ABN AMRO N – on a stand-alone basis the third largest bank in the Netherlands behind Rabobank and ING – consisted of BU Netherlands and BU Private Banking.

The second business unit, BU Private Banking targeted individuals with net investable assets of more than EUR 1 million with various asset management and estate planning products. BU Private Banking had built up a well-developed network, through organic growth in the Netherlands and France and through acquisitions in Germany (Delbrück Bethmann Maffei) and Belgium (Bank Corluy). BU Private Banking also included the French insurance joint venture Neuflize Vie.

The businesses acquired on 3 October 2008 by the Dutch State also included the International Diamond and Jewelry Group, which is a division dedicated to companies involved in jewellery manufacturing and the trading of diamonds.

ABN AMRO Z did not contain operational assets but included, inter alia, tax assets, a number of participations (amongst others in the Saudi Hollandi Bank) and the remaining private equity portfolio. In terms of liabilities, there was a provision to settle obligations in respect of the United States Department of Justice, other provisions (partly personnel-related) and inter-company financing of company assets. As stated in footnote 11, the stake owned by the Dutch State represents 33,81 % of ABN AMRO Z.

On a stand-alone basis, FBN was the fourth largest bank on the Dutch market (after Rabobank, ING and ABN AMRO N, but before SNS REAAL).

FBN’s activities were subdivided in three segments – Retail banking, Private banking and Merchant banking.

Retail Banking activities included the traditional retail banking activities (with a network of 157 branches, [2 - 3] million individual customers and [20 000 – 60 000] SME customers) but also Directbank (which offered mortgage solutions via intermediaries) and the consumer finance and payment card products of respectively Alfam and ICS.

Private Banking was mainly developed under the Fortis Mees Pierson brand name and offered wealth management services (estate planning, investing, lending and insurance) on a segmented basis to [15 000 – 40 000] customers throughout the Netherlands.

ABN AMRO Group is well diversified with EUR 4,2 billion operating income in ‘Retail and Private banking’ and EUR 2,8 billion operating income in ‘Commercial and Merchant banking’. Geographically, the bulk of ABN AMRO Group’s revenues (namely [65 - 95] % of the total) originates in the Netherlands.

ABN AMRO Group no longer includes New HBU and the factoring activities of IFN which were divested in the framework of the Merger Remedy on 1 April 2010.

As part of the restructuring process, two small divisions of FBN (namely Intertrust and Prime Fund Solutions (‘PFS’)) were also divested and are no longer part of the ABN AMRO Group.

In May 2010, FBN also announced the sale of PFS to Credit Suisse. PFS provides fund services to the alternative asset management industry including, for example, administration, banking, custody and financing. Its customers range from boutique asset managers to large global institutions such as pension funds and sovereign wealth funds. PFS was responsible for the EUR 922 million post-tax provision related to the Madoff-fraud which FBN registered in 2008. PFS has income of EUR […] million and RWA of EUR […] million.

On 4 March 2011, ABN AMRO Group published its results for the fiscal year 2010, showing a net loss of EUR 414 million. Excluding separation and integration costs, ABN AMRO Group reported an underlying profit of EUR 1 077 million. As at 31 December 2010, ABN AMRO Group’s Core Tier 1, Tier 1 and total capital ratio were 10,4 %, 12,8 % and 16,6 % respectively. In consultation with the Dutch State, ABN AMRO Group established a dividend policy targeting a dividend payout of 40 % of the reported annual profit.

In the base case scenario, the Dutch State starts from the assumption that business volumes will grow in line with inflation. Personnel costs are assumed to rise by [1 - 6] % per annum and other costs by a more moderate [1 - 5] % per annum The Dutch State also anticipates that ABN AMRO Group’s loan loss provisions will start to decrease from the high level reported in 2009.

In the base case scenario in the November 2010 Restructuring Plan, ABN AMRO Group realises a negative net result of EUR […] million in 2010 before returning to profits from 2011 on (that is, EUR […] million profit in 2011).

Under the worst case scenario in the November 2010 Restructuring Plan, the Dutch State started from more conservative assumptions than under the base case scenario. It used interest margins which were 7,5 % lower than in the base case, more cautious forecasts for commissions & fees (growth of 4 % per annum as opposed to 7 % in the base case), lower synergies (impact of – EUR […] million on 2013 profit) and 15 % lower recovery rate of loan loss provisions (impact of – EUR […] million on 2013 profit).

While, those more conservative figures would lead to lower results, ABN AMRO Group would still be able to post a profit. The worst case scenario foresees an underlying net profit of EUR […] million and EUR […] million in respectively 2012 and 2013 (which compares to respectively EUR […] million and EUR […] million in the base case scenario).

In its December 2009 Restructuring Plan, the Dutch State also touched upon its exit strategy, underlining that it does not have the intention to remain a long-term investor in ABN AMRO Group.

The December 2009 Restructuring Plan (and also the updated November 2010 Restructuring Plan) show that – after implementation of all the State aid measures- ABN AMRO Group is sufficiently capitalised. During the restructuring period, the projected Tier 1 ratios should stay comfortably above […] % between 2009 and 2012, to increase further to […] % in 2013.

In its December 2009 Restructuring Plan, the Dutch State explains that ABN AMRO Group has already divested a number of businesses. Apart from the sale of New HBU and IFN during the Merger Remedy process, ABN AMRO N and FBN also divested Intertrust and PFS.

Compared to ABN AMRO Group, Intertrust and PFS jointly represent [0 - 5] %, [0 - 5] % and [0 - 5] % in terms of its projected total operating income, costs and RWA respectively.

During the restructuring process, FBN also made an acquisition to correct a misalignment resulting from the break-up of Fortis SA/NV. FBN was the legal owner of the BU Brokerage, Clearing and Custody and all the offices related to that business except for the Chicago office, which had remained part of Fortis Bank SA/NV. To correct that separation-linked misalignment, FBN acquired the Chicago branch of Fortis Clearing Americas from Fortis Bank SA/NV on 31 July 2009 for a price of approximately USD […] million.

On 3 October 2008, the Dutch State acquired FBN (including ABN AMRO N) from Fortis SA/NV for EUR 12,8 billion (‘Measure X’). The Commission did not open the procedure in respect of that measure, which as such did not provide State aid to FBN, even if it was part of a transaction providing State aid to FBN (see recital 32 of the Decision of 8 April 2009).

The long-term loans novated to the Dutch State (Measure Y2) amounted to EUR 16,1 billion, including EUR 8,15 billion of Tier 2 capital (of which EUR 3 billion upper Tier 2) and EUR 7,95 billion of senior loans.

In January 2010, the Dutch State notified additional capital measures worth EUR 4,39 billion. The Dutch State subscribed to additional MCS-instruments of EUR 2,28 billion to cover additional separation costs (EUR 780 million, ‘Measure B3’), the capital shortfall resulting from the sale of New HBU (EUR 300 million, ‘Measure B4’) and integration costs (EUR 1,2 billion, ‘Measure B5’). To bring FBN’s Tier 1 capital in line with regulatory requirements, the Dutch State also converted EUR 1,35 billion of FBN-Tier 2 capital it already owned into Tier 1 capital (‘Measure C’). The Dutch State also paid the other consortium members EUR 740 million in cash (‘Measure D’) as was foreseen in the CSA to settle issues that only emerged in the course of the separation process. Finally, the Dutch State also provided a guarantee on cross liabilities resulting from the sale of New HBU (‘Measure E’).

When on 17 July 2009 and on 15 January 2010, the Dutch State notified extra measures in favour of FBN and ABN AMRO N as measures not constituting State aid, the Commission was concerned that some of these additional measures represented extra State aid to FBN and ABN AMRO N.

In the Decision of 5 February 2010, the Commission observed that under the CSA the Dutch State had a number of obligations, which were not obligations of ABN AMRO N. Measures taken by the Dutch State to comply with its obligations under the CSA (and in particular the obligation to bear the cost of ABN AMRO Z and the obligation to separate ABN AMRO N from ABN AMRO Bank) would at first sight not qualify as State aid to ABN AMRO N.

The Commission indicated that the Measures A and B1 seemed primarily designed to cover the capital shortage of ABN AMRO Z, but at the same time it was not clear to the Commission whether there was not also an indirect benefit to the economic activities of ABN AMRO N. In that regard, the Commission wanted to know whether ABN AMRO N and ABN AMRO Z – with no separate legal status – were sufficiently ring-fenced vis-à-vis one another. The Commission also wanted to receive more information on the reasons behind the capital shortfall of ABN AMRO Z and for instance on the transfer of Unicredito shares from ABN AMRO Z to ABN AMRO N. The Commission also had questions as to the remuneration by ABN AMRO N to ABN AMRO Z for the performance of head office functions. The Commission suspected that – at least part of – the undercapitalisation of ABN AMRO Z was linked to the fact that ABN AMRO N did not pay a market price for the head office services of ABN AMRO Z.

Even though the separation of ABN AMRO N from ABN AMRO Bank is an obligation of the Dutch State under the CSA, the Commission could not exclude that the State recapitalisation financing the separation costs could be State aid. The Commission observed that not all costs categorised as separation costs were strictu senso linked to the separation obligations as described in the CSA. The Commission noticed that the category ‘separation costs’ included an amount of EUR 500 million which was needed to provide ABN AMRO Group with a prudential margin over minimum prudential requirements.

The Commission observed that the Dutch State helped FBN and ABN AMRO N to pay the costs related to the merger. To resolve concentration problems created by the merger, ABN AMRO N decided to sell IFN and New HBU, which led to a new capital shortfall. The Commission observed that FBN and ABN AMRO N were able to profit from the benefits of the merger (for example merger synergies, the advantages of being a stronger company with higher market shares on the Dutch market, …), while the Dutch State financed the upfront costs. In that regard, the Commission observed that there was no legal obligation for the Dutch State to pay those costs since they originated in the decision of the Dutch State of 21 November 2008 to merge FBN and ABN AMRO N and not in the CSA.

The Commission took note of the fact that the merger and the specific conditions surrounding the separation resulted in cross liabilities (Measure E). Dutch corporate law implied that ABN AMRO Bank (now RBS NV) and ABN AMRO II remained liable for the debt-holders of New HBU should New HBU (or its new owner Deutsche Bank) fail to fulfil its payment obligations. New HBU had similar obligations vis-à-vis debt-holders of ABN AMRO Bank (now RBS NV) and ABN AMRO II). The Commission could not exclude that the indemnification solution, which implied that the Dutch State guaranteed the debt-holders of ABN Amro Bank (now RBS NV) at a premium of 200 basis points plus the median CDS-spread, implied State aid.

The Commission acknowledged that ABN AMRO Group would at first sight realise sufficient revenues to cover all its operational costs (including impairments) and earn an acceptable return on equity. However, the Commission also noted that the return on equity of ABN AMRO Group depended to a large extent on the realisation of a number of key assumptions. First, if ABN AMRO Group wants to become cost-efficient with an acceptable cost-income ratio, it is crucial that ABN AMRO Group implements the projected synergies (namely EUR 1,1 billion pre-tax which compares to a 2013 net profit of […] billion EUR). Second, as indicated in recital 118 of the Decision of 5 February 2010, it was also of crucial importance for the viability of ABN AMRO Group that it would be able to improve its net interest margin from the low levels of FBN and ABN AMRO N in the second half of 2008 and the first half of 2009. In its Decision of 5 February 2010, the Commission indicated that it needed more details on those issues, so as to evaluate whether long-term viability had truly been restored.

The Commission also noted that the December 2009 Restructuring Plan did not yet include financial projections for a worst case scenario as required by point (13) of the Restructuring Communication. Therefore, the Commission asked for such worst case financial projections, allowing it to verify how ABN AMRO Group would perform in more stressful market conditions.

The Commission also observed that the December 2009 Restructuring Plan contained little information on smaller sub-divisions, so that the Commission could not judge whether all viability issues at that level had been sufficiently addressed. More specifically, the Commission doubted whether viability of PFS, a division of FBN, which reported major Madoff-related losses in 2008, was sufficiently guaranteed.

The Commission questioned whether the State aid was limited to the minimum necessary to restore the viability of ABN AMRO Group. In that respect, it noted that ABN AMRO Group had indicated that it wished to make small add-on acquisitions, which it deemed necessary to rebuild product competences lost during the separation processes from Fortis SA/NV and ABN AMRO Holding. In the Decision of 5 February 2010, the Commission argued that State aid should not be used to finance acquisitions or new investments unless essential for restoring the viability of an undertaking. The Commission asked the Dutch State to shed more light on the acquisition policy of ABN AMRO Group and to provide it with, inter alia, a detailed list of activities that ABN AMRO Group needed to rebuild for viability reasons.

Also in terms of duration, the State aid should be limited to the minimum necessary. In that regard, the Commission observed that a number of measures were needed to address temporary problems, but the Commission doubted whether the Dutch State had taken sufficient steps ensuring that the measures would be unwound once they were no longer necessary.

With regard to Measure A, the Commission observed that the CRI would become unattractive once ABN AMRO N was allowed to implement Basel II requirements. Although the CRI contained call features allowing for an early termination of the contract, the Commission observed that there was no clear timetable for the Dutch State’s exit.

Also with regard to the prudential margin of EUR 500 million, the Commission noted that the intention was that ABN AMRO Group replaced that amount by self-financed capital. Again the Commission observed that there was no indication whatsoever on timing.

With respect to the integration costs of EUR 1,2 billion (namely Measure B5), the Commission observed that the Dutch State claimed that these would lead to important synergies of EUR 1,1 billion (pre-tax) per year, which could in principle be used to repay the State aid. Yet, the Commission observed that the Dutch State had not put in place a mechanism ensuring such a repayment. On the capital needs related to the sale of New HBU, the Commission concluded that the capital requirements related to the credit umbrella would decline rapidly as loans would gradually mature. Again, the Commission underlined that the State aid should be repaid once it was no longer necessary.

In terms of distortion of competition, the Commission noted that the capital needs of FBN and ABN AMRO N stemmed to a certain extent from their separation of their former parent companies and from upfront integration costs, and not from excessive risk-taking or mismanagement within FBN and ABN AMRO N themselves. Against that background, the Commission concluded that further divestments were unlikely to be necessary.

At the same time however, the Commission expressed doubts that the December 2009 Restructuring Plan contained sufficient behavioural measures to ensure that FBN and ABN AMRO N would not use the State aid to grow at the expense of their competitors, for example by implementing an unsustainable pricing policy or acquiring other financial institutions, which could weaken the incentives of non-beneficiaries to compete, invest and innovate and could discourage entry in the Dutch banking market.

In terms of exit, the Commission argued that it would be helpful if the Dutch State developed and clearly communicated an exit strategy. Indeed, the repeated and massive interventions of the Dutch State could be perceived by depositors as a sign of its permanent support.

In general, the Dutch State underlined that in its view the measures in favour of FBN and ABN AMRO N did not meet the Union definition of State aid and therefore did not have distortive effects. It considered the market behaviour of FBN and ABN AMRO N on the savings and deposit market to be in line with that of a rational market player protecting its commercial interests. The Dutch State believed that the interest rates offered by FBN and ABN AMRO N were not distortive. As a result, it argued that there was no infringement of Union competition law.

The Dutch State presented a number of comparative tables with interest rates offered on specific deposit and savings products. The Dutch State denied that FBN and ABN AMRO N were consistently offering the highest interest rates, especially when compared to smaller Dutch banks like SNS, NIBC and DSB. The Dutch State also pointed out that interest rates on savings accounts were already high in the Netherlands before the financial crisis, partly due to the behaviour of smaller banks with an aggressive pricing policy. The Dutch State believed that during the financial crisis banks tried to protect their savings franchises by offering relatively high interest rates on savings products for customers.

The Dutch State also denied that ABN AMRO N and FBN were solely relying on the Dutch savings market to fund themselves. The Dutch State provided new information showing that ABN AMRO N had issued a covered bond of EUR 2 billion on 6 July 2009 and that FBN had issued EUR 15,5 billion of State-guaranteed debt instruments. According to the Dutch State, the complainant’s allegations were incorrect and premature. It indicated that FBN just needed some time to set up treasury operations and issue State-guaranteed debt instruments. The Dutch State also indicated that deposits and saving products are also important to establish a customer relationship and have a different and broader purpose than that of other funding instruments. In that regard, the Dutch State pointed out that a loss in a bank’s savings and deposits market share could lead to market share losses in other banking products.

The Dutch State also denied that the consumers and market participants perceived ABN AMRO N and FBN as safer banks than competitors. It referred to the ratings of FBN and ABN AMRO N at rating agencies, which were below the AAA-rating of Rabobank for example. Its relative CDS-spreads told a similar story. The Dutch State also believed that the State-ownership did not make ABN AMRO N or FBN more secure in the eyes of consumers and market participants. In that regard, it pointed out that the many ad-hoc State interventions had shown that the Dutch State would, if possible, intervene with respect to any privately-owned bank. Consequently, it believed that de facto there was no perceived difference between the security offered by Dutch privately-owned banks compared with that of Dutch State-owned banks.

The Dutch argued that its earlier comments summarized in recitals 206 to 211 concerning the complainant were still valid.

In addition, the Dutch State noted that the complainant’s claim that ABN AMRO N and FBN market share had increased was based on flawed statistics. With respect to the alleged EUR 21 billion increase in deposits collected by ABN AMRO N, the Dutch State argued that only EUR 5,1 billion was due to Dutch retail savings with the rest mainly due to corporate customer savings and foreign deposits. The Dutch State also provided data, showing that a large part of FBN’s volume increase of deposits and savings stemmed from corporate banking as opposed to retail and private banking.

The Dutch State observed that that Dutch customers had invested more into their savings because of the uncertain macroeconomic environment. It pointed to data of the Central Bureau of Statistics (‘CBS’) which indicated that savings increased by 7,7 % year-on-year in the first half of 2009. ABN AMRO N’s customer savings increased by 7,5 % year-on-year, which indicated that the ABN AMRO N’s market share rather declined. FBN also presented evidence showing that its customer savings had evoled in line with the market.

The Dutch State confirmed that it had not provided a liquidity facility to ABN AMRO N, thereby broadly confirming ABN AMRO Bank’s arguments.

It is appropriate to recall that this Decision assesses only potential aid to FBN, ABN AMRO N or ABN AMRO Group post-merger. Potential aid to Fortis Bank SA/NV arising out of Measures Y1 and Y2 was assessed in the Decision of 3 December 2008.

The willingness to avoid a serious disruption of the Dutch banking system and economy also explains why the Dutch State took its decisions so rapidly. A market economy investor would have taken much more time to evaluate the potential need for additional capital injections and would also have investigated the financials of the companies in more detail. As a result, a market economy investor – with sufficient time to carry out a proper due diligence – would have had a better view on follow-up investments and would have taken that information into account in its valuation. The Dutch State having to act swiftly to preserve financial stability in the Netherlands, could not behave like a market economy investor and take more time to consider the integrated transactions of 3 October 2008 and the CSA-related obligations in further depth.

Therefore, the Commission confirms its assessment that the integrated transactions of 3 October 2008 were not in line with the MEIP (that conclusion was already made in the Decision of 3 December 2008, which considered those transactions to be State aid to Fortis Bank SA/NV).

Measure Y1 – an important component of the integrated transactions of 3 October 2008 – also provided a major advantage to FBN, especially given the size of the transaction and the then prevailing market circumstances.

Therefore, it should be concluded that Measure Y1 constitutes State aid as it provided FBN with an advantage in the form of funding which it could not have found on the market in the then prevailing market circumstances.

With respect to Measure Y2, the novation of long-term loans made by Fortis Bank SA/NV, the Commission considers that measure provides a selective advantage to FBN. The information submitted by the Dutch State shows that Fortis Bank SA/NV was entitled to immediate repayment of the fixed-rate long-term loans (with a nominal value of EUR 7,9 billion) because of the ownership change at the level of FBN. Thanks to Measure Y2, FBN did not have to find new funding on the market in order to repay those long-term loans. It could continue to benefit from the existing loans at pre-crisis rates.

By accepting the novation, the Dutch State provided FBN with long-term debt at pre-crisis interest rates. A market economy investor would not have provided these loans at pre-crisis interest rates but would have negotiated interest rates which would better reflect the then prevailing market circumstances, especially since it concerned loans for a sizeable amount.

Therefore, it should be concluded that Measure Y2 constitutes State aid to FBN as it provided a selective advantage to FBN in the form of a loan at pre-crisis rates. The Dutch State did not try to bring the interest rates of the redeemable loans in line with post-crisis interest rates, thereby not behaving like a market economy investor.

The Commission has received sufficient information to conclude that ABN AMRO N did not receive funding through Measures Y1 and Y2. It therefore did not draw an advantage from those measures.

The chronology of measures (I) described earlier in section 2.1 and section 2.4 in this Decision shows that all measures are interrelated and were taken in a short period of time.

In addition, the merger-related measures are clearly linked to the preceding interventions. When the Dutch State decided on 21 November 2008 – slightly more than 6 weeks after the rescue intervention of 3 October 2008 – to merge FBN and ABN AMRO N, it could only do so because it had just rescued the two companies from bankruptcy. In other words, in a counterfactual scenario without the 3 October 2008 intervention, implementing the merger would not have been an option as either the two companies would no longer have existed or they would have been present only in a substantially reduced form which would have lead to a much smaller and less attractive merged entity, which the Dutch State also admits in its December 2009 Restructuring Plan (see recital 78).

All the measures had the common objective (II) of fully restoring the viability of FBN and ABN AMRO N. Immediately after the integrated transactions of 3 October 2008, it was clear that the Dutch State had merely stabilised the situation, with important operational problems still awaiting resolution, notably because of the separation of each entity from its former parent.

The Commission also observes that the Dutch State only submitted a full-fledged restructuring plan once all the measures were decided, which indicates that viability was only then fully restored. During the procedure, the Commission asked repeatedly for a detailed restructuring plan (see for instance recital 137), which was indispensable to evaluate whether the viability of an aided company has been fully restored.

The Dutch State submitted on 4 December 2009 the December 2009 Restructuring Plan but that first plan still lacked important elements mentioned in the Restructuring Communication such as financial projections for a worst case scenario. The necessary completions arrived on 23 March 2010. The Dutch State replied to earlier requests made by the Commission for a restructuring plan that the merger between FBN and ABN AMRO N played a crucial role in the restructuring of those companies. According to it the transition management team of ABN AMRO Group needed time to prepare a plan and could not have a complete view on the future shape of the group before the merger was implemented.

ABN AMRO Group (or FBN and ABN AMRO N before the merger) have benefitted from recapitalisation aid, which is situated in a range between EUR 4,2 billion and EUR 5,45 billion. That amount translates into a range of 2,75 %-3,5 % when compared to ABN AMRO Group’s risk-weighted assets.

In order to comply with the Banking Communication, Measures Y1 and Y2 should be well-targeted, proportionate and designed to avoid undue distortions of competition.

The Commission repeats the conclusion of recital 51 of the Decision of 8 April 2009 that the measure to cut all the links between FBN and its liquidity-constrained parent Fortis SA/NV was necessary to shelter FBN from the then acute difficulties of its parent company. Therefore, the measures can be considered well-targeted in order to achieve the rescue of FBN.

The measures Y1 and Y2 should also be proportionate and not unnecessarily distort competition. In that regard, the Commission looks favourably at the pricing system developed by the Dutch State, which aimed to create a level playing field with the Guarantee Scheme (see recital 169). In respect of guarantee schemes, the Commission has consistently requested Member States to charge a premium of at least 50 basis points for guarantees longer than 3 months (and not longer than 12 months). The Commission found that the Dutch State did not consistently ask EURIBOR + 50 basis points for loans of longer than 3 months. Therefore, the Commission can only declare Measure Y1 compatible with the internal market on the condition that a corrective payment of EUR 18,2 million is made to ensure that loans with a maturity of more than 3 months are effectively remunerated at EURIBOR + 50 basis points. The Commission notes positively that all the liquidity facilities were repaid and ended in June 2009.

With respect to Measure Y2, the Commission observes that since the Dutch State did not change the interest rate and maturity of the loans, FBN benefitted from relatively cheap loans, which could distort competition. Therefore, the Commission can only declare the measure compatible with the Banking Communication if all the conditions set out later in this Decision and more specifically the measures to limit distortions of competition are correctly implemented.

The Commission has concluded that the measures concerned were put in place to sort out a genuine need and represented the minimum necessary to fully restore the viability of the companies concerned.

With respect to remuneration, the Commission observed that the State was already the owner of 100 % of the ordinary shares of FBN (and indirectly of 100 % of ABN AMRO N). All those measures were indispensable to preserve the value of that shareholding.

ABN AMRO Group will realise a RoE of approximately […] % in 2013, which indicates that thanks to all the State interventions, a viable and profitable entity has been created.

In view of the above, the Commission has concluded that Measures Z, B3, B4, B5 and C are compatible with the Recapitalisation Communication if the conditions set out later in this Decision are correctly implemented.

The Commission acknowledges that the capital relief instrument put in place by the Dutch State differs from the traditional impaired asset measures evaluated in other cases. While other impaired asset measures sought to relieve banks from impaired assets, the portfolio protected by the CRI is a traditional Dutch mortgage portfolio of which neither ABN AMRO N nor external experts expected the performance to deteriorate to a significant extent.

The Commission observes that a traditional recapitalisation at the level of ABN AMRO N was not opportune for the Dutch State, because it was not a separate legal entity at the relevant moment and the Dutch State would not have been in a position to ring-fence its capital contribution, which could have had negative consequences especially in distress scenarios. Moreover, private capital relief instruments were not feasible given the size of the transaction and the complexities related to the separation of ABN AMRO Bank NV, the parent company of ABN AMRO N and ABN AMRO Z.

Given that particular background, the Commission can accept that the CRI is an alternative to a traditional capital increase rather than a protection against toxic assets and is therefore a necessary and appropriately targeted measure to sort out the specific capital problem of ABN AMRO Z.

In spite of the fact that the measure is mainly a proxy measure for a recapitalisation, the measure should be consistent with other capital relief schemes, thereby protecting the internal market as explained in recital 284.

The Commission has concluded that the Dutch State has provided sufficient evidence to show that the valuation was such that ABN AMRO N or its legal successor will bear the expected losses. Market data (in particular rating reports), historical data and recent evidence from ABN AMRO N show that the yearly first loss tranche of 20 basis points should suffice to cover expected losses.

The remuneration that ABN AMRO N pays is not lower than that requested in the Impaired Asset Communication and the Recapitalisation Communication. The remuneration implies that ABN AMRO N will pay 10 % on the capital that is relieved by the transaction as a result of the reduction of RWA. That rate compares favourably to the minimum rates set out in point (27) of the Recapitalisation Communication. Given the relatively high remuneration, the vertical slice of 5 % and the claw-back mechanisms can be considered to be in line with point (24) and footnote 15 of the Impaired Asset Communication.

Measure A also contains sufficient incentives to exit. The call options described in recital 107 indicate that it is easy for ABN AMRO N (or now ABN AMRO Group) to terminate the measure. Moreover, the pricing is such that the measure becomes more expensive as time goes by. The contractual terms imply that the pricing will not be adjusted when ABN AMRO Group started to calculate its capital requirements based on Basel II. That lack of adjustment will reduce the capital relief effect of the measure while the guarantee fee will not fall. Moreover, the first loss tranche is calculated as a percentage of the initial portfolio value, so that the first loss tranche as a percentage of the outstanding portfolio (namely initial portfolio corrected for, inter alia, repayments) will gradually increase over time.

In view of the characteristics of the CRI and in view of the December 2009 Restructuring Plan and the updated November 2010 Restructuring Plan as described under heading 2.3 of this Decision, the Commission considers Measure A to be compatible with the general principles of the Impaired Asset Measure and with the principles of the internal market as explained in recital 284.

The fact that the CRI was called by ABN AMRO Group soon after it implemented Basel II requirments confirms ex-post the analysis made in recitals 294 to 301.

A restructuring plan should demonstrate that the bank’s strategy is based on a coherent concept and show that the bank has restored long-term viability without reliance on State support.

As already concluded in the Decision of 5 February 2010, the business models of FBN and ABN AMRO N did not rely on excessive risk taking and unsustainable lending practices. The two entities were, however, left vulnerable and unequipped in certain core fields as a consequence of the separation from their respective parent groups. After its parent company was broken up, ABN AMRO N had poor access to larger companies, no longer had an international network and lacked a number of product and IT capabilities. FBN was also heavily affected by the separation from its parent company and its funding relied heavily on wholesale markets. ABN AMRO Group’s December 2009 Restructuring Plan (and also the updated November 2010 Restructuring Plan) shows that the integration of ABN AMRO N and FBN substantially reduces the weaknesses of each of the individual entities. The combination of FBN and ABN AMRO N helped to allay some of those concerns. The large retail and private banking franchise of ABN AMRO N was deposit-rich which created a better funding profile for the integrated group, FBN sorted out part of the international network problem of ABN AMRO N and the two groups together were better able to sort out, for example IT-related problems (namely they did not each have to rebuild separately an IT-platform and other support tools).

The financial projections show that at the end of the restructuring period the combined entity should be able to cover its costs and realise an appropriate return on equity of approximately […] %. Even in a stress scenario, the company will continue to make profits, while its capital adequacy ratios remain above the minimum regulatory thresholds. Thus the company’s capital buffer seems sufficiently high – after the repeated interventions of the State – to weather future adverse circumstances without having to return to the State again.

As the figures of the second half of 2008 and the first half of 2009 showed, it is of crucial importance to realise sufficiently high net interest revenues to create a fully viable company. Therefore, the December 2009 Restructuring Plan and the updated November 2010 Restructuring Plan can only be declared compatible with the viability requirements of the Restructuring Communication on the condition that ABN AMRO Group will strive to realise the updated net interest revenues set out in the November 2010 Restructuring Plan. ABN AMRO Group should report on its progress to the Commission on a regular basis – at least every quarter. If ABN AMRO Group observes divergences compared with those projections, it should immediately undertake corrective action.

The Restructuring Communication recalls that an acquisition ban is necessary to keep the aid limited to the minimum necessary. Point (23) of the Restructuring Communication mentions explicitly that ‘an undertaking should not be endowed with public resources which could be used to finance market-distorting activities not linked to the restructuring process. For example, acquisitions of shares in other undertakings or new investments cannot be financed through State aid unless this is essential for restoring an undertaking’s viability’.

The Restructuring Communication also links an acquisition ban to distortions of competition. In points (39) and (40), the Communication explains that ‘State aid must not be used to the detriment of competitors, which do not enjoy similar public support’, and that ‘Banks should not use State aid for the acquisition of competing businesses. This condition should apply for at least 3 years and may continue until the end of the restructuring period, depending on the scope, size and duration of the aid’.

The Commission observes that the December 2009 Restructuring Plan (completed with worst case financial projections on 23 March 2010) indicated already that ABN AMRO Group has become a viable entity that should realise a decent return on equity and is even expected to realise decent profits in worse economic conditions. The updated November 2010 Restructuring Plan confirmed this analysis. That return to viability does not hinge on acquisitions. An acquisition ban therefore does not go against the return to viability.

In other cases, burden-sharing measures are also necessary to make sure that rescued banks bear adequate responsibility for the consequences of their past behaviour so as to create appropriate incentives for the future behaviour of themselves and others. That factor is less relevant in this case as the problems of the company were to a large extent linked to the former parent company Fortis SA/NV (see section 6.3.3 ‘Measures to limit distortions of competition’). Therefore it can also be accepted, from a burden-sharing perspective, that there are no major divestments apart from the disposal of PFS and Intertrust which jointly accounted for […] % of total operating income and […] % of RWA.

With respect to the measures needed to limit distortion of competition, the present case presents some atypical features.

Point (28) of the Restructuring Communication indicates the type of distortion of competition which may occur when State aid is provided in order to support financial stability in times of systemic crisis: ‘Where banks compete on the merits of their products and services, those which accumulate excessive risk and/or rely on unsustainable business models will ultimately lose market share and, possibly, exit the market while more efficient competitors expand on or enter the markets concerned. State aid prolongs past distortions of competition created by excessive risk-taking and unsustainable business models by artificially supporting the market power of beneficiaries. In this way it may create a moral hazard for the beneficiaries, while weakening the incentives for non-beneficiaries to compete, invest and innovate’.

The Commission observes that the measures in favour of FBN and ABN AMRO N assessed in this Decision have specific features which differ from other restructuring cases it had to deal with during the current crisis, including those of Fortis Bank SA/NV and Fortis SA/NV. In this case, FBN and ABN AMRO N do not primarily need State aid because they took flawed management decisions. The need for State aid does not stem for instance from the accumulation of excessive risks in their investments or in their lending policy, or because they had undertaken an unsustainable pricing policy. Equally, the difficulty of Fortis SA/NV and Fortis Bank SA/NV did not stem from risky lending or pricing policies in the retail banking, private banking or commercial banking activities, which were on the contrary profitable. Consequently, the Commission considers that the aid to FBN and ABN AMRO N is significantly less distortive than the aid approved in favour of financial institutions which had accumulated excessive risks. Therefore, the Commission considers that further divestments are not necessary.

However, it should to be ensured that the State aid is not used by FBN and ABN AMRO N to grow at the expense of competitors, for instance by implementing an unsustainable pricing policy or by acquiring other financial institutions. If that were to happen, the aid would ‘weaken the incentives for non-beneficiaries to compete, invest and innovate’ and could undermine ‘incentives for cross-border activities’ by discouraging entry in the Dutch market.

The State aid can therefore only be declared compatible if there are sufficient measures in place ensuring that the State aid is not used to the detriment of competitors, some of which did not receive similar public support. A level playing-field should remain in place between banks which received public support and those which did not. It should also be avoided that the State aid weakens incentives for non-beneficiaries to compete, invest and innovate and that entry barriers are created which could undermine cross-border activity.

The Restructuring Communication provides that the nature and form of such caps will depend on the amount of aid and the conditions and circumstances under which it was granted and also on the characteristics of the market(s) on which the beneficiary bank will operate. The amount of aid has been described in section 6.1.3 ‘Quantification of Aid’. The specific conditions and circumstances under which it was granted have been discussed at the beginning of the present section. As mentioned in point (32) of the Restructuring Communication, the size and relative importance of the bank on its market(s) play also a role. If the restructured bank has limited remaining market presence, additional measures are less likely to be needed. Therefore, the conditions necessary to declare the aid compatible mainly relate to retail and private banking as the company has already substantially reduced its presence in commercial banking via the divestment of New HBU.

The aid can be declared compatible with the Restructuring Communication on the condition that ABN AMRO Group implements the measures described in points (325) to (329).

In retail and private banking, the aid can be declared compatible on the condition that ABN AMRO Group will not be the price leader for standardized savings and mortgage products. In line with point (44) of the Restructuring Communication, ABN AMRO Group should not offer price conditions which cannot be matched by non-aided competitors.

Since a price leadership ban might be less effective in segments with many non-standardised products such as private banking in the Netherlands where there was a specific complaint, an additional condition is needed in line with point (44) of the Restructuring Communication to declare the aid compatible. ABN AMRO Group must aim to achieve the net interest revenues as presented to the Commission on 8 November 2010. ABN AMRO Group should therefore take appropriate action as soon as it observes that it undershoots its projections, especially when the latter is due to low interest margins.

If the measures to limit undue distortions of competition and more particularly the specific measures in retail and private banking are correctly implemented, they would also sufficiently addresses the issues raised by the complainant. When investigating those issues, the Commission found that ABN AMRO has been pricing some products temporarily at a loss but that pricing policy took place in a liquidity-constrained environment where all banks were competing aggressively for savings, while there was also the specific start-up context of MoneYou (whose launch was decided before the Fortis SA/NV collapse).

Point (44) of the Restructuring Communication also mentions that banks should not invoke State support as a competitive advantage when marketing their financial offers. Therefore, a condition to declare the aid compatible is that ABN AMRO Group will not use State aid in its marketing campaigns and communication to investors, for a period of 3 years. Those prohibitions should extend to up to a period of 5 years as long as the Dutch State holds a shareholding of at least 50 % in ABN AMRO Group.

From the perspective of undue distortions of competition, the Commission regards positively the divestments of PFS and Intertrust. The disposal of PFS reduces the company’s attractiveness towards institutional customers, while Intertrust provided, inter alia, services which could make the private banking franchise stronger. As a result, its sale might make it easier for competitors to improve their competitive position as against that of ABN AMRO Mees Pierson. The Commission also considers that the fact that part of the aid has been repaid contributes to limit the distortions of competition. The Commission also takes a favourable view on the dividend policy as described in recital 75.

Thus, if all the conditions described in sections 6.2 and 6.3 are correctly implemented, the December 2009 Restructuring Plan updated by the November 2010 Restructuring Plan provides sufficient evidence that the long-term viability of ABN AMRO Group has been restored. The December 2009 Restructuring Plan updated by the November 2010 Restructuring Plan provides sufficient burden-sharing and contains adequate measures to limit undue distortions of competition. Therefore, the Commission can conditionally declare the December 2009 Restructuring Plan as updated by the November 2010 Restructuring Plan in line with the Restructuring Communication.