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The #NordLB bailout plan is getting clear and in a funny twist of events, German pundits and politicians are going to take a looong look at the "funny" case of the tiny Italian bank Banca Tercas 1/n
This bank was bailed out by the Italian deposit guarantee scheme and nobody told the European Commission about it. In a move that surprised exactly no one, when they discovered it, the EC got quite pissed off
So they ruled that the bailout was state aid because (mostly) the deposit guarantee fund was public resources (despite the pirvate ownership etc.) This was an extremely important decision (and explains why the Carige bailout was funded from a side pocket of that fund)
What's the link with NordLB ? Simply that the bailout will be done by the Land with equity injection and a public guarantee. That's obviously state resources, but is it state aid ?
To avoid being state aid, one has to show that the public body acted as a private investor would. Two private equity funds made bids for part of the bank, but they have been discarded for a much more generous offer from an investor that will act on the same terms as the Land
(At least for the equity bit.) So where is the problem ? Well, that investor is the famous DSGV, the association of German saving banks. And this is where it gets vverrrrryy tricky because their status under state aid rules is both very unclear and very important -private or not?
The ECJ has important case law do determine if it's public resources or (Ladbroke, Stardust Marine, doux Élevage) but none of this is simple. Arguing against state aid is the fact that they act as bank, very much like other banks (debatable of course.)
Arguing for state aid is the fact that they are owned by the Lander, the cities etc. So fully public owned and this has been the case forever. It's easy to argue that they serve a public policy goal.
I honestly don't know where this will end. But if the Sparkassen end up being consider public entities for state aid rules, it's an enormous pack of worm because every single loan they grant could be considered state aid!
that's why my gut feeling is that we'll end up with some political fudge a la "Caixa Geral" and subordinated bondholders could avoid bail-in or burden sharing (loosely speaking.) But honestly I wouldn't be on it. Whatever, this is a space to ABSOLUTELY watch
And that's not because of what happens to NordLB (you probably don't care) but because of the possibly HUGE implications for the German 3-pillar banking system. Can't wait for the EC decision! /end.
*bet on it
@StevePeers would be genuinely interested to have your view on this fascinating State aid question. What do German Sparkassen look like vis a vis Ladbroke, Doux Elevage, Stardust Marine etc
Maybe I should add - because not everyone is familiar with Nord LB - that this is a bank with a 170bn€ balance sheet, i.e. more or less the size of Banco BPM in Italy, or just a bit smaller than Sabadell in Spain. Not small change.
