Today, the European Commission (EC) announced decisions regarding state aid for KBC Group NV (KBC), ING Groep NV (ING) and Lloyds Banking Group (Lloyds), which will "secure their long term viability," "require each of these banks to contribute substantially to the financing of the[ir] restructuring," and "ensure that none of these banks will enjoy an unfair competitive advantage as a result of the very large-scale public support they have received." A brief summary of the decisions are as follows:
KBC - The EC "approved" two previous recapitalizations totaling €7 billion, an asset relief measure and a restructuring package submitted by the Belgian authorities. Following an in-depth investigation with respect to the previously announced €20 billion in asset relief measures, the EC was satisfied that the valuation, or write-down, of KBC's collateralized debt obligation portfolio was "correct" and that the remuneration paid by KBC to the Belgian authorities was "sufficient." However, KBC will "stop" the activities of KBC Financial Products, the business "responsible for marketing the Collateralised Debt Obligations that caused KBC's difficulties." To further "compensate for the distortion of competition caused by the state aid," KBC will divest its entire European private banking business, a Belgian banking business (Centea), a Belgian insurance business (Fidea), and certain other "significant number of businesses" in central and eastern Europe.
ING - The EC provided "final clearance" for the €10 billion in core Tier 1 securities issued by ING to the Dutch government in 2008, and for the Illiquid Assets Back-up Facility (IABF) announced this past January. The EC had recently prolonged its review of the IABF to confirm that ING was not given "undue advantages" and that such relief was "compatible with the EC’s state aid rules on impaired asset relief." However, according to EC Commissioner Neelie Kroes, ING's recent decision to provide additional payments to the Dutch government amounting to approximately €1.3 billion as an adjustment of the fees for the IABF was a "very crucial point" to "ensure that ING was not getting undue benefits from the impaired assets deal."
Lloyds - The EC ran a number of "stress tests" and concluded that Lloyds £21 billion in proposed capital raising is a "solid alternative" to the UK Government's Asset Protection Scheme, as it "minimises taxpayer burdens," will "shore up" the bank's capital and will contribute to the bank paying for a significant proportion of the costs of restructuring. As part of the restructuring, Lloyds will now focus on its "core corporate and retail banking activities," will divest 600 branches, and exit the "riskier and more volatile lending activities" inherited from HBOS, which it acquired this past January. HM Treasury "welcomed" the EC's state aid approval for the restructuring, and will "begin work to make sure Lloyds plays its part in reforming and repairing the banking system for the future."