ANNOUNCED AS TEMPORARYNo
Capital injection and equity stakes (including bailouts)
The Latvian authorities notified public support measures to the Commission on 10 November 2008.
JSC Parex Banka (hereinafter "Parex") is a financial institution based in Riga, Latvia. It is a universal bank offering the full range of banking products directly and through specialized subsidiaries. Parex is the second largest bank in Latvia in terms of assets.
According to the Latvian authorities Parex came into liquidity difficulties due to the deterioration of the global economic situation and the mutual trust crisis in the finance sector, significantly reducing the bank's ability to use its liquid asset portfolios for the management of its liquidity.
(a) On 11 November 2008 the State Treasury deposited LVL 200 million with Parex in order to ensure sufficient liquidity. Thereafter, the overall maximum amount of the liquidity facility was increased to LVL 1.5 billion. As a result, the bank was provided with funds to acquire government debt securities, i.e. liquid collateral to use in operations with the central bank, which it did not have at the time. The remuneration and the initially set amount were revised in the second Parex decision. In March 2009 the total amount of the short-term liquidity support reached LVL 873 million.
(b) Subordinated loans up to LVL 200 million to address capital needs (the measure was not carried out until the third Parex decision, which restated the recapitalisation measure, see also point (d) below).
(c) Guarantees covering two existing syndicated loans in the amount of EUR 775 million and new loans issued to refinance one of the above-mentioned syndicated loans in the amount of EUR 275 million.
(d) A recapitalization measure, allowing Parex to reach and maintain a Capital Adequacy Ratio (CAR) of 11% during the rescue phase consisting of a capital injection by the State through a purchase of newly issued ordinary shares and granting of a subordinated loan.
The Commission decided that the guarantee arrangements and the subordinated capital constitute aid to Parex pursuant to Article 87 (1) EC and gave the following assessment:
"The guarantee arrangements and the subordinated capital allow Parex to get the required capital as well as liquidity at advantageous conditions. This gives an economic advantage to Parex and strengthens its position compared to that of its competitors in Latvia and other Member States that are not benefitting from public support and must therefore be regarded as distorting competition and affecting trade between Member States. The advantage is provided through State resources and is selective since it only benefits one bank." (par. 37 of the letter from the EC to Latvia - Brussels, 24.11.2008 C(2008) 7554)
Article 87(3)(b) of the EC Treaty enables the Commission to declare aid compatible with the Common Market if it is "to remedy a serious disturbance in the economy of a Member State." This aid has to be applied restrictively and must tackle a disturbance in the entire economy of the Member State according to the interpretation of the Article 87(3)(b) by the Court of First Instance.
The Commission referred to its Communication on the financial crisis (Temporary Framework) and concluded that the Measure complies with the conditions laid therein. Therefore, despite the measure constituting State aid pursuant to the Article 87(1) EC, it is compatible with the Common Market according to the Article 87(3)(b) EC Treaty. The Commission raises no objections against the measure at issue and authorizes it as emergency intervention in the face of the current financial crisis. (par. 44-74 of the letter).
Modifications to the public support measures to JSC Parex Banka - State aid NN 3/2009
On 26 January 2009, Latvia informed the Commission about several changes to the public support measures to JSC Parex Banka.
1) Nationalisation of the bank - the state-owned bank,instead of taking over a stake in Parex of 51%, acquired 84.83% of the shares, i.e. all of the bank's shares owned by the two major shareholders were transferred to LHZB at a symbolic total purchase price of 2 LVL (around 3 EUR). ( par. 8 of the letter from the EC to Latvia - Brussels, 11.2.2009 C(2009) 963 final)
2) Subordinated term debt - Following the further downgrade of risk rating for long term senior debt of Parex by Moody's and the increased State's participation in Parex share capital, the Latvian authorities reconsidered the interest rate mechanism approved by the Commission on 24 November 2008 for the subordinated term debt. ( details par. 10-14 of the letter)
3) The Latvian authorities also reconsidered the interest rate mechanism approved by the
Commission on 24 November 2008 for the State guarantee. (details par. 15 of the letter)
4) Short term liquidity measures - The Latvian authorities also reconsidered the interest rate mechanism approved by the Commission on 24 November 2008 for the short term liquidity measures. (details par. 16-21 of the letter)
5) Finally, Latvia intends to change the behavioural constraints imposed on Parex. (details par. 22-23 of the letter)
The EC took the following decision:
The Commission regrets that Latvia put the aid in question into effect, in breach of Article 88(3) of the Treaty. However, the Commission concludes that the notified amended measures are compatible with the Common market and has accordingly decided not to raise objections against them. (par. 45-46 of the letter)
Amendments to the Public support measures to JSC Parex Banka- N189/2009
On 29 March 2009, Latvia notified to the Commission the need for further changes to recapitalisation measure.
Due to changed legal requirements, the Latvian authorities reconsidered the amount and the form of the capital injection needed as approved by the Commission on 24 November 2008. Moreover, the remuneration of the ordinary shares has been adjusted. (see details par. 9-21 of the letter from the EC to Latvia - Brussels, 11.5.2009 C(2009) 3860 final)
The Commission concluded that the notified amended measures are compatible with the Common market and has accordingly decided not to raise objections against them.
Restructuring aid for Parex Banka - C26/2009
On the final date of the rescue period, which ended on 11 May 2009, Latvia notified a
restructuring plan for Parex.
The submitted restructuring plan covers a period from 2009 to 2013. It foresees the implementation of a new strategy with the bank aiming to become a leading pan-Baltic bank. Its operations will be organised in the three main business segments: corporate, retail and private capital management, deemed to be the future core segments of Parex.
Taking into account the risk of negative developments, the Latvian authorities consider that
liquidity support up to LVL 1.5 billion may need to be provided to the bank in order to aid the restructuring of the bank.
The EC considered the measure as State aid pursuant to art. 87 (1) EC and gave the following assessment:
"As stated in Article 87(1) EC, 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 common market, save as otherwise provided in the Treaty.
The Commission notes that Parex is involved in cross-border and international activities, so that any advantage from State resources would affect competition in the banking sector and have an impact on intra-Community trade." (par. 46-47 of the letter from the EC to Latvia - Brussels, 29.07.2009 C(2009)5921 final )
On a decision from 29.07.2009, the EC decided to open a formal investigation procedure, doubting of the compatibility of the measure with the internal market.
On 15 September 2010, the Commission took a new decision and found that "the restructuring plan of Parex Banka set out in section 2 of this Decision is compatible with Article 107(3)(b) TFEU and fulfils the requirements of the Restructuring Communication in terms of viability, burden sharing and measures to mitigate the distortions of competition." (par. 163 of the letter from the EC to Latvia -Brussels, 15.09.2010 C(2010)6202 final corr. )
Update on 10 August 2012:
On 10 August 2012, the European Commission approved amendments to the Final Decision made on Parex Banka. The changes included an extension of the deadline to dispose CIS loans (i.e. loans with borrowers residing in CIS) to the end of the year 2014 and an "increased (...) limit of the of minimum capital adequacy requirements allowed for Citadele at the level of the bank and the group" (1.1 (7) of EC regulation 162/2014).
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.
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