Today, the European Commission (EC) announced its approval, under EC Treaty state aid rules, of Sweden’s financial stability plan, intended “to stabilise financial markets by providing guarantees to eligible financial institutions.” The EC found the Swedish rescue package to be “in line with its Guidance Communication on state aid to overcome the financial crisis,” as the “beneficiaries will pay an adequate renumeration for the guarantee, which is available on a non-discriminatory basis, is limited in time and scope and contains behavioral safeguards to avoid abuses.” EU Competition Commissioner Neelie Kroes stated that “the Swedish measures were well-designed and needed little alteration to take full account of the state aid rules’ requirements.”
In summary, the Swedish rescue package consisted of the following measures:
- Guarantee scheme – Covers new issuances of short and medium term non-subordinated debt up to SEK 1,500 billion? (approximately $200 billion);
- Capital injections into banking organizations;
- Compulsory share redemption huh?; and
- Restrictions on executive compensation
The EC noted with approval a number of conditions imposed under the rescue package, including imposition of a market-oriented fee for the guarantee by in line with recommendations from the European Central Bank, a limit on aggregate growth in the recipient’s balance sheet, to be monitored by the Swedish Financial Supervisory Authority, marketing restrictions, and restrictions related to “staff renumeration.” The EC concluded that the package “would constitute an appropriate and proportionate means to restore confidence in the Swedish financial market and to stimulate inter-bank lending.”
In other news this week concerning Sweden, various banks in the country have announced emergency plans to raise capital.
Also today, the European Commission (EC) announced its approval of Portugal’s €20 billion rescue package, “aimed at stabilising financial markets by providing guarantees to financing operations of eligible credit institutions.” Under the Portuguese program, the government will guarantee certain financing arrangements of solvent domestic banks until December 31, 2009. EU Competition Commissioner Neelie Kroes stated that “[a]fter intensive exchanges with the Portuguese authorities, the scheme is now an appropriate tool for boosting investor confidence without creating undue market distortions.” The package was found to be “in line with its Guidance Communication on state aid to overcome the current financial crisis.”
The rescue package provides for state guarantees of financing arrangements and the issuance of “non subordinated short and medium term debt of solvent credit institutions incorporated in Portugal,” which will be available for instruments “with a maximum maturity of three years, or exceptionally five years only when duly justified by the Portuguese Central Bank.”
The use of the guarantee is subject to many conditions, which the Commission acknowledged, are “an appropriate means to restore confidence in the Portuguese financial markets.” One of these conditions is a requirement that the beneficiary to “reimburse the state in full, either by paying back the loan or by exchanging it for preferential shares,” after calling on the guarantee.
Earlier this week the EC approved Germany’s financial rescue plan.