119). It therefore clearly does not receive any remuneration and its contribution is similar to a grant. As indicated in point 44 of the Recapitalisation Communication, an insufficiently remunerated recapitalisation can only be accepted in the case of distressed banks which cannot pay any remuneration. The Commission considers that is the case for FB Bank. The absence of remuneration triggers the need for in-depth restructuring, in line with the Recapitalisation Communication.

(219)

In conclusion, measures FB4 and FB5 are necessary as rescue aid in both its amount and form to achieve the objectives of limiting the disturbance in the Greek banking system and economy as a whole.

(220)

The Commission notes that FB Bank no longer exists as it previously existed. The fact that the aid rescues the activities transferred from could in theory create distortions of competition. However, the Commission takes positive note of the small size of FB Bank and of the sale process in which competitors had the opportunity to bid for the selected assets and liabilities of FB Bank. Moreover, immediately after their transfer, the economic activities of FB Bank were fully integrated within the Bank and ceased to exist as a separate economic activity or competitor. The Commission therefore concludes that the aid does not create undue distortions of competition.

(221)

It is concluded that measures FB4 and FB5 are appropriate and necessary and, in light of the small size of FB Bank and its disappearance as a standalone competitor through its full integration into the Bank, are proportionate to the intended objective, in line with the 2008 Banking Communication and the Recapitalisation Communication.

(222)

As regards the remuneration of measure FB4, the Commission noted in recital 218 that the HFSF will probably not fully recover the EUR 456,97 million injected for the resolution of FB Bank (measure FB4). The absence of remuneration triggers the need for in-depth restructuring, both in terms of viability measures and in terms of measures to limit distortions of competition.

(223)

Point 21 of the Restructuring Communication provides that where the credit institution in difficulty cannot credibly return to long term-viability, its orderly liquidation or its auctioning off should be considered. Member States may therefore encourage the exit of non-viable players while allowing for the exit process to take place within an appropriate time frame that preserves financial stability.

(224)

However, FB Bank was not viable on a standalone basis and was put into liquidation. In that respect, point 17 of the Restructuring Communication clarifies that ‘the sale of an ailing bank to another financial institution can contribute to restoring long-term viability, if the purchaser is viable and capable of absorbing the transfer of the ailing bank and may help restoring market confidence’.

(225)

As stated in section 7.5.2, based on the Bank's restructuring plan, the Bank can be considered as a viable entity. Therefore, the fact that the activities of FB Bank have been transferred to the Bank allows their long-term viability to be restored. Moreover, the fact that FB Bank's activities were fully integrated (120) within the Bank and ceased to operate as a stand-alone competitor constitutes in-depth restructuring as required by the insufficient remuneration of the State aid.

(226)

As explained in recital 216, the selected way of resolving FB Bank ensures the limitation of the restructuring costs to the minimum. First, the funding gap was carefully assessed by the Greek authorities, taking into account a report by independent auditors. Moreover, the HFSF committed to cover the capital needs of the buyer stemming from the transferred activities only up to the minimum amount required by law. In addition, the integration of the economic activities of FB Bank into a larger entity and the concomitant realisation of synergies, through the rationalisation of FB Bank's branch network, the consolidation of the IT infrastructure and the reduction of funding costs, help limit the restructuring costs to the minimum compared to a scenario where the State would have tried to restore FB Bank's viability on a standalone basis.

(227)

The equity and the subordinated debt were not transferred to the Bank but remained in FB Bank, the entity in liquidation. Hence, the Commission considers that sufficient burden-sharing by shareholders was achieved since the latter are entitled to proceeds from the liquidation only if the proceeds are sufficient to repay first the HFSF, which has a priority claim over other creditors. Therefore, given the scarcity of the liquidated assets, the shareholders are unlikely to get their investments back.

(228)

Regarding measures to limit distortions of competition, point 30 of the Restructuring Communication provides that ‘the Commission takes as a starting point for its assessment of the need for such measures, the size, scale and scope of the activities that the bank in question would have upon implementation of a credible restructuring plan […]. The nature and form of such measures will depend on two criteria: first, the amount of the aid and the conditions and circumstances under which it was granted and, second, the characteristics of the market or markets on which the beneficiary bank will operate.’

(229)

The total aid received in form of capital amounts to EUR 606,97 million (measures FB1, FB4 and FB5), in addition to Greek government securities of EUR 60 million (measure FB2) and State guarantees of EUR 50 million (measure FB3). Measure FB1 corresponded to 3,25 % of the FB Bank's RWA as of 31 December 2008. Measure FB4, the financing of the funding gap from FB Bank to the Bank, corresponded to around 33,44 % of the RWA of FB Bank as of 31 March 2013. Measure FB5, by definition, corresponded to 9 % of the transferred RWA of FB Bank to the Bank. Such amounts of aid in combination with the absence of remuneration call for a significant reduction in the market presence of the beneficiary.

(230)

Regarding the market on which FB Bank operated, the Commission notes that FB Bank was a very small bank (less than 0,5 % share of Greek banks' total assets and a market share of less than 1 % for loans and deposits in Greece) and consequently the assets and liabilities of FB Bank which were transferred into the Bank were small when compared with the size of the Greek banking system.

(231)

Moreover, the activities of FB Bank were offered to competitors through an open auction. Following its sale, FB Bank ceased to exist as a stand-alone competitor as the transferred activities were fully integrated within the Bank.

(232)

It is concluded that given the small size of the transferred activities, the open sales process, and the full integration of FB Bank's activities into the Bank, there are no undue distortions of competition, despite the very large amount of aid and the absence of remuneration.

(233)

On the basis of that analysis, it is concluded that the sale of selected assets and liabilities of FB Bank and their integration into the Bank ensure that FB Bank's activities return to long-term viability, that the aid is limited to the minimum necessary and that there are no undue distortions of competition, in line with the Restructuring Communication.

(234)

All the aid measures listed in Table 10 are thus compatible with the internal market.

(235)

The Commission first has to assess whether the measures constitute State aid within the meaning of Article 107(1) of the Treaty.

(236)

The HFSF is an entity set up and financed by Greece to support banks. Measures PB1 and PB2 therefore involve State resources. Measures PB1 and PB2 are also selective in nature, since they only benefit Probank's activities.

(237)

Moreover measures PB1 and PB2 provide Probank's activities with a clear advantage by keeping them alive. The transfer order in that case is a sale ‘en bloc’ as, while the equity will not be transferred, the key productive banking assets will be transferred (branches, deposits and loans).

(238)

Measures PB1 and PB2 do not comply with the MEIP. In fact, the HFSF has no prospect of making a profit on its contribution: in exchange for its contribution, it did not receive any claim against the Bank but only a claim against the entity under liquidation, that is to say Probank (121). Therefore, the HFSF will probably not fully recover the money contributed.

(239)

That selective advantage which measures PB1 and PB2 provide distorts competition by keeping one banking activity alive, allowing it to operate on the market and to compete with other banks which are active in Greece or potentially interested in entering the Greek market. Hence, measures PB1 and PB2 have an effect on trade between Member States and potentially distort competition.

(240)

It is therefore concluded that the coverage by the HFSF of the funding gap from Probank to the Bank, for an amount of EUR 562,73 million and the commitment of the HFSF to cover the capital needs related to the transferred assets, which may amount to EUR [180 to 280] million, constitute State aid within the meaning of Article 107(1) of the Treaty.

(241)

Probank's activities are the beneficiary of measures PB1 and PB2, as the latter allowed the continuation of those activities within the Bank.

(242)

As to whether the sale of Probank's activities constitutes State aid to the Bank, in line with point 49 of the 2008 Banking Communication the Commission needs to assess whether certain requirements are met. It needs to examine in particular whether (i) the sale process was open and non-discriminatory; (ii) the sale took place on market terms; and (iii) the financial institution or the government maximised the sale price for the assets and liabilities involved.

(243)

The Bank acquired the assets and liabilities of Probank because it submitted the preferred offer in the framework of a non-discriminatory tender procedure open to other banks. The Bank of Greece decided to contact only the four largest banks operating in Greece, of which only the Bank and one other bank submitted offers. The Bank was the preferred bidder in terms of price and expected synergies.

(244)

The Bank of Greece only contacted four banks. The limited set of buyers contacted cannot exclude that the tender was open given the lack of other banks operating in Greece with sufficient size to absorb the tendered activities and with adequate capital at the time of resolution. In addition, until the resolution of Probank, no foreign credit and financial institution had submitted a valid binding proposal to acquire Probank despite the repeated postponement of the deadline. At the time of the resolution, the interest shown by foreign credit and financial institutions in engaging in banking activities in Greece was very limited. Moreover, the Bank of Greece had determined in advance the portfolio of the assets and liabilities to be transferred and the timetable which the offers had to meet in order to be valid. Therefore, the Commission concludes that the sale process was open and non-discriminatory.

(245)

The negative price (that is to say, taking into account the funding gap and the coverage of the aforementioned capital needs) for the assets and liabilities of Probank does not preclude that the sale price reflects the market value of the business (122). The Commission has no reason to consider that the offer made and the price paid did not reflect the market price of the business. Indeed, the fair value of the assets had been estimated by the Bank of Greece and verified by external auditors. As a result, the Commission considers that the sale took place on market terms. On the basis of the above, in line with point 49 of the 2008 Banking Communication, point 20 of the Restructuring Communication and the Commission's decisional practise (123), it is concluded that State aid to the Bank can be excluded.

(246)

On the basis of recitals 236 to 240, the Commission considers that measures PB1 and PB2 fulfil the conditions laid down in Article 107(1) of the Treaty and constitute State aid.

(247)

Therefore, it is concluded that the activities of Probank have received State aid in the form of capital support of EUR [742,7 to 842,7] million (measures PB1 and PB2), as summarised in Table 11.

Table 11

Overview of the total aid to Probank's activities

(248)

Article 107(3)(b) of the Treaty empowers the Commission to find that aid is compatible with the internal market if it is intended ‘to remedy a serious disturbance in the economy of a Member State’.

(249)

As explained in recitals 206 and 207, the legal basis at present for the assessment of aid measures to Greek banks should be Article 107(3)(b) of the Treaty.

(250)

As explained in recital 208, in line with point 15 of the 2008 Banking Communication, in order for an aid to be compatible under Article 107(3)(b) of the Treaty it must comply with the general criteria for compatibility: appropriateness, necessity and proportionality.

(251)

The Recapitalisation Communication sets out further guidance on the level of remuneration required for State capital injections.

(252)

Finally, the Commission has explained in the Restructuring Communication how it will assess restructuring plans. In its assessment of the restructuring plan under the Restructuring Communication, the Commission will take into account all measures listed in Table 11.

(253)

As regards the appropriateness of measures PB1 and PB2, the Commission considers that the coverage of the funding gap and the commitment to cover the capital needs of the buyer related to the transferred assets are appropriate because they allowed a sale, safeguarded the depositors of Probank and thereby safeguarded financial stability. Those activities would not have been able to continue without the aid from the HFSF, as Probank had a negative equity at the time of the resolution. In the difficult market conditions which then prevailed, no bank would have acquired a portfolio of assets and liabilities with negative value that would have worsened its capital adequacy position. On 10 May 2013, the Bank of Greece appointed a commissioner in Probank, whose task was also to ensure that any necessary measures would be taken for the completion of the share capital increase of Probank. The fact that no private investor submitted a final binding proposal for the acquisition of Probank until the time of the resolution, despite the efforts of the commissioner appointed in Probank and the repeated extension of the deadline for the share capital increase of Probank, supports the finding that those activities would not have been able to continue without the aid received from the HFSF. The measures thereby ensured that financial stability in Greece was maintained. On that basis, the Commission finds that the measures are appropriate as rescue aid.

(254)

According to the 2008 Banking Communication, the aid measure must, in its amount and form, be necessary to achieve the objective of the measure. It implies that a capital injection must be of the minimum amount necessary to reach that objective.

(255)

The MEFP of May 2013 provided that for those non-core banks (124) which did not meet their capital requirement, the Bank of Greece, in coordination with the HFSF, would assess options to minimise the cost to taxpayers, including Purchase & Assumption procedures, while guaranteeing the security of depositors.

(256)

As the Bank of Greece stated in its decision of 26 July 2013 (125), the withdrawal of Probank's license without the application of resolution measures could have an impact on financial stability.

(257)

The Commission considers that those financial stability elements support the necessity of measures PB1 and PB2.

(258)

As regards the amount of the measure, the funding gap was carefully assessed by the Greek authorities, taking into account the valuation report prepared by a statutory auditor. The contribution exactly covered the difference between the fair value of the transferred assets and the value of the liabilities. The Bank of Greece in its decision 12/1/26.7.2013 stated that a transfer order of selected assets and liabilities was the preferred solution as it minimised the resolution cost. That decision is also in line with the Second Economic Adjustment Programme for Greece of July 2013. Moreover, the HFSF committed to cover the capital needs only up to 9 % of the transferred assets, as they were estimated by the Bank of Greece.

(259)

Furthermore, the equity was not transferred to the Bank and therefore will be left in the entity into liquidation. Therefore, the shareholders of Probank will suffer a full loss and the contribution of the HFSF is not inflated by the cost of rescuing them.

(260)

As regards the remuneration of the aid, as indicated previously in recital 238, the HFSF will most probably not fully recover the money contributed. It therefore clearly does not receive any remuneration and its contribution is similar to a grant. As indicated in point 44 of the Recapitalisation Communication, an insufficiently remunerated recapitalisation can only be accepted in the case of distressed banks which cannot pay any remuneration. The Commission considers that to be the case for Probank. The absence of remuneration triggers the need for in-depth restructuring, in line with the Recapitalisation Communication.

(261)

In conclusion, the measures are necessary as rescue aid in both its amount and form to achieve the objectives of limiting the disturbance in the Greek banking system and the economy as a whole.

(262)

Probank no longer exists as it previously existed. The fact that the aid rescues the activities transferred to the Bank could in theory create distortions of competition. However, the Commission notes the small size of Probank and the sale process, in which the competitors had the opportunity to bid for the selected assets and liabilities of Probank. Moreover, immediately after their transfer, the economic activities of Probank were fully integrated within the Bank and ceased to exist as a separate economic activity or competitor. The Commission therefore concludes that the aid does not create undue distortions of competition.

(263)

It is concluded that measures PB1 and PB2 are appropriate and necessary and, in the light of the deep restructuring foreseen for the Bank, into which the economic activities of Probank have been transferred, are proportionate to the intended objective, in line with the 2008 Banking Communication and the Recapitalisation Communication.

(264)

In recital 260 the Commission noted as regards the remuneration of measure PB1 that the HFSF will probably not fully recover the EUR 562,73 million injected for the resolution of Probank (measure PB1). The absence of remuneration triggers the need for in-depth restructuring, both in terms of viability measures and in terms of measures to limit distortions of competition.

(265)

Point 21 of the Restructuring Communication provides that where the credit institution in difficulty cannot credibly return to long term-viability, its orderly liquidation or its auctioning off should be considered. Member States may therefore encourage the exit of non-viable players while allowing for the exit process to take place within an appropriate timeframe that preserves financial stability.

(266)

However, Probank was not viable on a standalone basis and was put into liquidation. In that respect, point 17 of the Restructuring Communication clarifies that ‘the sale of an ailing bank to another financial institution can contribute to restoring long-term viability, if the purchaser is viable and capable of absorbing the transfer of the ailing bank and may help restoring market confidence’.

(267)

As stated in section 7.5.2, based on the Bank's restructuring plan, the Bank can be considered as a viable entity. Therefore, the fact that the activities of Probank have been transferred to the Bank allows their long-term viability to be restored. Moreover, the fact that Probank's activities were fully integrated (126) within the Bank and ceased to operate as an independent entity constitutes in-depth restructuring as required by the insufficient remuneration of the State aid.

(268)

As explained in recital 258, the selected way of resolving Probank ensures the limitation of the restructuring costs to the minimum. First, the funding gap was carefully assessed by the Greek authorities, taking into account a report by independent auditors. Moreover, the HFSF committed to cover the capital needs of the buyer stemming from the transferred assets only up to the minimum amount required by law. In addition, the integration of the economic activities of Probank into a larger entity and the concomitant realisation of synergies, in particular through the rationalisation of Probank's branch network, the consolidation of the IT infrastructure and the reduction of funding costs, contribute to the limitation of the restructuring costs to the minimum, compared to a scenario where the State would have tried to restore Probank's viability on a standalone basis.

(269)

The equity and the subordinated debt were not transferred to the Bank but remained in the entity in liquidation. Hence, the Commission considers that sufficient burden-sharing by shareholders was achieved since the latter are entitled to proceeds from the liquidation only if the proceeds are sufficient to repay first the HFSF, which has a priority claim over other creditors. Therefore, given the scarcity of the liquidated assets, the shareholders are unlikely to get their investments back.

(270)

Regarding measures to limit distortions of competition, point 30 of the Restructuring Communication provides that ‘the Commission takes as a starting point for its assessment of the need for such measures, the size, scale and scope of the activities that the bank in question would have upon implementation of a credible restructuring plan […]. The nature and form of such measures will depend on two criteria: first, the amount of the aid and the conditions and circumstances under which it was granted and, second, the characteristics of the market or markets on which the beneficiary bank will operate.’

(271)

Regarding the amount of aid received, the total aid received in the form of capital amounted to EUR [742,7 to 842,7] million (measures PB1 and PB2). Measure PB1 corresponded to around 21,15 % of the RWA of Probank at 30 June 2013. Measure PB2, by definition, corresponded to […] % of the assets transferred from Probank. Such amounts of aid in combination with the absence of remuneration call for a significant reduction in the market presence of the beneficiary.

(272)

Regarding the market on which Probank operated, the Commission notes that Probank was a very small bank (approximately 1 % of Greek banks' total assets and a market share of about 1 % for loans and less than 2 % for deposits) and consequently the assets and liabilities of Probank which were transferred into the Bank were small compared with the size of the Greek banking system.

(273)

Moreover, the activities of Probank were offered to competitors through an open auction. Following its sale, Probank ceased to exist as a stand-alone competitor as the transferred activities were fully integrated within the Bank.

(274)

It is concluded that given the small size of the transferred activities, the open sales process, and the full integration of Probank's activities into the Bank, there are no undue distortions of competition, despite the very large amount of aid and the absence of remuneration.

(275)

On the basis of that analysis, the Commission concludes that the sale of the selected assets and liabilities of Probank and their integration into the Bank ensures Probank's activities return to long-term viability, that the aid is limited to the minimum necessary and that there are no undue distortions of competition, in line with the Restructuring Communication.

(276)

All the aid measures listed in Table 11 are thus compatible with the internal market.

(277)

The Commission has to establish the existence of State aid within the meaning of Article 107(1) of the Treaty.

(278)

The Commission has already established in the decisions approving and prolonging the Greek Banks Support Scheme (127) that liquidity support granted under the scheme constitutes aid. The outstanding amount of guarantees as of 15 April 2011 was EUR 12 873 million, and reached EUR 14 798 million as of 30 November 2013. At those dates, the outstanding loans of government bonds to the Bank amounted to EUR 787 million and EUR 847 million respectively. Future liquidity support granted under that scheme would also constitute aid.

(279)

The Commission has already established in the Decision of 19 November 2008 on the Greek Banks Support Scheme that recapitalisations to be granted under the recapitalisation measure included under that scheme will constitute aid. The Bank has received EUR 1 350 million by means of preference shares, which represents 2,1 % of the Bank's RWA (128).

(280)

In 2010, Greece introduced several changes to the technical parameters of those preference shares whereby, if the preference shares are not redeemed within five years, the coupon then increases by 2 % each year. Given that the changes increase the remuneration of the State in the event that they would not be redeemed or converted after five years, the Commission concludes that the modifications of the technical parameters do not provide any advantage to the Bank and hence do not involve additional State aid.

(281)

The Commission clarified in point 51 of the 2008 Banking Communication that the provision of central banks' funds to financial institutions does not constitute aid if four cumulative conditions are met regarding the solvency of the financial institution, the collateralisation of the facility, the interest rate charged to the financial institution, and the absence of counter-guarantee from the State. Since the State-guaranteed ELA granted to the Bank does not comply with those four cumulative conditions, notably because it is State-guaranteed and it is granted in conjunction with other support measures, it cannot be concluded that the State-guaranteed ELA does not constitute State aid.

(282)

The State-guaranteed ELA meets the conditions laid down in Article 107(1) of the Treaty. First, because that measure includes a State guarantee in favour of the Bank of Greece, any loss will be borne by the State. The measure therefore involves State resources. The State-guaranteed ELA enables banks to get funding at a time when they have no access to the wholesale funding market and to the standard Eurosystem refinancing operations. The State-guaranteed ELA therefore grants an advantage to the Bank. Since the State-guaranteed ELA is limited to the banking sector, the measure is selective. Because the State-guaranteed ELA allows the Bank to continue operating on the market and avoids it defaulting and having to exit the market, it distorts competition. Since the Bank is active in other Member States and since financial institutions from other Member States operate or would potentially be interested in operating in Greece, the advantage granted to the Bank affects trade between Member States.

(283)

On the basis of the above, the Commission considers that the State-guaranteed ELA (measure L2) constitutes State aid. The amount of State-guaranteed ELA has varied over time. On 31 December 2012, it amounted to around EUR 30,9 billion.

(284)

In section 5.1 of the NBG Opening Decision, the Commission has already concluded that the first bridge recapitalisation constitutes State aid. The capital received amounted to EUR 7 430 million.

(285)

Measure B2 was implemented with HFSF resources, which, as explained in recital 49 of the NBG Opening Decision, involved State resources.

(286)

As regards the existence of an advantage, measure B2 increased the Bank's capital ratio to a level that allowed it to continue functioning on the market and accessing Eurosystem funding. Furthermore, the remuneration of measure B2 consists of the accrued interests on EFSF notes and an additional 1 % fee. Because that remuneration is manifestly lower than the remuneration of similar capital instruments in the market, the Bank would have certainly been unable to raise that capital on such terms in the market. Therefore, measure B2 granted an advantage to the Bank from State resources. As the measure was made available only to the Bank, it was selective in nature.

(287)

The position of the Bank was strengthened as a result of measure B2 since the Bank was provided with the financial resources necessary to continue complying with the capital requirements, thus leading to distortions of competition. Since the Bank is active in banking markets in other Member States and since financial institutions from other Member States operate in Greece, notably in the insurance market, measure B2 also affects trade between Member States.

(288)

The Commission considers that measure B2 constitutes State aid. It was notified as aid by the national authorities. The capital received amounted to EUR 2 326 million.

(289)

The HFSF's participation in the Spring 2013 recapitalisation (measure B3) is the partial conversion of the first and second bridge recapitalisations (measures B1 and B2) into a permanent recapitalisation of EUR 8 677 million in ordinary shares. Since measure B3 is the conversion of aid already granted, it still involves State resources but it does not increase the nominal amount of aid. However, for a given nominal amount of aid, it increases the advantage to the Bank (and therefore the distortions of competition) since it is a permanent recapitalisation and not a temporary recapitalisation as in the case of measures B1 and B2.

(290)

Such support was not granted to all banks operating in Greece. As regards distortions of competition and effect on trade, the Commission notes for instance that the aid enabled the Bank to pursue its operations in other Member States, such as Romania or Bulgaria. A liquidation of the Bank would have led to the termination of its activities abroad, through the liquidation of those activities or the sale of those businesses. In addition, the insurance activities of the Bank in Greece compete with the activities of subsidiaries of insurance companies from other Member States. Therefore, the measure distorts competition and affects trade between Member States. The Commission considers that measure B3 therefore constitutes State aid.

(291)

Measures B1, B2, and B3 constitute State aid within the meaning of Article 107(1) of the Treaty. The amount of State aid included in measures B1, B2, and B3 is EUR 9 756 million. As indicated in section 7.1.3.3, only part of the first and second bridge recapitalisations (measures B1 and B2) was converted into a permanent recapitalisation of EUR 8 677 million (measure B3), while the balance was repaid to the HFSF six months after it was granted (129).

(292)

Point 31 of the Restructuring Communication indicates that, besides the absolute amount of aid, the Commission has to take into account the aid ‘in relation to the bank's risk-weighted assets’. Measures B1, B2, and B3 were granted over the course of a one-year period, from April 2012 (130) until May 2013. During that period, the RWA of the Bank changed. The question therefore arises as to which level of RWA should be used, and particularly whether the State aid should be assessed by reference to the RWA that existed at the beginning of the period or at the end of the period. Measures B1, B2, and B3 aim at covering a capital need identified by the Bank of Greece in March 2012 (the stress test of 2012). In other words, the capital needs that those State support measures aim to address already existed in March 2012. The Commission therefore considers that the aid amount included in measures B1, B2, and B3 should be compared to the RWA of the Bank at 31 March 2012. It is also recalled that, after March 2012 and until the Spring 2013 recapitalisation, the Bank of Greece did not take into account acquisitions made by Greek banks to adjust their capital needs upwards or downwards. That factor further demonstrates that measures B1, B2, and B3 were aid measures related to the perimeter of the Bank as it existed at 31 March 2012.

(293)

The first and second bridge recapitalisations together amounted to EUR 9 756 million. That amount represents 15,3 % of the RWA of the Bank at 31 March 2012.

(294)

Since the Bank managed to attract private capital, the actual amount injected by the HFSF into the Bank amounted to only EUR 8 677 million, which represents 13,6 % of the RWA of the Bank at 31 March 2012.

(295)

Measures A, B1, B2, B3, L1 and L2 constitute State aid within the meaning of Article 107(1) of the Treaty. Those measures are summarised in Table 12.

Table 12

Overview of the total aid received by the Bank

(296)

As concluded in recital 207, the legal basis for the assessment of the aid measures should be Article 107(3)(b) of the Treaty (131).

(297)

During the financial crisis, the Commission has developed compatibility criteria for different types of aid measures. Principles for assessing aid measures were first laid down in the 2008 Banking Communication.

(298)

Guidance for recapitalisation measures can be found in the Recapitalisation Communication and the 2011 Prolongation Communication.

(299)

The Restructuring Communication defines the approach adopted by the Commission as regards the assessment of restructuring plans, in particular the need to return to viability, to ensure a proper contribution from the beneficiary and to limit distortions of competition.

(300)

That framework was complemented by the 2013 Banking Communication, which applies to aid measures notified or granted without prior approval after 31 July 2013.

(301)

The liquidity support already received by the Bank has been definitively approved through the successive decisions authorising the measures under the Greek Banks Support Scheme and the Scheme's amendments and prolongations (132). Any future liquidity support for the Bank will have to be granted under a scheme duly approved by the Commission. The terms of such aid will have to be authorised by the Commission before it is granted and therefore do not have to be further assessed in this decision.

(302)

The recapitalisation granted in 2009 in the form of preference shares (measure A), was granted under the recapitalisation measure of the Greek Banks Support Scheme, which was approved in 2008 under the 2008 Banking Communication. It therefore does not have to be reassessed under the 2008 Banking Communication and must be assessed under the Restructuring Communication only.

(303)

The compatibility of the State-guaranteed ELA (measure L2) should be first assessed on the basis of the 2008 Banking Communication and the 2011 Prolongation Communication. Any State-guaranteed ELA granted after 31 July 2013 falls under the 2013 Banking Communication.

(304)

The compatibility of the HFSF recapitalisations (measures B1, B2 and B3), in particular as regards remuneration, should first be assessed on the basis of the 2008 Banking Communication, the Recapitalisation Communication and the 2011 Prolongation Communication. In the NBG Opening Decision the Commission expressed doubts as to the compatibility of measure B1 with those Communications. Since they were implemented before 1 August 2013, those measures do not fall under the 2013 Banking Communication. The compatibility of the HFSF recapitalisations (measures B1, B2 and B3) should also be assessed on the basis of the Restructuring Communication.

(305)

In order for an aid to be compatible under Article 107(3)(b) of the Treaty it must comply with the general criteria for compatibility: appropriateness, necessity and proportionality.

(306)

Because Greek banks were shut out from wholesale markets and became entirely dependent on central bank financing, as indicated in recital 46, and since the Bank could not borrow a sufficient amount of funds through the standard refinancing operations, the Bank relied on State-guaranteed ELA to obtain sufficient liquidity thereby preventing it from defaulting. The Commission considers measure L2 to be an appropriate mechanism to remedy the serious disturbance which would have been caused by the default of the Bank.

(307)

Since the State-guaranteed ELA entails a relatively high cost of funding for the Bank, the Bank has a sufficient incentive to avoid relying on that source of funding for developing its activities. The Bank had to pay an interest rate of […] bps higher than standard refinancing operations with the Eurosystem. In addition, the Bank had to pay a guarantee fee of […] bps to the State. As a result, the total cost of State-guaranteed ELA for the Bank is much higher than the normal costs of ECB refinancing. In particular, the difference between the former and the latter is higher than the level of the guarantee fee requested by the 2011 Prolongation Communication. As a result, the total remuneration charged by the State can be considered as sufficient. As regards the amount of the State-guaranteed ELA, it is regularly reviewed by the Bank of Greece and the ECB based on the actual needs of the Bank. They closely monitor its use and ensure it is limited to the minimum necessary. Therefore measure L2 does not provide the Bank with excess liquidity which could be used to finance activities distorting competition. It is limited to the minimum amount necessary.

(308)

Such close scrutiny of the use of the State-guaranteed ELA and regular verification that its use is limited to the minimum also ensures that that liquidity is proportionate and does not lead to undue distortion of competition. The Commission also notes that Greece has given a commitment that the Bank will implement a restructuring plan reducing its reliance on central bank funding and that the Bank will comply with behavioural limitations, as analysed in section 7.6. This ensures that the reliance on liquidity support will end as soon as possible and that such aid is proportionate.

(309)

Measure L2 therefore complies with the 2008 Banking Communication and the 2011 Prolongation Communication. As the 2013 Banking Communication has not introduced further requirements as regards guarantees, measure L2 also complies with the 2013 Banking Communication.

(310)

As indicated in recital 305, in order for an aid to be compatible under Article 107(3)(b) of the Treaty it must comply with the general criteria for compatibility (133): appropriateness, necessity and proportionality.

(311)

The Recapitalisation Communication and the 2011 Prolongation Communication set out further guidance on the level of remuneration required for State capital injections.

(312)

The Commission considers the HFSF recapitalisations (measures B1, B2 and B3) to be appropriate because they prevent the bankruptcy of the Bank. Without them, its activities could not have continued as the Bank had a negative equity at the end of 2012 (134).

(313)

In that respect, the Commission noted in the NBG Opening Decision that the Bank is one of the largest banking institutions in Greece, both in terms of lending and collection of deposits. As such, the Bank is a systemically important bank for Greece. Consequently, a default of the Bank would have created a serious disturbance in the Greek economy. Under the then prevailing circumstances, financial institutions in Greece had difficulties in accessing funding. That lack of funding limited their ability to provide loans to the Greek economy. In that context, the disturbance to the economy would have been aggravated by the default of the Bank. Moreover, measures B1, B2 and B3 came about mainly because of the PSI programme, a highly extraordinary and unpredictable event, and not primarily as a result of mismanagement or excessive risk-taking by the Bank. The measures thereby deal principally with the results of the PSI programme and contribute to maintaining financial stability in Greece.

(314)

In the NBG Opening Decision, the Commission expressed doubts as to whether all steps possible had been taken immediately to avoid the Bank needing aid again in the future. As indicated in recitals 156, 157 and 158 of this Decision, Greece has given a commitment to implement a number of actions related to the corporate governance and commercial operations of the Bank. As described in section 2.4, the Bank has also started to restructure its activities, with cost reductions already implemented. Therefore the Commission's doubts have been allayed.

(315)

In the NBG Opening Decision, the Commission also expressed doubts as to whether sufficient safeguards existed in the event that the Bank came under State control, or in the event that private shareholders retained control while the majority of the ownership would be held by the State. The commitments described in recitals 156, 157 and 158 ensure the credit operations of the Bank will be run on a commercial basis and daily business will be protected from State interference. The relationship framework agreed between the HFSF and the Bank also ensures that the interests of the State as main shareholder are protected against excessive risk-taking by the management of the Bank.

(316)

Measures B1, B2 and B3 thereby ensure that financial stability in Greece is maintained. Significant actions have been taken to minimise future losses and to ensure that the activities of the Bank are not jeopardised by inappropriate governance. On that basis, the Commission finds that measures B1, B2 and B3 are appropriate.

(317)

According to the 2008 Banking Communication, the aid measure must, in its amount and form, be necessary to achieve the objective. It means that the capital injection must be of the minimum amount necessary to achieve the objective.

(318)

The amount of capital support was calculated by the Bank of Greece in the framework of the stress test of 2012 so as to ensure that the Bank's Core Tier 1 ratio remained above a certain level over the period 2012-14, as reflected in Table 3. Measures B1, B2 and B3 therefore do not provide the Bank with excess capital. As explained in recital 314, actions have been taken to reduce the risk that the Bank might need additional aid in the future.

(319)

As regards the remuneration of the first and second bridge recapitalisations (measures B1 and B2), the Commission recalls that they were granted in May and December 2012, and paid in kind in the form of EFSF notes. The HFSF has received as remuneration, from the date of disbursement of those EFSF notes to the date of the Spring 2013 recapitalisation, the accrued interests on the EFSF notes plus a 1 % fee (135). As underlined in the NBG Opening Decision, that remuneration is lower than the 7 % to 9 % range defined in the Recapitalisation Communication. However, the period of low remuneration was limited to one year for measure B1 and five months for measure B2 (that is to say, until the conversion of the bridge recapitalisation into a standard recapitalisation in ordinary shares, namely measure B3). While the first and second bridge recapitalisations did not trigger the dilution of existing shareholders, the Spring 2013 recapitalisation, which was the partial conversion of the first and second bridge recapitalisations, heavily diluted the pre-existing shareholders, as their stake in the Bank's equity fell to 5,1 %. The abnormal situation which prevailed from the date of the first bridge recapitalisation was then terminated. The doubts raised in the NBG Opening Decision have therefore been allayed.

(320)

Furthermore, given the atypical source of the Bank's difficulties, where losses come mainly from a debt waiver in favour of the State (the PSI programme and the debt buy-back, which provide a significant advantage to the State, that is to say, a debt reduction) and from the consequences of a protracted recession in the domestic economy of the Bank, the Commission can accept such a temporary deviation from the standard remuneration requirements set in the Recapitalisation Communication (136).

(321)

As regards measure B3, according to point 8 of the 2011 Prolongation Communication, capital injections should be subscribed at a sufficient discount to the share price adjusted for the dilution effect to give a reasonable assurance of an adequate remuneration for the State. While measure B3 did not provide for a significant discount to the share price as adjusted for the dilution effect, it was, in fact, impossible to achieve a significant discount to the theoretical ex-right price (137). Prior to the Spring 2013 recapitalisation, the capital of the Bank was negative and its market capitalisation was only a small fraction of the amount of the capital increase to be completed. In such circumstances, the question arises whether the existing shareholders should have been fully wiped out. The Commission notes that the issue price was set at a 50 % discount to the average market price over the fifty days preceding the determination of the issue price. The Commission also notes that the dilution of the pre-existing shareholders was huge since after that recapitalisation they held only 5,1 % of the shareholding of the Bank. Therefore, applying a further discount on the market price would only have had a limited impact on the remuneration of the HFSF. In view of the specific situation of the Greek banks explained in recital 320, and given the fact that the need for aid stems from a waiver of debt in favour of the State, the Commission considers that the issue price of the shares subscribed by the State was sufficiently low.

(322)

The HFSF also issued warrants and granted one warrant for each new share subscribed by a private investor participating in the Spring 2013 recapitalisation. The HFSF granted those warrants for no consideration. As explained in recital 112, each warrant incorporates the right to purchase 8,23 shares of the HFSF at specified intervals and strike prices. The exercise price is equal to the subscription price of the HFSF increased by an annual and cumulative margin (4 % for year one, 5 % for year two, 6 % for year three, 7 % for year four and then 8 % annualised for the last six months). The remuneration received by the HFSF on the shares it owns is de facto capped at those levels. That remuneration is lower than the 7 % to 9 % range defined in the Recapitalisation Communication. However, because those warrants were a key factor in the success of the rights issue and private placement launched by the Bank before the Spring 2013 recapitalisation, the Commission considers that those warrants enabled the Bank to reduce the amount of aid by EUR 1 079 million. Indeed due to the low capital ratio of the Bank prior to the recapitalisation and the high uncertainty at that time, the simulations which were then available showed that without the warrants private investors would not have achieved a sufficient return and would not have participated. For the reasons explained in recitals 313 and 320, because the HFSF would receive a minimal positive remuneration if the warrants were exercised and because it was an objective of the MEFP to attract some private investors to keep some banks under private management, and avoid situations where the whole banking sector would be controlled by the HFSF, the Commission can accept such a deviation from the standard remuneration requirements set out in the Recapitalisation Communication. That acceptance is also based on the fact that the HFSF law, as amended in March 2014, does not provide for any adjustment of the warrants in the event of a non-pre-emptive share capital increase, and that in the event of a rights issue, only the warrant strike price may be adjusted and the adjustment may take place only ex post and only up to the amount of the proceeds realised from the sale of pre-emption rights of the HFSF. Moreover, the commitment given by Greece that it would seek the approval of the Commission prior to any buy-back of the warrants issued by the HFSF will allow the Commission to ensure that potential future buy-backs do not further reduce the remuneration of the HFSF and increase the remuneration of the warrant holders.

(323)

As regards the fact that the HFSF shares are non-voting, the Commission recalls that the need for aid does not come mainly from excessive risk taking. In addition, it was an objective of the programme between the Greek government, the Union, the IMF and the ECB to keep some banks under private management. Moreover, the relationship framework and automatic reintroduction of voting rights in the event of non-implementation of the restructuring plan provide safeguards against future excessive risk taking by private managers. Finally, the PSI and the December 2012 buy-back are a kind of remuneration to the State, as the latter enjoyed a reduction of its debt towards the Bank by several billions euros. For all those reasons, the Commission can accept that the HFSF receives non-voting shares. The Commission therefore concludes that measure B3 was necessary.

(324)

In conclusion, measures B1, B2 and B3 are necessary as rescue aid in both their amount and form.

(325)

The Bank has received a very large amount of State aid. That situation may therefore lead to serious distortions of competition. However, Greece has given a commitment to implement a number of measures aiming at reducing negative spill-over effects. In particular, the commitments provide that the Bank's operations will continue to be run on a commercial basis, as explained in recitals 157 and 158. Greece has also committed to an acquisition ban, as well as to a number of divestments abroad and in non-banking activities in Greece, as set out in recital 159. Limits to distortions of competition will be further assessed in section 7.6.

(326)

A monitoring trustee has been appointed in the Bank to monitor the correct implementation of commitments on corporate governance and commercial operations. That will avoid any detrimental change in the Bank's commercial practice and thereby reduce the potential negative spill-over effects.

(327)

Finally, a new comprehensive restructuring plan was submitted on 25 June 2014 to the Commission. That restructuring plan will be assessed in section 7.6.

(328)

To conclude, the doubts raised in the NBG Opening Decision have been allayed. Measures B1, B2 and B3 are proportionate in the light of point 15 of the 2008 Banking Communication.

(329)

It is thus concluded that the HFSF recapitalisations (measures B1, B2 and B3) are appropriate, necessary and proportionate, in the light of point 15 of the 2008 Banking Communication, of the Recapitalisation Communication and of the 2011 Prolongation Communication. Measures B1, B2 and B3 therefore comply with the 2008 Banking Communication, the Recapitalisation Communication and the 2011 Prolongation Communication.

(330)

Point 23 of the Restructuring Communication explains that acquisitions of undertakings by aided banks cannot be financed through State aid unless this is essential for restoring an undertaking's viability. Furthermore, points 40 and 41 of the Restructuring Communication state that banks must not use State aid for the acquisition of competing businesses, unless the acquisition is part of a consolidation process necessary to restore financial stability or to ensure effective competition. In addition, acquisitions may endanger or complicate the restoration of viability. The Commission must therefore assess whether the acquisitions made by the Bank can be reconciled with the Restructuring Communication.

(331)

The acquisition of the selected assets and liabilities of the three Cooperative Banks enhances the long-term viability of the Bank.

(332)

More precisely, at the time of the acquisition, the Greek banks had already observed significant deposit outflows between 2010 and mid-2012 and were excluded from the international funding markets. This is the reason why four of the five largest Greek banks submitted bids to acquire the deposits of the three Cooperative Banks. The integration of the deposits of the three Cooperative Banks into the Bank's balance sheet was beneficial for its liquidity profile. If the Bank had not acquired the deposits of the three Cooperative Banks, the Bank's net loans-to-deposits ratio would have been higher.

(333)

Furthermore, the Bank quickly integrated the acquired deposits without taking over any costly infrastructure or costly branch network. In addition, the Bank took over no loans; hence the acquisition did not increase its risks or its capital requirements.

(334)

In line with point 23 of the Restructuring Communication, restructuring aid should not be used for the acquisition of other companies but merely to cover restructuring costs which are necessary to restore the viability of the Bank. In this case, although the acquisition has positive implications for the Bank's viability, it is not essential for its viability within the meaning of point 23 of the Restructuring Communication.

(335)

However, the purchase price was very low. The consideration paid by the Bank for the acquisition of the transferred liabilities of all three Cooperative Banks was determined at […] % of the value of the transferred deposits and amounted to less than EUR […] million, equivalent to approximately [0 to 0,02] % of the total assets of the Bank as of December 2011. That consideration can therefore be considered as very low.

(336)

It is concluded that the acquisition of the three Cooperative Banks did not undermine the limitation of the restructuring costs to the minimum necessary.

(337)

In line with points 39 and 40 of the Restructuring Communication, State aid should not be used to the detriment of non-aided companies for the acquisition of competing businesses. Point 41 of the Restructuring Communication also states that acquisitions may be authorised if they are part of a consolidation process necessary to restore financial stability or to ensure effective competition, that the acquisition process should be fair and that the acquisition should ensure the conditions of effective competition in the relevant market.

(338)

The Bank of Greece considered the three Cooperative Banks not to be viable and the adoption of the resolution measures to be necessary in order to maintain financial stability. The acquisition of the three Cooperative Banks can therefore be considered to be part of a consolidation process which is necessary to restore financial stability of the kind described in point 41 of the Restructuring Communication.

(339)

In addition, the purchase price was very low. No non-aided bidder submitted any valid bid to acquire the assets and liabilities of the three Cooperative Banks, and the sale process was open and non-discriminatory. The acquisition of the selected assets and liabilities of Achaia Bank by the Bank was also authorised (138) by the Hellenic Competition Authority (139). It can therefore be assumed that the outcome of the sale process does not endanger effective competition in Greece.

(340)

The acquisition therefore falls under the exemption in point 41 of the Restructuring Communication.

(341)

It is concluded that, in the light of the unique situation of Greek banks (140) and the specificities of the acquisition of the three Cooperative Banks, that acquisition is in line with the requirements laid down in the Restructuring Communication.