On the basis of that methodology the real economic value (REV) of the ABS portfolio at the time of the approval of the measures was estimated by the Commission's experts at 83,87 % of the nominal value of EUR 19,589 billion, that is to say EUR 16,429 billion. In an e-mail message of 14 December 2009 Germany stated that it would not be seeking further analysis of the expected loss. When a transfer price of EUR 18,389 billion is compared to a real economic value of EUR 16,429 billion, there is a a difference of EUR 1,96 billion.

The capital relief effect of the measure at the time the risk shield was implemented was determined to be EUR 1,28 billion.

The accuracy of the method and the underlying calculations used to determine the capital relief effect was confirmed by BaFin in a letter dated 9 April 2010.

1. (i)

   a basic fee of 6,25 % on the initial capital relief effect of EUR 1,28 billion at 31 December 2008, that is to say EUR 80 million per annum;

2. (ii)

   an additional fee of 3,75 % on a part of the guarantee amounting to EUR 2 billion, that is to say EUR 75 million per annum, until 2015;

3. (iii)

   a special fee of EUR 45 million per annum until 2015.

Regarding small and medium-sized businesses, BayernLB will target Bavarian enterprises with a turnover between EUR 50 million and EUR 1 billion, family-run businesses, and other German enterprises in specific regions where the bank is already present, such as North Rhine-Westphalia via its Düsseldorf branch. In regions without local branches the bank will focus on enterprises with a turnover of EUR 100 million to EUR 1 billion. Besides credit facilities, the bank will, inter alia, offer products in the fields of export and trade financing, documentary business, interest and currency management, derivatives, financial investment, monetary transactions and leasing. The bank will also provide products to enterprises with a turnover below EUR 50 million via the savings banks.

Through its subsidiary DKB, BayernLB will be active in the business areas retail banking, infrastructure, and commercial customers. In retail banking, DKB will offer bank accounts, credit cards and other products (financing, investment) via direct banking. In infrastructure, DKB will, in particular, target entities providing services of general interest and healthcare institutions. Lastly, DKB will target commercial customers in selected industries such as agriculture, food, environmental technology, tourism, and legal and tax services.

With regard to real estate, BayernLB will focus on German clients. It will, however, also provide services to international clients with a link to Germany. With regard to commercial real estate, the bank will provide portfolio financing, housing promotion, development and inventory financing, and financing of real estate funds. With regard to residential real estate, the bank will provide services for housing enterprises and building financing. In the context of managed real estate, the bank will focus on financing care homes and health care property.

BayernLB will continue to cooperate with Bavarian and, to a lesser extent, other German savings banks. The bank will provide products complementing the savings banks' own products and act as the savings banks' central bank.

In the public authorities segment, BayernLB will offer various financing products and other services related, for example, to public-private partnership projects. BayernLB will not offer new credit products to public authorities outside Bavaria except for liquidity management. In addition, public-private partnership, project and export financing can still be offered if this is in the interest of customers with a link to Germany.

Through its subsidiary BayernLabo, BayernLB will be active in providing government-funded financing for residential real estate projects in Bavaria. BayernLabo will target private customers, businesses that create or modernise housing in Bavaria, and public authorities. Furthermore, BayernLabo will offer financing products to public authorities and consortia set up by public authorities. That business will, however, be limited to the region of Bavaria.

BayernLB will provide treasury products (commodities, short-term interest rates, fixed-income derivatives, foreign exchange), capital markets products (fixed income, structured products for retail certificates, structured interest products, shares execution) and funding products (international loans, domestic funding). The bank will offer these products to financial institutions and institutional customers such as insurance companies, trusts and churches. This business area will be limited to activities in connection with the bank's clients: proprietary trading will be abandoned, except for treasury activities. Furthermore, credit business with other banks will be cut back substantially.

For GDP and currency forecasts in the short term (that is to say the period 2012-2013), BayernLB uses a methodology which is based on weighted forecasts from international institutions, short-term forecasts from private forecasters, and input from BayernLB's own in-house research department. BayernLB bases its long-term GDP forecasts beyond 2013 on the assumption that the economy will tend to grow in line with its long-term potential. BayernLB's forecasts for internal planning purposes are as a rule. conservative. Minor deviations from the figures forecast by other institutions can occur due to rounding (for example, 2013 euro area forecasts: IMF: 0,9 %, BayernLB and Commission: 1 %).

BayernLB's dollar forecast rests on the assumption that the dollar will […] in 2013. In 2015-16, the dollar will […] vis-à-vis the euro. According to BayernLB, this will be the result of expected […] in US public finances and the exchange rate […] purchasing power parity (PPP), which the Organisation for Economic Cooperation and Development (OECD) estimated to be USD 1,25 per euro in 2011. As inflation in the US is expected to be higher than in the euro area, PPP should in BayernLB's view be close to USD 1,30 in 2016.

For interest rates, BayernLB's projections start from the current very low interest rate environment. BayernLB assumes a gradual return to normal from the current low levels towards fair value levels; it bases this view on growth forecasts, inflation forecasts and statements regarding expected monetary policy.

The German authorities have provided the Commission with information showing that BayernLB's GDP forecasts are very close to the consensus of major international institutions such as the International Monetary Fund (IMF) and the Commission.

BayernLB has provided an analysis of the sensitivity of its financial projections to a variation of the US dollar, Swiss franc and sterling exchange rates. According to the information provided, net interest income is most sensitive to variations in dollar exchange rates. The net interest income projections tend to decrease for higher euro/dollar exchange rates and increase for lower euro/dollar exchange rates.

Germany has provided detailed financial projections for asset volumes, margins and risk positions per business area, and also for funding per source of refinancing with the respective margins.

In the December 2011 EBA stress test, BayernLB's EBA core Tier 1 capital ratio stood at 10 %. Over the restructuring period the bank will generate increasing profits.

Germany has provided extensive information on alternative sources of funding which are available to BayernLB. The information relates in particular to collateral that is eligible for the issue of covered bonds but not listed in the funding plan provided. Such collateral is available at the level of DKB and could provide an alternative cheap source of funding. Germany has also provided information on incremental issuance capacity on the international markets.

As MKB's earnings outlook has been permanently impaired by the early repayment of foreign currency loans and the continuing difficult environment, BayernLB wrote down its stake in MKB by EUR 576 million in its accounts, in line with German accounting standards.

In the first quarter of 2012, BayernLB contributed EUR 200 million to a capital increase for MKB. Via intra-group funding BayernLB has an exposure to MKB estimated to be around EUR […] billion at the end of 2012.

In the EBA capital exercise of December 2011, BayernLB's core Tier 1 ratio according to the EBA criteria (‘the EBA core Tier 1 ratio’ or ‘the core Tier 1 ratio’) stood at 10 %. Taking into account the composition of BayernLB's sovereign portfolio, the EBA concluded that BayernLB did not need any specific sovereign capital buffer for its exposures in the European Economic Area.

The financial planning is based on the assumption that in 2013 there will be a changeover in the reference accounting standards used for calculating regulatory capital ratios, from the Generally Accepted Accounting Principles (GAAPs), in accordance with the German Commercial Code (Handelsgesetzbuch), to the International Financial Reporting Standards (IFRSs).

According to the bank, the precise profile of the decrease in risk positions over the period cannot be established at this stage, because the reductions can be achieved either through optimisation or through reductions in business.

Paragraph 46 of the Impaired Assets Communication stipulates that while it is a matter for the Member States to choose the most appropriate model for relieving banks from impaired assets, nevertheless, in order to prevent conflicts of interest and facilitate the beneficiary bank's focus on the restoration of viability, it is necessary to ensure clear functional and organisational separation between the bank and its impaired assets, notably as to their management, staff and clientele.

Although the Land of Bavaria provides a guarantee shielding BayernLB against losses stemming from its ABS portfolio, all of the shielded assets remain on BayernLB's balance sheet.

The Commission accepts that a complete segregation of the assets covered and of the staff managing them could, in the case of a guarantee of such a size as the risk shield, be difficult and potentially damaging to the objective of minimising the expected losses. Hence, there is no requirement for portfolio managers to be dedicated exclusively to the management of covered assets or otherwise to keep covered assets separated from the bank's other assets.

The Commission engaged external experts to conduct a valuation of BayernLB's ABS portfolio. The Commission's team of experts established the real economic value (REV) of BayernLB's ABS portfolio, in line with the Commission's decision-making practice, at 83,87 % of the nominal value. The real economic value amounts to EUR 16,429 billion.

In accordance with point 20 of the Impaired Assets Communication, applications for aid should be subject to full transparency and disclosure of impairments by eligible banks on the assets which are to be covered by the relief measures, based on adequate valuation, certified by recognised independent experts and validated by the relevant supervisory authority. Detailed information about the shielded portfolio has been provided to the Commission. The capital relief effect of EUR 1,28 billion was confirmed by BaFin in April 2010. The Commission is therefore satisfied that this criterion is fulfilled.

The principle of burden sharing established in the Impaired Assets Communication requires that banks bear the losses associated with impaired assets to the maximum extent. Therefore, the assets should, in principle, be transferred at a price that is equal to or below the REV. That can, for instance, be achieved through a prior write-down bringing the value of the assets to the REV. Paragraph 24 of the Communication states that where it is not possible to achieve full burden sharing ex ante, the bank should be requested to contribute to the loss or risk coverage in the form of claw-back clauses or by a clause of ‘first loss’ to be borne by the bank.

In this case, the impaired assets relief took place without a prior write-down to the REV of the ABS portfolio. Burden sharing was to be achieved, however, by a first-loss piece of EUR 1,2 billion retained by BayernLB.

The Commission has established that the REV was 83,87 % of the nominal value, amounting to EUR 16,429 billion. Thus the transfer price of EUR 18,349 billion is, after deducting the first loss, EUR 1,960 billion above the REV. In accordance with paragraph 41 of the Impaired Assets Communication, this amount, the ‘transfer delta’, should be clawed back from BayernLB, either immediately or at least over time.

A claw-back requires that the beneficiary bank reimburses the entire amount above the REV that is covered by the guarantee. If no full claw-back is possible, far-reaching measures will be needed to limit distortion of competition. However, the Commission does not see any reason why a full claw-back would not be possible in the case at issue.

The Commission notes that BayernLB is now prepared to pay an additional premium of 3,75 % on a part of the guarantee amounting to EUR 2 billion, that is to say EUR 75 million a year, and a special fee of EUR 45 million a year, giving a total of EUR 120 million a year for 6 years until 2015. That arrangement would amount to an annual claw-back payment of EUR 120 million.

This leaves a remainder of EUR 1,24 billion to be paid over time (the claw-back of EUR 1,96 billion less the six annual payments of EUR 120 million referred to in recital 148). BayernLB claims that it will not be able to pay that amount (see recital 119).

In recital 78 to the opening decision the Commission emphasised that the remuneration of 50 basis points being paid by the bank at the time was significantly below the price a market investor would expect.

On the basis of the above, BayernLB would need to pay 6,25 % on a capital relief effect of EUR 1,28 billion. BayernLB has agreed to pay a basic premium of 6,25 % on the capital relief of EUR 1,28 billion, that is to say EUR 80 million a year, starting from 1 January 2010 […].

Given that BayernLB pays an adequate remuneration, amounting to EUR 80 million a year, for the asset guarantee, and on the condition that Germany will fully claw back the excess part of the transfer difference, amounting to EUR 1,96 billion, so as to bring the transfer price into line with the REV, the asset guarantee on the ABS portfolio can be considered to be compatible with the internal market. In order to achieve a full claw-back, the conditions in Annex II to this Decision need to be met. In the light of those considerations the doubts indicated in the opening decision have been allayed.

According to the Restructuring Communication, restructuring aid should ensure that the bank can return to viability but should be limited to the minimum necessary to achieve that result. In recital 99 to the opening decision, the Commission said that the restructuring plan contained no far-reaching proposals for limiting the aid to the minimum.

Despite these difficulties, Germany has not offered a solution that would allow excess capital to be redeemed.

However, the capital increase consists of a capital injection of EUR 7 billion and a silent participation of EUR 3 billion. The silent participation is a redeemable instrument. Furthermore, it was provided before the Basel III rules were agreed upon, and will not qualify as EBA capital once the Basel III rules are implemented. Because it bears a 10 % coupon, the silent participation will in the medium term become an economically expensive source of funding, and will limit BayernLB's profit distribution capacity, which in turn makes the bank unattractive for any new capital investors.

In addition, according to the restructuring plan, the bank intends to make profits throughout the restructuring period. Those profits would not be distributable, given that BayernLB is in restructuring. When this is considered in parallel with the risk position reduction projected in the restructuring plan, it can be expected that the capitalisation of the bank will increase each year, which will improve its ability to repay. Moreover, Germany has committed to an additional risk position reduction beyond the reduction projected in the restructuring plan, which would free an additional 10 % of the capital of BayernLB.

On that basis, the Commission requested the German authorities to provide a schedule for the repayment of the EUR 3 billion silent participation before 2018, when it ceases to satisfy all the requirements to be recognised as core capital for supervisory purposes. In response the German authorities provided the repayment scenarios indicated in Table 10 — Hypothetical repayment schedule excluding additional capital potentially generated by nominal-value accounting of BayernLabo loans.

The Commission considers that the aid can be limited to the minimum necessary through the repayment of the silent participation of EUR 3 billion as indicated in Table 10. That repayment is appropriate in the light, first, of the projections of the bank and, second, of the latest regulatory requirements, which call for a capitalisation above 9 % core Tier 1 capital plus a buffer (which will also be the case under the Basel III rules). On that basis, subject to the condition of the repayment detailed in Annex II, the Commission considers that the restructuring aid is limited to the minimum necessary required for restoring viability.

The Commission notes that especially as regards BayernLabo the repayment schedule is based on particular accounting and regulatory treatment assumptions although there is in fact some uncertainty as to the applicable framework. Should the assumptions change, the repayment should be in accordance with Table 11.

The Commission will assess the viability of the bank on the basis of the repayment schedule and the contribution by the bank and its shareholders.

In assessing a restructuring plan the Commission needs to determine whether the bank is able to restore long-term viability without State aid (section 2 of the Restructuring Communication). The opening decision raised doubts in that respect.

According to the Restructuring Communication, long-term viability is achieved when a bank is able to compete for capital in the marketplace on its own merits in compliance with the relevant regulatory requirements. To do so the bank must cover all its costs and provide an appropriate return on equity, taking into account its risk profile. Long-term viability further requires that any State aid received is either redeemed over time, as envisaged at the time the aid is granted, or is remunerated according to normal market conditions, thereby ensuring that any form of additional State aid is terminated. The return to viability should derive from internal measures and be based on a credible restructuring plan, and should identify the causes of the bank's difficulties and weaknesses and explain how the restructuring operation will remedy them. In particular, successful restructuring entails withdrawal from all activities which would remain structurally loss-making in the medium term.

The Commission finds that this requirement is met, as the restructuring plan provides for a significant reduction in the bank's capital market activities both in volume and complexity, and reduces the bank's foreign activities to focus on the area where its main expertise lies, primarily commercial banking for retail customers and small and medium-sized business customers situated in its regional home markets.

point 13 of the Restructuring Communication requires that the restructuring plan should be based on assumptions which are compared with appropriate sector-wide benchmarks, adequately amended to take account of the new elements of the current crisis in financial markets, and should incorporate an adequate stress level.

According to the sensitivity analysis provided by BayernLB (recital 89) the profits of the bank would increase if a stronger dollar were assumed in the projections. That increase can be explained by the fact that BayernLB has more assets in USD than liabilities and therefore, if the dollar is stronger, the euro equivalent of the net interest it receives in dollars is higher. Given that BayernLB assumes a weaker dollar than the financial markets expect, as reflected in the forward curve, the assumption can be considered stress-proof.

The Commission also observes that BayernLB adjusted its projections to incorporate the negative impact of a number of company-specific elements (the ruling of the Federal Labour Court, MKB in Hungary, foreign exchange hedging costs, and the tax rate). This confirms that the bank's financial forecasts are prudent and take sufficient account of possible stress.

In respect of funding, the challenge facing the Landesbanken over the medium term is the replacement of State-guaranteed grandfathered debt. Grandfathered debt constitutes a cheap source of funding for the Landesbanken which cannot be replaced at the same cost. At the end of 2010 BayernLB had EUR 58 billion of grandfathered debt outstanding. Virtually all of that debt will mature by the end of 2015. The Commission notes that the maturing grandfathered liabilities are more than compensated for by the balance sheet reduction of EUR 70 billion projected by BayernLB in June 2011.

Further additional reductions offered by the bank led to a commitment on the part of the German authorities that the balance sheet would be reduced to EUR 240 billion in total. The funding plan presented in June 2011 presented a number of weak points in terms of the credibility of the availability of certain sources of funding. First, the plan relied on an assumption that corporates' deposits would increase by EUR [2-8] billion, an increase of […] % over the 2010 level. Second, the Depot B funding obtained through savings banks was projected to increase by EUR [1-5] billion, a […] % increase over the 2010 level. Those concerns have been addressed by an additional reduction of EUR [3-10] billion achieved through additional reductions in funding-intensive business areas (real estate, corporates and project finance). Furthermore, BayernLB has provided credible information on the available alternative funding sources, in particular its capacity to issue more covered bonds (Pfandbriefe).

The Commission also takes a positive view of the decreased reliance on unsecured funding from the inter-bank market, as illustrated in Table 6.

point 13 of the Restructuring Communication indicates that long-term viability is achieved when the bank is able to provide an appropriate return on equity, taking into account its risk profile. In the absence of repayment the bank would not be able to generate a sufficient RoE to be competitive in the market for capital. After restructuring, the bank would generate an RoE of [5-10] %, assuming a 10 % capital ratio. The RoE calculations in Table 4 assume a capital ratio of 10 %, which was the EBA core Tier 1 ratio recorded by the EBA for BayernLB in the December 2011 capital exercise. It is also the ratio used by BayernLB to present the RoE in its projections (see Table 4). However, in the absence of repayment, the capital ratio of the bank would be substantially higher (as explained in recital 159, the capital ratios of BayernLB could have been increased from the 10 % December 2011 level on the basis of projections of profits sustained throughout the period only if such profits were to be retained), so that the RoE would be lower than that projected.

Through the additional reductions of EUR 10 billion in risk positions committed to by Germany, combined with the repayment schedule laid down in Annex II, the level of the RoE is re-established at around [7-12] % in 2016. That improvement of the RoE is possible because of the profit-neutral way in which the additional risk position reduction will be achieved, as committed to by Germany. The feasibility of such profit-neutral reductions has been shown to be plausible on the basis of two illustrative scenarios which the bank might implement.

The repayment schedule set out in Annex II achieves full repayment of the silent participations, which would otherwise have burdened the profitability of the bank. Those silent participations would have to be remunerated at a much higher rate than the RoE of the bank, and they will no longer qualify as supervisory capital under the Basel III rules. A full repayment is achieved under the restructuring plan submitted, while the capitalisation of the bank is kept at comfortable levels.

The level of RoE has to be analysed in the light of the bank's risk profile. BayernLB has, in the past, been active outside Germany. In particular in the corporates business, BayernLB lent to parties without any link to a home BayernLB client, and for projects that did not offer any substantial collateral. Project financing focused on foreign projects for which the only guarantee of payment was the expected future cash flows from the project financed.

Germany has committed to strict limits in terms of risk positions in international activities in those business areas. Germany has also undertaken to confine the bank's business to clients with a link to its home market, based on clear definitions, in order to limit credit exposures to clients without a client relationship based on the regional business model of the bank. The refocusing of the activities of the bank will lead to a reduction of the relative level of risk. Against that background the projected RoE of around [7-12] % can be considered acceptable.

In any event, the Commission acknowledges the role of the financial supervisor. The Commission accepts that the annual instalment repayment obligation in Annex II is subject to regulatory approval. The instalment payments under that repayment schedule are thus conditional upon approval by BaFin. If BaFin prohibits or does not approve repayment of an instalment, the Commission accepts that the corresponding obligation to repay that amount is deferred. However, if a repayment of the amount initially deferred is not approved the following year, or is again prohibited, the implementation of the restructuring plan will be compromised, and Germany will therefore need to submit a modified restructuring plan to the Commission.

Under the Restructuring Communication it has also to be assessed whether the restructuring plan addresses any existing or potential weaknesses in the corporate governance structure. The Commission finds that the restructuring plan comprises significant changes in the bank's legal structure and corporate governance which will make BayernLB less vulnerable to potential undue influence by shareholders and permit better corporate oversight.

The measures to be implemented will ensure that BayernLB will not be different from its competitors in terms of its constitution, its internal policies and procedures, or the role and composition of its governing bodies. There are sufficient safeguards against business decisions being taken on the basis of considerations other than commercial ones. Additionally, the quality of corporate oversight is substantially enhanced. There is a clearer and more stringent differentiation of the respective roles of the different bodies (shareholders' meeting, supervisory board and executive board) and the professionalism of the supervisory board will benefit from the inclusion of independent experts and the introduction of a ‘fit and proper’ test which every board member will have to pass.

The corporate governance framework is compatible with the requirements for private businesses and extends to the implementation of the (voluntary) German corporate governance code.

The bank's shareholders' meeting will have the standard powers of a shareholders' meeting, without any additional influence. In line with the corporate governance code, half of the members of the supervisory board will be independent. Qualitative requirements ensuring a minimum qualification of newly appointed supervisory board members introduced by BaFin, the German regulator, are to be applied to all members of the board. During the restructuring period, the chairman of the supervisory board will be an independent member. An audit and risk committee will also be introduced, and will operate in line with best corporate governance practices.

Overall, therefore, BayernLB's restructuring plan of is likely to restore its long-term viability.

The Restructuring Communication states that, in order to keep the aid to a minimum, banks should first use their own resources to finance the restructuring and that the costs associated with the restructuring should be borne not only by the State but also by those who invested in the bank. In the opening decision the Commission noted that the scope of the divestitures proposed as the bank's own contribution remained vague.

In the meantime Germany has given a commitment that BayernLB will sell [40-70] subsidiaries or holdings by the end of the restructuring period. The bank has already sold the majority of those subsidiaries and expects to have completed all sales by […] at the latest. The financial holdings to be sold are listed in point 11 of Annex I and in Annex III, and include LBS Bayern, MKB and Banque LB Lux SA, which are amongst BayernLB's largest subsidiaries. The revenues generated and any profit made will be used to cover restructuring costs and will help to ensure that the aid is kept to the minimum.

Moreover, in order to ensure that over the restructuring period the owners of the bank play as large a part as possible in the reconstitution of an adequate capital base, Germany has given a commitment that the bank will retain dividends and will not pay coupons, other than any it is legally obliged to pay, until the end of the restructuring period, or beyond if the Land's silent participation is not repaid by then. This will ensure, in line with point 26 of the Restructuring Communication, that BayernLB does not use State aid to remunerate its own funds if there are insufficient profits to make such payments. The prolonged ban on dividends and hybrid coupons will also help BayernLB to comply with the repayment schedule.

Another aspect concerns the savings banks association, which did not participate in the 2008 rescue measures even though it was a shareholder in BayernLB. Because it did not participate in the rescue, the savings banks association's stake has been significantly diluted, but it has in the meantime agreed to various additional contributions.

Second, the savings banks association has agreed to purchase LBS for a fair price of EUR 818,3 million by the end of 2012. In the determination of the price the savings banks association has not applied a discount to take into consideration the fact that the savings banks are the main distribution channel for LBS products, as a private investor might well have done.

As a result of all these measures the shareholding that was initially diluted to 6 % will rise significantly, potentially up to 25 %.

Finally, it should be noted that Germany will claw back the entire part of the asset guarantee above the REV. The sharing of burdens by the bank and its shareholders can therefore be considered appropriate; the doubts raised in that respect in the opening decision have been allayed.

Finally, the Restructuring Communication requires that the restructuring plan should include measures limiting distortions of competition. Such measures should be tailor-made to address the distortions on the markets where the beneficiary bank operates after restructuring. The nature and form of such measures depend on two criteria: first, the amount of the aid and the conditions and circumstances under which it was granted, and, second, the characteristics of the markets on which the beneficiary is to operate. Furthermore, the Commission must take into account the extent of the beneficiary bank's own contribution and burden sharing over the restructuring period.

In the opening decision, the Commission considered the proposed measures to address distortions of competition to be insufficient. The updated restructuring plan provides for further such measures.

In the new restructuring plan the projected balance sheet reduction has therefore been considerably increased by comparison with the initial plan. On the basis of the assets at the end of 2008, BayernLB will reduce its balance sheet by 51 %, from EUR 421,7 billion to EUR 206 billion (EUR 239,4 billion in 2015).

These divestments include all of the bank's international credit institutions. The divestment of HGAA, which already seemed in need of restructuring aid in 2008, has contributed to the restoration of the viability of BayernLB. However, even if HGAA is left out of account for the purposes of quantifying measures to limit the distortion of competition, the balance sheet reduction is still 45 % (EUR (421,7 — 44,6 =) 377,4 billion compared with EUR 206 billion).

Furthermore, BayernLB will reduce the number of its international branches or representation offices by seven, and the remaining branches in London, Paris, New York and Milan will be substantially downsized.

In addition to those far-reaching structural measures, BayernLB has also agreed to several behavioural constraints. The bank has given a commitment to observe, during the restructuring period, a cap of EUR 500 000 on staff remuneration (fixed and variable), a ban on acquisitions, and a dividend ban. The restrictions on the remuneration of staff will automatically be prolonged (though for the salary cap they will be somewhat less stringent) until the the silent participation and the claw-back have been repaid in full, which is not likely to happen before 2019. These measures create an incentive for repayment and preclude the bank from acquiring competing businesses, which prevents non-organic growth of BayernLB funded by the aid.

In addition, BayernLB will limit its remaining international business activities in corporates, project finance and real estate significantly, in scope and absolute volume, as indicated in Annex I. This will leave free capacity for other players in BayernLB's core markets.

Germany has also given a commitment that BayernLB will abandon a number of activities such as shipping and aviation. Public finance outside Bavaria will likewise be stopped.

Taking into account this mix of diverse measures, and in view of the finding set out above that the bank's own contribution and burden sharing are appropriate, the Commission considers that there are sufficient safeguards to limit potential distortions of competition despite the high amount of aid BayernLB is receiving.

Section 5 of the Restructuring Communication states that in order to enable the Commission to verify that the restructuring plan is being implemented properly regular reports will have to be submitted. The first report should be submitted not later than 6 months after the approval of the restructuring plan. For this purpose Germany should appoint a monitoring trustee and provide twice-yearly monitoring reports.

The individual repayments are subject to agreement by the German regulator BaFin. If the bank does not meet the targets set out in the repayment schedule, point 4 of Annex II requires Germany to notify a modified restructuring plan to the Commission. Such a fresh notification should in principle include additional measures to limit distortions of competition.

The Commission acknowledges that the additional reduction in risk positions referred to in point 33 of Annex I is made to ensure that BayernLB can repay the remainder of the silent participations in 2017. The Commission has based its assessment on the reductions in risk positions that have been committed to for each area of business within the ranges indicated in point 33 of Annex I and their secondary effects per business area. If, in the implementation of the plan, BayernLB identifies areas of optimisation which affect the ranges indicated, in view of new regulatory or macroeconomic developments, Germany should notify the deviation in ranges to the Commission, unless the changes in the reductions of each area of business area are no greater than [10-15] % in 2017, remain within the overall volume defined in point 33 of Annex I, and are without prejudice to the viability of BayernLB as described in the restructuring plan. In the event of a fresh notification, the Commission will consider whether the changes contribute to maximising the capital relief effect while minimising negative secondary effects, and consequently do not affect the viability of the bank.

In the light of the projections of the bank and taking account of the latest regulatory requirements, which will require a capitalisation above 9 % core Tier 1 capital plus a buffer, and of the Basel III rules, the Commission takes the view that the restructuring measures, including Germany's commitments, are likely to restore BayernLB's long-term viability and make up for the distortions of competition brought about by the aid measures. Subject to the conditions in regard to the repayment of part of the aid measures and the claw-back, the restructuring plan also provides for the aid to be limited to the minimum necessary and for the bank to make an adequate contribution of its own. Provided that the repayment requirement in Annex II is met, therefore, the restructuring aid can be considered compatible with the internal market in accordance with Article 107(3)(b) TFEU.