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The terms of ING Groep NV (INGA)’s bailout by the Dutch government may be questioned by a European Union court tomorrow in the first case challenging EU conditions on more than 1 trillion euros ($1.3 trillion) of bank rescues throughout the region.
ING was ordered by the European Commission to sell units to shrink its balance sheet by 45 percent by the end of 2013 and avoid undercutting rivals on prices for some banking products for three years or until it repaid the aid. The EU must approve large state subsidies and can impose conditions on the aid.
The EU’s general court will rule tomorrow on challenges by ING and the Dutch government to the terms of the EU’s approval, which the bank says punished it too harshly for state help in 2008 and 2009. ING said the regulator miscalculated the amount of aid and imposed excessive restructuring demands.
ING is “one of the few banks that challenged the commission’s decision on commitments,” said Ulrich Soltesz, a lawyer for Gleiss Lutz Hootz Hirsch in Brussels. “It is a general feeling that once you got your aid out of the state and the commission has approved it, you have a certain degree of stability.”
EU governments spent 1.6 trillion euros to shore up banks from 2008 to 2010 following the financial crisis, according to the European Commission, most of that in loan guarantees and fresh capital. ING got a 10-billion euro capital injection from the Dutch government in 2008 and transferred the risk on 21.6 billion euros of U.S. mortgage assets to the Dutch government in 2009.
“It is up to the court,” Raymond Vermeulen, an Amsterdam-based spokesman for the bank said by telephone. “We will carefully study the ruling they’ll publish tomorrow.”
ABN Amro Group NV last year challenged the EU ban on it acquiring businesses. WestLB AG shareholders also sought to suspend a deadline that would have stopped the lender’s real estate unit WestImmo from accepting new business. WestLB agreed last year to be wound down and broken up.
EU deadlines to divest business units are an important issue for banks such as WestLB that received EU approval for state aid, Soltesz said. WestLB agreed to transfer WestImmo to a bad bank if it isn’t sold by the middle of this year. It missed a previous EU deadline to sell the unit by the end of 2010.
“It is really something which the commission has to address in the next one or two years,” Soltesz said. “There are not enough purchasers out there to buy all this stuff.”
Tomorrow’s ruling may clarify how far banks can challenge EU decisions on commitments made in return for state aid approval, said Christoph Arhold, a lawyer at White & Case LLP in Berlin.
“Can ING challenge these commitments individually” or must it challenge the entire EU decision, which would mean that “the whole approval decision would probably have to be annulled and the commission would have to reopen the formal investigation,” Arhold said.
A favorable ruling may give ING “more time to complete their restructuring program,” said Cor Kluis, an Utrecht-based analyst at Rabobank International in a telephone interview. “It would be a relief to investors if they got more time to divest the U.S. and European insurance operations and for alternatives to the sale of WestlandUtrecht Bank.”
ING returned 5 billion euros of aid in 2009 after agreeing with the Netherlands on revised repayment terms. The EU regulator determined that change amounted to additional aid of about 2 billion euros, a decision challenged by ING and the Dutch government.
By omitting insurance operations from the figures, the commission miscalculated the aid relative to risk-weighted assets, ING argued. Had the EU taken this into account, the aid would have been 3.3 percent of risk-weighted assets instead of the 5 percent the commission used to set restructuring demands.
The EU did measure the insurance operations of bailed out firms including SNS Reaal NV and KBC Groep NV. ING’s 45 percent- balance sheet reduction compares to a 10 percent reduction imposed on Aegon NV, 17 percent on KBC Groep and 20 percent on Royal Bank of Scotland Group Plc., ING told the court in July.
ING was ordered to sell its entire insurance operations, its U.S. online-banking division and Dutch mortgage lender WestlandUtrecht Bank before a 2013 deadline.
Pending the court ruling, Chief Executive Officer Jan Hommen pushed ahead with the forced restructuring. Earlier this month ING completed the sale of its U.S. online bank to Capital One for $9 billion. The firm also disposed of its Latin American insurance operations for about 2.7 billion euros last year. The divestment program encountered a glitch as the European debt crisis roiled the region, scaring off potential buyers and making initial public offerings impossible.
The Dutch central bank is critical of the way EU rules on state aid for banks and joined the case on ING’s behalf. Klaas Knot, the central bank’s president, said last year that financial services supervisors should be able to sign off on the terms the EU imposes.
The cases are T-33/10, ING Groep v. Commission and T-29/10, Netherlands v. Commission.
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