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05 June 2008

Commission approves restructuring of Sachsen LB


The Commission has concluded that a liquidity facility and a state guarantee for German bank Sachsen LB are compatible with EC Treaty state aid rules.

The Commission has concluded that a liquidity facility and a state guarantee for German bank Sachsen LB are compatible with EC Treaty state aid rules. The Commission opened an in-depth investigation in February 2008 and has now concluded that the measures do constitute state aid but are compatible with the EC rules on rescue and restructuring aid. The measures will allow the restructuring of Sachsen LB and include compensatory measures to limit distortions of competition created by the aid.

 

Competition Commissioner Neelie Kroes said “The Commission is satisfied that these aid measures will restore the viability of Sachsen LB without unduly distorting competition. By reaching a decision within three months, the Commission has again shown that it can move very quickly to assess aid to banks in difficulty."

 

Because of investments in US sub-prime markets, Sachsen LB, like other European banks, ran into financial difficulties. Sachsen LB received state aid so as to be able to continue its business. In January 2008 Germany notified two measures in favour of Sachsen LB to the Commission: a liquidity facility granted by other Landesbanken and a guarantee by the Land of Saxony in the context of the sale of Sachsen LB to LBBW. The German authorities claimed that the measures complied with the market economy investor principle and therefore did not constitute state aid.

 

As to the liquidity facility, the Commission concluded that given the lack of commercial interest for this type of investment, a market economy investor would not have granted such a facility to Sachsen LB and it is therefore aid. However, the measure meets all of the conditions for compatible rescue aid (liquidity support and limited to 6 months).

 

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