ANNOUNCEMENT 05 Dec 2008In December 2008, the government of Portugal announced a change in private-sector financial support.
NUMBER OF INTERVENTIONS
the official letter from the EC to Portugal - Brussels, 13.3.2009 C(2009) 1892 final. Available from < http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=3_NN71_2008 >
the letter from the EC to Portugal - Brussels, 20.7.2010 C (2010) 4932 final. Available from : < http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=3_SA_28787 >
On 5 December 2008 the Portuguese authorities notified to the Commission a public support measure in favor of Banco Privado Portuguęs (BPP), which was granted on the same day.
BPP is a financial institution based in Portugal providing Private Banking, Corporate Advisor and Private Equity services. BPP's clients are private and institutional depositors, including five "Caixas de Crédito Agricola Mutuo", one "Caixa Economica", several pension funds, insurance companies and others.
According to the Portuguese authorities, BPP came into liquidity difficulties due to the deterioration of the global economic situation, which significantly reduced the bank's ability to manage its liquidity.
On 5 December BPP signed a loan contract, assisted by a State guarantee, for EUR 450 million with 6 major Portuguese banks (Banco Comercial Portuguęs, S.A., Caixa Geral de Depósitos, S.A., Banco Espírito Santo, S.A., Banco BPI, S.A., Banco Santander Totta, S.A., Caixa Central - Caixa Central de Crédito Agricola Mútuo CRL). The loan has a maturity of 6 months renewable up to two years, and bears an interest rate of EURIBOR + 100 basis points. According to Portugal, without a state guarantee no lender was willing to finance BPP
at a reasonable rate, given its difficult financial situation.
The Portuguese authorities accept that the guarantee on the loan constitutes State aid. However, the government stated that the measure can be declared compatible with the common market to remedy a serious disturbance in the Portuguese economy pursuant to Article 87(3)(b) EC.
The Commission agreed with the position of Portugal that the guarantee on the loan constitute aid to BPP pursuant to Article 87 (1) EC and gave the following assessment:
" The guarantee arrangement allows BPP to get financing in a situation where it was unable to find adequate funding on the market. This gives an economic advantage to BPP and strengthens its position compared to that of its competitors in Portugal and other Member States that are not benefitting from public support. The measure 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. 24 of the letter from the EC to Portugal - Brussels, 13.3.2009 C(2009) 1892 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.
The Commission stated that 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. 25-45 of the letter).
Restructuring of BPP - State Aid SA.28787 (Court case)
On 13 March 2009 the Commission approved by decision a State guarantee underwriting a EUR 450 million loan granted to BPP by six Portuguese banks on 5 December 2008. The measure was authorised for a period of six months , on the assumption that the Portuguese authorities would implement their commitment to submit a restructuring plan within six months (i.e. by 5 June 2009). (see above)
On 15 July 2009 the Commission called on the Portuguese authorities to urgently submit the restructuring plan for BPP.
By e-mail dated 23 June 2009 Portugal informed the Commission that it had taken the decision to extend the State guarantee for a further period of six months. However, Portugal neither notified that extension nor sought the Commission's approval. Since the Commission decision approved the aid only until 5 June 2009, the rescue aid became unlawful on 6 June 2009. (par. 23-24 of the letter from the EC to Portugal - Brussels, 20.7.2010 C (2010) 4932 final)
By letter dated 5 June 2009 the Portuguese authorities explained to the Commission that the delay in submitting a restructuring plan for BPP was due to the fact that the recovery and restructuring plan proposed by BPP had not been accepted by the Bank of Portugal. (par. 26 of the letter)
On 3 December 2009 the Portuguese authorities informed the Commission that the State guarantee would be extended for a further six months. According to the Portuguese authorities the State was forced to renew the guarantee as an immediate disruption of BPP would clearly have compromised the solution currently under consideration. (par. 34 of the letter).
In February 2010, the Portuguese authorities informed the Commission that on 11 December 2009 the Government had decided to:
i) establish a closed and non-harmonised Special Investment Fund.
ii) renew the State loan guarantee of EUR 450 million until the Special Investment Fund was established.
iii) activate the Deposit Guarantee Fund (Fundo de Garantia de Depósitos - FGD).
iv) grant insurance cover of up to EUR 250 000 to clients who joined the FEI.
(more details available par. 37 of the letter)
The EC gave the following assessment:
Concerning the State guarantee on the EUR 450 million loan,
"The argument put forward by the Portuguese authorities that BPP was not operating in the market after 1 December 2008 cannot be accepted. Given that BPP's banking licence was only revoked by the Bank of Portugal on 15 April 2010, BPP could have entered or re-entered the market at short notice. Indeed, recovery plans for BPP submitted between December 2008 and April 2009 show the bank's potential to continue exercising an economic activity as a consequence of the rescue measure. Given BPP's activities and position in national and international financial markets, this advantage potentially affects competition and trade between Member States within the meaning of Article 107(1) TFEU. Only from 15 April 2010, with the revocation of the banking licence, did BPP lose any ability to re-enter the market and to potentially distort competition and affect trade between Member States." (par. 59 of the letter)
Moreover the EC came to the following conclusion:
"In the light of the foregoing, the Commission concludes that the State guarantee conferred on BPP constitutes State aid within the meaning of Article 107(1) TFEU, which cannot be declared compatible with the internal market." (par. 74 of the letter)
"Portugal shall recover the aid (i.e. the 450 million loan) '...' from the beneficiary.
The sums to be recovered shall bear interest from the date on which they were put at the disposal of the beneficiary until their actual recovery.
The interest shall be calculated on a compound basis in accordance with Chapter V of Regulation (EC) No 794/2004.
Recovery of the aid '...' shall be immediate and effective.
Portugal shall ensure that this Decision is implemented within four months following the date of notification of this Decision." (par.86-91 0f the letter)
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.