Commission Decision of 18 November 2009 on the State aid C 18/09 (ex N 360/09) implemented by Belgium for KBC (notified under document C(2009) 8980) (Only the English text is authentic) (Text with EEA relevance) (2010/396/EC)

ANNEX U.K.

Behavioural commitments U.K.

(i) With regard to the duration of these behavioural commitments, the Belgian authorities commit that, without prejudice to the possibility for the Commission to grant an exemption, notably on the basis of a sufficiently reasoned request from the Belgian authorities, the behavioural commitments listed in recitals 63 to 77 inclusive apply for a duration of […] from the date of the Commission’s Decision or, until the nominal amounts subscribed to by the Belgian authorities, on 19 December 2008 and on 20 July 2009 respectively, have been redeemed, whichever is earlier(1). U.K.

(ii) The Belgian authorities commit that KBC shall endeavour to maintain its lending policy to the real economy in countries where it has retail operations. The credit provided by KBC will be on commercial terms. U.K.

(iii) They further commit that KBC will maintain its solvency ratio of core Tier-1 at minimal […] % and its basic own funds at […] %(2). U.K.

(iv) With regard to a ban on acquisitions, the Belgian authorities commit that KBC will refrain from acquiring control, as defined by Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation)(3), of financial institutions. KBC will moreover refrain from acquiring control of businesses other than financial institutions if such an acquisition would slow down the repayment of the amount of EUR 7 billion of core Tier-1 Yield Enhanced securities to the Belgian authorities as planned in the restructuring plan that was notified to the Commission on 30 September 2009 and approved by this Decision. Notwithstanding that prohibition, KBC may acquire businesses if it obtains the Commission’s approval, in particular if it is considered essential to safeguard financial stability or competition in the relevant markets. U.K.

(v) The Belgian authorities commit that KBC will adhere to the following price leadership ban: U.K.

(a)

In Community-markets in which KBC has a market share of more than [0-10] %, on the product markets as defined in point (ii) below, KBC will not offer more favourable prices on standardized products than the best priced competitor of KBC among the top ten market players in terms of market share on this geographic and product market;

(b)

The product markets to which the condition set out in point (i) applies are limited to: KBC’s standardized products on the retail deposit market, deposits for SME’s (SME defined according to SME definition as operated by KBC) and retail mortgage market;

(c)

As soon as KBC becomes aware of the fact that it offers more favourable prices for its products than the best priced provider, KBC will as soon as possible adjust, without any undue delay, its price to a level which is in accordance with this commitment;

(d)

That condition does not apply to the Belgian market, where no price leadership ban will apply.

(vi) The Belgian authorities also commit that KBC will refrain from mass marketing invoking the measures as an advantage in competitive terms. U.K.

(vii) With regard to the limitation of KBC executive remuneration, the Belgian authorities commit that: U.K.

(a)

KBC commits to develop a sustainable remuneration policy for the Executive Committee and Senior Management. KBC’s Executive Committee and Senior Management incentive schemes will be linked to long-term value creation taking account of risk and restricting the potential for ‘rewards for failure’. Exit schemes or statutory compensation for dismissal are limited to twelve months’ fixed salary for KBC’s Executive Committee Members;

(b)

In addition, Executive Committees of KBC, KBC Bank NV and KBC Verzekeringen NV forego all bonuses for 2008 (cash as well as options and share rewards).

(viii) The Belgian authorities commit that KBC will endeavour to ensure, for the benefit of the Belgian authorities, an overall return on the securities subscribed by them of minimum 10 % p.a. U.K.

(ix) The Belgian authorities commit to re-notify the first recapitalisation under Article 88(3) of the Treaty if either of the following situations arises which make it less likely that the overall return in excess of 10 % p.a. is achieved: U.K.

(a)

If, from 1 January 2010, KBC does not make a dividend payment during two consecutive years or, from 1 January 2009, does not make a dividend payment during three years within a period of five years; or

(b)

If, after a period of one year where the share price remains on average above 150 % of the issue price of the securities, KBC has not repurchased, or committed to do so within three months, at least 20 % of the original investment of the State.

(x) In the same vein, the Belgian authorities commit to re-notify the second recapitalisation under Article 88(3) of the Treaty if the following situation arises which makes it less likely that the overall return in excess of 10 % p.a. is achieved: U.K.

(a)

If, from 1 January 2010, KBC does not make a dividend payment during two consecutive years or, from1 January 2009, does not make a dividend payment during three years within a period of five years.

(xi) Unless in either of the scenarios described in points (ix) and (x) it can be shown that the non-payment of dividends is caused by normal market events or that despite the non-payment of dividends, the overall return will nevertheless be in excess of 10 % per annum the Commission, without calling into question the capital injection, which has been declared compatible with the common market, can in the context of the renotification in particular require additional behavioural constraints. U.K.

(xii) As regards the remuneration of the alternative securities under the State Protection measure, the Belgian authorities commit that the coupon that will be payable on the alternative class of core capital securities to be issued by KBC if the Belgian authorities were to acquire more than 30 % voting rights under the Equity Range of the State Protection measure, shall be equal to […]. U.K.

(xiii) The Belgian authorities also commit that KBC or any of its subsidiaries shall not engage in the origination of CDOs(4). It is understood that securitisation transactions which are not caught by this definition of CDOs fall outside the scope of this commitment. This is for instance the case for securitisation transactions for purposes of management of regulatory capital or credit risk or to raise liquidity. U.K.

(xiv) With regard to coupon payments and call options on hybrid capital, unless the Commission otherwise agrees to an exemption, the Belgian authorities commit that: U.K.

(a)

[…];

(b)

[…].

(xv) Finally, the Belgian authorities have committed that KBC will organise the management rights of the Belgian authorities in respect of the guaranteed portfolio under the State Protection measure, in such a way that the interests of the Belgian authorities as the guarantor will be duly guaranteed while preserving a suitable level of flexibility for KBC to react swiftly to changing market circumstances and to make the relevant adjustments and choices as appropriate. The legal documentation of the guaranteed portfolio provides for safeguards to protect third party investors, super senior counterparties and therefore, by extension, the Belgian authorities against possible conflicts of interest in the management of the guaranteed portfolio. In addition to the safeguards under the original legal documentation, the agreement with the Belgian authorities governing the State Protection measure will in particular provide for the right of the Belgian authorities to monitor the management of the guaranteed portfolio. Where appropriate, the Belgian authorities will be granted consent rights to further protect its interests. U.K.

Divestments and run-down of business portfolios U.K.

(xvi) The Belgian authorities have furthermore committed, within the limits of their respective competences, to ensure KBC’s compliance with the commitments listed from recitals 79 to 97 inclusive. U.K.

(xvii) KBC will take the necessary steps for the divestment of the entities or assets (hereinafter ‘Divestment Business(es)’) as listed in recital 80 to be implemented by the time mentioned. Such a divestment shall be deemed implemented when a binding agreement has been entered into by KBC to sell […] in the entity or asset concerned. A legally binding agreement is an agreement which cannot be rescinded unilaterally by KBC and intends to create a legal relationship on which each party can rely and which, in case of termination of the agreement by KBC, would lead to a liability of KBC to the other party. That legally binding agreement may still be subject to a number of customary conditions precedent such as approval by the relevant supervisory authorities. U.K.

(xviii) As regards the divestment businesses, the Belgian authorities commit that KBC will divest the following entities […]: U.K.

(a) […] by

[…]

(b) KBL EPB by

[…]

(c) […] by

[…]

(d) Centea by

[…]

(e) Fidea by

[…]

(f) Antwerp Diamond Bank by

[…]

(g) Implementation of divestments of NLB, Zagiel, […] by

[…]

(h) Absolut bank (Russia) by

[…]

Value Preservation Commitments U.K.

(xix) With regard to preserving the value of the divestment businesses, the Belgian authorities commit that KBC will ensure that: U.K.

(a)

the divestment business shall retain tangible and intangible assets owned by it which contribute to its current operation or are necessary to ensure its viability and competitiveness;

(b)

the divestment business shall retain all (a) licences, permits and authorisations issued by any public authority for its benefit; (b) its contracts, leases, commitments and customer orders; and (c) its relevant records which contribute to its current operation or are necessary to ensure its viability and competitiveness;

(c)

the divestment business shall employ the appropriate number of staff with the necessary capabilities to ensure its viability and competitiveness. KBC shall take all reasonable steps, including incentives taking into account industry practice, to encourage all key personnel(5) to remain with the Divestment Businesses. It shall also not solicit the key personnel transferred with the Divestment Business. […].

(xx) The Belgian authorities commit that KBC shall exercise its best efforts to support the buyers of the Divestment Businesses in migrating to appropriate infrastructure for the ongoing operation of the Divestment Businesses. […]. U.K.

(xxi) From the date of this Decision until implementation of the divestment, the Belgian authorities commit that KBC shall preserve the economic viability, marketability and competitiveness of the Divestment Businesses in accordance with good business practice and shall minimise as far as possible any risk of loss of their competitive potential. KBC shall carry on the Divestment Businesses as a going concern in the ordinary and usual course as carried on before the date of this Decision. U.K.

(xxii) The Belgian authorities commit that no acts which might have a significant adverse impact on the Divestment Businesses shall be carried out by KBC. […]. U.K.

Additional divestment commitments in respect of Centea and Fidea U.K.

(xxiii) As regards the prospective buyer(s) of Centea and Fidea, the Belgian authorities have provided the commitment that KBC shall ensure that: U.K.

(a)

The buyer of Centea does not have a post-acquisition market share of greater than […] % in current accounts, savings or mortgages in Belgium.

(b)

The buyer of Fidea does not have a post-acquisition market share of greater than […] % on either the life or non-life insurance markets in Belgium.

(xxiv) Furthermore, the Belgian authorities commit that KBC shall make the necessary arrangements to ensure clear identification of the Centea and Fidea businesses and start to prepare their separation from businesses that are integrated in KBC into distinct and separately saleable entities immediately after the Commission’s Decision. Without prejudice to the value preservation commitments as set out in points (xix) to (xxi), Centea and Fidea will be managed as distinct and saleable entities from the date of the Commission’s Decision. To ensure that all management decisions between the date of this Decision and the implementation of the divestment are in the best interests of Centea and Fidea with a view to ensuring their continued economic viability, marketability and competitiveness, KBC shall appoint a hold separate manager(6) for each of these businesses and shall ensure that the hold separate manager operates independently. That hold separate manager can be the current CEO of those businesses. The hold separate manager will manage these divestment businesses (Centea and Fidea) in their best interest, in common consultation with KBC, as monitored by the Monitoring Trustee. U.K.

Monitoring trustee U.K.

(xxv) A monitoring trustee will be appointed who is to report on a six monthly basis to the Commission on compliance by the Belgian authorities and by KBC with the commitments listed in points (xvi) to (xxiv). The monitoring trustee shall be independent, possess the necessary qualifications and shall not be subject to a conflict of interests throughout the exercise of his mandate U.K.

(xxvi) No later than one month after the adoption of this Decision, the Belgian authorities shall submit a list of one or more persons, as agreed with KBC, whom they propose to appoint as the monitoring trustee(s) to the Commission for approval. The Commission shall have the discretion to approve or reject the proposed trustee(s) based on the criteria outlined in point (xxv). If the Commission rejects all proposed trustee(s), KBC and the Belgian authorities will, within one month of being informed of the rejection, propose new candidates which again need to be approved or rejected by the Commission. If all further proposed trustee(s) are rejected by the Commission, the Commission shall nominate a trustee, whom KBC shall appoint, or cause to be appointed, in accordance with a trustee mandate approved by the Commission. U.K.

Review of the commitment Package U.K.

(xxvii) Where appropriate and on the basis of a sufficiently reasoned request from the Belgian authorities and KBC and taking into consideration the views of the monitoring trustee, the Commission may: U.K.

(a)

extend the target dates for implementation of the divestments:

(i)

as regards the divestments to be implemented […], the target date may be extended […], […], and subsequently […], […];

(ii)

as regards the divestment to be implemented […], the target date may be extended […], […];

Such extension may be granted in particular when the divestments will not be implemented by these dates through no fault of KBC.

KBC will not be obliged to sell a Divestment Business […] except where […], in which case KBC shall not be obliged to sell the relevant Divestment Business […].

(b)

dispense with, amend or replace one or more of the measures, requirements or conditions set out in this Decision.

(xxviii) Any such requests shall be sent to the Commission at the latest two months prior to the target date. U.K.

Divestiture trustee U.K.

(xxix) If the divestments have not been achieved by the relevant target dates and no later than one month after the ultimate non-extendable target date, and if no alternative measures have been approved by the Commission, the Belgian authorities shall submit a list of one or more persons, as agreed with KBC, whom they propose to appoint as the divestiture trustee(s) to the Commission for approval. The divestiture trustee shall be independent, possess the necessary qualifications and shall not be subject to a conflict of interests throughout the exercise of his mandate. The Commission shall have the discretion to approve or reject the proposed divestiture trustee(s). If the Commission rejects all proposed divestiture trustee(s), KBC and the Belgian authorities will, within one month of being informed of the rejection, propose new candidates which again need to be approved or rejected by the Commission. If all further proposed trustee(s) are rejected by the Commission, the Commission shall nominate a trustee, whom KBC shall appoint, or cause to be appointed, in accordance with a trustee mandate approved by the Commission. U.K.

(xxx) The Belgian authorities commit that KBC shall grant necessary and reasonable powers of attorney to the divestiture trustee: U.K.

(a)

to effect the disposal of the Divestment Business (including the necessary powers to ensure the proper execution of all the documents required for effecting the disposal), and

(b)

to take all actions and declarations which are necessary or appropriate to achieve the disposal, including the appointment of advisors to assist with the disposal.

(xxxi) The Commission shall authorize, subject to it having taken into consideration reasonable alternatives as proposed under the review arrangements as set out in recital 89, the divestiture trustee to sell the Divestment business concerned […]. The divestiture trustee shall include in the sale and purchase agreement(s) such customary and reasonable terms and conditions as are appropriate for an expedient sale. The divestiture trustee shall organize the sales process in consultation with KBC so as to ensure a divestment under the best possible conditions, subject to its obligation to divest […] in the trustee divestiture period under the conditions set out in recitals 91 and 92. U.K.

(xxxii) In addition, all fees and expenses of the monitoring and divestiture trustees will be borne by KBC. U.K.

Run-down of business portfolios U.K.

(xxxiii) The Belgian authorities commit that KBC will take the necessary steps for the run-down of the business portfolios of the entities listed hereunder to be completed by the target dates as set out for each of these entities. From the date of this Decision until the completion of the run-down, KBC will respect a stand-still with regard to the amount of RWA(7) represented by these business portfolios. Concerning this commitment, ‘stand-still’ means that KBC will not enter into any new business in these business portfolios and that KBC’s management decisions with regard to the business portfolios can only have a neutral or decreasing effect on the amount of RWA attributed to these business portfolios at the time of this Decision. KBC will not be obliged to divest or otherwise dispose of portfolio items or to terminate existing contracts under conditions that would result in a loss or a liability for KBC. KBC will thus run-down the following business portfolios: U.K.

(a) […] by

[…]

(b) KBC FP by

[…]

(c) […] by

[…]

it being understood that certain contracts belonging to the business portfolios as listed above might expire and therefore still remain in KBC’s books […].

Listing of two CEE-R assets U.K.

(xxxiv) The Belgian authorities commit that KBC will carry out the listings of ČSOB (Czech Republic) and K & H bank (Hungary) […]. U.K.

Monitoring U.K.

(xxxv) The Belgian authorities commit that KBC provides the Commission with detailed reports on a six-monthly basis through the Belgian authorities. These reports will contain information on the recapitalisation measures (as mentioned in point 40 of the Recapitalisation Communication(8)), the functioning of the State Protection measure (as mentioned in Annex IV to the Impaired Asset Communication, hereinafter ‘IAC’(9)), and the restructuring plan (as mentioned in point 46 of the Restructuring Communication(10)). The first report, combining all that information, will be submitted to the Commission no later than six months after the date of this Decision. U.K.

(1)

For the purpose of this commitment package, the redemption of the nominal amounts will be realized when an amount of EUR 7 billion is repaid.

(2)

Basic own funds here are equivalent to equity and reserves.

(3)

OJ L 24, 29.1.2004, p. 1.

(4)

For the purpose of this commitment, a ‘CDO’ is a credit portfolio securitisation transaction, with the following characteristics: (i) it entails a repackaging of portfolios of assets, and such assets can be bonds, loans, derivatives or other debt obligations, (ii) the credit risk in respect of such assets is repackaged into multiple tranches of securities of different seniority, sold to investors, and (iii) the transaction is mainly arbitrage driven, i.e. the main goal of the transaction is to provide profits from differences between the market price of the underlying assets and the price at which the securitised risk can be sold in structured form.

(5)

Key personnel means all personnel necessary to maintain the viability and competitiveness of the Divestment Businesses.

(6)

Hold separate manager is the person appointed to manage the day-to-day business of the Divestment Business as monitored by the monitoring trustee.

(7)

After neutralizing the pro-cyclical effect of expected credit defaults.

(8)

Commission Communication on the Recapitalisation of financial institutions in the current financial crisis: limitation of the aid to the minimum necessary and safeguards against undue distortions of competition (OJ C 10, 15.1.2009, p. 2).

(9)

Communication from the Commission on the treatment of impaired assets in the Community banking sector (OJ C 72, 26.3.2009, p. 1).

(10)

Commission communication on the return to viability and the assessment of the restructuring measures in the financial sector in the current crisis under the State aid rules (OJ C 195, 19.8.2009, p. 9).