EU official signals flexibility on bank overhauls
FRANKFURT, Oct 23 (Reuters) - The European Commission will take a flexible approach to approving bank restructuring programmes to avoid a "tsunami of disposals", a senior EU competition official said on Friday.
The European Union's executive arm which is tasked with approving state aid, will consider whether assets are attractive to buyers before demanding that lenders make large-scale disposals, Irmfried Schwimann, an official at the EU's directorate-general for competition, told a conference.
Brussels could be flexible on the timing of divestitures to prevent a "tsunami of disposals", she added in comments to the conference and subsequent remarks on the sidelines to Reuters.
The Commission has drawn fire for insisting that a raft of banks reduce their balance sheet size and make divestments as a condition for having their state aid approved.
Critics have said that insisting banks simultaneously sell assets spoils any chance of fetching a decent price.
Schwimann said that rather than insisting on an automatic shrinking of a bank's business as a matter of principle, the Commission will look at "whether divestments that we are asking for are attractive in size and scope and attract new entrants into the market".
While the Commission had a case-by-case approach for approving restructuring plans, it did not reviews banks in isolation but in the context of the markets where they operate.
"We have to be very careful how we construct the divestments we are asking, and look at who can step in," Schwimann said, referring to potential buyers.
If the price for assets that can be fetched "is not fine" the banks are entitled to "ask for an extension", she said.
EXCEPTIONS POSSIBLE
Schwimann said that the ban on acquisitions imposed on banks who have accepted state aid could be lifted in exceptional cases.
"If they convince us that there is an acquisition good for viability in the member state we might be able to reconsider," she said.
Another key question in approving a restructuring plan is whether state aid led to a market distortion. "The objective has been to preserve the level playing field....winners should be those banks with the right business model," Schwimann said.
"We do not want to see the winners being those who have the member states with the biggest pockets," she said.
Despite making judgments on the viability of a business model and imposing tough remedies in banks, she said the European Commission did not have a specific vision for how a European banking landscape might look.
"I think it would be very arrogant to devise how the financial services industry should look like," she said. The Commission was "not in the field of industrial policy".
The crisis had however shown that "it is clear that some business models do not work."
For banks to have their restructuring plans approved, they need to "demonstrate the long-term viability of the business under adverse economic conditions".
In a post-Lehman Brothers world, banks needed to take account of reassessed risks and needs. "None are too big to restructure."
Schwimann rejected the notion that the Commission automatically demanded that banks retrench to their national markets but acknowledged that some lenders were asked to exit overseas markets that did not fit with the "core business".
Some banks that took aid but are found to have a viable business model may not have to make divestments, she said.
The cost of aid was deliberately high to encourage banks to repay quickly, Schwimann said. "If it gets too expensive there is an incentive to get back to normal."
A flurry of real estate financing assets are on the block.
As a condition for approving state aid, the Commission has ordered Frankfurt-based Commerzbank (CBKG.DE) to sell its Eurohypo unit by 2012, and WestLB [WESTLB.UL] to dispose of its Westdeutsche Immobilienbank unit by 2011.
Munich-based Hypo Real Estate [HRXG.DE] is also shedding assets and shrinking its business. (Reporting by Edward Taylor, Editing by Michael Shields)
