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Inception date: 27 Mar 2009 | Removal date: open ended

Capital injection and equity stakes (including bailouts)

On 11 February 2009, the Irish Government announced its intention to inject EUR3.5 billion into Bank of Ireland Group - State aid N149/ 2009.
Bank of Ireland has a balance sheet size in excess of EUR200 billion (approximately 100% of the Irish GDP) and accounts for a significant share of customer deposits and lending in the Irish economy. It is one of the two largest banks in Ireland, with 276 branches and approximately 13,500 staff.
Bank of Ireland is a diversified financial services group with a focus on certain domestic sectors and niche status in other sectors. The Bank's principal business activities are divided between the residential mortgage sector (44%), lending to the property and construction sector (26%), corporate lending and lending to small and medium sized enterprises (25%) and consumer lending, including credit cards, personal loans and motors loans (4%).
The decision to inject EUR3. 5 billion into Bank of Ireland was taken in the light of the impact of the current global financial crisis on the Bank which has led to deterioration in its financial position. The measure at issue aims to ensure that the Bank is adequately capitalized to preserve financial stability, that its capital ratio levels meet the expectations of international investors and to facilitate lending to the real economy.
The Commission therefore came to the conclusion that the measure provides a selective advantage to Bank of Ireland and that it constitutes State aid in the sense of Article 87(1) EC and gave the following assessment:
"Given that Bank of Ireland is active in the financial sector, which is open to intense international competition, any advantage from State resources to the Bank would have the potential to affect intra-Community trade and to distort competition. This conclusion is reinforced by the fact that the activities of the Bank are not confined to Ireland but that the Bank is also active in the United Kingdom, the Isle of Man, Germany, France, the United States, Canada, Australia and Japan. Since the Irish Government proposes to invest EUR 3.5 billion in the Bank, it is also clear that the measure is imputable to the Irish State and that if any advantage is granted through the measure, State resources are involved." (par. 44 of the letter from the EC to Ireland - Brussels, 26.3.2009 C(2009) 2349 final ).
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. 49-81 of the letter)
Restructuring of Bank of Ireland - State aid N 546/2009
By decision of 26 March 2009 (see above), the Commission authorised a capital injection of EUR 3.5 billion into Bank of Ireland Group, on the basis of several commitments including the submission of a restructuring plan within six months following the recapitalisation.
By letter of 30 September 2009 the Irish authorities submitted a restructuring plan for BOI.
Ireland considers that the restructuring of BOI will ensure its return by March 2014 to being a solid, well-funded bank with sound capital ratios which can maintain its role as a supplier of credit to the real economy. This is achieved through:
(i) deleveraging of the balance sheet by winding down loan books and exiting noncore
(ii) improvement of the funding strategy, i.e. reducing dependence on wholesale funding;
(iii)strengthening BOI's capital position;
(iv)improvement of the risk management.
The EC considered that the measure constitutes Stat aid pursuant to Article 107(3)(b) TFEU and gave the following assessment:
"In order to determine whether the measure confers an advantage to BOI and thus constitutes State aid, it is also necessary to verify whether the State acted as a market economy investor. The Commission in this context notes that the State's participation in the capital raise follows other aid measures granted to BOI shortly beforehand, in particular the EUR 3.5 billion capital injection of June 2009. As established in the case-law of the Union courts, when assessing the support provided by the State the Commission should take into account any earlier aid measures provided by the State to the same beneficiary. The Commission considers that the State participation in the capital raise cannot fulfil the market economy operator principle. The State participation in the capital raise was intended to ensure that the capital raise would be successful and cannot be considered as free of aid, because the opportunity to convert the preference shares into ordinary shares results from an aid measure granted in the prior months, i.e. the EUR 3.5 billion recapitalisation. Thus, the Commission considers that the conversion of shares must be seen in the context of the earlier State aid granted to the bank. In other words, a private investor would not find itself in the situation of the State since it would not have granted the EUR 3.5 billion recapitalisation in the first place.
On the basis of the above analysis the Commission concludes that the participation of the State represents an advantage to BOI.

The Commission observes that this advantage to BOI distorts competition and affects the trade conditions among Member States, since BOI is present in other Member States than Ireland and since several of its competitors on the Irish market are subsidiaries of banks of other Member States." (par. 167-169 of the letter from the EC to Ireland - Brussels, 15.7.2010
C(2010) 4963 final)
The Commission decided to consider the measure compatible with the internal market.

Second rescue of Bank of Ireland - State aid SA.33216 (2011/N)
On 28 November 2010 the Irish government announced that a Programme for Support
had been agreed with the European Commission and the International Monetary Fund in liaison with the European Central Bank . The part of the Irish Programme for Support dealing with Ireland's banking system included the performance of an in-depth and comprehensive Prudential Capital Adequacy Review ("PCAR") and a Prudential Liquidity Assessment Review ("PLAR").
The PCAR/PLAR exercise was performed from January to March 2011 by the Central Bank of Ireland with the support of external technical experts. The combined results of PCAR/PLAR exercise, which were announced on 31 March 2011, showed that BOI needed a capital injection of EUR 5.2 billion, of which EUR 4.2 billion (after estimated expenses of EUR 150 million) should be Core Tier 1 capital and EUR 1 billion in the form of contingent capital.

On 22 June 2011 the Irish authorities notified the State's participation in the capital raising planned by BOI, to be implemented by 31 July 2011.
BOI submitted to the Irish authorities a capital plan for the raising of the required EUR 5.2 billion of capital, made up of the following elements:

(i) Debt for Equity Offers;
(ii)The compulsory acquisition of certain Eligible Debt Securities;
(iii)Further burden-sharing with remaining subordinated bondholders;
(iv)A potential State placing;
(v) A rights issue fully underwritten by the National Pensions Reserve Fund Commission;
(vi)Issue of a Contingent Capital Instrument to the State;
The EC considered that the measure constitutes Stat aid pursuant to Article 107(3)(b) TFEU and gave the following assessment:
"That advantage 'n.b. the restructuration plan' to BOI distorts competition and affects the trading conditions among Member States, since BOI is present in Member States other than Ireland and since several of its competitors on the Irish market are subsidiaries of banks of other Member States." (par. 59 of the letter from the EC to Ireland - Brussels, 11.7.2011 C(2011) 5018 final).
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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