United Kingdom: Restructuring aid to Northern Rock
On 17 February 2008 the UK authorities announced that Northern Rock (NR) was to be nationalised. On 17 March 2008 the UK sent to the Commission a restructuring plan for NR and notified State aid measures which would accompany that plan and enable it to be implemented. NR was the 5th biggest UK mortgage bank.
NR has received several aid measures which are:
(i) the BoE liquidity facility which later was novated to HMT (hereinafter "BoE/HMT
(ii) the government guarantee on those of NR's retail deposits not covered by the United Kingdom's Financial Stability Compensation Scheme (hereinafter "FSCS");
(iii)the government guarantee on NR's wholesale deposits.
(iv)the retroactive application of a lower fee on the BoE/HMT liquidity facility from 1
April 2008 onwards and the subsequent reimbursement to NR of GBP 156.4 million
after the Commission's final decision;
(v) the commitment given by HMT to the FSA that NR (that is to say, its successors) would operate above regulatory capital requirements.
For BankCo (which will be separated from NR according to the restructuring plan):
(vi)the continuation after the split-up of the guarantees on retail and wholesale deposits (that is to say the measures referred to in points (ii) and (iii) of recital (30) into 2010 for BankCo at revised conditions;
(vii) the GBP 1.4 billion recapitalisation of BankCo after the split-up, in the form or
(viii) the contingent liquidity facility of GBP 1.5 billion.
For AssetCo (idem than BankCo):
(ix)the continuation after the split-up of the wholesale guarantee (that is to say, measure
(x) the continuation and increase in the BoE/HMT liquidity facility (that is to say, measure (i)) by up to GBP 10 billion to GBP 23 billion;
(xi)the up to GBP 1.6 billion recapitalisation of AssetCo in the form of a debt for equity
(xii) the GBP 2.5 billion working capital facility.
The commission found that the measure constitutes State aid according to Article 87(1) of the EC Treaty and gave the following assessment:
“It is also concluded that measures (iv)-(xii) in recital 30 are able to distort competition and affect trade between Member States.
The measures allow […] of certain assets of NR, placed in AssetCo, which is a condition necessary for the creation of BankCo and implementation of its business plan. BankCo, as NR's successor, will be able to continue NR's activities unburdened by possible impairments on the lower quality assets, since the latter remain in AssetCo's balance sheet. As a result, BankCo has an advantage over its competitors that are faced with impairments on lower quality assets, which they have to absorb, limiting the capital available for new lending. BankCo, in contrast, will not have its capital base diminished by these impairments and the decreasing value of its mortgage portfolio. This is an advantage considering the current high cost of borrowing on the financial markets. In addition, BankCo will have a lot of cash to fund new lending. It is therefore concluded that measures (iv)-(xii) in recital 30 lead to a distortion of competition.
BankCo will also be a bank competing on, amongst others, the UK retail deposit market and the UK mortgage lending market. In those two markets, some competitors are subsidiaries of foreign banks. The measures are therefore able to affect trade between Member States.” (par. 91-93 of the letter from the EC to the UK - Brussels, 28.X.2009 C(2009)8102 final)
The Commission concluded that the continuation of measures (i)-(iii) after the split-up of NR as well as measures (iv)- (xii) (see above) are considered to be restructuring aid that should be declared compatible with Article 87(3)(b) of the Treaty.
A state measure in the GTA database is assessed solely in terms of the extent to which its implementation affects the extent of discrimination against foreign commercial interests. On this metric, the state aid proposed here is discriminatory.
Any Evidence-Based Deliberation:
|Is there anything in the public record to suggest that evidence of the effectiveness of the proposed measure was considered during official deliberations?|
|Is there any evidence that alternatives to the proposed measure were considered?|
|Is there anything in the public record that suggests that empirical evidence informed the comparison across the alternatives available to government?|
|Was such evidence identified?|
|Is such evidence publicly available?|
|Did the official decision-maker in question provide an explanation as to why a chosen measure was favoured over alternatives?|
|Is there any evidence to suggest that potentially affected trading partners were consulted before the measures were taken?|
|Is there any evidence that safeguards have been put in place to ensure that implementation of the initiative is transparent and non-discriminatory?|
|Did the government state its intention to review the measure within one year of implementation?|
Date of inception: 18 Dec 2007
Duration: 72 months
GTA Evaluation: Red
the letter from the EC to the UK - Brussels, 28.X.2009 C(2009)8102 final. Available from : < http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=... >