The European Commission has concluded that a State guarantee on a €450 million loan, initially granted in 2008, to Banco Privado Português (BPP) constituted illegal and incompatible State aid and ordered Portugal to recover the aid. BPP had its licence revoked and entered liquidation proceedings in April. Portugal, which had to pay the loan, has filed the necessary claims to enforce its privileged and priority rights over the collateral it holds over BPP to recover the amount. It has four months to inform the Commission of the steps it has taken to also try to recover the difference between the guarantee fee paid by BPP and what it should have paid.
"The Commission's approach to State support to banks during the crisis is simple and in the interest of all, competitors, taxpayers and the economy as a whole. It approves emergency support swiftly to safeguard financial stability, but it also gives a 'rendez-vous' to the bank and State concerned six months later to assess the restructuring of the institution. We got no such restructuring plan for BPP, which was later put into liquidation and the loan paid by the State. It is in the interest of taxpayers in Portugal that the State makes its best efforts, like the other creditors, to try to recover the aid granted," said Joaquín Almunia, Commission Vice President in charge of Competition Policy.
The Commission today concluded that a guarantee granted by the Portuguese State to six banks in Portugal to lend €450 million to BPP at the height of the financial crisis, in December 2008, constituted illegal and incompatible State aid for the period 5/12/2008 – 15/4/2010, given the non-compliance with the obligation to present a restructuring and the low fee paid for the guarantee.
On 15 April 2010, the Bank of Portugal revoked BPP's banking licence and initiated the process for its liquidation. Consequently, the six Portuguese banks called the state guarantee and were re-paid the loan by the Portuguese government on 7 May.
BPP provided private banking, corporate advice and private equity services. The bank ran into severe financing difficulties after the collapse of Lehman Brothers and the ensuing severe crisis in the financial markets.
The Commission, in early 2009, temporarily approved the loan guarantee as emergency support on the condition that Portugal would submit a restructuring plan within six months. As the Commission did not receive the plan despite several reminders, in November 2009 it opened a formal investigation procedure. This is because it had concerns the bank was being kept alive artificially. Also it had concerns that the pricing of the guarantee was below the level required under the Communication on the application of the State aid rules to public support to banks during the crisis. Under the Communication, a financial institution must provide an adequate remuneration to the State for the guarantee it provides in order to ensure that the owners contribute their share of the rescue burden and the bank is not unduly advantaged compared to its competitors, who have to pay market rates for their funding.
Having received no restructuring plan, the Commission's decision concludes the aid is illegal (since the commitments on which the original temporary approval was based were not complied with and the renewal implemented without prior Commission approval) and incompatible. While the liquidation of the bank addresses the competition distortion stemming from the aid, the Portuguese government must file its claim as a creditor in the liquidation procedure and recover from BPP the difference between the price the bank should have paid for the guarantee and the lower fee actually paid, including accrued interest. Portugal has stated that it has already filed the necessary claims to enforce its privileged and priority rights over the collateral it holds over BPP and that it will continue to do so until it has recovered the full loan which it had to pay to the creditor banks in execution of the guarantee.
© European Commission
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