Economic Stabilization Advisory Group | May 8, 2009
Governmental Assistance to the Financial Sector: an Overview of the Global Responses (v7)
Governments across the world have taken, and continue to take, a variety of extraordinary measures to protect the financial sector and prevent a recession.
The measures fall into the following categories:
guarantees of bank liabilities;
retail deposit guarantees;
central bank assistance measures;
bank recapitalization through equity investments by private investors and Governments; and
open-market or negotiated acquisitions of illiquid or otherwise undesirable assets from weakened financial institutions.
The purpose of this publication is to provide an overview of the principal measures that have been taken in the major financial jurisdictions to support the financial system. The first version of this note was published on November 12, 2008. Since then, Governments in some jurisdictions have adopted further measures or amended measures previously adopted. The current version of the note takes into account those measures and is based on information available to us on May 8, 2009.
This publication does not cover various new regulatory restrictions on short selling. A separate Shearman & Sterling LLP publication, “Global Clampdown on Short Selling: an Overview”, deals with those measures as adopted in the major financial jurisdictions. A copy can be obtained at: http://www.shearman.com/esag_011609/.
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ARGENTINA...... 3 AUSTRALIA...... 5 AUSTRIA ...... 9 BELGIUM...... 16 BRAZIL ...... 23 BULGARIA...... 35 CANADA...... 36 DENMARK...... 39 ESTONIA...... 44 FINLAND ...... 45 FRANCE...... 49 GERMANY...... 54 GREECE...... 62 HONG KONG ...... 66 HUNGARY...... 70 ICELAND ...... 77 INDIA ...... 82 IRELAND ...... 102 ITALY...... 105 JAPAN ...... 111 LUXEMBOURG ...... 114 THE NETHERLANDS...... 116 NEW ZEALAND...... 121 NORWAY...... 124 PEOPLE’S REPUBLIC OF CHINA...... 126 PORTUGAL...... 132 REPUBLIC OF KOREA...... 137 RUSSIA ...... 141 SLOVAKIA...... 156 SLOVENIA...... 161 SPAIN...... 165 SWEDEN...... 169 SWITZERLAND...... 173 UKRAINE...... 177 UNITED ARAB EMIRATES (“UAE”)...... 179 UNITED KINGDOM...... 181 UNITED STATES OF AMERICA...... 193
All additions and updates are noted in blue text.
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ARGENTINA SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES The Central Bank of Argentina Effective November 1, 2008, the The Argentine Government has set forth new conditions to grant Central Bank reduced by 10% reformed the private pension direct financial assistance to the minimum cash reserve system and nationalized the financial entities. requirement for checking pension assets managed by the account deposits in foreign country’s private pension fund In the event of non-compliance currency and by 5% the managers (AFJPs). As of with these conditions, requests minimum cash reserve January 1, 2009, the for financial assistance are requirement for demand and Administradora Nacional de la subject to the analysis and time deposits made upon a court Seguridad Social (“ANSES”) will approval of the board of order with funds arising from manage the funds deposited in directors of the Central Bank. cases pending before the court AFJPs. (amparos). To obtain direct financial assistance from the Central In addition, the following are the Bank, financial entities must minimum cash reserve have a liquidity ratio under 25%. requirements for time deposits in The value of the assistance foreign currency and holding of granted shall be the requested securities in foreign currency, as amount, the amount necessary per the remaining terms: (i) up to to raise the liquidity ratio to a 29 days: 20%; (ii) from 30 to 59 maximum of 35%, the amount of days: 15%; (iii) from 60 to 89 the decrease of funding sources days: 10%; (iv) from 90 to 179 in the previous month, 20% of days: 5%; (v) from 180 to 365 the total projected assistance to days: 2%; (vi) more than 365 the financial system described in days: 0%. the monetary program, or the amount arising from the Effective November 1, 2008, the difference between the net worth Central Bank reduced by 20% of the entity and the debt the minimum cash reserve resulting from operations requirement for deposits, completed through the Central whatever their nature, as assets Bank program to assist financial of a mutual fund, in foreign entities (whichever of these is currency. the lowest).
The Central Bank assistance will be granted for 180 days, renewable for the same period, with an interest rate of 1.35 BADLAR rate (and 1.70 BADLAR rate in renewal cases).
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Financial entities must make prepayments depending on their liquidity ratio at the time.
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AUSTRALIA SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT1 DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES On November 20, 2008, the The Government has passed Australia’s central bank (the No publicly announced RMBS Purchase Scheme Australian Government executed a legislation to give effect to its Reserve Bank of Australia) measures at this stage. 4 Deed of Guarantee which took effect proposal with respect to all periodically intervenes to The Government has from November 28, 2008 (the deposits of Australian banks, support the Australian dollar. established an A$8 billion “Guarantee”) and which put in place building societies and credit Residential Mortgage Backed the Australian Government unions and Australian Securities (“RMBS”) purchase Guarantee Scheme for Large subsidiaries of foreign-owned scheme that will apply to new Deposits and Wholesale Funding banks. (rather than existing) (“Guarantee Scheme”) for eligible issuances. Authorised Deposit-Taking The proposal takes effect Institutions (“ADIs”). through a “Financial Claims A$4 billion is available for the Scheme” (“FCS”). Under the Government to act as a Eligible ADIs will include: FCS, the Australian Prudential cornerstone investor for both Regulation Authority (“APRA”) bank and non-bank RMBS ▪ Australian owned banks; (as administrator of the FCS) issuances. must apply for the winding-up ▪ Australian ADI subsidiaries of of an ADI, and a declaration An additional A$4 billion is foreign banks; must be made by the available for non-bank responsible Government issuances only. Issuances ▪ Australian branches of foreign minister in order for the FCS to under this scheme have taken ADIs; and apply to that ADI (an “eligible place. ADI”). ▪ credit unions and building Car Dealer Floor Plan societies. Under the scheme, holders of Financing protected accounts3 with net An eligible ADI must make an credit balances are entitled to The Australian Government application to the Reserve Bank of payment from APRA of the has initiated the establishment Australia as administrator of the balance plus accrued interest of a special purposes vehicle Guarantee Scheme for an eligibility (subject to certain adjustments (“SPV”) financing trust to certificate (“Eligibility Certificate”) in and compliance with the provide dealer floorplan respect of the relevant deposits or provisions of the FCS) up to a refinancing to eligible car wholesale funding liabilities. maximum of A$1 million per dealers affected by the exit Eligibility Certificates are issued at depositor per institution. Also, from the Australian market of the discretion of the Commonwealth APRA is assigned the relevant two major car dealer financiers. of Australia as guarantor. Once an account holder’s right to claim Eligibility Certificate has been issued this amount from the ADI. The SPV will raise capital by in respect of a liability, it is published selling its securitised assets on the Guarantee Scheme website at The amount of any deposit over (the dealer loans and related http://www.guaranteescheme.gov.au. A$1 million will not be covered rights) to the four major banks by the FCS, but may be in Australia, with the support of A copy of the Guarantee, the related covered by the Guarantee a Guarantee from the rules of the Guarantee Scheme, a list Scheme described in the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT1 DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES of eligible institutions, information previous column if the relevant Commonwealth of Australia. relating to the application procedure fee has been paid by the and information relating to the claims eligible ADI. The refinancing offered by the procedure, and a copy of an opinion SPV to eligible dealers is a given by the Australian Government The Government has indicated transitional arrangement only solicitor on the validity and that the FCS will be for a period of 12 months after enforceability of the guarantee can administered so that it applies which the funding level of the be found at to all deposits held in eligible SPV will run down. Funding http://www.guaranteescheme.gov.au. ADIs by all types of legal has not yet been provided to entities, regardless of where eligible car dealers under this In addition to those deposits which the depositor resides. It will scheme but it is expected to be are the subject of an Eligibility also apply to deposits held in provided shortly. Certificate, in order to qualify for an any currency. The FCS will not Eligibility Certificate, the wholesale apply to financial products that Commercial Property funding liabilities must fall into one of are not deposit products, such Support Scheme the following categories: (i) a bank as market-linked investment bill; (ii) a certificate of deposit or a products. The Australian Government transferable deposit; (iii) a and the four largest domestic debenture; (iv) commercial paper; The deposit liabilities of the ADIs will establish a (v) a bond; or (vi) a note issued, Australian branches of foreign corporation for the purposes of drawn or made by the eligible ADI. ADI’s held by Australian Tax supporting the commercial Residents (as defined in the property assets of viable Certain other restrictions also apply previous column) are not Australian businesses. to the types of wholesale funding covered by the FCS. However, liability that will be guaranteed, deposits held in foreign ADIs The corporation will be 50% including the liability must: (i) have a can be guaranteed under the owned by the Commonwealth maximum term of 60 months; (ii) be Guarantee Scheme described of Australia and each of the unsecured; and (iii) not be ‘complex’. in the previous column on four ADIs will own 12.5%. It Liabilities with one or more of the payment of the relevant fee. will initially be capitalised with following features are likely to be up to A$4 billion contributed in regarded as complex: proportion to the shareholding of the participants. ▪ liabilities where the principal amount of the liability is not a fixed The corporation will provide sum but varies by reference to, or finance on fully commercial is derived from, the value of an terms for commercial property asset, index or commodity or is where the underlying assets linked to the credit standing of any and income streams are person; commercially sound.
▪ subordinated debt; Legislation is required to implement the measure. As at ▪ liabilities that may be converted the date of publication, the legislation has passed the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT1 DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES into equity; Lower House of the Australian Parliament. An inquiry has ▪ liabilities that include any cross- been held by the Upper House default or acceleration clause; and of the Australian Parliament, leading to a vote on the ▪ liabilities that include any rights to measure in May or June 2009. demand prepayment of principal or permit redemption prior to their Guarantee of State maturity date except in certain Government Debt permitted circumstances. On March 25, 2009, the The Australian Government has Australian Treasurer released guidelines on the announced a temporary interpretation of what is ‘not measure to guarantee both complex’, which can be found at existing and new issues of http://www.guaranteescheme.gov.au. borrowing by the governments of the Australian States. While Additional conditions also apply to no formal documentation the liabilities of the Australian implementing the guarantee branches of foreign ADIs (including has been released, the that liabilities must not have a Treasurer’s press release maturity after December 31, 2009, indicatess that the guarantee and the Guarantee only extends to will apply to both short and long deposits or borrowing liabilities held term borrowings in Australian by a person treated as an Australian dollars.5 It is understood that a tax resident for the purposes of fee will be charged for the Australian tax law (“Australian Tax guarantee, which will be Resident”)). The additional determined by reference to the conditions applicable to the credit rating of the relevant Australian branches of foreign ADIs State government borrower and can also be found at will differ between existing and http://www.guaranteescheme.gov.au. new issuances.
Fees are payable in respect of the Guarantee, the quantum of which will be set by reference to the relevant issuer’s credit rating and will be the same regardless of the tenure of the debt securities.2
The Australian Government has announced that the Guarantee Scheme will be reviewed on an on-
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT1 DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES going basis and revised if necessary.
1 The Guarantee Scheme is not restricted to “inter-bank” debt but extends to all eligible term funding subject to the restrictions set out in the relevant Guarantee Scheme rules. 2 The current fee is 70bps for AA rated firms, 100bps for A-rated firms and 150bps for BBB and unrated firms. The fee will be levied by the Reserve Bank of Australia on the eligible ADI on a periodic basis depending on the quantum of the liability. 3 A “protected account” is either:
an account where the eligible ADI is required to pay the account-holder, on demand or at an agreed time, the net credit balance of the account; or
another account or financial product prescribed by declaration. The Australian Treasurer has released a declaration of certain covered financial products which can be found at http://www.treasury.gov.au.
4 The Australian Government has indicated that its “Four Pillars” banking policy that restricts mergers between the four largest domestic ADIs will continue in force. 5 The Treasurer’s press release announcing the temporary guarantee is available at http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/027.htm&pageID=003&min=wms&Year=&DocType=0 .
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AUSTRIA1 SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Under the Inter-Bank Market Deposit Guarantee Scheme The Financial Market Minimum Capital Enhancement Act Stabilization Act Requirements (Interbankmarktstärkungsgesetz – The Austrian deposit guarantee (Finanzmarktstabilitätsgesetz – IBSG), up to €75 billion will be scheme does not provide for FinStaG) provides for up to €15 Under the amended BWG, the made available for state funding arrangements such as billion (or an additional amount FMA has to require a higher guarantees, sureties or similar capital held directly in deposit not utilized under the IBSG) for minimum capital if an adequate assumptions of liability. guarantee scheme accounts (ex recapitalization measures. limitation of the risks arising ante funds). By contrast, the Potential beneficiaries of the from banking transactions and Clearing Bank Austrian scheme provides for measures will be credit banking operations of a credit financing based on ex post institutions holding a license institution or group of credit To this end, a separate entity has contributions from member pursuant to the Austrian institutions does not exist and been established as a clearing banks forming part of the Banking Act (Bankwesengesetz proper recording and limitation house to facilitate the refinancing protection scheme of their - BWG), including branches of of those risks cannot be of banks on the inter-bank market respective trade organization foreign banks, and Austrian expected in the short term. (Oesterreichische Clearingbank (Fachverband). insurance companies. Such higher minimum capital AG – “OeCAG”). OeCAG is a requirements will be imposed by specialised bank owned by major If any protection scheme is Once the aims of the the FMA immediately in cases Austrian credit institutions (as at unable to pay out the recapitalization measures have where it is expected that other May 6, 2009 the main guaranteed deposits or claims been achieved, the State will measures will not be sufficient shareholders are Raiffeisen in full, the protection schemes of dispose of its equity stakes to to ensure the proper recording Zentralbank Österreich the other trade associations will private investors. and limitation of risks as well as Aktiengesellschaft (27.04%), Erste be obliged to make compliance with legal Group Bank AG (19.03%), proportionate contributions to There are, in principle, three regulations within due time. Unicredit Bank Austria AG cover the shortfall. In cases types of stabilization measures (18.51%), Hypo-Banken-Holding where the protection schemes under the FinStaG: guarantees, State Ownership Gesellschaft.m.b.H. (12.66%), as a whole are unable to pay recapitalisations and Österreichische Volksbanken- out guaranteed deposits assumptions of liability. The The first and so far only Aktiengesellschaft (11.77%) and (claims) in full, the protection following measures may be Austrian bank taken over by the BAWAG P.S.K. (5.32%), 3- scheme originally concerned taken by the Federal Minister of Austrian state is the public Banken Beteiligung Gesellschaft must issue notes or, according Finance: sector lender Kommunalkredit m.b.H. (4.54%)). to the proposed stability Austria AG previously owned by measures, take out a loan to (i) issue of guarantees for Volksbank AG (50.78%) and the OeCAG shall collect deposits from meet the remaining payment liabilities of banks or insurance Franco-Belgian group Dexia banks or insurance companies or obligations. The Federal companies; (49%). The shares held by raise funds on the inter-bank Minister of Finance may Dexia and Volksbank AG were market and on-lend such funds to assume liability for such issue (ii) assumption of liability vis-à- transferred to the Austrian state banks and insurance companies or loan. vis banks or insurance for a total consideration of € 2. in line with market conditions. companies; The Austrian state now holds Recipient banks will have to pay Amendments to Existing 99.78% of Kommunalkredit interest, taking into account an Scheme (iii) granting of loans to banks or Austria AG. The Austrian adequate fee for state guarantees. insurance companies or the Association of Municipalities The Austrian depositors’ provision of own funds (Gemeindebund) remains a
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES The Federal Minister of Finance protection scheme has been (Eigenmittel) to the entity; shareholder with 0.22% of the will be entitled to (i) guarantee amended with effect from shares. liabilities of OeCAG and October 1, 2008. Bank deposits (iv) acquisition of shares (ii) assume liability for losses of natural persons will be (whether in a capital increase or incurred by OeCAG in connection protected in their entirety until from existing shareholders) or with such arrangements for a December 31, 2009 (the convertible bonds; and limited period of time. The IBSG protection scheme’s cover does not specify any maximum obligation was previously limited (v) transfer of assets of the period of time for such state to an amount of €20,000 per company by way of a merger guarantees given under (i). The depositary and bank). pursuant to § 235 of the Stock Austrian state has issued Following the Commission’s Corporation Act (Aktiengesetz – guarantees of up to € 4 billion for proposal, the coverage level for “AktG”). All such measures OeCAG, which covers all losses bank deposits of natural should earn a return in line with occurring on or before December persons may be guaranteed up market conditions. 31, 2010 and resulting from to a maximum amount of transactions entered into on or €100,000 from January 1, 2010. If there is a risk that the bank or before December 31, 2009. insurance company cannot fulfill For claims by small companies their obligations vis-à-vis their OeCAG accepts money market (mainly partnerships and small creditors and the above deposits (Geldmarkteinlagen) for corporations which meet the mentioned measures are not terms of up to 12 months less one criteria of Section 221 (1) sufficient or are not available in day. In the same maturity band, Austrian Companies Act due time, the Federal Minister of OeCAG will also offer interbank (Unternehmensgesetzbuch – Finance shall, in consultation money market securities UGB), the protection scheme’s with the Federal Chancellor, be (commercial paper) with a federal cover obligation has been authorized to expropriate the government guarantee up to an increased to the maximum owners of the bank against aggregate amount of €5 billion. amount of €50,000 per payment of an adequate depositary and bank. The compensation where required to The Austrian government’s claims of all other creditors will protect the national economy guarantees for OeCAG’s loan continue to be limited to the from severe disruption. A assets and for the commercial maximum amount of €20,000 seperate entity paper programme are subject to a per depositary and bank (Finanzmarktbeteiligung guarantee fee of 50 basis points (subject to further exemptions, Aktiengesellschaft des Bundes on the guaranteed amount. e.g., for “big” companies, claims – FiMBAG) was set up to carry are not guaranteed at all). For out such recapitalization The allowable lending exposure of legal entities the scheme’s measures. The FiMBAG is OeCAG under the investment cover obligation remains limited indirectly owned by the Republic rules of the Austrian Banking Act to 90% of the guaranteed of Austria. (Bankwesengesetz – BWG), deposit, so that an amount of up amounts to a maximum total of to €45,000 is paid out to small Such recapitalization measures €10 billion, based on the present companies and small may be provided by the state in regulatory capital of €180 million partnerships, and an amount of the form of participation capital and the loan maturity cap of 12 up to €18,000 to other legal (Partiziptaionskapital). From a months less one day. Should loan entities (subject to further regulatory perspective
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES defaults by borrowers cause exemptions). participation capital is treated as OeCAG’s regulatory capital to fall core Tier 1 capital. Its structure below the legally required level, The deposit guarantee only is, in principle, similar to the Federal Government pledged applies to deposits in EEA preference shares without up to € 4 billion of equity to currencies (e.g., not to deposits voting rights attached. The most OeCAG. This pledge covers loan in US$). prominent deal is Erste Group defaults arising on or before Bank's intended €2.7 billion December 31, 2010 and resulting capital injection in the form of from transactions entered into on participation and hybrid capital or before December 31, 2009. (see below for details). Also, Hypo Group Alpe Adria received Clearing Platform €900 million in the form of participation capital from the To ensure the efficient Republic of Austria. Other organisation and market-oriented Austrian Banks such as execution of fund raising and Volksbank (up to a maximum lending, OeCAG together with nominal amount of €1 billion), Oesterreichische Kontrollbank Raiffeisen Zentralbank (OeKB) has established a web- Österreich AG (amounting to based clearing and auction approximately €2.5 billion; €1.75 platform. Planned auctions have billion thereof to be subscribed already been conducted over the by the Republic of Austria) and clearing platform. Results and Bank Austria (in an amount to further information are available be agreed), announced that on the OeCAG website they intend to make use of the (/de/Seiten/default.aspx). state money. However, officials recently stated that Bank Austria Bond Issues should only receive half of the maximum amount possible The Federal Minister of Finance is (€2.7 billion) with the other 50% empowered to guarantee notes to be subscribed by its parent (according to § 1 para 1 no 10 company, Unicredit (which itself BWG) issued by banks with a seeks state aid from the Italian maturity of up to three years; state). under certain circumstances the duration can be extended up to Erste Group placed participation five years. According to § 1 para 1 capital in a nominal amount of no 10 BWG, banks authorized to €540 million with private and perform banking activities may institutional investors. The issue securities in order to invest dividend on the participation the proceeds in banking activities. capital, amounts to 8.0% per This provision does not apply to annum (if covered by Erste’s Austrian insurance companies. annual profits). No restrictions on dividend payments on its
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Under this scheme the Republic of ordinary shares therefore apply. Austria provides specific The Republic of Austria guarantees for (i) single bond subscribed for participation issues, (ii) bond issues under a capital in a nominal amount of debt issuance programme, (iii) €1.0 billion in March 2009 and bond issues under a medium term may subscribe for additional note programme and (iv) issuance participation capital. The volume of notes under commercial paper of the participation capital shall programmes. in aggregate amount to approximately €1.75 billion. The guarantees issued by the Republic of Austria are One reason for placing unconditional and irrevocable. participation capital with private Sample forms of these guarantees investors is to avoid the can be downloaded from the application of European state website of the Federal Ministry of aid rules and to be able to offer Finance. As at February 21, participation capital on more 2009, notes issued by Erste Bank, favourable terms than it would Kommunalkredit Austria AG, be possible under European Raiffeisen Zentralbank Österreich state aid rules. AG and ÖsterreichischeVolksbank have been guaranteed under this The Commission scheme. For instance, in March communication on the 2009 Raiffeisen Zentralbank recapitalisation of financial Österreich AG issued a fixed-rate institutions in the current bond with a volume of €1.25 billion financial crisis issued on with a tenor of three years December 5, 2008 (C(2008) guaranteed by the Republic of 8259 final) sets out a certain Austria. entry level price for recapitalisation measures. Obligations guaranteed by the Following this, it has to be Republic of Austria qualify for zero distinguished between risk weighting for capital adequacy fundamentally sound banks and purposes pursuant to §§146ff distressed banks. In case of Solvability Regulation fundamentally sound banks an (Solvabilitätsverordnung). This average required rate of return applies for obligations of 9.3% on ordinary shares denominated in euros only. (e.g., participation capital) relating to Euro area banks is The amount of single facilities required. A minimum average issued under this scheme is not rate of 8% may apply if (i) the restricted, but the total issuing participation capital is repaid at volume covered under this 110% of its face value and (ii) scheme may not exceed €75 where the State capital
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES billion, excluding payments on injections are on equal terms coupons and expenses. The with significant participation Republic of Austria guarantees (30% or more) of private fresh notes issued until June 30, investors (only one third of the 2009 – an extension of this period private investors may be is subject to prior approval of the existing shareholders). European Commission. In such case, the distribution of Beneficiaries dividends to existing shareholders (Altaktionäre) is The beneficiaries of the stability limited to 17.5% of distributable measures are credit institutions profits as long as the State holding a license pursuant to the capital injection lasts. This Austrian Banking Act limitation will not apply if the (Bankwesengesetz – BWG) conditions at (i) and (ii) above (including branches of foreign are met (redemption above face banks) and Austrian insurance value and significant companies. Credit institutions and participation of private insurance companies rendering investors). services in Austria by using the EEA single passport regime will Recapitalization measures for not benefit from the IBSG. distressed banks require an average rate of return of 10% General Provisions with no payment of dividends.
§ 2 para 5 FinStaG will also apply The stability measures confer to such measures (providing for additional rights on the Austrian possible conditions attached to Financial Market Authority stability measures). (Finanzmarktaufsicht – FMA), which will be authorized to lay No claims of banks or insurance down rules pursuant to which companies against the State may banks will be required to take on be assigned or pledged to third additional funds that are suitable parties and shall be subject of an for the current risk situation and attachment (Pfändung). Moreover, that go beyond the statutory the IBSG does not confer a right minimum requirements. on banks or insurance companies to claim any such stabilization According to a regulation issued measures from the state. by the Federal Minister of Finance on October 30, 2008, The scheme is scheduled to the assumption of liability for expire by December 31, 2009. notes issued by banks pursuant However, state guarantees issued to the IBSG and stability under the IBSG before this date measures pursuant to the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES will not be affected. FinStaG can be linked to corresponding, appropriate conditions. These conditions may relate to:
▪ the sustainability (Nachhaltigkeit) of the business model of the benefiting company;
▪ the allocation of funds provided to the benefiting company, with a particular view on the lending needs of small- and medium-sized companies and the provision of mortgage loans to private households;
▪ the remuneration of directors, employees and third parties retained for carrying out their tasks;
▪ minimum capital requirements of the benefiting company;
▪ the distribution of dividends;
▪ the preservation of jobs at the company benefiting from the stability measures;
▪ the avoidance of distortion of competition;
▪ the calculation and amount of interest/(guarantee) fees payable by the company receiving such funds;
▪ the scope of information to be provided by the benefiting company; and
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES ▪ the content of the declaration to be published by the directors and the supervisory board of the benefiting company (such declaration must also contain an undertaking to comply with such conditions).
1 On December 10, 2008 the European Commission approved the Austrian stability measures aimed at stabilizing the financial markets. According to the Commission guidelines on the recapitalization of financial institutions in the current financial crisis, the general principles applicable to the overall design of recapitalization measures are the objective of recapitalization, soundness of the beneficiary bank, remuneration, exit incentives (e.g., restrictive dividend policy), in particular with a view to the replacement of State capital by private investors. The Commission found the Austrian scheme to be in line with the recently up-dated guidance on state aid, in particular on pricing. The Commission therefore concluded that the package was an adequate means to restore a serious disturbance of the Austrian economy and as such compatible with Article 87(3)(b) of the EC Treaty.
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BELGIUM PURCHASES OF TROUBLED SPECIAL CENTRAL BANK RECAPITALIZATION FINANCIAL ASSETS OR GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES State Guarantee Bank Deposits National Bank of Belgium Ethias Group Rescue of Fortis KBC Group
A. The Belgian Government has On November 14, 2008, the A. The Royal Decree of On October 20, 2008, the Increase of capital in the Fortis A. On October 27, 2008, the implemented by means of a law Belgian Government September 29, 2008 provides Belgian federal government and Bank by the Belgian State in the Belgian government agreed of October 15, 2008 and a Royal implemented the legal basis for explicitly that the National Bank the Flemish and Walloon amount of €4.7 billion on upon a cash injection in order to Decree of October 16, 2008, the guaranteeing bank deposits of of Belgium can be the regional governments decided to September 29, 2008, which strengthen the financial position legal basis pursuant to which it up to €100,000 – an increase of beneficiary under a Belgian law jointly finance a € 1.5 billion brought the shareholding of the of KBC Bank, under which the can guarantee the agreements €80,000. floating charge (business capital increase of Ethias Group, Belgian State to 49% of the Belgian State will purchase non of Belgian financial institutions, pledge) in order to secure loan a Belgian banking and insurance capital. transferable core capital financial holding companies and (i) The first tranche of €50,000 is facilities made available to the company. As a result of such securities worth €3.5 billion their issuing vehicles (the guaranteed via the Deposits and financial market or otherwise. capital increase, each of the The Belgian State bought the issued by KBC Bank to increase “guaranteed entities”) provided Financial Instruments Protection Before the said Royal Decree, a three governments holds a remaining 50% + one share of the tier 1 ratio of KBC Bank that: Fund, which initially only floating charge could only be blocking minority of 25% plus 1 Fortis Bank from Fortis Holding above 10% and the solvency covered amounts up to €20,000 made available to pledgees that share in return. for a total consideration of ratio of KBC Insurance to 280%. (i) the agreements are made in case of insolvency of financial qualified as a credit institution in €4.7 billion in cash. A portfolio of The transaction closed on with financial institutions or other institutions or investment the European Union or as a In return for the capital injection, structured products with fair December 19, 2008. professional counterparties; companies. financial institution otherwise the three governments will value of €10.4 billion was authorised to take floating receive a stake in the Ethias transferred by Fortis Bank to a The securities qualify as core (ii) the agreements expire on or (ii) The second tranche of charges in accordance with the group that will give them a separately-managed entity tier 1 capital and provide an before October 31, 2011; €50,000 is covered via a newly Belgian Royal Decree of preferential claim on future jointly owned by the Fortis annual dividend payment equal established vehicle, the Special October 9, 1995 (limited list of profits. The three governments Group (66%), the Belgian State to the higher of: (iii) the agreements have been Deposits and Life Insurance beneficiaries). have priority in receiving (24%) and BNP Paribas (10%). entered into or renewed Protection Fund. This fund dividends of up to 10% of their - €2.51 per security, non between October 9, 2008 and covers amounts up to €100,000 B. The Royal Decree of January investment. The Belgian Government cumulative, payable annually; October 31, 2009; in case of insolvency of financial 12, 2009 (with effect as of reached an agreement with BNP institutions (or insurance January 22, 2009) amends the This state aid has been Paribas on the subsequent - 120 % of the dividend paid on (iv) the guaranteed entity has companies). In the case of articles of association of the approved by the European transfer of 75% of Fortis Bank the ordinary shares in 2009; taken sufficient measures in insolvency of a financial National Bank of Belgium in Commission for a maximum SA/NV in exchange for new respect of its financial situation, institution, the €100,000 such way that the Belgian State period of six months. The shares to be issued by BNP - 125 % of the dividend paid on its solvency and liquidity guarantee by the Special guarantees the repayment in full temporary character of the Paribas2 for a value of the ordinary shares from 2010 position; and Deposits and Life Insurance of all loan facilities granted by authorization is due to the €8.25 billion; the Belgian State onwards. Protection Fund is reduced by the National Bank of Belgium condition that the Belgian will continue to own the (v) the State guarantee is the €50,000 guarantee of the made available in order to authorities have to submit to the remaining 25% of the company. The dividend will only be paid if justified in the interest of the Deposits and Financial ensure the stability of the Commission a restructuring plan a dividend is due on ordinary Belgian economy and the Instruments Protection Fund financial system, including all aimed at restoring the long-term BNP Paribas will acquire 100% shares. If KBC decides to buy protection of private savers. (mentioned under (i) above), losses related to the granting of viability of the Ethias group by of Fortis Insurance Belgium for a back the securities, it would and will consequently only be such loan facilities. April 20, 2009. total consideration of have to pay 150% of the issue The Belgian Minister of Finance used second. €5.73 billion in cash, subject to price. In case KBC requests the will determine the terms and final closing adjustment. The conversion of the securities into conditions of the State Government of the Netherlands ordinary shares, the Belgian guarantee, such as the acquired Fortis Bank Nederland State can request repayment of
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PURCHASES OF TROUBLED SPECIAL CENTRAL BANK RECAPITALIZATION FINANCIAL ASSETS OR GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES guaranteed amount and the fee Insurance policies Dexia S.A. (Holding) N.V., including Fortis’s the securities against a value of payable by the guaranteed interest in ABN AMRO and other between 115% and 150% of the entity, on a case-by-case basis. The newly established Special At the extraordinary general operations, for a total issue price, depending on the Deposits and Life Insurance meeting of shareholders, that consideration of €16.8 billion. timing of such conversion. B. In view of completing the Protection Fund guarantees will be held on May 13, 2009, a guarantee measures amounts up to €100,000 in the proposed agenda point is to The aforementioned take-over The securities do not represent implemented pursuant to the case of insolvency of insurance cancel the existing authorized scheme of Fortis by BNP share capital of KBC Bank, and Royal Decree of October 16, companies. Consequently, life capital and approve an Paribas was rejected by the consequently do not dilute the 2008 described under point A insurance policies are also increased authorized capital of meeting of shareholders of rights of existing shareholders, above, a Royal Decree was covered by means of a State €8.08 billion which can be Fortis Holding. The Belgian but include the right of the implemented on December 10, guarantee of up to €100,000 issued by decision of the board Government and BNP Paribas Belgian State to have seats on 2008 pursuant to which the provided that the insurance of directors and converted into reached a new agreement on the board of directors of KBC Belgian State can further company concerned has share capital during a five year March 7, 2009. Bank. guarantee agreements of acceded to the Special Deposits period. This may indicate a new Belgian financial institutions and and Life Insurance Protection capital increase. The main features of the new B. Similar to the measures taken financial holding companies (the Fund guarantee. agreement are (i) the acquisition by the Belgian federal ‘guaranteed entities’) provided KBC by BNP Paribas of 75% of Fortis government mentioned above, that: Bank and (ii) the acquisition by the Flemish government decided The board of directors of KBC Fortis Bank of 25% of Fortis on January 22, 2009 to inject (i) the agreements are entered proposed at the extraordinary Insurance Belgium for €1.375 €2billion in KBC by means of the into with a view to covering the general meeting of billion financed by BNP Paribas, purchase of non transferable loss or risk of loss relating to shareholders, held on April 30, and (iii) the creation of a special core capital securities issued by assets owned by the 2009, to renew the authorized purpose vehicle ("SPV") in KBC. This will bring the tier 1 subsidiaries of the guaranteed capital for an amount of €900 which part of Fortis Bank’s ratio of KBC Bank from 8.5% to entity; million for a five year period. It is structured credit portfolio is 10.5% not clear whether or not the contributed, financed partially (ii) the agreements and the shareholders approved the via an equity participation of In addition, an agreement was State guarantee contribute to renewal of authorized capital. a.o., BNP Paribas and Fortis reached for a stand-by (non- avoid the exposure of the Bank, with the remainder of the dilutive) core capital facility in guaranteed entity or its funding of the SPV financed via the amount of €1.5 billion. If subsidiaries to serious liquidity senior subordinated debt of needed, KBC may draw on this needs, in particular as a result of Fortis Bank and BNP Paribas, facility to maintain capital at a decrease in rating; which has been partially adequate levels in the future. guaranteed by the Belgian (iii) the guaranteed entity has Government. As previously The terms and conditions of the taken sufficient measures in agreed upon, the price BNP issue of the core capital respect of its financial situation, Paribas pays for Fortis Bank has securities will be similar to those its solvency and liquidity been valued at €9.4 billion. of the core capital securities position; and Fortis Insurance has been issued to the Belgian State in valued at €5.5. December 2008. Consequently, (iv) ) the State guarantee is the core capital securities do not justified in the interest of the The next shareholders meeting represent share capital and no Belgian economy and the to vote on this new agreement dilution of existing shareholdings
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PURCHASES OF TROUBLED SPECIAL CENTRAL BANK RECAPITALIZATION FINANCIAL ASSETS OR GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES protection of private savers. was scheduled for April 8/9, takes place, but include the right 2009. However, due to the of the Flemish government to The Belgian Minister of Finance uncertainty of the outcome of have two seats on the board of will determine the terms and judicial proceedings relating to directors of KBC Bank. conditions of the State the number of shareholders that guarantee, such as the may vote on this new Kaupthing Bank - Interstate guaranteed amount and the fee agreement, the shareholders Loan from Belgium to payable by the guaranteed meeting had been postponed Luxembourg entity, on a case-by-case basis. until April 28/29, 2009. A federal Bill authorising the Dexia Bank State Guarantee Finally, on April 28 and 29, Belgian Minister of Finance to 2009, the shareholders meeting lend € 160 million to the Belgium (60.5% or €90,75 held in Ghent and Utrecht Luxembourg government is billion), France (36.5% or €54,75 (which included all existing awaiting final approval by the billion) and Luxembourg (3% or shareholders) voted in favour of Belgian Federal Parliament. This €4,5 billion) guarantee all new the deal with BNP loan facility forms part of the issues of bonds subscribed for Paribas.Currently, a group of reorganisation of Kaupthing by institutional investors, minority shareholders is still Bank Luxembourg SA and interbanking deposits and exploring the different legal intends to safeguard the certain financial products (with a possibilities to challenge the repayment of deposits to the duration of less then three Fortis deal.1 clients of Kaupthing Bank years) for Dexia NV, Dexia Bank Luxembourg SA, including the Belgium, Dexia Banque Dexia S.A. clients of its Belgian branch. Internationale Luxembourg and Dexia Crédit Local de France The Belgian, French and The terms and conditions of the until October 9, 2009. The State Luxembourg Governments and loan facility are subject to further guarantee can be extended for other investors invested a total negotiations between the one year. of €6.4 billion in Dexia,3 a Belgian and Luxembourg specialist in lending to local governments. Approval of the France (38%) and Belgium governments in Europe. Dexia Bill is expected by the end of (62%) have also decided to announced on October 20, 2008 April. grant a State guarantee to FSA, that it would seek regulatory the US subsidiary of Dexia approval to create a balance The Bill on the Recovery of Bank. Such guarantee will cover sheet for its holding company the Economy the financial product portfolio of and merge its three national FSA (US$16,5 billion, managed balance sheets into one, As a result of the financial crisis by FSA Asset Management) indicating that it is intent on and within the framework of the against an initial loss of US$3,1 avoiding a break-up along European recovery plan, the billion that exceeds the existing national lines. Belgian Government introduced financial reserves of US$4,4 a Bill on February 3, 2009 billion. The existing liquidities of Following the authorization of providing for financial measures, FSA remain guaranteed by an the European Commission, the social measures, measures existing guarantee facility of Belgian, French and relating to work and measures
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PURCHASES OF TROUBLED SPECIAL CENTRAL BANK RECAPITALIZATION FINANCIAL ASSETS OR GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES Dexia Bank. Luxembourg Governments concerning energy. signed, on November 19, 2008, Fortis Bank State Guarantee an agreement settling the The Bill on the recovery of the modalities of the temporary economy provides, amongst The Belgian government has guarantee plan granted by the other things, that: granted a State guarantee to the three States on October 9, 2008. benefit of Fortis Bank for an - the holders of stock options amount of €150 billion. The transfer of FSA Holdings, can, in agreement with the the US entity of Dexia, was company and subject to certain Flemish State Guarantee for concluded on November 14, conditions, expand the time SMEs loan facilities 2008 between Dexia and frame pursuant to which they Assured Guaranty. This may exercise their options, The Flemish Government has transaction was paid partly in without additional taxes being implemented a new guarantee cash and partly in equity, i.e., charged. The extension system for the benefit of SMEs Dexia received US$361 million is,however, limited to options up located in the Flanders region and 44.6 million new shares of to €100,000; that are in need of funds but Assured Guaranty at a rate of unable to obtain such funds 8.10 US$ / share . The general - insurance policies against because of the lack of valuable meeting of Assured Guaranty commercial and country risks security. approved the emission of new are exempt from Belgian shares at its shareholders insurance tax. The Flemish guarantees can be meeting held on March 16, issued for the benefit of a 2009. This transaction would BNP Paribas Tax Advantages Belgian company located in the yield Dexia a maximum Flemish region that qualifies as participation in Assured As part of the rescue of Fortis by an SME and in which no more Guaranty of about 24.7%. Dexia BNP Paribas, BNP Paribas than 25% of share capital is held aims to close this transaction at requested certain tax by a non-SME. Since the the end of the first quarter of advantages from the Belgian Flemish Government 2009. Government. The Belgian guarantees the loan facility, the Government, however, loan must serve an investment Assured Guaranty, in which responded that it cannot grant in the Flemish region and at Dexia will hold a 24.7% tax advantages to one specific least two-thirds of the loan must participation, decided to take company. be in the form of a term loan (for part in the U.S. government more than one year). A one-way program in which public and New ‘Chapter 11 like’ fee is due by the SME in return private bodies cooperate in Restructuring Law for the guarantee. buying toxic credit products. Indirectly, this causes Dexia to Given the financial and As a rule, an SME can obtain possess again the bad credits economic crisis, and in order to such guarantee up to a that they had intended to protect debtors from their maximum amount of €500,000, dispose of in the first place by creditors in a more efficient and but exceptions are possible. The selling FSA Holdings to Assured flexible way, the 1997 judicial guarantee can relate to composition law has been
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PURCHASES OF TROUBLED SPECIAL CENTRAL BANK RECAPITALIZATION FINANCIAL ASSETS OR GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES maximum of 75% of the Guaranty. replaced by the law of January repayment obligations of the 31, 2009 relating to the SME under the loan facility. The continuity of companies. This bank is responsible for seeking law has been in force since April coverage for the remaining 25%. 1, 2009.
Nineteen Belgian financial The law establishes a new institutions have already signed framework for debtors that face up for the Flemish guarantee continuity risks and seek court regulation, such as: permission for a judicial restructuring. The aim of the - Bank J. Van Breda & Co; judicial restructuring is to enable the debtor to: - Dexia Bank; - conclude a settlement - Ethias Bank; agreement with two or more of its creditors. Such settlement will - Fortis Bank; be protected against certain avoidance rules in case of the - ING Belgium; debtor’s later bankruptcy. There is also a significant tax incentive, - KBC Bank; and as a waiver of debt agreed in the context of such settlement is not - Rabobank Shipping. taxable for the debtor, although remaining fully deductible for Gemeentelijke Holding NV Belgian corporate creditors (subject to further rules to be The Belgian Government has provided for by a Royal Decree); agreed to guarantee the outstanding loans of - obtain the consent of its Gemeentelijke Holding NV, a creditors to a collective shareholder of Dexia. These restructuring plan for a loans were entered into with a maximum of five years. If view to strengthening the approved by the majority of the financial position of Dexia. The creditors representing the State guarantee is granted for a majority of the claims, this plan principal amount of €800 million, will be binding upon all creditors; with the termination date in and August 2009. - transfer the whole or part of its business or activities.
Key features of the new judicial
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PURCHASES OF TROUBLED SPECIAL CENTRAL BANK RECAPITALIZATION FINANCIAL ASSETS OR GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES restructuring procedure are:
- the flexible condition for opening of the procedure: a threat to the immediate or future continuity of the debtor's business or activities (or part thereof) is sufficient;
- debtor-in-possession: the debtor maintains, as a rule, the management over the company during the restructuring procedure;
- protecting the debtor and its assets: as of the request for a judicial restructuring, the debtor cannot be declared bankrupt or wound up by court order. In addition, any enforcement against the debtor’s assets for prior claims is prohibited; and
- restricted court involvement.
- the position of secured creditors is diluted in such a way that they cannot enforce their rights during a judicial restructuring. However, existing financial collateral and netting arrangements remain unaffected to the extent that these arrangements fall under the financial collateral Law of December 15, 2004.
New Type of Company
The Belgian government launched the initiative to introduce a new type of
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PURCHASES OF TROUBLED SPECIAL CENTRAL BANK RECAPITALIZATION FINANCIAL ASSETS OR GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES company in order to boost entrepreneurship in Belgium. This company type is inspired by a classic private limited liability company with the following characteristics:
- the minimum capital required is €1;
- within five years time, the share capital has to be increased up to €18,600;
- a financial plan is to be drafted in cooperation with an expert; and
- it is required to reserve at least 25% of the annual profit.
In case of bankruptcy within the first three years, the founders of the company can be held liable with their personal assets.
1 A group of minority shareholders is considering taking legal action against the approval of the Fortis deal with BNP Paribas. A number of institutional shareholders gave proxies to Fortis Holding in order to represent and vote on their behalf during the latest general meeting of shareholders which approved the deal with BNP Paribas. According to the minority shareholders, Fortis was compelled to publish a transparency declaration since Fortis was authorized to represent at least 7% of the share capital. Fortis Holding refutes the argument by pointing out that the represented shareholders did not act by mutual agreement. As mentioned, it is not clear as yet whether or not further judicial actions will follow.
2 On October 13, 2008, the Belgian State declared that a special fund will be established to which the Belgian State will allocate a part of the possible increase in value and of the profits from its participation in BNP Paribas between the issuance of these new shares and the general assembly date of the BNP Paribas group which will decide on the 2013 dividend distribution. Natural persons that were Fortis shareholders on July 1, 2008 will have the possibility to receive shares in such fund subject to specific conditions and procedures. 3 Of the €6.4 billion, the Belgian Federal Government, the three Regions and the three institutional shareholders (namely Gemeentelijke Holding NV, Arcofin CV and Ethias) have agreed together to jointly invest €3 billion each for the following amounts: (i) the Belgian Federal Government invests €1 billion, (ii) the 3 Regions invest €1 billion, and (iii) the current institutional shareholders invest €1 billion, each in the following amounts: Gemeentelijke Holding NV for €500 million, Arcofin CV for €350 million and Ethias for €150 million. The Flemish Government declared on November 19, 2008 that it is ready to support Gemeentelijke Holding NV by granting a guarantee of up to €200 million.
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BRAZIL SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES No changes have been made to On September 24, 2008, the On October 2, 2008, the Foreign Exchange Market the deposit guarantees rules. In Brazilian Central Bank (“BCB”) Brazilian Central Bank (the the event of a financial announced that the compulsory “BCB”) started to stimulate the The BCB has intervened in the institution’s bankruptcy or reserve deposit rates relating to acquisition of credit portfolios of foreign exchange market insolvency, the Brazilian leasing transactions would be small financial institutions by (Mercado de Câmbio), with financial system currently relies kept at a 15% rate, even though authorizing the deduction of US$7.2 billion (spot on the Credit Guarantee Fund a BCB rule provided for the 40% of the compulsory reserve transactions), US$5.8 billion (Fundo Garantidor de Crédito), increase to a 20% rate in deposits to be made by the (financing export transactions), maintained by financial September 2008.7 BCB acquiring institutions. US$29.4 billion (swap institutions, to guarantee each estimates that such measure will transactions) and US$5.5 billion and all deposits in their bank keep R$8 billion in the economy. On October 6, 2008, the (sale of US$ with repo accounts, with a maximum cap Furthermore, on the same date, Brazilian Government enacted obligation). of R$ 60,000.00 per bank the BCB increased the reserve Provisional Measure No. 442 account.1 exemption limit (baseline) from (Medida Provisória 442)2, which Brazilian Sovereign Wealth R$100 million to R$300 million8, authorizes the BCB to buy credit Fund On March 26, 2009, the National which if surpassed, causes the portfolios of financial institutions Monetary Council (the “CMN”) banks to deposit in the BCB an that are facing difficulties and On December 24, 2008, under raised, by means of Resolution “extra compulsory reserve” reduced the collateral for such Law No. 11,88718, the Brazilian No. 3.69231, the maximum cap portion over the savings, spot an acquisition. Sovereign Wealth Fund (“FSB”) of the guarantee provided by the and term time deposits. BCB was formally created. This fund FGC to investors that acquire estimates that such a measure On October 16, 2008, the BCB will inject resources from the Bank Depositary Receipts would inject R$5.2 billion into extended the rules for the Brazilian Federal Government (CDB) from small and medium- the economy. compulsory reserve deposits. budget into investments mainly sized financial institutions. This Besides selling their credit involving Brazilian companies cap was raised from R$60,000 On October 8, 2008, the BCB portfolios and their interests in doing business abroad. to R$20 million per investor. reduced the compulsory reserve investment funds, smaller banks The CMN expects that this will deposit rates. The additional will be able to sell other assets Export Financing provide the economy with rates on spot and time deposits such as (i) fixed income additional credit and reduce the were reduced from 10% to 5% securities, advances and other On October 30, 2008, the CMN banking spread, by raising the (which should inject R$13.2 credits from individuals and non- announced the increase, from competition among banks. billion into the economy). financial and legal entities; and R$3 billion to R$4 billion, of the Additionally, the reserve (ii) inter-finance deposit with resources destined to the exemption limit was raised from warranties for the assets Revitaliza Program, that grants R$300 million to R$700 million9 described in the previous item or credit to Brazilian exporters. (with an estimated impact of credit operations.3 Besides increasing the amount R$6.3 billion into the economy). of available funds, the CMN On October 22, 2008, the approved the end of the limit On October 13, 2008, the BCB Brazilian Government enacted that restricted the access to the announced the plans for the Provisional Measure No. 443 credit for companies with annual integral release of the reserve (Medida Provisória 443)4, which billing of over US$300 million. payments over time deposits, permits Banco do Brasil S.A. Furthermore, the CMN approved inter-finance deposits and over and the Brazilian Federal the agreement between the BCB
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES the additional liabilities of call Savings Bank (Caixa Econômica and the U.S. Federal Reserve, and time deposits, totalling Federal) to acquire interests in that establishes a US$ for Reais R$100 billion.10 private banks and construction (R$) swap line of US$30 billion, companies. Furthermore, the valid until April 30, 2009. On October 14, 2008, the BCB government reduced to zero the established the reduction from Financial Transactions Tax Sale of US dollars for the 45% to 42% of the compulsory (IOF) rate on foreign financing of ACC (Advances on reserve deposit to be made by investments in the stock market Foreign Exchange Agreements the financial institutions to the and on foreign financing.28 – Adiantamento sobre Contrato BCB over the spot deposits de Câmbio) and broadening of without compensation (injecting On October 31, 2008, the BCB the PROEX (Export Financing R$3.6 billion into the modified the on-lending method Program). economy).11 for the compulsory reserve deposits regarding term deposits R$ 10 billion was granted by On October 27, 2008, the BCB from 100% in bonds to 30% in National Economical and Social allowed the deduction of the bonds and 70% in cash. This Development Bank (Banco reserve payment over call measure aims at stimulating Nacional de Desenvolvimento deposits for banks that acquisitions of credit portfolios Economico e Social-”BNDES”) voluntarily advance instalments and other assets from small- as working capital, pre-shipment of the ordinary contribution to and medium-sized financial of exports and bridge loans. the FGC (Fundo Garantidor de institutions by large institutions.5 Crédito).12 On January 29, 2009, the BCB approved Instruction No. 367526, On November 13, 2008, the which postponed to January 31, BCB announced a modification 2010, the term for the shipping in the payment method of the of goods or for rendering of additional enforceability of the services related to “opened” reserves over call, time and foreign exchange agreements savings deposits.13 This regarding export transactions payment, that was performed in (previously, the time for closing cash and compensated by the this type of exchange agreement SELIC tax, shall be performed in was 360 days as of its public bonds from December 1. execution; however, with this The rates for the additional measure, exporters who were enforceability continue to be 5% reaching the 360-days deadline for call and time deposits and obtained a considerable 10% for savings deposits, which additional term). BCB expects totalizes a total amount of to indirectly provide exporters R$40 billion. Such measure, with more credit due to such according to the BCB, aims the measure. recomposition of the volumes of the reserves paid in bonds that On April 2, 2009, the Brazilian prevailed before the reserve Federal Revenue Service modifications were announced enacted the Ordinance
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES on October 30.14 RFB/Secex No. 1 35, which provides tax benefits for the On November 25, 2008, the acquisition, in Brazil or abroad, BCB announced new changes of raw materials used in the to rules regarding the manufacturing process of export compulsory deposits (private products (by suspending the and public banks that invest taxation of the IPI (excise tax) funds in BNDES’ inter-bank and PIS/COFINS (social certificate of deposits (“CDI”) will contributions) on such goods). be able to deduct such amount Such measures were taken in from the compulsory deposits), order to increase the with an estimate of an additional competitiveness of Brazilian R$6.2 billion to the BNDES.15 products abroad, and will be valid as of May 17, 2009. On December 18, 2008, the CMN amended the by-laws of On April 3, 2009, the BCB, by the FGC16, allowing the FGC to means of resolution No. invest a maximum of 50% of its 3.691/2009,36 started a new type net worth in the acquisition of of “auction” for the sale of U.S. credit portfolios of small and dollars, making up to US$2 medium-sized banks. Before this billion available to the market. measure, such acquisitions by This new type of auction does FGC were limited to 20% of its not require from the buyers the net worth. specific use of the resources on foreign trade transactions (as In order to stimulate the previously required in ordinary acquisition of small-sized banks’ US dollars “auctions”). As a credit portfolios by larger result, instead of using the financial institutions on resources made available by the December 26, 2008, the CMN BCB to finance the foreign trade enacted Resolution No.3,67317, transactions, the banks are now establishing that the new able to use these funds to accounting rules for the finance any kind of debt of registration of financial assets by Brazilian companies in a foreign banks will only be valid as of currency. January 1, 2010 (previously such rules were to be valid as of Agriculture Financing January 1, 2009). The CMN understands that the current On October 14, 2008, the CMN accounting rules are simpler and increased from 25% to 30% the therefore stimulate the rate of mandatory application of acquisition of risky credit resources in the agriculture and portfolios of small banks by animal husbandry sectors, the so-called rural eligibilities
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES larger institutions. (elegibilidades rurais). Therefore, banks shall have an On December 30, 2008 (in an additional credit of R$4.5 billion extraordinary meeting), the CMN to finance these sectors. decided to make changes in the calculation of the financial Additionally, the following institutions’ Reference Networth measures were taken; (Patrimônio de Referência) acceleration of Banco do Brasil relating to leasing transactions. S.A. disbursements; additional With this measure, CMN resources from several funds, expects an estimated impact of totalling R$5 billion; increase of R$40 billion into the economy. the directed credit with reserves, totalling R$5.5 billion; increase On January 21, 2009, the BCB of the rural savings from 65% to Monetary Policy Committee 70%, totalling R$2.5 billion; (“COPOM”) reduced the SELIC permission for the indirect basic interest rate from 13.75% financing of producers by means to 12.75% per year. COPOM of purchasing agro industries expects to stimulate the and trading CPRs (Rural economy by such reduction of Product Bonds); and grant a the interest rate. On March 11, minimum price for the 2009, the COPOM reduced the acquisition of products (stock SELIC basic interest rate from formation – AGE), entitlement to 12.75% to 11.25% per annum. producers (difference among More recently, on April 29, 2009, market and minimum prices) the SELIC basic interest rate and credits for was reduced from 11,25% to commercialization for the next 10,25%. crop.
On March 4, 2009, the CMN On November 26, 2008, the enacted Resolution No. 3.68929, National Monetary Council allowing BCB to use its created special credit facilities international reserves for for the agriculture and animal granting loans in foreign husbandry sectors, for the currency to Brazilian banks. payment of up to 40% of the The CMN expects that this will instalments of BNDES’ loans enable Brazilian banks to grant due in 2008. (Amount of credit loans in foreign currency to facility: R$500 million).16 Brazilian companies with debts abroad. Investments and Production Financing
Aiming at the financing of investments and production, the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES following measures were taken: the maintenance of the BNDES goal of R$90 billion in credit; keeping the long-term interest rate (“TJLP”) at 6.25%; and granting the Merchant Marine Fund an additional R$10 billion.
On January 22, 2009, the Federal Government was authorized, by means of Provisional Measure No. 45325, to grant additional funds in an amount of up to R$ 100 billion to the BNDES, for its lending activities. It is an attempt to ensure cheaper credit to companies, enabling them to keep their investment plans (i.e., having Petrobras keep its investment plans of R$20 billion for the next few years).
Civil Construction Financing
A Working Capital Line of R$3 billion, of the Brazilian Federal Savings Bank, has been adopted.
On November 7, 2008, the Brazilian Government enacted Provisional Measure No. 445,6 which authorizes the Brazilian Federal Savings Bank to use part of its dividends resulting from its profits in years 2008 to 2010 in a fund destined to assist the construction industry in Brazil. On April 13, 2009, Provisional Measure No. 445 was converted into Law No. 11,992.
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES On March 25, 2009, the Federal Government enacted Provisional Measure No. 45930, creating a new housing program named Programa Minha Casa Minha Vida (“PMCMV”) that will finance the construction of housing for low income families. It is estimated that Government funds will be available for the construction of up to one million houses. In addition, on March 30, 2009, the Brazilian Government enacted Provisional Measure No. 46034, which amended the taxation regime of the civil construction business, granting tax benefits to construction companies that adhere to the PMCMV housing program.
On March 27, 2009, the CMN approved, by means of Resolution No. 3.70632, the increase, from R$ 250,000 to R$ 450,000, of the maximum cap for real estate loans made by means of the Housing Financial System (Sistema Financeiro de Habitação). The CMN expects such measures to stimulate the civil construction sector.
On March 30, 2009, the Federal Government enacted Decree No. 6.80933, which suspended for three months the levy of IPI (excise tax) on several raw materials related to the civil construction sector. More recently, on April 17, 2009, the Federal Government enacted Decree No. 6.82339 which
LNDOCS01/597077.1 29
SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES suspended, for three months, the levy of IPI (excise tax) on several other raw materials related to the civil construction sector, such as door locks, water taps, etc.
Auto Industry
Two measures have been taken: R$ 4 billion was granted by Banco do Brasil S.A. to banks “linked to car manufacturers” plus resources from private banks (reserve) and credit lines have been directed to the motorcycle industry.
In addition to the abovementioned measures, the Brazilian Government enacted Decree No. 6,696 on December 17, 200819, establishing the reduction of PI rates (excise tax) levied on cars and trucks. The new rates will be valid until March 31, 2009. On March 30, 2009, the Federal Government enacted Decree No. 6.80933, which extended referred tax reduction until June 30, 2009. This is conditional on the auto industry retaining their employees and maintaining current levels of employment.
On March 30, 2009, the Federal Government enacted Provisional Measure No. 46034, which suspended the levy of COFINS (social contribution) on the gross income from the sales of motorcycles for three months.
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Naval Industry
On December 19, 2008, the Brazilian Government enacted Decree No. 6,70420, which suspended the levy of IPI (excise tax) on the acquisition, made by Brazilian naval shipyards, of materials and equipment, with the purpose of building, maintaining, modernizing, converting or repairing of ships.
Small- and Medium-Sized Companies
A R$5 billion credit line for small- and medium-sized companies was opened by Banco do Brasil S.A. to be used as working capital.
On January 28, 2009, the Brazilian Stock Exchange Commission (“CVM”) enacted Instruction No. 477/09,27 which changed the rules of incorporation and management of Mutual Investment Funds in Emerging Companies (“FMIEE”), which invest in small- sized companies with great potential for development. Such Instruction intends to modernize the current rules regarding the FMIEEs and, thus, to stimulate the investments in emerging companies.
On February 12, 2009, the State of São Paulo Government announced its plans to “unburden” the private sector,
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES specially benefiting micro and small companies. Among such measures, the easier access to credit from state entities (without guarantees requirements) and the reduction of financing interest rates are pointed out. Additionally, the State of São Paulo Government postponed until December 31, 2009 the reduction of ICMS tax for some sectors (such as food, cosmetics, etc.).
On March 6, 2009, Banco do Brasil S.A. reduced the interest rate of its credit line offered to small- and medium-sized companies. In addition, on March 17, 2009, the Banco do Brasil S.A. raised the Cartão BNDES Card’s financing limit from R$250,000 to R$500,000. The Cartão BNDES Card has low interest rates and is offered to companies which have an annual revenue of R$60 million or below.
Postponement of Tax Payment Dates and Acceleration of the Tax Credits Devolution
The payment dates of the following taxes were postponed: IPI (tax on manufactured products) payment date postponed from the 15th to the 25th; PIS/COFINS (social contributions) payment date postponed from the 20th to the day 25th; and Withholding Income Tax payment date
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES postponed from the 10th to the 20th. Furthermore, there was an acceleration of the tax credits devolution.
Changes to Income Tax
The Brazilian Government created, by means of Provisional Measure No. 451/200821, two intermediate rates of the Income Tax paid by Individuals (“IRPF”). In addition to the current rates of 15% and 27.5%, the Government created rates of 7.5% and 22.5% aiming at reducing the amount of tax paid by several workers.
By means of an answer to Public Consultation (”Solução de Divergência”) No. 1/200922, issued by the Brazilian Federal Revenue Service, IRPF will not be levied on vacation periods (as long as these periods do not exceed 10 days) “assigned” by employees to their employers in the course of one working year. This provides employees with a new tax exemption.
Changes to Tax on Financial Transactions
On December 12, 2008, Decree No. 6.691/08 provided for the reduction from 3% to 1.5% per annum of rate of the Tax on Financial Transactions (“IOF”) levied on loans and financings granted to individuals.17
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Minimum Wage
The Federal Government increased the minimum wage from R$415.00 to R$465.00. Such adjustment came into force on February 1, 2009.
Infra-Structure
The Federal Government and private companies announced investments of approximately R$4.6 billion in the Santos port, in order to expand its loading capacity (government expects to create more than 5,000 jobs).
Households Devices Industry
On April 17, 2009, the Brazilian Government enacted Decree No. 6.825,37 which was subsequently rectified by Decree No. 6.826,38 providing a reduction of IPI rates (excise tax) levied on household appliances, a product line named Linha Branca. Such reduction will be valid for three months.
1 For Resolução CMN No. 3251/2004, see https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=104212266&method=detalharNormativo. For Resolução CMN No. 3400/2006, see https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=106276675&method=detalharNormativo. 2 For Provisional Measure No. 442, see: http://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2008/Mpv/442.htm - to be voted in the Senate. Also see Resolução Bacen No. 3622 https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=108098613&method=detalharNormativo. 3 Circular Bacen No. 3414. See https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=108100557&method=detalharNormativo. 4 For Provisional Measure No. 443, see: http://www.planalto.gov.br/ccivil/_Ato2007-2010/2008/Mpv/443.htm. 5 Circular Bacen No. 3417/2008. See https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=108105748&method=detalharNormativo. 6 For Provisional Measure No. 445, see https://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2008/Mpv/445.htm.
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7 The BCB had increased the percentage of the compulsory reserve deposits relating to leasing operations, starting at 5% in May, 2008 up to 25% in January 2009 (estimated). After the crisis, the BCB kept the compulsory reserve deposits relating to leasing transactions on a 15% rate, with expectation for future increases only in January, 2009. 8 Circular Bacen No. 3405/2008. See https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=108093173&method=detalharNormativo. 9 Circular Bacen No. 3408/2008. See https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=108098141&method=detalharNormativo. 10 Circular Bacen No. 3412/2008. See https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=108099445&method=detalharNormativo. 11 Circular Bacen No. 3413/2008. See https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=108099939&method=detalharNormativo. 12 Circular Bacen No. 3416/2008. See https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=108104119&method=detalharNormativo. 13 Circular Bacen No. 3419/2008. See https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=108110963&method=detalharNormativo. 14 Circular Bacen No. 3417/2008. See https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=108105748&method=detalharNormativo. 15 Circular Bacen No. 3421/2008. See https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=108114236&method=detalharNormativo. 16 For Resolução CMN No. 3639/2008, see https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=108114725&method=detalharNormativo. 17 For Decree No. 6.691/08, see http://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2008/Decreto/D6691.htm. 18 For FGC’s by-laws’ amendment see: https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=108121811&method=detalharNormativo. 19 For Resolution 3,673 see: https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=108124415&method=detalharNormativo. 20 For Law No. 11,887 see: http://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2008/Lei/L11887.htm. 21 For Decree No. 6.696 see: http://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2008/Decreto/D6696.htm. 22 For Decree No. 6.704 see: http://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2008/Decreto/D6704.htm. 23 For Provisional Measure No. 451, see: https://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2008/Mpv/451.htm – to be voted in the Senate. 24 For ”Solução de Divergência” No. 1/2009 see: http://www2.oabsp.org.br/asp/clipping_jur/ClippingJurDetalhe.asp?id_noticias=1982. 26 For Instruction No. 3675, see https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=109007562&method=detalharNormativo. 27 For Instruction No. 477/09, see http://www.cvm.gov.br/. 28 On March 3, 2009, the Provisional Measure No. 443 was converted into Federal Law No. 11.908. 29 For Resolution 3.689 see: https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=109016504&method=detalharNormativo. 30 For Provisional Measure No. 459 see: https://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2009/Mpv/459.htm. 31 For Resolution 3692 see: https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=109023546&method=detalharNormativo. 32 For Resolution 3706 see: https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=109024049&method=detalharNormativo. 33 For Decree No. 6809 see: https://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2009/Decreto/D6809.htm. 34 For Provisional Measure No. 460 see: https://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2009/Mpv/460.htm. 35 For Ordinance RFB/Secex No. 1 see: http://www.receita.fazenda.gov.br/legislacao/Portarias/2009/PortariaConjunta/portconjuntaRFBSecex001.htm 36 For Resolution 3.691/2009 see: https://www3.bcb.gov.br/normativo/detalharNormativo.do?N=109022058&method=detalharNormativo 37 For Decree No. 6.825 see: http://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2009/Decreto/D6825.htm 38 For Decree No. 6.826 see: http://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2009/Decreto/D6826.htm 39 For Decree No. 6.823 see: http://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2009/Decreto/D6823.htm
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BULGARIA SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES By means of an amendment to As of December 1, 2008, the On November 4, 2008, the the guarantee of the Bank Central Bank decreased the Bulgarian Government1 decided Deposits Act, effective as of minimum amount of required to increase the capital of the November 17, 2008, the bank reserves to 10%. Bulgarian Development Bank (a protection given to savings by State-controlled bank aimed at the Fund for guaranteeing Bank Starting January 1, 2009, the supporting the SME and local Deposits was increased from Central Bank will decrease the banks) by BGN100,000,000. BGN40,000 to BGN100,000 minimum amount of required The capital is to be used mainly (approximately €50,000). bank reserves for funds for lending credits to the banks. attracted from abroad to 5%. A new Act on the State Fund for Starting January 1, 2009, the Guaranteeing the Stability of the Central bank will waive the State Pension System was obligation for required minimum enacted and entered into force bank reserves for funds as of November 17, 2008. The attracted from the Government Fund is aimed at achieving and or from municipalities. guaranteeing stability of the State pension system through accumulating, investing and transferring of additional financial means to the budget of the State pension system. The Minister of Finance as well as other members of the Government have been granted leading roles in the management of the new Fund. Representatives of the national employers’ and employees’ organizations will also participate in the management of the Fund.
1 The Bulgarian Prime Minister gave a brief oral presentation of the Anti-crisis Government Measures Programme. However, there is no official announcement, published structured document, or any consistent legislative changes initiated, other that those specified above. There have been some discussions on certain aspects of this programme, none of which have been promulgated as enforced statutes.
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CANADA SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES The Canadian Lenders The Canada Deposit Insurance In coordination with other major The 2009 Federal Budget On October 10, 2008, the On November 11, 2008, Assurance Facility announced Corporation (“CDIC”), a federal central banks, Canada’s central proposed a framework for the Ministry of Finance announced a changes were announced to the on October 23, 2008, that it will Crown corporation, insures bank, the Bank of Canada, Canadian Government to inject program to provide additional regulatory capital requirements insure certain categories of deposits at member institutions, lowered its key lending rate by capital directly into federally liquidity to Canadian financial for banks and other federally- senior unsecured wholesale which include most Canadian 0.5% on October 8, 2008, 0.25% regulated financial institutions. institutions through the purchase regulated, deposit-taking debt with a term to maturity of at chartered banks, as well as on October 21, 2008, 0.75% on Proposed amendments to the of up to $25 billion of mortgage- institutions. Debt covered by the least three months. Institutions various other deposit-taking December 9, 2008, 0.5% on federal Financial Administration backed securities. On Canadian Lenders Assurance eligible to participate in the institutions. The CDIC protects January 20, 2009 and 0.5% on Act authorize such capital November 12, 2008, the Ministry Facility and similar foreign facility include (i) deposit-taking funds in savings and checking March 3, 2009. This was injections. of Finance announced that the programs can now be assigned financial institutions accounts, and term deposits followed by a further 0.25% rate purchase program would be the same risk weighting for incorporated, amalgamated or with a term of less than five cut on April 21, 2009, leaving increased from C$25 billion to regulatory capital purposes as continued under the federal years, for as much as the rate at 0.25%. The Bank of C$75 billion. The size of the the debt of the sovereign Bank Act or Trust and Loan C$100,000 (US$91,470). Canada has indicated that, program was further increased guarantor during the term of the Companies Act, (ii) associations conditional on the outlook for to C$125 billion as part of the guarantee even if that term is and central cooperative The 2009 Federal Budget tabled inflation, the key lending rate 2009 Federal Budget. less than the term to maturity of societies regulated under the on January 27, 2009 proposed can be expected to remain at its the debt. Also, an additional federal Cooperative Credit to provide the CDIC with greater current level until the end of the Since the underlying mortgages 10% of Tier 1 capital may be Associations Act, and (iii) on the flexibility to enhance its ability to second quarter of 2010. already carry guarantees composed of qualifying approval of the Minister of safeguard financial stability in backed by the Canadian preferred shares (the former Finance, provincially regulated Canada including the following: The Bank of Canada has Government, there is no maximum of 30% has been central cooperative credit increased the amount of liquidity incremental risk to the federal increased to 40%). societies. This insurance will ▪ allowing the CDIC to establish it makes available to financial Government in the purchase of cover principal and interest a bridge institution to preserve institutions, has expanded the these securities. The Canadian Government payments on eligible debt critical functions and help scope of institutions eligible to partnered with the governments instruments for up to three years support financial stability in the participate in its liquidity facilities The purchases are being of Ontario, Alberta and Quebec from the date of issue. event a CDIC member is no and has expanded the types of undertaken through a series of to provide a senior funding longer viable; collateral it accepts. competitive auctions. facility to support the January The facility will charge premiums Approximately C$50 billion of 21, 2009 closing of the C$32 that are intended to approximate ▪ increasing the CDIC’s In April 2009, the Bank of mortgage-backed securities billion restructuring of non-bank commercial terms. The facility borrowing limit from C$6 billion Canada outlined a framework for have been purchased to date. sponsored asset-backed will charge a base annualized to C$15 billion to reflect the quantitative easing or credit commercial paper. Media premium of 110 basis points (the growth of insured deposits; and easing, should additional reports indicate that the size of previously announced premium stimulus be necessary. the senior funding facility was in of 135 basis points was reduced ▪ granting the Minister of the range of C$3.5 - C$4.5 in an effort to make the program Finance the power to direct the billion. more competitive with similar CDIC to take specific action to foreign programs), with prevent adverse effects on The 2009 Federal Budget surcharges depending on the financial stability. contained a number of other credit rating of the issuing measures designed to improve institution and an additional access to financing, strengthen surcharge for debt that is not Canada’s financial system and denominated in Canadian stimulate the economy including
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES dollars (on November 13, 2008, the following: the Canadian Government announced a temporary waiver ▪ committing C$13 billion in of the surcharge). The additional financing by Canadian Government has increasing the capacities of extended the period for issuing certain financial Crown guaranteed instruments from corporations including Export April 30, 2009 as originally Development Canada ("EDC") announced to December 31, and the Business Development 2009. There is a limit on the Bank of Canada; amount of insurance available to each institution, based on the ▪ creating the C$12 billion amount of wholesale debt of the Canadian Secured Credit institution maturing in the next Facility to support financing of six months, and on the amount equipment and vehicles by of deposits held by the businesses and consumers; institution. ▪ establishing the Canadian Life The Ministry of Finance has Insurers Assurance Facility to indicated that the facility was guarantee wholesale term introduced in order to ensure borrowings by life insurers by that Canadian institutions are way of a model similar to the not disadvantaged in global Canadian Lenders Assurance capital markets relative to banks Facility; in other jurisdictions that have access to a government ▪ providing approximately C$8 guarantee. billion to stimulate housing construction and C$12 billion in Dominion Bond Rating Services new infrastructure funding over has indicated that it will assign a a period of two years; and AAA long-term rating with a stable trend to eligible debt ▪ tax cuts totalling C$20 billion instruments to be issued by over the next six years. eligible deposit-taking financial institutions covered by the With the passing of Bill C-10 on CLAF. March 12, 2009, the Government of Canada has provided for a two-year expansion of EDC's mandate to help increase access to credit for Canadian companies.
This expansion is intended to allow EDC to support domestic
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES trade by participating in domestic financing and insurance with private sector financial institutions, private insurance providers and the surety industry.
EDC and National Bank Financial Group announced on May 5, 2009 that National Bank of Canada became the first major Canadian financial institution to adopt EDC’s enhanced Export Guarantee Program, enabling it to advance more loans to Canadian small- and medium-sized enterprises. For loans up to and including C$500,000, EDC has increased the coverage to banks to a maximum of 90 percent, from 75 percent. For loans between C$500,000 and C$10 million inclusive, EDC now covers up to 75 percent, compared to 50 percent previously.
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DENMARK SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Bank Aid Package I Almost all Danish banks are The Danish Central Bank issued Bank Aid Package I The social pension fund (Den In response to the financial participating, including Danske, more than DKK60 billion (c.€8 Sociale Pensionsfond) was situation at the time of The Bank Aid Package I is Nordea, Jyske and Sydbank (the billion) in Danish treasury bonds The Danish Government will set given a mandate to purchase up December 6, 2008, the designed to guarantee creditors four largest banks by market with a 4.5% coupon aimed at a up a new liquidation company to DKK22 billion one-year president of the Danish Central and depositors in distressed capitalisation in Denmark). balanced, low-risk investment (Afviklingsselskabet til sikring af property mortgage bonds at the Bank, Nils Bernstein, spoke at banks. The package is regulated Foreign branches of Danish for Danish pension funds. As a finansiel stabilitet A/S, "the December 2008 auction. the annual meeting of the through the Financial Stability banks may be covered if local result the pension funds Liquidation Company") that will Danish Bankers’ Association on Act which requires banks to be banks are subject to a similar changed their investments from benefit from a State guarantee The rationale was that the state- the topic of economic initiatives members of the DPB (as defined scheme. euro-based treasury bonds to which will take on defaulted guaranteed mortgage bonds for in the banking sector. below) in order to participate in Danish treasury bond, which obligations of a participating social housing were expiring, the newly established guarantee The Danish State has also strengthened the Krone. bank. and as the State bears the Mr. Bernstein addressed the scheme. The DPB is a guaranteed all bank deposits of interest rate risk on social correlation between the already necessary contributor to the members of the DPB, so that all Exchange Rate The purpose of the liquidation housing, the Social Pension existing guarantee scheme and guarantee scheme. claims by “depositors and other company is to ensure the Fund might as well take part in the potential of a new financial ordinary creditors” are covered. The Danish Central Bank has a covering of all claims by the auction. aid package. Such an aid Det Private Beredskab The DPB contributes a total of fixed exchange rate policy “depositors and other ordinary package would lower the risk of DKK30 billion (c.€4 billion) (ERM2) with the ECB regarding creditors” where the distressed This had an immediate effect the State and the DPB and will DPB (Det Private Beredskab) is towards the risk over the two the Euro. If the exchange rate bank is a member of the DPB. It and the interest rate of the one- limit the damage for which the a non-profit private banking year duration period; whereas varies more than +/- 2.25% of will then found a subsidiary year property mortgage bond State and the DPB are liable. association, whose purpose is to the Danish State will cover the central rate, the Danish whose task will be to wind down fell. Many private homeowners help wind down distressed amounts above that without any Central Bank is empowered to the company by transferring its enjoyed a spin-off benefit from The suggestion has been the banks, savings banks and co- limitation (see recapitalization increase the benchmark lending assets and liabilities to a buyer. this measure. inspiration for new legislation, operative banks, as an measures). rate and/or to perform an If the DPB receives funds in the commonly known as Bank Aid alternative to bankruptcy. The intervention of the Krone. form of liquidation proceeds, etc. The Liquidation Company is Package II. Please see the DPB is founded by the Danish Some niche banks have chosen when winding down a bank, it currently shareholder in 60 column “recapitalization Banker’s Association not to participate in the DPB and In the time of financial instability must repay the DPB members financial institutions. One fourth measures” for more information. (Finansrådet), which represents the guarantee scheme. These the ERM2 has had a significant proportionately to their of these are listed on the Danish the common interests of the being; DnB Nord Bank A/S, influence on the benchmark respective contribution stock exchange, NASDAQ Prolonged VAT and Tax financial sector vis-à-vis the Dansk Autoriseret Markedsplads lending rate activity and on the commitment. OMX. The total market value of payment credit public, the legislators and the A/S, Ekspresbank A/S, foreign currency reserve. the financial institutions amounts authorities. Lægernes Pensionsbank A/S Members of the DPB will to c.DKK350 billion (c.€47 The Government has given all and Leasing Fyn og Factoring Benchmark Lending Rate contribute DKK7.5 billion billion). companies the possibility of According to Danish law, an Bankaktieselskab Activity (c.€1 billion) per annum, payable delaying their VAT and Tax association becomes a legal monthly as a fee for the Roskilde Bank payments by one month. This is entity after the founding general In addition, some small savings On October 24, 2008, the guarantee. estimated to provide the assembly has been held. The banks and many small co- Danish Central Bank When a bankruptcy of the business community with more legal relationship between its operative banks have equally unexpectedly raised the Additionally, DPB will initially Roskilde Bank was threatening, than DKK60 billion (c.€8 billion) members is defined in the chosen not to participate. benchmark lending rate by half a provide DKK10 billion to the the Danish Central Bank and the in extra liquidity. articles of the association. There percentage point to an eight- liquidation company and is also Liquidation Company decided to is no general rule of written law With the exception of Swedish year high of 5.50%, showing that subject to a further take over the bank. Only the SP-Payment that applies to such Handelsbanken and Icelandic policymakers will defend the DKK10 billion to meet losses, healthy parts of the bank’s Straumur-Burdaras Investment Krone even as the economy providing for a maximum of activities were acquired, in order Through 1998 to 2003 a special
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES associations. Bank, all other foreign banks risks entering a recession. DKK35 billion loss to the DPB to be sold in pieces later on. mandatory pension scheme was with branches in Denmark have over the two-year term. implemented which meant that The top authority of the DPB is opted not to participate. On November 7, 2008, the Nordea Bank, Spar Nord Bank all employees were to bind 1% the board of representatives Danish Central Bank followed Any losses in excess of the and Arbejdernes Landsbank, of their salary to the so-called which decides if the DPB is to the ECB and cut the benchmark funds provided by DPB will be respectively acquired nine, “SP”. This has accumulated to participate in the winding down lending rate by 50 basis points, met by the State. seven and five branches. approximately DKK25 billion of a distressed bank. This is bringing the rate down to 5.00%. (c.€3.3 billion). An agreement in normally done with a marginal Bank Aid Package II The remaining part of the Parliament means that the SP majority. The board of On December 5, 2008, the original bank has been declared amount can be withdrawn representatives is the same as Danish Central Bank followed The purpose of the package is bankrupt. prematurely. The window for that of the Finansrådet. The the ECB and cut the benchmark to ensure that financial withdrawals will be June 1, 2009 DPB is generally managed by lending rate by 75 basis points, institutions have access to Bank Trelleborg to January 1, 2010. Legislation the executive committee. bringing the current rate down to enough liquidity. Such measures is currently being prepared. 4.25%. are needed in order to cope with Sydbank took over Bank In order to be eligible for the financial markets. The Trelleborg. This takeover is Tax Reductions participation in the guarantee On December 19, 2008 the package is regulated by the Act subject to a multi-party lawsuit scheme, banks must have a Danish Central Bank cut the of State Capital Injection to launched by a group of Taxation of the last earned banking license and be a benchmark lending rate by 50 Credit Institutions. stockholders that demand a Krone will be reduced in order to member of the DPB. basis points, bringing the rate higher share price. increase consumption and the down to 3.75%. The rate cut The Danish act regarding amount available for a Members of the DPB are liable was made possible due to financial institutions requires Ringkjoebing household. This will take effect for their contribution, which is strengthening of the Krone. compliance with the stated Bank/Bonusbanken: from 2010. fixed by reference to each solvency demand, with which bank’s core capital. If existing On January 15, 2009 the Danish some financial institutions were Vestjysk Bank took over The financing will primarily come members are to withdraw from Central Bank followed the ECB having difficulties complying. Bonusbanken, which had lost all from higher taxes on the DPB, they are still liable until and cut the benchmark lending of its equity capital. The same contaminating environmental the end of a five-year notice rate by 50 basis points plus an This recent aid package gives day, Vestjysk Bank merged with activities. Denmark is thereby period. The liability can be additional 25 basis points, the Danish State authority to Ringkjoebing Bank, with the thought to enhance the use of collected by the executive bringing the rate down to 3.00%. inject DKK100 billion (c.€13 former being the continuing “green” energy. committee if the board of billion) in troubled financial company. representatives has decided to On March 6, 2009, the Danish institutions; DKK 75 billion take over a distressed company. Central Bank followed the ECB (c.€10 billion) to the banking Forstædernes Bank Such liabilities are earmarked to and cut the benchmark lending sector and DKK25 billion (c.€3 help distressed banks. Members rate by 50 basis points plus an billion) to the mortgage credit Nykredit Realkredit took over cannot be liable for more than additional 25 basis points, sector. Those figures are based Forstædernes Bank. their contribution commitment. bringing the rate down to 2.25%. upon the participation of all The rate cut narrowed the financial institutions that are in Spar Mors Up until October 13, 2008, interest rate differential need of capital. current DPB members could furthermore. Morsø Bank took over the elect not to be part of the The capital is provided as hybrid saving bank, Spar Mors. scheme and other banks, On April 3, 2009, the Danish core capital, which is defined as including Danish branches of Central Bank followed the ECB a loan provided by the State. Lokalbanken foreign banks, could join the and cut the benchmark lending The State requires an average DPB and thus the guarantee rate by 25 basis points, bringing interest rate on return of 10%. Handelsbanken took over
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES scheme. the current rate down to 2.00%. The individual interest rate is Lokalbanken. calculated individually with the The guarantee will cover Over a six month time period the rating of the financial institution EBH Bank creditors of the participating Danish Central Bank has cut the as a factor. banks including holders of benchmark lending rate by one The lLiquidation Company took senior unsecured debt. half from 5.50% to 2.00%, which Financial institutions that apply over EBH Bank since it was no Legislation, which has now been indicates a will to stimulate the for capital injections must have a longer capable of fulfilling the passed, has confirmed that both growth and to follow the lead of core capital percentage of 12% solvency demands set by the subordinated debt (Tier 1 and the ECB. afterwards. This obligation is to Danish FSA. Assets and Tier 2) and covered bonds are ensure a healthy financial liabilities of the distressed bank excluded from the guarantee The strengthening of the Krone sturdiness in order to withstand were transferred to the scheme. gave the Danish Central Bank losses in the years to come and Liquidation Company, who will room for this interest rate cut but to maintain a reasonable loan wind down the bank and its Banks participating in the an interest rate differential of portfolio. activities. guarantee scheme may not for 0.75% continues to exist the duration of the scheme (until between Denmark and the The Danish FSA, on March 26, Fionia Bank December 31, 2010 with a EURO-countries, mainly due to 2009, issued a statutory order possibility of prolongation): the Danish fixed exchange rate on application requirements etc. Fionia Bank and the liquidation policy in order to protect the This has opened up a previously company have entered a a. pay dividends; Krone. unknown option to convert the framework agreement regarding injected hybrid core capital to the transfer of the banking b. set up new share buy-back SWAP Agreements share capital at the request of activities in their present form to programs; the financial institution. The a newly established company. On September 29, 2008, the following requirements need to This company will be founded c. establish new share option Federal Reserve extended the be fulfilled for a financial and owned by Fionia Bank but programs or extend or renew bilateral SWAP line from US$5 institution to avail itself of this be controlled by the lLiquidation existing share option programs; billion to US$15 billion as well as option: Company. The shareholders will or prolonging the time-frame to remain in Fionia Bank. T April 30, 2009. a) the financial institution must d. give notice to wave the be in compliance with the The CEO of Fionia Bank scheme. On October 27, 2008, the solvency requirements set explained that the operation is Danish Central Bank and the out in the act and the not part of a liquidation, but a Furthermore, participating banks ECB established a bilateral Danish FSA must not strengthening of the bank’s must sign a statement SWAP line of €12 billion in order assess that there is an activities. authorising the scheme to sell to improve the liquidity of the obvious risk that such banking activities to a buyer Euro in the market. The bilateral compliance will not Fionia Bank realized that the designated by the scheme. agreement is currently in use continue; solvency requirement would be and will continue to exist as long too great if the bank continued in For the above mentioned as it is necessary. b) shares of the financial its original form. By transferring reason, some Danish branches institution must be listed on the banking activities and of foreign banks have elected On February 3, 2009, the a regulated market; receiving a capital injection of not to participate. Danish Central Bank and the DKK1 billion (c.€130 million), the Federal Reserve prolonged the c) the total hybrid core capital new bank should be able to existing temporary SWAP line of of the financial institution
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES US$15 billion until October 30, must represents more than continue its operations. 2009. 35% of its core capital; and The European Commission has d) voting rights and ownership stated that the framework restrictions must be agreement will not be approved cancelled. before the end of May 2009, so the Danish FSA has prolonged If the requirements in a-d are the deadline for Fionia Bank to met, the financial institution may meet the solvency demands. convert upon its request. 20% of the injected hybrid core capital Løkken Sparekasse can be converted at a time. A conversion can be repeated if The lLiquidation Company and the abovementioned the Savings Bank, Løkken requirements are still met. Sparekasse, have entered into a framework agreement because The largest bank in Denmark the savings bank was unable to (Danske Bank) has applied for a find a merger partner. DKK 26 billion (c.€ 3.4 billion) loan in state hybrid core capital. Subsequently, Nordjyske Bank Danske Bank fully owns the took over Løkken’s core mortgage credit institution, activities from the Liquidation Realkredit Danmark, which has Company. applied for a DKK 2 billion (c.€ 0.25 billion) loan. Gudme Raaschou
Danske Bank (the largest bank Assets and liabilities, excluding by capitalisation in Denmark) share capital and subordinated has in its application exercised capital, have been transferred to the option for the right to convert the Liquidation Company. The hybrid core capital to share winding down of Gudme capital upon its request. If the Raaschou is now to be option is exercised, the Danish executed. state may end up as shareholder in the bank for a value of DKK26 billion if the right to convert 20% at a time is exercised exhaustively.
The Danish Minister of Business and Economy has recently given a forecast of the Danish State’s ownership in national banks if the right to convert injected
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES hybrid core capital to share capital is fully exercised. This would lead to a State ownership of 66% of Danish banks, however the Minister states that that this scenario is highly unlikely and is not intended, thereby implying a potential sale of the shares to other investors.
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ESTONIA SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES The Government more than The Estonian Government has doubled its bank deposit agreed on a support package guarantee to €50,000 that involves almost doubling the (US$68,000) in line with other volume of state guarantees for European Union member states business loans, more than and introduced an investment doubling the volume of state pay-out guarantee up to 90% of export guarantees and various the investment to be paid out, options for state supported loan but not more than €20,000 per arrangements for exporting investor in one investment businesses as well as banks. company. The package is waiting for parliament approval.
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FINLAND SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES On December 12, 2008, the As of October 8, 2008, the The Government has set forth On October 20, 2008 financial Finnish Parliament approved the deposit guarantee limit was several amendments to the supervisors in Finland and Government’s proposal to increased from €25,000 to 2009 budget and has proposed Iceland endorsed an provide guarantees for credit €50,000. The higher limit shall that altogether €20 million will be arrangement to fund the instruments issued by banks or be valid at least until the end of allocated to equity-like financial deposits in the Finnish branch of bank holding companies. 2009. The Finnish Deposit instruments, in order to ensure Kaupthing Bank h.f. According to the proposal, Guarantee Fund protects that loans to Municipality guarantees can only be granted customers’ deposits in deposit Finance Plc (the only public Nordea Bank Finland plc, OP- to viable banks that meet all banks that have a license in sector owned credit institution in Pohjola Group and Sampo Bank solvency requirements. The Finland. Deposits in branch Finland) remain available for plc granted a fixed-term guarantees would be subject to offices of foreign banks acting in state-subsidized housing commitment to finance the market rates and may be drawn Finland are under the deposit production. deposits of all Finnish Kaupthing up to a total maximum of €50 guarantee of the home state of Bank depositors (about 10,000 billion. This temporary authority the relevant bank. On February 19, 2009, the customers) to the full extent to grant government guarantees Government submitted a including interest. This was a will remain in force until the end Branch offices of foreign banks proposal to Parliament for state market-based solution adopted of 2009. acting in Finland may apply for capital investment in deposit by the private sector, whereby an additional deposit guarantee taking banks. The state will offer the said banks will bear the The Government will assess by from the Finnish Deposit banks interest bearing commercial risk and credit risk April 30, 2009 whether a need Guarantee Fund in order to subordinated loans, which can involved in the settlement. The for further guarantees exists. cover a possible difference in be considered as banks' core decision did not alter the deposit the Finnish and foreign capital (Tier 1 capital). The protection principles in force in The guarantees and market- guarantee limit. However, in this subordinated loan will bear Finland. On October 24, 2008, based payments collected on case the maximum aggregate interest at a rate equalling the the Finnish Parliament granted a these instruments will be guarantee is the earlier limit interest-rate of the five-year state guarantee for the banks governed by the Act on State €25,000. Finnish Government bond plus 6 participating in the arrangement. Lending and State Guarantees percentage points. This guarantee covers claims for (449/1988). The guarantees will deposits to a maximum of be granted without financial Banks that take out a €115 million. collateral. subordinated loan commit themselves to paying interest The operations of Kaupthing The conditions for guarantees before distributing dividends. Bank hf., Finnish Branch, will include restrictions on banks' terminated with effect from top management pay systems. In addition, the conditions on January 30, 2009. The Branch subordinated loans include has repaid the above-mentioned restrictions applying to banks' loan. top management pay systems. Finland will contribute to a rescue package for Iceland together with Sweden, Denmark and Norway in aggregate $2.5 billion. The amount of the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Finnish contribution is approximately $ 450 million.
In Finland, Glitnir Bank Ltd is no longer part of the Icelandic Glitnir Bank h.f. group. The ownership of Glitnir plc transferred to the management of Glitnir Bank Ltd on October 14, 2008. Thereafter the bank decided on changing its name to FIM Bank Ltd and is now acting under a Finnish license.
The IMF Executive Board has approved a financial package for Latvia on December 23, 2008. The Nordic countries are prepared to lend €1.8 billion for Latvia, contingent on the successful implementation of the reform package. The amount of the Finnish contribution is approximately € 324 million.
On March 9, 2009, the Resolution Committee of the Icelandic Financial Supervisory Authority (FME) took control of the Icelandic securities company, Straumur-Burdaras Investment Bank hf, which owns the Finnish eQ Bank. According to the Finnish Financial Supervisory Authority, FME’s decision will not have an impact on the Finnish operations of eQ Bank or its subsidiaries nor their customers. On October 6, 2008, Finland’s Financial Supervision Authority issued a prohibition on any asset transfers out Finland by eQ Bank. This prohibition
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES remains in effect.
Various Financial Supporting Measures
On November 18, 2008, the Government proposed a corporate finance supporting package, including various measures to improve financing options especially for small- and medium-sized enterprises (“SME”). The proposal will increase financial resources for export companies by introducing a new refinancing model, where Finnish Export Credit Ltd in cooperation with domestic or international banks would grant long-term credit to Finnish exporters. The arrangement will be temporary, valid until the end of 2010 and worth €1.2 billion. In addition, the maximum liability for export securities granted by the State will be raised from €7.9 billion to €10 billion and the maximum amount of interest equalization agreements and offers will be increased from €5 to €6 billion. The tasks of the State’s specialized financing company, Finnvera plc, will be increased by granting it a right to gather assets for export finance where the maximum amount of unpaid debts contracted by Finnvera would be increased from €1.2 billion to €3.1 billion. Finnvera’s powers to grant new loans and guarantees will be increased to 600 million as the amount of unpaid debts will be €3.2 billion. The amendments to
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES the acts regarding these safeguarding measures were passed on December 30, 2008.
In addition, the Government will boost the authority of the Finnish Funding Agency for Technology Innovation for the environmental and energy sectors by €15 million to help implement demonstration projects. To promote the commercial paper market, the Ministry of Finance has decided to grant the State Pension Fund the right to a limited use of the assets in its possession to acquire commercial papers of significant and financially solid Finnish companies.
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FRANCE SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES On October 16, 2008, a new law Article L. 312-4 of the French The Ministry of Finance will use Commercial Paper & CDs was enacted aiming at “restoring Financial and Monetary Code an ad hoc investment vehicle, confidence in the financial and regulation n° 99-05 of the the Société de prises de As of October 15, 2008, trading banking system and ensuring Banking Commission participations de l’Etat (the in short-term commercial paper adequate financing of the (Commission Bancaire) provides “SPPE”) for recapitalization and certificates of deposit French economy”. that deposits are guaranteed by purposes. maturing in one year or less has a “deposit guarantee fund” up to been authorized on Euronext Under this new law, a new €70,000 per depositary, per The French State will guarantee Paris. Banks whose commercial government-backed entity financial institution. securities issued by the SPPE. paper is listed on a regulated (initially Société de The SPPE will then subscribe to market are thus eligible for Refinancement des Activités des If necessary, the French securities issued by financial short-term refinancing Etablissements de Crédit and Government is willing to extend institutions to strengthen their operations. renamed Société de the existing deposit guarantee capital ratios. Financement de l’Economie fund. Fair Valuation Financial Française or “SFEF” on According to the French Ministry Instruments November 6, 2008) has been of Finance, €40 billion out of the created. The French State owns €360 billion made available as On October 15, 2008, the 34% of its share capital, and the guarantees under the new law National Accounting Board remaining 66% is owned by should benefit the SPPE. (Conseil National de la financial institutions. Comptabilité), the French On October 20, 2008, the Financial Market Authority The SFEF will issue debt French Government announced (Autorité des Marchés securities guaranteed by the that France’s six largest banks Financiers), the Banking French State and then lend (BNP Paribas, Société Commission (Commission funds to financial institutions. Générale, Crédit Agricole, Crédit Bancaire) and the Insurance and Any financial institution Mutuel, Caisses d’Epargne, and Mutual Funds Supervisory operating in France may borrow Banques Populaires) would get Authority (Autorité de Contrôle funds through the SFEF, a total of €10.5 billion from the des Assurances et des provided it furnishes sufficient SPPE in exchange for issuing Mutuelles) issued a joint and adequate collateral and deeply subordinated debt recommendation on the fair signs an agreement with the securities without voting rights. valuation of certain financial French State (regarding inter On December 8, 2008, the instruments due to financial alia commitment to use the European Commission gave the market turbulence. funds made available to finance green light for the French individuals, companies and local capitalization measures. On or On April 28, 2009, the French public entities and regarding around December 11, 2008, the Minister of Economy and the good corporate governance subscription of the President of Paris Europlace practices). abovementioned debt securities declared that the International was launched. Accounting Standards Board This system does not provide a (IASB) should modifiy the fair guarantee of inter-bank debts On January 29, 2009, the value accounting regime. per se but allows the SFEF to European Commission gave the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES inject liquidity into the inter-bank green light for a second tranche Credit Mediation debt market and financial of French capitalization institutions to refinance measures. This second tranche In order to benefit from SFEF themselves. will amount to €11 billion worth loans, the participating banks of preference shares or hybrid have committed themselves to Moreover, on an exceptional securities. respecting an annual growth basis and in particular in objective of their outstanding emergency cases, the French On April 7, 2009, the French loans situated between 3 and State may directly guarantee State became the primary 4%, depending on the bank securities issued by financial shareholder of BNP Paribas with networks, until the end of institutions, provided that the 17.03% of the share capital after December 2009. French State is assured the subscription by the SPPE of sufficient collateral. preference shares (without The French State will ensure voting rights) for an amount of these undertakings are kept and The State guarantee will be €5.1 billion. will make public, on a monthly made available at commercial basis, the amount of outstanding rates for debt securities issued loans of the participating banks. by the SFEF or, in emergency Beyond the global follow-up of cases, by financial institutions in the commitment undertaken by distress, before December 31, the banks, the French state shall 2009, and with maturities of up oversee that the measures that to five years. are adopted are then properly implemented in the field, in All the guarantees made particular at the level of the available by the new law corporations. (including the recapitalization measures and the Dexia Group The French President has guarantee program) shall not appointed a “credit mediator” exceed €360 billion. According with the minister of economy, to the French Ministry of industry and employment. Finance, €320 billion will benefit the SFEF and Dexia. A corporation that is facing a financing or cash problem and On October 23, 2008 and on that cannot find a solution may October 30, 2008, the French refer the matter to the mediator. Government guaranteed the The mediator has already debt securities issued or those received 1,200 corporation to be issued by the SFEF for a requests, 600 of which are maximum amount of €5 billion already under investigation with and €25 billion, respectively. a possibility of mediation.
On January 14, 2009, the Regional commissions for the French Government granted its financing of the economy guarantee in relation with US (commissions départementales
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES dollar-denominated debt de financement de l’économie) securities to be issued by the have been set up by the prefects SFEF before April 30, 2009, in (préfets) and ensure the follow- an amount of US$ 10 billion. up of the financing of the economy in the field, with the On February 6, 2009, the local economic organizations. French State issued a first demand guarantee to the SFEF Strategic Investment Fund for the issuance of up to €30 billion and US$ 20 billion worth On November 20, 2008, the of debt securities. French State created the Strategic Investment Fund or Since its incorporation, the SIF (Fonds Stratégique SFEF has raised €35 billion and d’Investissement) which is a US$18.5 billion worth of debt French public limited company securities respectively. (société anonyme) endowed with €20 billion. This figure includes existing stakes of the French State in French companies for a value of €7 billion (interests in France Télécom, Aéroports de Paris and the ex-Chantiers de l’Atlantique). Currently, the SIF has approximately €1 billion to invest and this will eventually rise to €6 billion (Source L'Expansion, April 2, 2009).
The SIF invests in equities to promote the development of selected companies, both small and medium-sized. It also participates in the stabilization of the share capital of some large French companies.
The SIF has invested in mid- sized companies (investment of €4.2 million, €20 million in Led to Lite (lights and light bulbs) and Farinia (subcontractor in the automotive industry), respectively) and large
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES companies (investment of €19 million and €80 million in Daher (subcontractor in the defense and nuclear sectors) and Valéo (subcontractor in the automotive industry), respectively). The SIF is considering investing in Technip (oil), Thomson (industry and defense) and Heuliez (car- body making).
Corporate Governance (Decree no. 2009-348 of March 30, 2009)
Companies that have received government bailout funds, including car-makers or banks that have issued shares, preference shares or subordinated securities subscribed for by the SPPE must enter into agreements (or amend existing agreements) to ban the allocation of stock options and shares to their chairmen and directors. Stock options and shares issued prior to the implementation of this decree are not caught. Any variable compensation must be approved by the Board for a maximum period of one year and is subject to pre-determined quantitative and qualitative performance criteria which are not linked to the share price. In addition, such companies shall not distribute variable compensation where they have reduced their workforce by a considerable amount. This decree also forces the Board to publicly disclose its decisions on
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES bonus payments.
State-controlled companies must apply “high ethical standards” to their governance, particularly with regard to compensation. Severance packages for executives of state-controlled companies are only permitted where the executives are forced to leave the company and are limited to two years of salary. They are forbidden where the company is going through “serious economic difficulties” or if the departing executives have not met pre- established performance criteria. The SIF must take these principles into account when investing in listed companies.
This decree applies until December 31, 2010.
On April 23, 2009, the Prime Minister announced the preparation of a draft law, to be voted on by the Parliament in the fall of 2009, with the objective of putting into place a specific tax regime on special retirement plans (retraites- chapeaux).
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GERMANY SPECIAL CENTRAL BANK RECAPITALIZATION ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES General On October 5, 2008, the See “Other Measures”. Under the Stabilization Act, Aareal Bank SoFFin may purchase selected German Government an amount of up to €70 billion assets from financial sector On October 18, 2008, the German announced that it will ensure the (which can be increased by SoFFin will strengthen the capital companies. Access to such Financial Market Stabilization Act repayment of bank deposits with another €10 billion) is basis of Aareal Bank AG with a silent measures is subject to certain (Finanzmarktstabilisierungsgesetz) German banks. Such available to recapitalize banks participation (Tier I instrument) in conditions to be fulfilled by the (the “Stabilization Act”) came into guarantee is understood to be a where necessary in the form Aareal Bank of €525 million. The financial sector company. So force. The Stabilization Act “political guarantee” in addition of equity, UT2 instruments or instrument has a coupon of 9% p.a. In far we understand that due to authorized a €500 billion financial to the statutory and industry silent participations (similar to addition, SoFFin will guarantee debt valuation issues and certain rescue package and created a deposit insurance schemes. preferred shares). In return instruments in a volume of up to €4 unclear legal aspects such public Financial Market There will be no additional for recapitalization, the billion. possibility has not been used in Stabilization Fund (Finanzmarkt- legislation to support such SoFFin will take an equity or practice. stabilisierungsfonds) (“SoFFin”)2, “political guarantee”. quasi-equity stake in the BayernLB which is administrated by the relevant bank, and further On April 21, 2009, the Federal Financial Market Stabilization Proposed New Legislation conditions may be imposed. On November 28, 2008, BayernLB Government issued legislation Agency (Finanzmarktstabilisie- announced its application for to facilitate the clean up of rungsanstalt; the “Agency”). On February 18, 2009, the The Stabilization Act also guarantees up to €15 billion from financial sector companies' Federal Government agreed on revises various aspects of the SoFFin. Additionally, the owners of balance sheets from toxic Effective April 9, 2009, the draft legislation regarding corporate and takeover law to BayernLB (the Free State of Bavaria assets. A draft bill is expected Stabilization Act was amended by amendments to the German facilitate and accelerate the and the Association of Bavarian for mid-May 2009. the Supplementary Financial Deposit Protection and Investor recapitalization of financial Saving Banks) sought recapitalization Markets Stabilization Act Compensation Act sector companies. measures in an aggregate amount of Nationalization of Financial (Finanzmarktstabilisierungs- (Einlagensicherungs- und €10 billion, which will be borne by the Sector Companies ergänzungsgesetz).1 Anlegerentschädigungsgesetz). Access to the recapitalization owners (€7 billion) and the SoFFin measures is subject to certain (€3 billion). In addition, an ABS On April 9, 2009, the Rescue Stabilization Measures With the new legislation, among conditions to be fulfilled by investment portfolio will be covered Takeover Act others, the proposed the financial sector company with €6 billion, of which €4.8 billion will (Rettungsübernahmegesetz) Via SoFFin, three main types of amendments to the EU Directive applying for the be guaranteed by the Free State of came into force as part of the measures may be granted on an on Deposit-guarantee Schemes recapitalization measures, Bavaria. On December 8, 2008, the Supplementary Financial application by a German financial (94/19/EC) shall be transposed including sound business European Commission approved the Markets Stabilization Act. sector company (including banks into German law. Under the new policies, undertakings with recapitalization measures. On January Under the Rescue Takeover and insurers): legislation, the existing statutory respect to the supply of loans 15, 2008, Bayern LB issued a Act the Federal Government minimum cover for deposits of to small- and medium-sized government-guaranteed bond with a has the right to expropriate ▪ recapitalization of companies in €20,000 shall successively be enterprises, adequate volume of €5 billion. The bond has a shareholders of financial sector the financial sector; increased. From June 30, 2009, compensation caps for the maturity of three years and a coupon companies and owners of deposits shall be covered up to members of the management of 2.75% p.a. regulatory capital instruments ▪ guarantees of debt instruments an amount of €50,000, and from board (an individual in such companies. Among and liabilities, each with a maturity December 31, 2010 up to an compensation of more than Commerzbank others, the Government may of up to 36 months (in exceptional amount of €100,000. The €500,000 is deemed to be nationalize shares and own cases up to 60 months), to provide existing deductible of the inadequate), and restrictions On November 3, 2008, Commerzbank funds instruments (Bestandteile companies in the financial sector depositor of 10% shall be on the payment of dividends. announced that it had entered into an der Eigenmittel) in financial access to liquidity and facilitate the repealed. agreement with SoFFin according to sector companies and its refinancing in the capital markets; The German recapitalization which SoFFin will provide subsidiaries, and receivables or
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SPECIAL CENTRAL BANK RECAPITALIZATION ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES and scheme was approved by the Commerzbank with capital in the form financial instruments owned by European Commission on of silent participation instruments (Tier financial sector companies and ▪ the purchase by the SoFFin of October 27, 2008, as 1 eligible) of €8.2 billion (increasing its subsidiaries. An selected assets.3 modified by a communication Commerzbank’s core capital ratio (Tier expropriation shall only be from the Commission on 1) to 11.2%) and guarantees for the permissible as ultima ratio Guarantees December 5, 2008. With issuance of debt instruments of up to measure to preserve the respect to the consideration, €15 billion. On December 13, 2008, stability of financial markets The SoFFin may guarantee debt the European Commission the European Commission confirmed and against payment of an instruments and liabilities, each established an indicative that the terms of the Commerzbank adequate compensation as with a maturity of up to 36 months, corridor for interest rates of recapitalization are in line with the further defined in the Rescue issued by financial sector 7% on preferred shares with Commission’s requirements for an Takeover Act. The right to companies after October 17, 2008 features similar to those of adequate compensation. initiate expropriation measures and before December 31, 2009. In subordinated debt and an shall expire on June 30, 2009. exceptional cases the maturity of average rate of return of 9.3% Commerzbank has agreed to pay to the guaranteed liabilities may be on ordinary shares for the SoFFin a coupon of 9% p.a. on the Economic Stimulus Package up to 60 months, provided that the recapitalization of silent participation, plus a step-up in II amount of guaranteed liabilities fundamentally sound banks. years in which Commerzbank pays a with a maturity of more than 36 dividend. The silent participation is On February 20, 2009, a months is limited to one third of all On April 9, 2009, the expected to qualify as Tier 1 capital. number of various economic liabilities guaranteed by SoFFin. Supplementary Financial For the guarantee Commerzbank has stimulus measures known as Markets Stabilization Act to pay a commitment fee of 0.1% p.a. Economic Stimulus Package II Guarantees shall expire no later amended, among others, the on the undrawn facilities. A fee of (Konjunkturpaket II) have been than December 31, 2012. An Stabilization Act, and further 0.5% p.a. will be charged on adopted by the German aggregate amount of €400 billion modified German corporate guaranteed interest-bearing debt Parliament. Part of such is available for such guarantees. and takeover law to facilitate securities issued with a maturity of up package is a loan and recapitalization measures. to 12 months. Maturities over one year guarantee program in an Guarantees shall generally be will be subject to a fee of aggregate volume of €100 issued in the form of guarantees approximately 0.95% p.a. billion mainly targeted to on first demand (Garantie auf companies outside of the erstes Anfordern) and shall On January 8, 2009, Commerzbank financial sector. The program generally only be granted if the announced that SoFFin intends to supplements a prior program concerned financial sector provide additional equity totaling €10 known as Economic Stimulus company is equipped with billion. By means of a capital increase, Package I consisting of 15 adequate funds (angemessene Commerzbank will issue approx. 295 different elements and a Eigenmittelausstattung). According million ordinary shares to SoFFin at a volume of €32 billion. to SoFFin, a core capital ratio of price of €6 per share. After closing of 8% is considered adequate. the transaction, SoFFin will hold 25% plus one share in Commerzbank. In SoFFin shall receive adequate addition, SoFFin will provide additional consideration for the granting of capital to Commerzbank in the form of guarantees, which will generally a second silent participation of €8.2 consist of a certain percentage of billion. The terms of the silent the maximum guarantee amount participation will be similar to those reflecting the default risk plus a
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SPECIAL CENTRAL BANK RECAPITALIZATION ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES margin.4 offered in December 2008.
The scheme does not provide On January 9, 2008, Commerzbank German banks with a blanket placed the first government- guarantee, but rather permits guaranteed bond in Germany. The SoFFin to issue guarantees on a benchmark bond has a volume of €5 case-by-case basis. billion. The bond has a maturity of three years and a coupon of 2.75% As of March 2009, the total volume p.a. of guarantees committed by SoFFin for debt instruments of Corealcredit Bank: individual banks amounted to On April 23, 2009, Corealcredit Bank approximately €180 billion. announced that SoFFin has decided to guarantee debt instruments in an amount of up to €500 million.
HSH Nordbank
On November 21, 2008, HSH Nordbank and SoFFin entered into an agreement according to which SoFFin will provide HSH Nordbank with liquidity guarantees of up to €30 billion. On January 12, 2009, the bank placed a government-guaranteed bond with a volume of €3 billion. The bond has a maturity of 3 years and a coupon of 2.75% p.a.
According to press articles, the SoFFin declined to provide HSH Nordbank with additional assistance measures. According to such press articles, HSH Nordbank has not fulfilled SoFFin's requirement for assistance measures including a core capital ratio of 7% and did not provide a satisfactory business plan for its future strategy.
The City of Hamburg and the Government of Schleswig-Holstein agreed to provide HSH Nordbank with €3 billion of fresh capital and guarantees amounting to up to €10
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SPECIAL CENTRAL BANK RECAPITALIZATION ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES billion.
According to press articles in March 2009, HSH Nordbank has filed a new application with SoFFin for the issuance of guarantees in the amount of €10 billion.
Hypo Real Estate
For information on the special emergency liquidity support package, see “Other Measures”.
On October 29, 2008, Hypo Real Estate announced that it plans to submit an application to SoFFin for additional comprehensive support, including potential recapitalization measures. Such announcement was repeated on December 9, 2008.
On November 21, 2008, SoFFin granted to Hypo Real Estate Group a framework guarantee in an amount of €20 billion to cover the issuance of debt securities maturing by January 15, 2009. On December 9, 2008, this guarantee framework was increased by €10 billion to an aggregate amount of up to €30 billion. On January 12, 2009, SoFFin extended its framework guarantee in the total amount of €30 billion until April 15, 2008. The pro- rata commitment fee remains unchanged, and the fee for guarantees drawn will be 0.5% p.a. On January 20, 2009, SoFFin extended its framework guarantee to Hypo Real Estate by an additional €12 billion to the aggregate guarantee amount of €42 billion. Hypo Real Estate can use the additional guarantees to cover the issuance of debt securities maturing
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SPECIAL CENTRAL BANK RECAPITALIZATION ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES by June 12, 2009. The Group will pay to SoFFin a pro-rata commitment fee of 0.1% of the undrawn portion of the framework guarantee. The fee for guarantees drawn will be 0.5% p.a.
On February 11, 2009, SoFFin extended its framework guarantee to Hypo Real Estate Group by an additional amount of €10 billion until June 12, 2008.
On March 17, 2009, the German Government extended its guarantee for notes issued by Hypo Real Estate Group until December 31, 2009.
On March 28, 2009, SoFFin announced its participation in a capital increase of Hypo Real Estate Holding AG under authorized capital. SoFFin will subscribe for 20 million new shares in an aggregate amount of €60 million (corresponding to 8.7% of the issued capital of Hypo Real Estate Holding AG).
In addition, SoFFin issued a declaration of intent to Hypo Real Estate Holding AG and Hypo Real Estate Bank AG, according to which SoFFin will implement measures to achieve a sufficient recapitalization of Hypo Real Estate Holding AG and will extend further guarantees.
On April 14, 2009, SoFFin extended all existing guarantees granted to the HRE Group until August 19, 2009.
On April 17, 2009, SoFFin issued a public tender offer to the shareholders of HRE Holding AG, according to which it offers to pay €1.39 per share
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SPECIAL CENTRAL BANK RECAPITALIZATION ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES for the acquisition of shares in HRE Holding AG. SoFFin aims to hold 100 per cent of the shares of HRE Holding AG. The offer period expired on May 4, 2009.
On June 2, 2009, an extraordinary general meeting of HRE Holding AG shall decide on a capital increase of up to €5.64 billion. The new shares shall be issued to SoFFin, and the subscription right of other shareholders shall be excluded. After the capital increase, SoFFin is expected to hold more than 90% of the shares in HRE Holding AG.
IKB Deutsche Industriebank AG
On December 22, 2008, SoFFin authorized guarantees to IKB in an amount of up to €5 billion to guarantee the repayment of bonds to be issued by IKB. On January 19, 2009, the bank placed a government-guaranteed bond with a volume of €2 billion. The bond has a maturity of 3 years and a coupon of 2.875% p.a.
LBBW
LBBW is looking into a guarantee framework of between €15 to 20 billion to be provided by SoFFin or the owners as a funding reserve. In addition, the owners of LBBW are expected to participate in an envisaged capital increase of €5 billion.
Nord/LB
On February 10, Nord/LB issued a bond in a volume of €2 billion and a
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SPECIAL CENTRAL BANK RECAPITALIZATION ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES term of five years, which is guaranteed by the federal state of Lower Saxony. The bond has a spread of 70 basis points above midswaps and is subject to a nominal interest rate of 3.50%.
Sicherungseinrichtungsgesellschaft deutscher Banken
SoFFin guaranteed a bond in the volume of €6.7 billion issued by the Sicherungseinrichtungs-gesellschaft deutscher Banken mbH (protection company of German banks, “SdB“). The SdB was set-up by German private banks to provide the German deposit insurance and investors protection schemes with a loan to compensate customers of the German banking subsidiary of insolvent Lehman Brothers.
VW-Bank, GMAC-Bank
According to press articles, VW Bank GmbH, the banking subsidiary of German car maker Volkswagen AG, will receive guarantees by SoFFin of up to €2 billion. VW Bank GmbH is the first banking subsidiary of car producers in Germany to receive SoFFin support.
According to press articles GMAC Bank, the banking subsidiary of General Motors, applied to SoFFin for the issuance of guarantees for bank debt. According to press articles, further banking subsidiaries of German car makers are investigating similar applications to SoFFin.
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SPECIAL CENTRAL BANK RECAPITALIZATION ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES WestLB
WestLB has applied for guarantees in an aggregate amount of between €10 billion and €20 billion to cover the issuance of debt instruments.
Other Institutions
According to SoFFin, approximately 20 banks and one smaller insurer have applied to SoFFin for assistance measures. Several financial institutions have confirmed that they are investigating whether to apply for assistance measures from SoFFin.
1 On October 17, 2008, the Stabilization Act was published in the Federal Law Gazette (Bundesgesetzblatt) (BGBl. I, p. 1981). The main purpose of the Stabilization Act is to restore and sustain confidence and liquidity in the German financial market. The details and terms of conditions of such stabilization measures are set out in the Regulation regarding the Implementation of the Financial Markets Stabilization Fund Act (Finanzmarktstabilisierungsfonds-Verordnung; “Stabilization Fund Regulation”), which was released by the Federal Government under the Stabilization Act on October 20, 2008, and which came into force as of the same date. On March 20, 2009 the German Parliament (Bundestag) and on April 3, 2009 the Chamber of Federal States (Bundesrat) approved the Supplementary Financial Markets Stabilization Act (Finanzmarktstabilisierungsergänzungsgesetz). It amends, among others, the Stabilization Act and makes several adjustments, clarifications and simplifications to the current framework for assistance measures. The bill is expected to come into effect within the second week of April 2009, after its execution by the German Federal President and its publication in the Federal Law Gazette. This publication reflects already the law as applicable under the Supplementary Financial Markets Stabilization Act. The Supplementary Financial Markets Stabilization Act came into effect on April 9, 2009. 2 The SoFFin is set up as a special fund (Sondervermögen) of the German Federal State without its own legal personality (nicht rechtsfähig). The German Federal State is directly liable for the liabilities of the SoFFin. The Ministry of Finance will be given a broad spectrum of powers to determine the eligibility of institutions (who should be deemed to be integral to the financial system) to participate in the scheme. 3 In addition, there are ongoing discussions as to whether the German Government should set up a "Bad Bank" in order to purchase toxic assets from banks and other financial institutions. A draft bill is expected for mid-May,2009. 4 The German authorities have given a commitment to the European Commission that they will require a provision premium of 0.5%, plus, in all cases of debt instruments and other liabilities with a term of more than one year, a risk premium corresponding to the individual financial institution’s credit default swap spread, being not less than the median of the financial institution’s five-year credit default swap spread between January 1, 2007 and August 31, 2008 and which is not less than the amount specified in the recommendations of the European Central Bank of October 20, 2008, i.e., 0.5% plus the credit default swap spread.
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GREECE3 SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Issuance Guarantee Law 3714/7.11.2008 “For the Securities Lending Facility Preference Shares Small and Very Small protection of borrowers”, Businesses The Enhancement Liquidity Law provides that the Greek The Enhancement Liquidity Law The Enhancement Liquidity Law (No 3723/2008) provides that, in Government will increase the provides that Greek State Bonds provides that the Greek Greek banks participate in the return for appropriate fees and protection given to savings from of up to €8 billion and three Government will underwrite up program proposed by the Credit collateral (as specified by the €20,000 to €100,000. years of maturity may be issued to €5 billion of preference Guarantee Fund for Small and central Bank of Greece and the until December 31, 2009 and shares, the specific terms of Very Small Enterprises (the Ministry of Finance)1, the Greek The extended guarantee is set lent to banks in return for which are determined by a “Fund”)2 for enhancing the Government will guarantee up to to expire on December 12, appropriate fees and collateral decision of the Ministry of liquidity of small enterprises, by a maximum of €15 billion for 2011. (to be specified by the central Finance.1 the issuance of loans for loans that are concluded until Bank of Greece and the Ministry working capital, 80% of which is December 31, 2009 (with a of Finance).1 Eligible banks are banks guaranteed by the Fund, with an maturity of three months to three licensed by the Bank of Greece, interest rate of Euribor+2,1, years). The banks must meet The banks must meet the capital including cooperative banks, subsidized by the Fund as well, the capital adequacy ratios set adequacy ratios set by the Bank regardless of whether they are under the following terms: by the Bank of Greece in order of Greece in order to benefit listed or not. to benefit from this program. from this program. (a) the loan should not exceed The general assemblies of the €350,000 and should have a The Greek Government will Pursuant to a relevant participating banks must resolve three-year duration; have the right to participate in agreement to be concluded (irrevocably) the share capital the board of directors of each of between the Greek State and increase by February 1, 2009, (b) the loans cannot exceed participating banks, through a each bank, the Bonds must be by the issuance of preference 30% of the average turnover of representative who may be returned to the Greek shares. The price of issuance of the company for the last three appointed as an additional Government upon their the shares (of each bank) must years; member to the Board. This expiration and cancelled. be the nominal value of the member shall have veto rights common shares of the last (c) the eligible companies must as regards decisions (either of The banks that participate in this issuance of each bank. The have profits before amortizations the Board or the General scheme must use the funds from Greek Government will for the last three years; and Assembly) for the distribution of the disposal of the Bonds to subscribe for the new shares by profits, the wages or the provide competitive housing and December 31, 2009. (d) the banks will not require any granting of any kind of benefits SME loans. guarantees for the remaining to members of the board, the The preference shares must be unsecured 20% of the capital. managing director or senior redeemed by the banks, at the executives and their deputies, issuance price, within five years The above program is also either upon instruction of the (but no sooner than July 1, applicable to already issued Minister of Finance or in case he 2009) following the approval of loans under the condition that considers that such decision the Bank of Greece. the banks waive off all other endangers the rights of securities given by the depositors or materially affects In case the banks cannot companies. the solvency and the operation redeem the preference shares, of the bank. due to their inability to meet the In April 2009 the second phase capital adequacy ratios set by of the program was launched
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES In any case, the aforementioned the Bank of Greece, the shares and the following terms of the benefits must not exceed the may be converted to common or program were amended: total of the wages of the other category of shares, by Governor of the Bank of Greece. virtue of a decision of the (a) the loans should not exceed Additional benefits, such as Ministry of Finance following the €125,000; bonuses, are cancelled opinion of the Governor of the throughout the duration of the Bank of Greece. (b) the eligible companies must program and, for the same have positive results on average period, the distribution of The preference shares, which for the last three years (2005, dividends must not exceed 35% are vested with a voting right to 2006, 2007); and of the net profits of the bank, the general assembly of the which is the minimum set by holders of preferred shares, (c) the interest rate of law. cannot be transferred further by Euribor+2,1, is no longer the Greek State to any third subsidized by the Fund. The above guarantees may also party and cannot be listed in be used to finance enterprises organized markets. vital to the development of the country. The preference shares carry a 10% fixed rate of interest on the subscription capital and have all characteristics as to be included in the equity of each bank.
The Greek Government, as a holder of preferred shares, will have the right to participate in the board of directors of each of the participating banks through a representative who may be appointed as an additional member to the Board. This member shall have veto rights as regards decisions (either of the Board or the General Assembly) for the distribution of profits, wages or the granting of any kind of benefits to members of the board, the managing director or senior executives and their deputies, either upon instruction of the Minister of Finance or in case he considers that such decision endangers the rights of depositors or
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES materially affects the solvency and the operation of the bank.
In any case, the aforementioned benefits must not exceed the total of the wages of the Governor of the Bank of Greece. Additional benefits such as bonuses are cancelled throughout the duration of the program, whereas for the same period, the distribution of dividends must not exceed 35% of the net profits of the bank, which is the minimum set by law.
Further, upon liquidation of a bank, the Greek State, as a holder of preference shares, has priority over the liquidation proceeds against all other shareholders.
1 The Ministry of Finance, taking into consideration (a) the provisions of the Enhancement Liquidity law, (b) the relevant reports of the Governor of the Bank of Greece, and (c) the European Commission’s communication paper No 2008/C 270/02 “The application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis”, has issued the Ministerial Decision No 54201/B 2884 with the following provisions: A. Preference Shares: The €5 billion state aid by way of participation in capital increase and the subscription of preference shares shall be allocated to the eligible credit institutions after taking into consideration the following criteria: (i) the capital adequacy requirements for each credit institution (namely, Tier 1 must be between 8% and 10%) (such criterion weights 0,5 of the overall criteria); (ii) the market share of each credit institution and its role to the financial stability (such criterion weights 0,4 of the overall criteria); and (iii) the attribution of each credit institution to the housing and SME loans (such criterion weights 0,1 of the overall criteria). The value for the subscription of preferred shares shall be the nominal value of the common shares of the credit institution as at the most recent issuance of shares of such credit institution and shall be covered by Greek State Bonds and shall bear Euribor interest rate. Such shares may be repurchased at their initial issuance value either by exchange with Greek State Bonds or their cash equivalent. Where the State’s subscription is covered by Greek State Bonds a bilateral agreement will be executed between the credit institution and the Greek State. B. Issuance Guarantee: The guarantee of up to a maximum of €15 billion for bank credit will be given to credit institutions that will submit their petition until December 31, 2008 and each petition shall be restricted to the proportion of the guarantee to which each credit institution is entitled. The aforementioned guarantee does not cover interbank deposits. Such guarantee will be granted either with or without collateral as determined in the Ministerial Decision. Such collateral is blocked throughout the guarantee and is monitored for each credit institution separately by the Bank of Greece. The annual fees for the guarantee, pursuant to the standards set by the European Central Bank shall be of 50 base units (if no collateral is given) or 25 base units (if collateral is given). The €15 billion guarantee shall be allocated to the eligible credit institutions after taking into consideration the following criteria: (i) the liquidity status of the credit institution and in particular the risk that its capital adequacy may be compromised; (such criterion weights 0,5 of the overall criteria);
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(ii) the market share of each credit institution and its role to the financial stability (such criterion weights 0,3 of the overall criteria); (iii) the size and duration of the credit institution’s liabilities on December 31, 2009 (such criterion weights 0,1 of the overall criteria); and (iv) the attribution of each credit institution to the housing and SME loans (such criterion weights 0,1 of the overall criteria). C. Securities Lending Facility: the Bonds are of no interest rate, are listed in the Athens Exchange and are issued in lots of €1,000,000 each. They are issued at their nominal value and transferred in return for collateral to the credit institutions by virtue of a bilateral agreement executed between the credit institution and the Greek State. The credit institutions must pay the same fees as for the Issuance Guarantee Scheme. Apart from the provisions of the Enhancement Liquidity Law, the credit institutions must use the funds as collateral to refinancing or fixed facilities from the European Central Bank and/or as collateral for interbank financing for liquidity reasons. The Bonds shall be allocated between the financial institutions under the following criteria: (i) the liquidity status of the credit institution and in particular the risk that its capital adequacy may be compromised; (such criterion weights 0,5 of the overall criteria); (ii) the activity of the credit institution in money markets and its ability to reallocate stability (such criterion weights 0,3 of the overall criteria); (iii) the size and duration of the credit institution’s liabilities until December 31, 2009 (such criterion weights 0,1 of the overall criteria); and (iv) the attribution of each credit institution to the housing and SME loans (such criterion weights 0,1 of the overall criteria). The credit institutions that will participate in either of the above schemes shall report quarterly to the Bank of Greece on the use of the funds. In its turn, the Bank of Greece reports accordingly the Supervisory Board that is constituted with the same Enhancement Liquidity Law for the purpose of monitoring the overall use of the State aid by the credit institutions. The Issuance Guarantee funds and the Securities Lending Facility funds may be re-allocated pursuant to a relevant decision of the Ministry of Finance and following the recommendations of the Governor of the Bank of Greece, depending on the level of the needs and the absorbency of each program, but shall not in any case exceed the maximum of €23 billion. D. Collateral provided by the participating Banks in the Issuance Guarantee Scheme and the Securities Lending Facility to the Bank of Greece: (i) all collateral accepted by the Central European Bank (as described in the Currency Policy Council Act 54/2004), as in force; (ii) foreign currency Greek State Bonds; (iii) up-to-date loans to companies, not operating in the financing sector, already assessed by the Bank of Greece eligible External Credit Assessment Institutions; (iv) up-to-date loans to companies guaranteed by the Greek State or by a legal entity that it is of acceptable credit standing pursuant to the provisions under (iii) above; (v) up-to-date loans to maritime companies that satisfy the criteria set in an Act of the Governor of the Bank of Greece (No. 2589/20.8.2007); and (vi) up-to-date housing loans to individuals granted with securities (A class mortgage or prenotation of mortgage) or B class mortgage or prenotation of mortgage provided that the A class prenotation is in favor of the same credit institution. 2 Credit Guarantee Fund for Small and Very Small Enterprises (TEMPME) is a société anonyme, licensed by the Bank of Greece as a financial institution and aims to support small and very small enterprises by providing guarantees and counter-guarantees and undertaking part of their financial and commercial risk. 3 According to recent press articles, the Greek State may implement a further State Aid package of around €15-20 billion to support the liquidity of Greek credit institutions’ subsidiaries operating abroad and particularly in Southeast Europe. 4 The Ministry of Finance promotes measures for the protection of the enhancement liquidity scheme by virtue of an amendment to the Enhancement Liquidity Law to be submitted to the Greek Parliament. According to statements made to the press by the Minister of Finance, the credit institutions participating in the scheme will not be allowed to distribute dividends in cash for the financial year 2008. They will be able, if they so wish, to pay dividends in shares. Furthermore, they will not be allowed to acquire their own shares. 5 According to recent press releases, the Ministry of Finance intends to re-examine the implementation criterion under (c) regarding the program for Small and Very Small Enterprises due to the unwillingness of the credit institutions to grant loans to SMEs under the guarantee of the Fund.
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HONG KONG1 SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES On October 14, 2008, following Hong Kong joined the growing On October 14, 2008, the On September 30, 2008, the a run on the Bank of East Asia, number of countries easing their financial secretary pledged that HKMA announced five the first bank run in more than a monetary policy, when on HKMA would establish a temporary measures for decade, the Hong Kong October 9, October 30 and Contingent Bank Capital Facility providing liquidity assistance to Monetary Authority (“HKMA”) December 17, 2008, the HKMA for the purpose of making licensed banks in Hong Kong. announced it will use the cut its base rate (“Base Rate”), available additional capital to The measures were effective Exchange Fund2 to guarantee which now stands at 0.5%. locally incorporated licensed from October 2, 2008 until the the repayment of all customer banks, should this become end of March 2009. deposits held with all Authorized The HKMA has also announced necessary. This measure will Institutions3 in Hong Kong the adjustment to the remain in force until the end of The five temporary measures following the principles of the methodology for determination 2010. announced on September 30, existing Deposit Protection of the Base Rate. Prior to the 2008 were as follows: Scheme, but including adjustment, the Base Rate was Restricted-License Banks and set at either 150 basis points (1) the eligible securities, for Deposit-Taking Companies as above the prevailing US Federal access by individual licensed well as Licensed Banks.4 Funds Target Rate (FFTR) or banks to liquidity assistance the average of the five-day through the Discount Window,8 The guarantee applies to both moving averages of the will be expanded to include US Hong Kong-dollar and foreign- overnight and one-month dollar assets of credit quality currency deposits with HIBORs6, whichever was higher. acceptable to the HKMA. Authorized Institutions in Hong After the adjustment, the spread Kong, including those held with of 150 basis points above the (2) the duration of liquidity Hong Kong branches of prevailing FFTR was reduced to assistance provided to individual overseas institutions, until the 50 basis points. In addition, the licensed banks through the end of 2010. It will cover the other leg relating to the moving Discount Window will be amount of deposits in excess of averages of the relevant extended, at the request of that protected under the Deposit interbank interest rates (the individual licensed banks and on Protection Scheme.5 “HIBOR leg”) was removed from a case-by-case basis, from the formula with the effect from overnight money only to October 9, 2008 until the end of maturities of up to three months. March 2009. (3) the 50% threshold for the On March 26, 2009, the HKMA use of Exchange Fund paper as announced that it has decided collateral for borrowing through that the smaller spread of 50 the Discount Window at the basis points will be retained, and Base Rate will be raised to that the HIBOR leg will be 100%. In other words, the 5% reinstated after the end of March premium over the Base Rate for 2009. the use of Exchange Fund paper beyond the 50% threshold, as On December 8, 2008, the Hong collateral for borrowing through Kong Government announced the Discount Window, will be
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES that it would provide up to HK$ waived. 100 billion in loan guarantees for small and medium enterprises (4) the HKMA will, in response (“SMEs”). to requests from individual licensed banks and when it The maximum loan amount for considers necessary, conduct each enterprise will be HK$ foreign exchange swaps 6 million, with HK$ 3 million (between the US dollar and HK being revolving credit. The loan dollar) of various durations with can be used for a wide range of licensed banks. purposes7 and all firms, except listed companies, can apply for (5) the HKMA will, in response such guarantee. The loan to requests from individual guarantee period is up to a licensed banks and when it maximum of five years from the considers necessary, lend term first drawdown date of the loan. money of up to one month to individual licensed banks On March 26, 2009, the HKMA against collateral of credit quality announced that the Lender of acceptable to the HKMA. On Last Resort (LOLR) Policy November 6, 2008, the HKMA Statement has been amended to announced two refinements to expand the types of assets and the fifth of the five measures facilities eligible for obtaining introduced on September 30, Hong Kong dollar liquidity. In 2008. The two refinements are particular, foreign exchange as follows: swaps have been included among the basic instruments to (1) the maximum tenor of the be used by the HKMA to provide collateralized term lending will LOLR support, and the definition be extended from one month to of eligible securities for repos three months. has also been expanded to include securities in foreign (2) while the interest rate for the currencies with acceptable collateralized term lending ratings. continues to be determined with reference to market interest rates, the HKMA will take into account the fact that such lending is secured by collateral in determining the applicable interest rate.
Regarding the continued application of the measures after March 31, 2009 the HKMA
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES announced on March 26, 2009 that it will continue to conduct foreign-exchange swaps and term repos under its market operations to provide liquidity assistance to licensed banks if needed.
On the other hand, arrangements for obtaining liquidity at the Discount Window will return to the position that applied before the introduction of the five temporary measures. That is, using only Exchange Fund paper for overnight repos.
On April 21, 2009, the HKMA announced that additional Exchange Fund bills will be offered in the tenders on April 28 and May 5, totaling $15,400 million to meet the increased demand for the paper by banks. The additional supply of short- dated Exchange Fund paper is designed to meet the strong demand for Exchange Fund paper by banks for liquidity management.
1 Hong Kong, according to the latest press release by HKMA on May 7, 2009, had approximately US$193.4 billion in foreign reserves as of the end of April 2009. 2 A fund established in 1935 by the Exchange Fund Ordinance (Cap 66) (originally enacted as the Currency Ordinance) as a reserve to back the issue of Hong Kong’s banknotes. 3 An institution authorized under the Banking Ordinance (Cap 155) to carry on the business of taking deposits. 4 The guarantee covers all protected deposits as defined in the Deposit Protection Scheme Ordinance (Cap 581), were the Ordinance to apply to all authorized institutions. 5 Previously, Hong Kong depositors had stood to receive compensation limited to HK$100,000 (US$12,800). 6 The rate of interest offered on a Hong Kong dollars loan by banks in the interbank market for a specific period ranging from overnight to one year. 7 The guarantee can be used by SMEs to secure loans for the purpose of acquiring business installations and equipment (e.g., machinery, tools, computer software and hardware, office equipment, transport facilities, furniture, fixtures, etc.) or to meet the working capital needs of general business uses, or a combination of both.
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8 The facility through which banks can borrow Hong Kong dollar funds overnight from the HKMA through repurchase agreements using eligible securities as collateral.
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HUNGARY SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Bank Bailout Package Deposit Guarantee Interest Rate Bank Bailout Package IMF/World Bank/ECB Loan
On December 15, 2008, the On October 15, 2008, a On October 22, 2008, the On December 15, 2008, the Hungary has obtained financial Hungarian Parliament approved legislative change was enacted Central Bank of Hungary Hungarian Parliament approved support from the IMF, the EU a 600 billion forint (€2 billion) to increase the limit of insured increased its base rate from a 600 billion forint (€2.2 billion) and the World Bank in the bank bailout package, which deposits by the National Deposit 8.5% to 11.5% to defend the bank bailout package, which amount of €20 billion after was promulgated on December Insurance Fund (OBA) from 6 to Hungarian forint against was promulgated on December Hungarian assets were 22, 2008, as Act CIV of 2008 on 13 million forints (€45,000) per speculation. The Central Bank 22, 2008, as Act CIV of 2008 on battered as foreign-currency the strengthening of the stability financial institution, and the 10% subsequently cut its growth and the strengthening of the stability borrowing by local companies of financial intermediaries. The own-risk component was inflation forecasts for 2009 and of financial intermediaries. The and consumers, along with bailout package enables the removed (statutory guarantee). 2010, and on November 24, bailout package enables the slower growth, a wider budget Government (i) to provide debt The funds constituting the OBA 2008, it decreased its base rate Government (i) to provide debt deficit and higher government guarantees to Hungarian banks are collected from the banks. from 11.5% to 11.0%. On guarantees to Hungarian banks debt than elsewhere in east up to the aggregate amount of December 8, 2008, the Central up to the aggregate amount of Europe, raised concern that the HUF 1,500 billion (€5 billion); In addition, on October 15, Bank further decreased its base HUF 1,500 billion (€5.4 billion), country may have difficulties in and (ii) to recapitalize troubled 2008, an unlimited governmental rate from 11.0% to 10.5%, on and (ii) to recapitalize troubled securing funding. banks – with or without their guarantee was declared in December 23, 2008, to 10.0%, banks – with or without their consent – up to a total of HUF respect of bank deposits in and on January 19, 2008, to consent – up to a total of HUF The IMF will provide a 600 billion (€2 billion). The excess of what is insured by the 9.5%. The base rate has 600 billion (€2 billion). The 17-month, SDR10.5 billion bailout package is financed from OBA (governmental guarantee). remained unchanged since then, bailout package is financed from (€12.3 billion) Stand-By the IMF loan drawn, or to be as the value of the forint has the IMF loan drawn, or to be Arrangement under its drawn, between 2008 and 2010. been volatile. drawn, between 2008 and 2010. exceptional access policy, the EU will provide €6.5 billion to Debt Guarantee Scheme Central Bank Measures Recapitalization Scheme facilitate fiscal consolidation, and the World Bank will provide The debt guarantee scheme is HUF Liquidity Measures: The Upon the request of an eligible €1 billion. available to banks licensed in Central Bank has introduced the bank, the Government may Hungary which meet prudent following HUF liquidity acquire non-voting dividend Hungary has also secured a capital requirements. It is measures: preference shares or voting €5 billion loan from the ECB. available to guarantee preference shares entitling it to obligations arising from loans or (i) public debt securities veto, among other things, EIB Loan debt securities which are auctions: the Central Bank matters relating to dividend denominated in euros, Swiss agreed with primary dealers that distribution. In this voluntary In addition, on the basis of a francs, or forints, and only if market makers will provide recapitalization scheme the facility signed on January 26, repayment is to be made by the continuous quotes for certain bank and the Government must 2009, the European Investment bank in the currency in which public debt securities and enter into an agreement setting Bank (EIB) is lending €440 the obligation is denominated. increase their holdings of public out the value of the shares and million to part finance Banks that wish to have debt securities by an agreed the rights and obligations of the Hungary's national contribution recourse to the scheme must amount, and the Central Bank Government in respect of the to the implementation of priority issue preference shares entitling will conduct auctions for the bank’s operation. The bank will projects in the areas of the Government to veto purchase of these securities; have a call option to acquire the research and innovation decisions on dividend shares from the Government, identified under the Hungarian
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES distribution, and must undertake (ii) variable interest rate loan and the Government will have a National Strategic Reference limitations on management tenders: the Central Bank is put option to sell the shares to Framework for the period 2007- compensation. assisting primary dealers and the bank. 2013. banks in financing purchases of On April 14, 2009, the public debt securities by In case of a forced EBRD, EIB, World Bank Government approved introducing a six-month loan recapitalization, the Government Assistance Government Decree no. tender at variable interest rates; may acquire the right to exercise 89/2009. (IV. 14.) on the all shareholders’ rights in On February 27, 2009, the procedural rules of the debt (iii) two-week loan tenders at respect of the general meeting EBRD announced that together guarantee scheme. According to fixed interest rates; of the bank, including decisions with the EIB and the World these rules, banks may have on recapitalization, if (i) the bank Bank they have pledged to recourse to the scheme subject (iv) Central Bank deposit rate needs access to the special provide up to €24.5 billion to to the approval of the finance cut: the Central Bank has liquidity loan of the Central Bank support the banking sectors in minister and the opinion of the decreased the interest rate on of Hungary for more than 20 the region and to fund lending Central Bank, the Supervisory overnight Central Bank loans days in excess of a specific to businesses hit by the crisis. Council of the Hungarian and deposits to + / - 50 basis amount, (ii) if the bank fails to The initiative will include equity Financial Supervisory Authority, points around the relevant satisfy prudent capital and debt financing, credit lines, and the Government Debt asset’s interest rate; requirements, (iii) if the and political risk insurance. No Management Agency Government is forced to make a concrete measures have been concerning the applicant bank’s (v) the Central Bank has payment to the bank’s creditors implemented so far in respect liquidity, solvency, its role in the widened the scope of under the debt guarantee of Hungary under the plan. financial system, its acceptable collateral for Central scheme, or (iv) if the insolvency undertakings with respect to its Bank financing (municipal bonds of the bank would seriously Fiscal Measures financing activities, and the legal and certain mortgage securities harm the system of financial consequences it is willing face if have become acceptable intermediaries in Hungary. The Measures have been taken to a violation of such an security), and reduced the Government must declare the ensure a more prudent fiscal undertaking arises. minimum rating criteria from A to satisfaction of these policy. The Government has BBB; circumstances in a government submitted to parliament a decree. Existing shareholders revised 2009 budget aiming at (vi) easing of reserve of the bank will have a right to a 2009 deficit of 2.6% of GDP, requirements of banks relating sell their shares to the and on November 17, 2008, to certain types of liabilities from Government within 120 days legislation was passed to limit 5% to 2%. after the entry into effect of the government spending in 2009 government decree, at a price to to 2008 levels, and permitting FX Liquidity Measures: The be determined on the basis of an increase in spending in Central Bank has introduced the the shareholder’s stake in the 2010 to 50% of GDP growth. following FX liquidity measures: bank and the value of the bank’s equity as per the interim balance Stimulus Measures (i) two-way overnight FX swap sheet of the bank to be prepared tenders with the Central Bank as of the date preceding the The Government has playing the role of intermediary entry into effect of the announced a 1,400 billion forint by matching excess forint and government decree. (€4.6 billion) two-year euro funds offered by the banks. economic stimulus package to However, on April 29, 2009, the FHB: On March 31, 2009, as promote growth and provide
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Central Bank announced that part of the voluntary funding for small- and medium- due to more favourable market recapitalization scheme, the sized businesses, as well as a conditions it will discontinue the Government and Land Credit HUF 1,800 billion (€6 billion) program as of May 18, 2009; and Mortgage Bank Ltd. (FHB), investment stimulus package a large mortgage lender, signed aimed primarily at the support (ii) an overnight FX swap facility an agreement according to of the construction industry. for domestic banks, facilitated by which the Government will an agreement between the provide FHB with a capital HUF 1,400 billion (€4.6 Central Bank and the ECB; injection worth 30 billion forints billion) Economic Stimulus (€100 million) in exchange for Package: The HUF 1,400 (iii) EUR/CHF swaps on the non-voting dividend preference billion stimulus package will not basis of a cooperation shares and a special veto share. involve new spending, instead agreement between the Central FHB agreed to maintain its it will regroup existing funds in Bank and the Swiss National mortgage lending portfolio at the budget. The biggest part of Bank, signed on January 28, previous levels. In addition to the package, 680 billion forints 2009 (local banks need CHF to the capital injection under the (€2.2 billion), will be spent on finance their large CHF loan bailout legislation, on March 25, providing lending guarantees portfolios). The Central Bank, 2009, the Government and FHB primarily to SMEs, while the Swiss National Bank, the agreed that FHB will be granted another 260 billion forints ECB, and the National Bank of a 120 billion forint (€410 million) (€0.9 billion) will be used to Poland have announced that credit line to boost lending to provide liquidity for lending they will extend the availability of private individuals and SMEs. through commercial banks. these swaps at least until July Both measures are financed The Government also plans to 31, 2009; from the €20 billion IMF/World provide 300 billion forints (€1 Bank/ECB loan. billion) in interest rate subsidies (iv) six-month EUR/HUF FX for corporate lending, and swap: a euro liquidity FX swap OTP: Besides FHB, according another 140 billion forints tender funded with €5 billion has to a loan agreement signed on (€0.5 billion) for direct loans to been introduced for banks which March 25, 2009, OTP, micro firms and SMEs. undertake to keep their lending Hungary’s largest bank, will also to corporates in 2009 at 2008 receive a Government loan Concrete measures that have year-end levels and which agree worth 400 billion forints (€1.35 so far been introduced as part not to withdraw funds from billion). The loan is not part of of the 1,400 billion forint Hungary; the bailout scheme, although stimulus package include: OTP agreed to appoint a person (v) three-month EUR/HUF FX designated by the Government (i) an increase of 450 billion swap: commencing from March in its supervisory board. OTP forints in the amount of 9, 2009, the Central Bank agreed to supplement the loan government guarantees offered introduced a euro liquidity FX with 200 billion forints (€0.7 by Garantiqa Hitelgarancia Zrt., swap tender funded with €2.2 billion) of its own funds to a company jointly owned by the billion, the unused amount provide financing to SMEs. The Government, commercial remaining from the €5 billion loan is financed, similarly to the banks and business allocated for the six-month FHB loan, from the €20 billion associations, to SMEs to
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES EUR/HUF FX swap. IMF/World Bank/ECB credit line. facilitate their borrowing;
MFB/Eximbank: On April 14, (ii) 50 billion forints from the 2009, the Government and the funds of the EU and the Hungarian Development Bank Hungarian Development Bank (MFB) signed an agreement will be made available to SMEs according to which MFB will through commercial banks to receive a HUF170 billion (€578 facilitate the access of SMEs to million) loan from the these funds, and 140 billion Government. The loan is forints will be made available in financed from the €20 billion a similar fashion for the IMF/World Bank/ECB credit line. purpose of the current asset MFB will use €436 million to financing of SMEs. repay expiring loans and bonds, while it will lend the remaining In addition, in the case of EU €142 million to the Hungarian tenders, the amount of Export-Import Bank (Eximbank), automatic advance payments due to the fact Eximbank did not will be increased up to 40% of qualify to receive the funds the total amount of the support, directly from the Government. which will be transferred to MFB agreed to increase its applicants within 15 days after corporate loan portfolio by the signature of the financing HUF55 billion (€187 million) by contract. HUF 100 billion the end of 2010. Eximbank will (€330 million) is expected to be use the loan to facilitate export- made available to applicants by import activities. March 2009.
HUF1,800 billion (€6 billion) Investment Stimulus Package: The HUF1,800 billion investment stimulus package is aimed at providing the construction industry with orders in the coming 18 months. The money is being made available from EU development funds. The package contains 636 investments (schools, medical facilities, railroads, public roads, etc.) planned for completion, which are identified in a database run by the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES National Development Agency.
Workplace Retention Measures
The Social and Labour Ministry has introduced several measures to facilitate workplace retention programs at troubled employers. These measures consist primarily of making funds available in the aggregate amount of HUF107 billion (€358 million) to employers which announced mass redundancies or which otherwise are struggling to keep their employees. The funds can be used generally to supplement employee compensation where reduced working hours would bring about pay reductions, to support part-time working arrangements and training, and to support the relocation of terminated employees. The availability of a portion of the funds (HUF20 billion or €65 million) is still pending Government approval.
Regulatory Measures
PSZAF Circular: On February 25, 2009, PSZAF, the Hungarian financial regulator, issued a circular to banks in which it briefly set out its recommendations for handling the crisis. Among other things, PSZAF advised banks that they should not declare dividends, and that they should refrain
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES from using innovative financial products such as structured securities, structured FX linked swaps, and speculative FX options. In addition, PSZAF warned that applications for exemptions from certain discretionary capital adequacy requirements would be turned down.
Regulatory Commissioner: According to legislation promulgated on April 3, 2009, PSZAF will be authorized to appoint a regulatory commissioner to oversee the operation of banks whose capital adequacy ratio does not comply with applicable requirements and whose foreign parent institutions fail to provide the necessary funding to the Hungarian subsidiary.
Debt Guarantee to Private Borrowers
According to legislation promulgated on March 10, 2009, the Government will provide debt guarantees for private individual borrowers who are forced to take out a bridging loan from their bank to enable them to satisfy debt servicing requirements under their home loan mortgages. The bridging loans will have a grace period of 24 months. The debt guarantee will be available to any person who had taken a mortgage loan in the past but lost his job after
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES September 10, 2008, for a reason beyond his control, is searching for a new job, lives with his family in the house which was mortgaged, and owns no second home.
New Government
On March 23, 2009, Ferenc Gyurcsany, the prime minister of Hungary, resigned. The former economy minister, Gordon Bajnai, was ratified by Parliament as the new prime minister of Hungary on April 14, 2009.
Mr. Bajnai’s new government set out as its primary objective to implement austerity measures which will ensure that Hungary can keep its budget deficit below 3% of GDP. Concrete measures are expected to be legislatively enacted commencing already in May 2009.
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ICELAND SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES The Government of Iceland has On October 10, 2008, the Board Glitnir On October 24, 2008, the repeatedly (in press releases of Governors of the Central Icelandic Government reached and Ministerial statements) Bank of Iceland decided on On October 14, 2008, the FSA an agreement ad referendum declared that all bank deposits temporary modifications in decided to transfer a part of with a mission from the IMF on in domestic commercial banks, currency outflow.5 Glitnir’s operations to a new an economic stabilization savings banks and their bank that has been formed and program that could be supported branches in Iceland are fully On October 15, 2008, the Board is fully owned by the Icelandic by a stand-by arrangement with guaranteed. The statement, of Governors of the Central State, the New Glitnir. The the fund. It is stated that the which does not have the force of Bank of Iceland decided to lower decision means, inter alia, that economic program will be law, only extends to domestic the policy interest rate by 3.5% the New Glitnir takes over all of supported by an SDR1.4 billion deposits and not to deposits with to 12%. Glitnir’s deposits in Iceland, and (US$2 billion) loan under a two- Icelandic banks held overseas.1 also the bulk of the bank’s year Stand-By-Arrangement. On October 28, 2008, as a assets that relate to its Icelandic Iceland would be able to draw On October 6, 2008, the Act on condition of the loan from the operations, such as loans and SDR560 million Authority for Treasury IMF, Iceland’s central bank other claims. (US$830 million) immediately Disbursements due to Unusual raised interest rates from 6% to after the Board approval. It is Financial Market Circumstances, 18%. Landsbanki also expected that an etc. was passed with immediate agreement with the IMF will force by the Icelandic Iceland’s central bank also said On October 9, 2008, the FSA encourage lending from other Parliament. According to the it had applied to the United decided to transfer a part of sources. Act, all deposits shall take States Federal Reserve and the Landsbanki’s operations to a priority over all general and ECB for extra funding. Iceland new bank that has been formed A Letter of Intent was sent to the unprioritized claims against the has already stated it needs and is fully owned by the IMF on November 3, 2008, financial undertaking. another $4 billion in loans on top Icelandic State, the New signed by the Minister of of the $2 billion it is seeking from Landsbanki. The decision Finance and the Chairman of The Icelandic Financial the IMF, which it is securing means, inter alia, that the New the Board of Governors of the Supervisory Authority (the from some Nordic and other Landsbanki takes over all of Central Bank.6 “FSA”) has decided to transfer a central banks. Landsbanki’s deposits in part of Landsbanki, Glitnir and Iceland, and also the bulk of the On November 19, 2008, the Kaupthing operations to new On November 28, 2008, the bank’s assets that relate to its Executive Board of the IMF banks that have been formed Central Bank of Iceland Icelandic operations, such as approved Iceland’s request for a and are fully owned by the guidelines, issued in early loans and other claims. two-year stand-by arrangement. Icelandic State. The decision October 2008 on temporary Iceland will receive means, inter alia, that the new modifications in currency Kaupthing US$2.1 billion from the IMF. entities take over all of the “old” outflow, were revoked. The Additional loans of up to entities’ deposits in Iceland. revocation of these guidelines On October 21, 2008, the FSA US$3 billion have been secured Furthermore, the decision states means that there are no longer decided to transfer a part of from Denmark, Finland, Norway, that the new entities will take restrictions on current account Kaupthing’s operations to a new Sweden, Russia and Poland. over the obligations of the related transactions. bank that has been formed and The Faroe Islands have branches of the “old” entities in is fully owned by the Icelandic announced that they would lend Iceland due to deposits from However, the economy State, the New Kaupthing. The Iceland US$ 50 million. The financial undertakings, the programme of the Stand-By decision means, inter alia, that funds made available through
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Icelandic Central Bank and other Arrangement from the Executive the New Kaupthing takes over the IMF will be used to support customers. Board of the International all of Kaupthing’s deposits in the currency, the Icelandic Monetary Fund entails Iceland, and also the bulk of the króna, which will be floated as Icesave2 continuing restrictions on the bank’s assets that relate to its soon as possible. It is to be movement of capital between Icelandic operations, such as expected that the currency It was reported on October 22, Iceland and other countries and loans and other claims. market will stabilize soon and 2008 that the UK and Iceland the subsequent lifting of those that international money are hoping to agree on a loan of restrictions as soon as a Kaupthing’s U.K. subsidiary, transfers will subsequently up to £3 billion to cover British sufficient stability has returned Kaupthing, Singer & Friedlander return to normal.7 depositors in Icesave, the online to the foreign exchange market. Ltd., has been placed in banking unit of Landsbanki, the administration. The Act on Financial collapsed Icelandic bank.3 The Parliament has passed a Undertakings No. 161/2002 was legislative bill from the Minister Certain other subsidiaries of the amended on November 14, It was reported on October 11, to adopt rules restricting the Icelandic banks have either 2008. 2008 that the Dutch and cross-border movement of been sold or placed in Icelandic Governments have capital. This authorization has administration by local According to Act No. 129/2008 agreed on a solution regarding been utilized by the Central authorities. amending Act on Financial the Dutch depositors of Bank.8 Undertakings, No. 161/2002 with Landsbanki Icesave savings Kaupthing Bank hf. and Glitnir subsequent amendments, a accounts. The aim of the Rules is to Bank hf. were placed into lawyer or an authorized public maintain restrictions on capital moratorium proceedings as of auditor who has been engaged The agreement states that the outflows that could have a November 24, 2008. by a financial undertaking to act Icelandic Government will negative impact on the as an assistant in reorganizing compensate each Dutch reconstruction of the foreign Landsbanki Íslands hf. was its financial affairs will not be depositor up to a maximum of exchange market. The Rules placed into moratorium liable for compensation €20,887. The Dutch stipulate that those who acquire proceedings as of December 5, damages as a result of Government will provide a loan foreign currency must submit it 2008. decisions or actions taken in his to Iceland to enable this to a domestic financial capacity as assistant, unless restitution and the Dutch Central institution; however, such Straumur-Burdaras such decisions or actions Bank is to settle the depositors’ foreign currency may be Investment Bank hf. represent violations committed claims. deposited to a foreign currency by intent or gross negligence. account in such an institution. On March 9, 2009, the FME On November 16, 2008, the Restrictions are placed on the assumed the powers of a Another amendment was made Government of Iceland agreed movement of capital by parties meeting of the shareholders of on Article 98 stipulating that to cover deposits of insured intending to exchange Icelandic Straumur- Burdaras Investment judicial proceedings will not be depositors in the so-called krónur for foreign currency. Bank hf. and immediately filed against a financial Icesave accounts in accordance suspended the Board in its undertaking while it is in a with EEA law. They also entail Furthermore, the Rules prohibit entirety and appointed a moratorium, unless such that the EU, under the French trading between domestic and Resolution Committee. The proceedings are specifically Presidency, will continue to foreign parties in domestic Resolution Committee made the authorized by law or if it is a participate in finding securities and other króna- decision to close the bank that criminal procedure and arrangements that will allow denominated financial day. sanctions that can be levied on Iceland to restore its financial instruments. Foreign parties are a financial undertaking are system and economy. prohibited from purchasing petitioned. However, this
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Furthermore, it was agreed to króna-denominated securities Spron hf. provision is disputed. facilitate financial assistance to through the intermediation of Iceland, including agreeing on a domestic parties, unless they On March 21, 2009 the FME The Parliament has passed a stabilization package from the already own króna-denominated assumed the powers of a legislative bill from the Minister IMF.4 assets that can be used for this meeting of the shareholders of to adopt rules restricting the purpose. Furthermore, foreign Spron hf., immediately cross-border movement of parties are prohibited from suspended the Board in its capital. This authorization has issuing securities in Iceland. entirety and appointed a been utilized by the Central Domestic parties are also Resolution Committee. The Bank. prohibited from investing in Resolution Committee made the foreign securities. Foreign decision to close the bank´s The Government of Iceland has borrowings, provision of branches that day. It is the decided to examine any and all guarantees to foreign parties, opinion of the Financial possibilities of Iceland seeking and derivatives transactions Supervisory Authority, Iceland redress before the European unrelated to trading of goods (the FME) that on the same day, Court of Human Rights for the and services are restricted or Spron hf. was unable to render application by UK authorities of prohibited, as are loans granted payment of the amount the Anti-Terrorism, Crime and by domestic parties to foreign customers demanded, of certain Security Act 2001 against parties. deposits, in accordance with Landsbanki last year. applicable terms. Therefore, with The restrictions now adopted on regards to the aforementioned, Furthermore, the Government the basis of the newly-passed the Depositors’ and Investors’ has declared a strong support legislation include foreign Guarantee Fund (the Fund) has for legal proceedings by exchange transactions related to become obligated to render Kaupthing Bank’s Resolution the movement of capital payments in accordance with Committee against actions taken between Iceland and other Article 9 of Act No. 98/1999 on by the UK Financial Services countries. These restrictions are Deposit Guarantees and Authority (FSA) on October 8, a necessary part of the Investor Compensation Scheme, 2008, on which date the FSA measures intended to restore to the customers of Spron hf. took control of the operations of stability in the foreign exchange who did not receive the amount Singer & Friedlander, resulting market. They will be lifted as of their deposits. 11 in the insolvency of the parent soon as circumstances allow. company. The Resolution Committee has decided to bring Amended Rules on Foreign a suit, on the Bank’s behalf, Exchange against the UK authorities and enjoys the full support of the The Central Bank of Iceland has Government of Iceland. This issued new Rules on Foreign support is provided in Exchange with the approval of accordance with an Act of the the Minister of Business Affairs. Icelandic Parliament Althingi, The primary changes from the adopted on December 20, previous Rules pertain to 2008,9 authorizing the Minister exemptions granted to specified of Commerce to provide groups because of critical financial support for such
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES interests at stake. It is also litigation. considered unlikely that these groups’ transactions will cause The Government of Iceland will serious and significant volatility also support possible legal in exchange rate and monetary action taken by the Resolution affairs. The State and the Committee of Landsbanki municipalities are granted against UK authorities; such exemptions, as are companies action, however, is not entirely in which the State and the subject to the same time municipalities own a majority constraints as is the suit to be holding and which operate in brought by the Resolution accordance with special Committee of Kaupthing Bank. legislation. Companies that are parties to investment On April 15, 2009 the Icelandic agreements with the Icelandic Parliament, passed an act Government and those that amending the Act on Financial have been granted permits to Undertakings, No. 161/2002, search for oil by the Minister of with subsequent amendments. Industry are exempt. The Amendment Act consists of Furthermore, resolution 11 articles and 4 temporary committees appointed on the provisions. The temporary basis of the Act on Financial provisions describe the Undertakings are exempt. procedure applicable for financial undertakings which Companies that have over 80% were already under the control of their revenues and expenses of resolution committees or abroad may apply to the Central which had entered into a Bank for an exemption from moratorium prior to the specified articles of the Rules Amendment Act coming into pertaining to securities trading force. abroad, borrowing and lending, guarantees and derivatives In relation to such financial trading, and the obligation to undertakings, e.g. Landsbanki submit foreign currency. The Islands hf., Glitnir bank hf., Central Bank will publish a list of Kaupthing bank hf., the the companies granted such resolution committees shall exemptions on its website. continue their activities without changing their names. However, In addition, commercial banks, the resolution committees shall savings banks, and credit fulfill certain obligations and act institutions have been granted as a winding-up committee in extended authorisation to relation to certain matters as engage in foreign exchange further described in the Amendment Act. For winding-up
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES transactions. activities, other than those carried out by the resolution Other minor changes involve the committees, committees shall be clarification of the lack of limits appointed by the District Court, on direct investment; however, it upon a written petition from the is emphasised that the resolution committees (the movement of capital from “Winding-up committee”). Iceland in connection with the Accordingly, there will be a sale of direct investments is division of tasks between the prohibited. resolution committees and the winding-up committees in the The Rules are to be reviewed no winding up of such financial later than March 1, 2009. It undertakings. should be noted that the legislation on which the Rules On April 29, 2009 a Winding-up are based is temporary and will committee was appointed in expire at the end of November relation to Landsbanki Islands 2010. hf.
On April 8, 2009 the Monetary Policy Committee (MPC) voted to lower the policy rate by 1.5 percentage points to 15.5%.10
1 It should be noted that a significant volume of banking business by Iceland’s banks is conducted overseas. 2 Icesave, the online British arm of Landsbanki, announced that its customers can no longer withdraw or deposit money. More than 300,000 British customers had around £4 billion deposited in Icesave accounts and now face the prospect of making a claim under the U.K. Government deposit guarantee scheme. Depositors with more than £50,000 and non-retail depositors are not protected by this scheme. 3 The decisions of the Icelandic Financial Supervisory Authority, due to unusual circumstances, are posted on the following website (in English translation): http://www.fme.is/?PageID=867. 4 A press release from the Prime Minister’s Office of the Agreed Guidelines Reached on Deposit Guarantees is posted on the following website (in English translation): http://eng.forsaetisraduneyti.is/news-and-articles/nr/3229. 5 The temporary modifications in currency outflow can be found on the following website: http://sedlabanki.is/lisalib/getfile.aspx?itemid=6493. 6 The Letter of Intent in English is posted on the following website: http://www.forsaetisraduneyti.is/media/Skyrslur/LOI.pdf. 7 A press release from the Prime Minister’s Office is posted on the following website (in English translation): http://eng.forsaetisraduneyti.is/news-and-articles/nr/3272. 8 Rules on foreign exchange, No. 1082, November 28, 2008, are posted on the following website (in English translation): http://sedlabanki.is/lisalib/getfile.aspx?itemid=6631. 9 http://www.iceland.org/info/news/features/nr/6450. 10 A statement from the Central Bank of Iceland can be found on the following webpage: http://sedlabanki.is/?PageID=287&NewsID=2101. 11 A press release from the FME can be found on the following webpage: http://fme.is/?PageID=581&NewsID=425.
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INDIA1 SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Deposits in Indian banks are The Reserve Bank of India Cash Reserve Ratio (“CRR”) already insured up to a (“RBI”) has come up with maximum of Rs.100,000 per various assistance measures in CRR is the minimum average depositor. order to infuse liquidity into the daily balance that a bank is system, some of which are: required to maintain with the RBI. In October 2008, the CRR Banks of 9% was reduced by 250 basis points to 6.5%. On November 1, (i) On November 1, 2008, it was 2008, it was again reduced to decided to provide refinance 6% retrospectively with effect facilities to all banks from RBI up from October 25, 2008 and to to 1% of each bank’s net 5.5% with effect from November demand and time liabilities as on 8, 2008. October 24, 2008 at the repo rate up to a maximum period of On January 2, 2009, there was a 90 days. However, as per a further reduction in the CRR clarification issued by the from 5.5% to 5% with effect from Reserve Bank of India, on January 17, 2009. December 1, 2008, this facility can be rolled over and will Repo Rate continue up to June 30, 2009. Repo rate is the rate at which (ii) Further, banks have also the banks borrow money from been allowed to borrow up to the RBI. On October 20, 2008, 1.5% in cash from the RBI to on- the repo rate was reduced by lend it to Non-Banking Financial 100 basis points from 9% to 8%. Companies and Mutual Funds to On November 1, 2008, it was meet their funding requirements. decided to reduce the repo rate further by 50 basis points to Consequently, on November 3, 7.5% effective November 3, 2008, a 14-day window of 2008. In order to further reduce Rs. 600 billion has been opened the marginal cost of funds to the to enable such funding by banks, this repo rate has been banks. further reduced by 100 basis points, from 7.5% to 6.5%, with Whilst this was initially effect from December 8, 2008. envisaged as an ad-hoc facility, on November 15, 2008, this On January 2, 2009, the repo special term repo facility was rate was reduced by 100 basis extended till end-March 2009. points from 6.5% to 5.5% with Banks have been permitted to immediate effect. On March 4, avail of this facility either on 2009, the repo rate was further
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES incremental or on rollover basis reduced by 50 basis points from within their entitlement of up to 5.5% to 5% with immediate 1.5% of each bank’s net effect. demand and time liabilities. Reverse Repo Rate: Under the extended arrangement, the RBI has also The reverse repo is the rate at commenced a special fixed rate which RBI borrows money from term repo at 7.5% per annum banks. With effect from against eligible securities, on a December 8, 2008, the reverse periodic basis. repo rate has been reduced by 100 basis points, from 6% to Foreign Institutional Investors 5%. On January 2, 2009, the (“FIIs”) reverse repo rate was reduced by 100 basis points from 5% to (i) On October 6, 2008, 4% with immediate effect. On restrictions on the issue of March 4, 2009, the reverse repo Offshore Derivative Instruments rate was further reduced by 50 by FIIs were removed. basis points from 4% to 3.5% with immediate effect. (ii) On October 16, 2008, limits for FII investments in corporate Statutory Liquidity Ratio bonds were enhanced (“SLR”) substantially to a cumulative level of US$ 6 billion. Through a SLR is the amount of liquid Press Release dated January 2, assets in the form of cash, gold 2009, the Government of India or approved securities that a (“GOI”) has increased the FII bank is required to maintain in investment limit in rupee its reserves. On November 1, denominated corporate bonds 2008, the RBI reduced the SLR from US$ 6 billion to US$15 rates by 100 basis points to 24% billion. with effect from November 8, 2008. As a result, the banks (iii) On October 23, 2008, have an option of selling restrictions requiring FIIs to Rs.400 billion of government purchase shares of stock securities which until now exchanges and security market formed part of their statutory infrastructure companies only investments. from the secondary market have been lifted, and FIIs are now External Commercial allowed to buy them even before Borrowings (“ECBs”) they are listed. (i) ECBs permitted up to Non-Banking Financial US$500 million per borrower per
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Companies (“NBFCs”) financial year for rupee expenditure and/or foreign The Government of India has currency expenditure for opened up various fund raising permissible end-uses under the options for NBFCs. automatic route.
(i) On October 29, 2008, (ii) Indian corporates were systematically important non- subject to certain restrictions on deposit taking NBFCs (i.e., non- rate of interest, other fees and deposit taking Non-Banking expenses in foreign currency Financial Companies having an (referred to as “all-in-cost”). Prior asset size of Rs.1 billion or to January 2, 2009, the all-in- more) were allowed to augment cost ceilings (over six months their capital funds by issue of LIBOR) for ECBs both under the Perpetual Debt Instruments automatic and the approval (“PDI”) in the form of bonds and route) were as follows: (i) for debentures with a minimum loans with an average maturity investment of Rs.500,000 per period of three to five years; 300 issue by an investor. basis points and (ii) for loans with an average maturity period (ii) On November 1, 2008, of five years or more; 500 basis systematically important non- points. This requirement of all- deposit taking NBFCs were in-cost ceilings on ECBs has further allowed to raise short- now been dispensed with until term foreign currency June 30, 2009. Consequently, borrowings under the approval borrowers are now allowed to route up to 50% of the net approach the RBI under the owned funds or US$10 million, approval route for permission to whichever is higher. avail ECBs where the all-in- costs ceilings are in excess of (iii) On February 18, 2009, the those provided in this Government of India approved a paragraph.This relaxation of all- scheme for providing liquidity in-cost ceiling will be reviewed in support to eligible non-deposit June 2009. taking systemically important NBFCs through a special (iii) The requirement of minimum purpose vehicle for meeting average maturity period of temporary liquidity mismatches seven years for ECBs in excess in the operations. Such NBFCs of US$100 million for rupee are required to meet certain expenditure for borrowers in specific criteria to be eligible for infrastructure sector has been such liquidity support. This dispensed with. includes: (i) having a capital to risk asset ratio of 12% by March (iv) Borrowers have been
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES 31, 2009; (ii) a net profit in the permitted to park their ECB preceding two years; and (iii) the proceeds with Indian Banks net non-performing assets as on pending their utilization for the last balance sheet date permissible end-uses under the should not be more than 5%. automatic route.
Financial Institutions (v) Corporates engaged in the ‘development of integrated The RBI provided an advance of townships’ which were not Rs. 25,000 crore to financial permitted to take advantage of institutions under the Agricultural ECBs, have now been permitted Debt Waiver and Debt Relief to do so under the approval Scheme pending release of route. Therefore, the money by the Government. development of “integrated townships” is a permitted end- Housing Finance Companies use for ECBs under the approval (“HFCs”) route. This policy will be reviewed in June 2009. The (i) On November 15, 2008, phrase ‘integrated township’ has HFCs complying with capital the same meaning as accorded adequacy norms and other to it in Press Note 3 (2002 prudential norms laid down by series) dated January 4, 2002 the National Housing Bank (i.e. it includes housing, (“NHB”) have been allowed to commercial premises, hotels, raise short-term foreign currency resorts, city and regional level borrowings under the approval urban infrastructure facilities route from multilateral or such as roads and bridges, bilateral financial institutions, mass rapid transit systems and reputed regional financial manufacture of building institutions and foreign equity materials). The development of holders with minimum direct- land and providing allied equity holdings of 25%. infrastructure will form an integrated part of developing The resources should be used townships. only for the sole purpose of refinancing the short-term (vi) Prior to January 2, 2009, liabilities for a maximum maturity NBFCs were permitted to take not exceeding three years and advantage of ECBs for a the maximum amount not minimum average maturity exceeding 50% of the net owned period of five years to finance fund of the HFC or import of infrastructure US$ 10 million, whichever is equipments for leasing to higher. infrastructure projects in India. NBFCs exclusively involved in
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES The all-in-cost ceiling should not financing of the infrastructure exceed six months Libor + 200 sector, are now allowed to use bps (for the respective currency ECBs from multilateral/regional of borrowing or applicable financial institutions and benchmark), and the borrowings Government owned should be fully swapped into development financial rupees for the entire maturity. institutions for on-lending to the borrowers in the infrastructure (ii) In order to boost lending to sector under the approval route. the housing sector, from At the time of considering December 8, 2008 onwards, applications made in relation to loans granted by banks to HFCs the above, the RBI will take into for on-lending to individuals for account the aggregate purchase/construction of commitment of the lenders dwelling units will be classified directly to infrastructure projects under priority sector, provided in India. Further, the direct that the housing loans granted lending portfolio of the above by HFCs are not in excess of lenders vis-à-vis their total ECB Rs. 20 lakh per dwelling unit per lending to NBFCs, must be family. This facility will apply to maintained at a minimum of 3:1 all such loans granted by banks at any point in time and to HFCs up to March 31, 2010. certification indicating the same However, the eligibility under must be obtained by the this measure will be restricted to authorized dealers from the 5% of the individual bank’s total eligible lenders. This facility will priority sector lending. be reviewed in June 2009.
(iii) In order to provide further (vii) Earlier, entities operating in liquidity support to the housing the services sector namely sector, particularly to the HFCs, hotels, hospitals and software on December 11, 2008 the industries were allowed to use Reserve Bank of India decided ECBs up to US$100 million per to provide a refinance facility of financial year for import of Rs. 4,000 crore to the NHB until capital goods under the approval March 31, 2010 against NHB’s route. As per a Press Release of loans and advances to HFCs. GOI dated January 2, 2009, the This facility will be available at aforementioned entities have the current repo rate of 6.5% for now been permitted to avail of 90 days, during which the ECBs up to US$100 million per amount can be flexibly drawn year for both foreign currency and repaid and, at the end of and/or rupee capital expenditure which, the amount can also be for permissible end use, other rolled over. than for land acquisition, under
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES the automatic route.
Export-Import Bank of India Foreign Currency Convertible (“EXIM Bank”) Bonds (“FCCBs”)
On December 11, 2008, the On November 15, 2008, Indian Reserve Bank of India, decided companies were permitted to to provide a refinance facility of prematurely buyback their Rs. 5,000 crore to the EXIM FCCBs subject to prior approval Bank until March 31, 2010, as a from the RBI. Such buy back is result of which EXIM Bank will required to be financed by the be in a position to disburse company’s foreign currency foreign currency lines of credit to resources held in India or exporters. This facility will be abroad and/or out of fresh ECB available at the current repo rate raised in conformity with the of 6.5% for 90 days, during current norms for ECBs. which the amount can be flexibly drawn and repaid and, at the From December 8, 2008 end of which, the drawal can onwards, the Authorised Dealer also be rolled over. Category-I banks are permitted to consider applications for Micro and Small Scale premature buyback of FCCBs by Enterprises (“MSE”) Indian companies in situations where: (i) the buyback value of On December 6, 2008, the the FCCB is at a minimum Reserve Bank of India decided discount of 15% on the book to provide refinancing of an value; (ii) the source of funds for amount of Rs. 7,000 crore to the the buyback is out of existing Small Industries Development foreign currency funds held in Bank of India (“SIDBI”) so that India or abroad and/or (iii) fresh credit delivery to the ECB raised in conformity with employment-intensive MSE the current norms for ECBs; and sector could be enhanced. This (iv) where the fresh ECB is co- refinancing will be available terminus with the outstanding against: (i) the SIDBI’s maturity of the original FCCB incremental direct lending to and is for less than three years. MSE; and (ii) the SIDBI’s loans to banks, NBFCs and State The RBI is permitted to consider Financial Corporations against applications for buyback of the latter’s incremental loans FCCBs by Indian companies and advances to MSEs. under the approval route, subject to the following: (i) the In addition, this facility will be buyback value of the FCCB is at available until March 31, 2010 at a minimum discount of 25% on
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES the current repo rate of 6.5% for the book value; (ii) the amount 90 days, during which the of the buyback is limited to US$ amount can be drawn and 50 million of the redemption repaid and, at the end of which, value per company; and (iii) the the amount can also be rolled resources for buyback are over. drawn out of internal accruals of the company as certified by the Extension of Exceptional statutory auditor and designated Concessional Treatment bank’s certificate. Vide RBI notification dated March 13, As per the Reserve Bank of 2009, the time frame for India’s decision on December 6, completing the entire procedure 2008, the exceptional regulatory of buy back of FCCBs has been treatment of retaining the asset extended from March 31, 2009 classification of the restructured to December 31, 2009. standard accounts in standard category will apply to FCNR(B) Accounts commercial real estate sector exposures that are restructured Foreign Currency Non-Resident up to June 30, 2009. Such (Bank) accounts are accounts exceptional regulatory treatment opened by non-resident Indians will also apply to second with an authorized dealer in restructuring by banks of India. exposures up to June 30, 2009. However, second restructuring The rate of interest for FCNR(B) by banks of exposures to accounts have been increased commercial real estate, capital with effect from November 15, market exposures and personal/ 2008. The interest has to be consumer loans will not be paid within the ceiling rate of eligible for the above mentioned LIBOR/SWAP rates plus 100 exceptional regulatory basis pints for the respective treatment. However, vide its currency/corresponding notification dated January 2, maturities (as against 2009, RBI had allowed banks to LIBOR/SWAP rates plus 25 apply the special regulatory basis points effective from the treatment for accounts which close of business on were standard on September 1, October 15, 2008). 2008 and taken up for restructuring up to January 31, On floating rate deposits, 2009, even if these had turned interest has to be paid within the non-performing during this ceiling of SWAP rates for the period, provided the respective currency/maturities restructuring package was put in plus 100 basis points. place within a period of 120
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES days from the date of taking up For floating rate deposits, the the restructuring package. interest reset period is six months. Given that the banks have not been able to adhere to the NRE Accounts January 31, 2009 time schedule due to increased workload, this Non-Resident External accounts time schedule for taking up are accounts opened by Non- restructuring has been extended resident Indians and Overseas until March 31, 2009 vide RBI Corporate Bodies with press release dated February 5, authorized dealers and banks 2009. authorized by the RBI to maintain such accounts. Vide its notification dated February 26, 2009, RBI has The interest rates for NRE extended the above mentioned deposits maintained by banks provisions related to exceptional have been increased with effect regulatory treatment of retaining from November 15, 2008. the asset classification of the restructured standard accounts Presently, the interest rates on in standard category to select all fresh NRE Term Deposits for India financial institutions. one to three years maturity as well as above three years Prudential Guidelines on maturity, should not exceed the Restructuring of Advances by LIBOR / SWAP rates plus 175 Urban Cooperative Banks basis points, as on the last (“UCBs”) working day of the previous month, for US dollars of Urban cooperative banks are corresponding maturities (as entities that undertake banking against LIBOR / SWAP rates business as a cooperative plus 100 basis points effective society registered either under from the close of business on the Cooperative Societies Act of October 15, 2008). a state. Given the spillover effects of the global recession These interest rates will also on the Indian economy, RBI vide apply to NRE deposits renewed its notification dated March 6, after their present maturity 2009 introduced revised period. guidelines on the restructuring of advances by UCBs. A brief over Market Stabilization Scheme view of these guidelines is as (MSS) follows:- In pursuance of an agreement (i) UCBs may restructure the between the RBI and the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES accounts classified under Government of India, the RBI 'standard', 'sub-standard' and issues instruments in the nature 'doubtful' categories such that of treasury bills and dated no account will be taken up for securities, by way of auction, on restructuring unless the financial behalf of the Government of viability is established and there India. The money so raised is is a reasonable certainty of impounded in a separate repayment from the borrower, as account with the RBI and is per the terms of restructuring appropriated only for the package. purpose of redemption and/or buy-back of the treasury bills (ii) The accounts classified as and/or dated securities issued 'standard assets' should be under the MSS. immediately re-classified as 'sub-standard assets' upon As a measure of infusing restructuring. Similarly, the non- liquidity into the system, the RBI performing assets, upon has put in a mechanism to buy restructuring, would slip into back dated securities issued further lower asset classification under the MSS. The securities category. proposed to be bought back and the timing and modalities of (iii) Subject to certain conditions, these operations are notified interest income for restructured from time to time. accounts classified as ‘standard assets’ will be recognized on an Fiscal Stimulus Package accrual basis. Interest for accounts classified as ‘non To contain the impact of the performing assets’ will be global financial meltdown on the recognized on cash basis. Indian economy, the Government of India unveiled (iv) A special regulatory fiscal stimulus packages on treatment for asset December 7, 2008, January 2, classification, i.e., retention of 2009 and February 24, 2009. the asset classification of the restructured account in the pre Highlights of the fiscal stimulus restructuring asset classification package announced on category, will be available to the December 7, 2008 include the borrowers engaged in important following: business activities. Availability of such treatment is however (i) In order to provide a stimulus subject to certain conditions. via planned expenditure, the Government will seek Extension of Period of Credit authorization for additional for Rupee Export Credit planned expenditure of up to
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Interest Rates: Rs.20,000 crore in the current year. In order to alleviate the difficulties faced by exporters (ii) An across-the-board cut of due to weakening of external 4% in the ad valorem central demand, the Reserve Bank of value added tax for the India has decided that, from remaining part of the ongoing November 28, 2008 onwards, financial year on all products, the interest rate on Post- except petroleum. Therefore, the Shipment Rupee Export Credit three major rate slabs of central up to 180 days will not exceed excise duty of 14%, 12% and BPLR minus 2.5 percentage 8% have been reduced to 10%, points. 8% and 4%, respectively.
On December 6, 2008, it was (iii) Interest subvention of 2% up further decided that the above to March 2009 has been mentioned interest rate of BPLR implemented for pre- and post- minus 2.5 percentage points shipment export credit for may also be extended to labour-intensive exports like overdue bills up to 180 days textiles, leather, marine products from the date of advance. and SME. The concession is subject to a minimum rate of On December 16, 2008, it was interest of 7% per annum. further decided that banks may charge interest rates not (iv) An additional Rs.1,100 crore exceeding BPLR minus 4.5% on for full refund of terminal excise pre-shipment credit up to 270 duty/CST and another Rs350 days and post-shipment credit crore for export incentive up to 180 days on the schemes and a back-up outstanding amount for the guarantee of Rs. 350 crore to period from December 1, 2008 Export Credit Guarantee to March 31, 2009 to the Corporation (“ECGC”) for exporters in the sectors of providing guarantee for exports textiles (including handloom), to difficult markets and products handicrafts, carpets, leather, will be provided. gems and jewellery, marine products, and small and medium (v) Exporters will be given a enterprises. However, the total refund of service tax on foreign subvention will be subject to the agent commissions up to 10% of condition that the interest rate, FOB value of exports. They will after subvention, will not fall also be given a refund of service below 7%, which is the rate tax on output services while applicable to the agriculture availing of benefits under Duty sector under priority sector
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES lending. Interest Subvention of Drawback Scheme. 2% with effect from December 1, 2008 until March 31, 2009 on (vi) The lock-in period for loans pre- and post-shipment rupee to small firms under the existing export credit has also been credit guarantee scheme will be extended to the above reduced from 24 to 18 months to mentioned exporters. As per the encourage banks to cover more interim budget released on loans under the guarantee February 16, 2009, it has been scheme. proposed to extend the above mentioned facility beyond March (vii) The Government will issue 31, 2009 until September 30, an advisory to Central Public 2009 as this is expected to Sector Enterprises and request involve an additional financial State Public Sector Enterprises outgo of Rs. 500 crore during to ensure prompt payment of financial year 2009-10. This bills of medium, small and micro proposal has been implemented enterprises (“MSMEs”). Easing by RBI vide its notification dated of credit conditions is expected March 25, 2009. to help PSUs to make such payments on schedule. Reduction of Interest Rates (viii) India Infrastructure Finance In order to boost the housing Co. is allowed to raise Rs10,000 sector by making home loans crores through tax-free bonds by available at cheaper rates, March 31, 2009 as part of the public sector banks from exercise to support the December 16, 2008, onwards Rs.100,000-crore highways have decided to charge a development programme. concessional rate of 9.25% for loans below Rs.20 lakh and (ix) Public Sector Banks will 8.5% for loans less than Rs.5 soon announce a package for lakh. Furthermore, the interest borrowers of home loans in two rates for micro industries and categories: (1) up to Rs.5 lakhs small and micro enterprises and (2) Rs.5 lakh to Rs.20 lakh. have also been reduced by 100 and 50 basis points, (x) Government departments will respectively. be allowed to replace government vehicles within the Extension of Time Line for allowed budget, in relaxation of Forex Swap Facility extant economy instructions.
Vide its press release dated (xi) The export duty on iron ore November 7, 2008, RBI had fines has been eliminated and extended a forex swap facility on lumps for steel industry, has
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES for tenors up to three months to been reduced from 15% to 5%, public and private sector banks respectively. having overseas operations in order to provide them flexibility Highlights of the fiscal stimulus in managing their short term package announced on January funding requirements at their 2, 2009 are as follows: overseas offices. This facility was available until June 30, (i) An SPV will be designated to 2009. In view of the continuing provide liquidity support against uncertain credit conditions investment grade paper to globally, the availability of this NBFCs fulfilling certain facility has now been extended conditions. The scale of liquidity until March 31, 2010 vide RBI potentially available through this press release dated February 5, mechanism will be Rs.25,000 2009. crores.
Increase in Interest Rate (ii) An arrangement will be Ceiling on Export Credit in worked out with leading public Foreign Currency: sector banks to provide a line of credit to NBFCs specifically for Due to increase in the banks' the purchase of commercial costs of raising funds abroad, vehicles. they were finding it difficult to extend credit within ceiling on (iii) Credit targets of public export credit in foreign currency, sector banks are being revised i.e., LIBOR + 100 basis points. upward to reflect the needs of Therefore, RBI vide its press the economy. The Government release dated February 5, 2009, will closely monitor, on a increased the ceiling on export fortnightly basis, the provision of credit in foreign currency from sectoral credit by public sector LIBOR + 100 basis points to banks. LIBOR + 350 basis points with immediate effect. This increase (iv) Special monthly meetings of is, however, subject to the State Level Bankers’ condition that the banks will not Committees will be held to levy any other charges, i.e., oversee the resolution of credit service charge, management issues of MSME by banks. The charge, etc. except for recovery Department of MSME and the towards out-of-pocket expenses Department of Financial incurred. Similarly, the ceiling Services will jointly set up a Cell interest rate on the lines of credit to monitor progress on this front. with overseas banks has also Matters of MSMEs remaining been increased on February 5, unresolved with the Banks-SME 2009 from six months Helpline for more than a
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES LIBOR/EURO LIBOR/EURIBOR fortnight may be brought to the + 75 basis points to six months notice of this Cell. LIBOR/EURO LIBOR/EURIBOR + 150 basis points, with (v) In the fiscal stimulus package immediate effect. announced on December 7, 2008, the guarantee cover under the Credit Guarantee Scheme for micro and small enterprises on loans was extended from Rs.50 lakh to Rs.1 crore with a guarantee cover of 50%. In order to enhance the flow of credit to micro enterprises, it was decided on January 2, 2009 to increase the guarantee cover extended by the Credit Guarantee Fund Trust to 85% for credit facility up to Rs.5 lakh. This will benefit about 84 % of the total number of accounts accorded guarantee cover.
(vi) To help maintain the momentum of expenditure at the state government level, in the current financial year states will be allowed to raise additional market borrowings of 0.5% of their Gross State Domestic Product (“GSDP”), amounting to about Rs30,000 crore for capital expenditures.
(vii) To ensure that infrastructure projects are not starved of funds, India Infrastructure Finance Company (“IIFCL”) has been authorized to raise an additional Rs.30,000 crores by way of tax free bonds so as to enable it to fund additional projects of about Rs.75,000 crore at competitive rates over the next 18 months. However,
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES these funds can be raised only once the funds raised in the current year are effectively utilized since IIFCL has already been authorized to raise Rs.10,000 crores through tax- free bonds by March 31, 2009 for refinancing bank lending of longer maturity to eligible infrastructure bid based Public Private Partnership (“PPP”) projects.
(viii) Given that the rupee has appreciated nearly 4% against the dollar since November 2008, it has been decided to restore Duty Entitlement Passbook Scheme (“DEPB”) rates to those prevailing prior to November 2008. The objective of DEPB is to neutralize the incidence of Customs duty on the import content of the export product. The neutralization will be provided by way of grant of duty credit against the export product. In addition, in order to provide predictability and stability of regime in the short term for future contracts, the DEPB Scheme will be extended till December 31, 2009.
(ix) Duty drawback benefits on certain items including knitted fabrics, bicycles, agricultural hand tools and specified categories of yarn are being enhanced. These changes will take effect retrospectively from September 1, 2008.
(x) Accelerated depreciation of
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES 50% will be provided for commercial vehicles to be purchased on or after January 1, 2009 until March 31, 2009.
(xi) GOI will work with State governments to encourage them to release land for low income and middle income housing schemes.
(xii) States, as a one time measure until June 30, 2009, will be provided with assistance under the Jawaharlal Nehru National Urban Renewal Mission (“JNNURM”) for the purchase of buses for their urban transport systems. A scheme towards this end will be announced shortly.
(xiii) The Government is closely monitoring its spending to expedite the pace of expenditure for all schemes and programmes. Government will set up a fast track monitoring committee to ensure expeditious approval and implementation of central projects.
(xiv) EXIM Bank has obtained from RBI a line of credit of Rs.5000 crore and will provide pre-shipment and post-shipment credit, in rupees or dollars, to Indian exporters at competitive rates.
Highlights of the fiscal stimulus package announced on February 24, 2009 are as follows:
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES (i) The general reduction in excise duty rates by 4% points which was made by virtue of the first fiscal stimulus package, i.e., with effect from December 7, 2008 has been extended beyond March 31, 2009.
(ii) The general rate of central excise duty will be reduced from 10% to 8%.
(iii) The rate of central excise duty on goods currently attracting ad valorem rates of 8% and 4% respectively will be retained.
(iv) The rate of central excise duty on bulk cement will be reduced from 10% or Rs.90 Per Metric Ton (“PMT”), whichever is higher to 8% or Rs.30 PMT, whichever is higher.
(v) The rate of service tax on taxable services will be reduced from 12% to 10%.
(vi) Section 10AA of the Income Tax Act provides for exemption in respect of export profits of a unit located in a Special Economic Zone (“SEZ”). The export profits are required to be computed with reference to the total turn over of the assessee. Given that this has resulted in discriminatory treatment of assessees having units located both in SEZ and the Domestic Tariff Area (“DTA”) vis-à-vis assessees having units located only within the SEZs, it has been
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES decided to remove this anomaly through necessary changes in the Income Tax Act.
(vii) In order to spur the development of infrastructure and employment generation, the ceiling of fiscal deficit which the states could incur in 2008-09, i.e., 3.5% of the Gross Domestic Product (“GDP”), has been extended to 2009-10 with the possibility of further review, if required, in the coming months.
Custom Duty Exemption for Newsprint
In view of the current economic slowdown, the Government of India on February 11, 2009 completely exempted customs duty on ‘newsprint’, ‘uncoated paper used for printing of newspapers’ as well as on ‘light weight coated paper used for printing magazines’.
Foreign Investment
In order to streamline the methodology of calculation of indirect foreign investment across sectors, the Government of India vide its press release dated February 11, 2009, adopted guidelines for calculation of total foreign investment i.e., direct and indirect foreign investment in Indian companies.
The salient features of these
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES guidelines are:
(i) All investment directly by a non-resident entity into the Indian company would be counted towards foreign investment.
(ii) The foreign investment through the investing Indian company would not be considered for calculation of the indirect foreign investment in case of Indian companies which are ‘owned and controlled’ by resident Indian citizens and Indian companies which are ‘owned and controlled’ ultimately by resident Indian citizens.
(iii) For cases where this condition is not satisfied or if the investing company is owned or controlled by ‘non resident entities’, the entire investment by the investing company into the subject Indian company would be considered as indirect foreign investment.
(iv) As an exception, the indirect foreign investment in only the 100% owned subsidiaries of operating-cum- investing/investing companies, will be limited to the foreign investment in the operating- cum-investing/investing company. For the purposes of explanation, it is clarified that this exception is being made since the downstream investment of a 100% owned subsidiary of the holding
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES company is akin to investment made by the holding company and the downstream investment should be a mirror image of the holding company.
In furtherance of the above mentioned guidelines, the Government of India vide its press release dated February 27, 2009 and press note 4 of 2009 has issued clarifications with respect to downstream investment by Indian companies. Salient features of these clarifications are:-
(i) Foreign investment into operating companies and operating cum investing companies would be subject to compliance with conditions applicable to the relevant sector. The same would apply to downstream investments made by operating cum investing companies as well.
(ii) Prior FIPB approval would be required for foreign investment in investing companies, regardless of the amount or extent of foreign investment. Downstream investments by such a company would require compliance with conditions applicable to the relevant sector.
(iii) Prior FIPB approval would be required for foreign investment into companies not having any operations or downstream investments, regardless of the amount or
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES extent of foreign investment.
1 This section is up to date as at 9 April 2009.
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IRELAND SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES On October 20, 2008, the The protection limit for Ireland’s The Minister for Finance On January 15, 2009, the Irish The Credit Institutions (Financial Minister for Finance made the existing deposit protection announced details of a Government announced its Support) Act 2008 (the “Act”) Credit Institutions (Financial scheme was extended on recapitalization program for the decision to nationalize the third provides the Minister for Finance Support) Scheme 2008 (the September 20, 2008 to Bank of Ireland and Allied Irish biggest bank in the State, Anglo with broad powers to provide “Scheme”). €100,000 per depositor per Banks on February 11, 2009. Irish Bank Corporation plc financial support in respect of institution, from its previous limit Earlier plans had provided for (“Anglo Irish Bank”). The the borrowings, liabilities and The Scheme gives effect to the of €20,000. the recapitalization of each of decision was taken after obligations of any credit State bank guarantee the three largest banks in the consultation with the Central institution or subsidiary specified announced by the Irish Note also that the Scheme State: Bank of Ireland, Allied Bank and the Financial by order. The Act also amends Government on September 30, described in the first column Irish Banks and Anglo Irish Regulator, which confirmed that Irish merger control rules. 2008. Under the Scheme, the covers all retail, corporate and Bank. However, following the Anglo Irish Bank remained Minister for Finance has inter-bank deposits (to the nationalization of Anglo Irish solvent. The nationalization Financial support under the Act guaranteed certain “covered extent not covered by the Bank (see opposite), its planned became effective on January 21, cannot be provided for any liabilities” of “covered existing depositor protection recapitalization will no longer 2009. period beyond September 29, institutions” from September 30, scheme). proceed. 2010. 2008 to September 29, 2010 In announcing the inclusive. The EU Commission In summary, under the nationalization plan, the Minister Financial support is defined as has approved the Scheme as recapitalization program, the for Finance explained that the including loans, guarantees, being compatible with EC Treaty Irish Government will invest €3.5 funding position of the bank had exchange of assets and any state aid rules. billion of Core Tier 1 capital in weakened and that recent other kind of financial each of the Bank of Ireland and unacceptable practices had accommodation or support. The The Scheme is only open to Allied Irish Banks. Bank of caused serious reputational Minister for Finance has power systemically important credit Ireland was recapitalized on damage to the bank at a time to provide support on “such institutions and certain named March 31, 2009 and it is when overall market sentiment commercial or other terms and subsidiaries of such credit expected that Allied Irish Banks towards it was negative. The conditions as the Minister thinks institutions. Institutions covered will be recapitalized in May plans announced on December fit”. by the Scheme are listed on the 2009. The investment will be 21, 2008 to recapitalize Anglo website of the Department of funded from the National Irish Bank have been The Scheme described in the Finance. Pension Reserve Fund. In abandoned in favor of first column was made pursuant return for the investment, the nationalization. The Minister to the Minister for Finance’s Liabilities covered by the Government will receive has confirmed that Anglo Irish powers under the Act. Scheme are known as “covered preference shares in each of Bank will continue to trade liabilities”. They comprise all Bank of Ireland and Allied Irish normally as a going concern, retail and corporate deposits (to Banks. These shares will have with appropriate government the extent not covered by a fixed annual dividend of 8%, support as necessary. existing deposit protection payable in cash or ordinary schemes in Ireland or any other shares in lieu of a dividend, and Anglo Irish Bank’s shares have jurisdiction); inter-bank deposits; will confer 25% of the voting been suspended from listing on senior unsecured debt; covered rights in respect of appointments the Irish Stock Exchange and bonds (including asset covered of directors and change of the London Stock Exchange. securities) and dated control. Warrants attached to Under the nationalization plan, subordinated debt (Lower Tier 2) the preference shares will give all shares in Anglo Irish Bank
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES (subject to certain restrictions), an option to the Government to pass to the Minster. An but excluding any intra-group purchase up to 25% of the Assessor will be appointed by borrowing and any debt due to ordinary share capital of each the Minister to determine the the ECB arising from bank existing on the date of compensation, if any, payable to Eurosystem monetary issue of the preference shares, Anglo Irish Bank shareholders. operations. calculated on a post-dilution basis. Bank of Ireland and On April 7, 2009, the Irish Under the Scheme, the Irish Allied Irish Banks will be able to Government announced its Financial Regulator, in redeem the preference shares decision to create the National consultation with the Minister for within five years at the issue Asset Management Agency Finance, will impose conditions price, or after five years at 125% (“NAMA”). NAMA will be a that regulate the commercial of the issue price. commercial, semi- state entity conduct and competitive under the government, direction behavior of covered institutions. In February 2009, the Financial and management of the National The conditions are described in Regulator published statutory Treasury Management Agency. detail in the Scheme. codes of practice on (a) business lending to small and While specific details of the In conducting its six month medium enterprises; and (b) operation of NAMA are to be review of the Scheme, the mortgage arrears for principal confirmed, the Government has Government has announced primary residences. Bank of indicated that potentially €80 that it will examine how the Ireland and Allied Irish Banks billion to €90 billion in assets Scheme can be revised in ways have also agreed not to (based on current book value, that include supporting longer commence legal action for but to be transferred at an term bond issuances by the repossession of a principal appropriate discount) will be covered institutions. This is in private residence until after 12 transferred from participating line with EU trends, where the months of arrears appearing, credit institutions to NAMA. average term of state cover for where the customer continues to These assets will include loans bond issues extends beyond cooperate reasonably and in respect of the purchase of 2010. Amendments to the honestly. land for development, Scheme will be subject to EU associated work in progress state aid approval. In an arrangements, certain property emergency budget statement on investment loans and the largest April 7, 2009, the Minister for property-backed exposures of Finance confirmed the participating banks. Land and Government’s intention to put in development loans outside of place a state guarantee for the Ireland will also be considered future issuance by Irish credit for transfer to NAMA. institutions of debt securities with a maturity of up to five The assets will be acquired by years. Further details of this NAMA at an appropriate new guarantee are expected in discount depending on the value due course and the proposal is of the assets and an subject to EU state aid approval. assessment of the risk being transferred to the State. Assets
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES acquired by NAMA will be paid for either in Government bonds or in Government guaranteed bonds issued by NAMA. Participating banks are likely to be required to transfer all loans in particular portfolios. The legislation is expected to include a mandatory power to acquire assets so as to ensure cooperation of the participants or to overcome legal difficulties with the transfer of assets.
NAMA will be an asset management company and not a credit institution. It will be designed to act on a commercial and independent basis and to actively manage its loan portfolio to ensure optimal return. The objective is to stabilise Irish credit institutions by strengthening their balance sheets and reducing uncertainty over their bad debts, so as to facilitate lending to individuals and businesses.
The finalizing of the design of the NAMA initiative will take full account of the European Commission’s communication on the treatment of impaired assets and is subject to EU state aid approval. Further details are expected in due course.
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ITALY1 SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES On December 4, 2008, the Law No. 190/2008 authorizes Law No. 190/2008 provides that, Law No. 190/2008 authorizes Law No. 190/2008 authorizes Italian Parliament approved Law the Ministry of the Economy to in the event of severe liquidity the Ministry of the Economy, to the Ministry of the Economy to No. 190, which, inter alia, guarantee Italian banks’ crises, the Ministry of the subscribe for or guarantee guarantee, on market terms, incorporates the measures depositors for a 36-month Economy is authorized to capital increases of Italian banks newly issued bank liabilities adopted by the Government on period. guarantee loans granted by the (including the parent company of having a maturity of up to five an urgent basis1 for the Bank of Italy to Italian banks or an Italian banking group) that years. stabilization of the credit system This guarantee is in addition to the Italian branches of foreign the Bank of Italy determines to and the improvement of capital the existing deposit guarantee banks. be inadequately capitalized. Law No. 190/2008 empowers adequacy of Italian banks (“Law introduced by Legislative Decree These transactions must be the Ministry of the Economy to No. 190/2008”). Following No. 659 of December 4, 1996, On October 13, 2008, the Bank effected giving consideration to effect temporary exchanges publication in the Official which provides for a guarantee of Italy, through a press release, market conditions. In order to between government securities Gazette, Law No. 190/2008 equal to a maximum of announced: (i) the reduction, benefit from these measures, and assets held by banks or came into effect on December 7, €103,291.38 per depositor. with immediate effect, of the (i) the recapitalization must not liabilities of Italian banks having 2008.2 minimum threshold for loans to have been completed prior to a maturity of up to five years and Law No. 190/2008 does not be issued for refinancing October 9, 2008 and (ii) the issued after October 13, 2008 Law No. 190/2008 authorizes specify the maximum amount of transactions, from €1,000,000 to bank must adopt or have (see also the temporary the Ministry of the Economy and the guarantee. €500,000; and (ii) the adopted a more comprehensive exchange program implemented Finance (the “Ministry of the implementation of a temporary stabilization and financial by the Bank of Italy and Economy”) to guarantee, on exchange program between strengthening plan covering at discussed under “Special market terms, transactions government securities held by least the subsequent 36 months. Central Bank Assistance carried out by Italian banks to the Bank of Italy and assets held Measures”). obtain securities eligible for use by Italian banks. The Bank of Italy is required to in refinancing transactions within evaluate the existence of the Law No. 190/2008 provides that the Eurosystem. The temporary exchange above-mentioned conditions, the the Bank of Italy may grant program is capped at €40 billion. adequacy of the plans and loans secured by pledge or policy on dividends approved by assignment of receivables to the applicant bank. Italian banks to satisfy their liquidity requirements. The These shares, for so long as pledges or assignments of they are held by the Ministry of receivables issued in the Economy, are (i) without accordance with such provision voting rights; (ii) preferred in the are enforceable vis-à-vis any distribution of dividends to all debtor and third parties and they other classes of shares and become effective on the date of (iii) redeemable by the issuer, execution of the security provided that the transaction will agreement. The secured loans not affect the financial condition granted by the Bank of Italy and solvency of the bank or the under this provision are not group to which the bank subject to clawback under Italian belongs. insolvency rules.
In addition to the Law No. On January 28, 2009, the Italian
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES 190/2008, a press release Parliament adopted Law No. 2 issued on October 30, 2008, (“Law No. 2/2009”), approving anticipated that the Government Law Decree No. 185 of is expected to establish a November 28, 2008, which, special fund (with €15-20 billion among other measures to available) to subscribe for sustain the economy, authorizes subordinated convertible the Ministry of the Economy, to securities issued by Italian subscribe for financial banks. Such securities would instruments issued by Italian have the benefit of being listed banks (or by the parent included for the purposes of company of Italian listed banking capital adequacy requirements groups), upon their request. as Tier 1 capital, without This program is set to expire entailing an immediate direct and cease every effect after 10 State participation in the share years from the approval of Law capital. The press article also No. 2/2009. On February 25, indicated that conversion rights 2009, the Ministry of Economy would be granted only to the adopted the required ministerial issuing bank. As of the date of decree which sets forth the this client publication, no specific terms and conditions for concrete action has been taken the subscription of the financial in this respect. instruments (the “Ministerial Decree”).
The instruments issuable pursuant to Law No. 2/2009 must be without voting rights and otherwise qualify as regulatory capital instruments. These instruments are not transferable without the consent of the issuer and may be convertible into ordinary shares at the option of the issuer. Early repayment or redemption at the option of the issuer may also be provided for, provided that the Bank of Italy attests that the proposed early repayment or redemption will not adversely affect the financial condition of the issuer or its solvency.
Their yield may be subject, in
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES whole or in part, to the availability of distributable profits.
The subscription by the Ministry of the Economy is conditioned upon the following conditions:
a) the transaction as a whole must be (i) economically sound (“economica”) according to the criteria set forth hereinafter, (ii) effected after due consideration is given to market terms, and (iii) aimed at ensuring an improved flow of financing to the real economy and appropriate capital adequacy levels in the banking system.
b) the issuer must undertake to ensure adequate levels and conditions of financing to small and medium businesses and families and adequate liquidity levels for creditors of public administrations;
c) the issuer must undertake to adopt dividend policies consistent with the need to maintain appropriate levels of capital; and
d) the issuer must adopt a code of conduct regulating, inter alia, executive compensation policies (including “golden parachutes”) and traders compensation.
The transaction is economically sound (“economica”) if the financial instruments bear an
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES interest equal to the greater of:
(a) (i) 7.5% with respect to year 2009, to be increased by 0.25% for each of the subsequent four fiscal years, and further increased by 0.5% for each subsequent two-year period until reaching 15% for 2039 and subsequent years; or alternatively (ii) 8.5% with respect to years 2009 through 2012, to be increased by 0.5% for each of the subsequent four fiscal years, and further increased by 0.50% for each subsequent two-year period until reaching 15% for 2039 and subsequent years; and
(b) a percentage of the dividend of the ordinary share, as indicated in the borrower’s financial statements, equal to (i) 105% for year 2009, (ii) 110% for 2010; (iii) 115% for years from 2011 to 2017, and (iii) 125% for 2018 and subsequent years; and
(c) a percentage of the nominal value of the financial instruments equal to the average yield on the 30-year Treasury Bonds (Buoni del Tesoro Poliennali or BTP), as calculated in the first quarter of each year in which interest is being paid, increased by 300 basis points for years 2011 and 2012 and by 350 basis points for 2013 and subsequent years.
Furthermore, the transaction
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES may also be considered economically sound (“economica”) if the financial instruments are subscribed for by private persons for at least 30% of the aggregate size of the issuance (of which at least 20% is subscribed for by persons other than shareholders holding more than 2% of the share capital of the issuer);
The amount available for each bank cannot exceed 2% of the total assets of the relevant banking group weighted by the risk and it must be limited to the minimum amount necessary to reach the purposes of Law 2/09.
The Ministerial Decree also provides that the banks that participate in this program must carry out their activities in a way that does not represent an abuse of the assistance received and without pursuing aggressive expansion strategies. Furthermore, the Ministerial Decree indicates that the subscription by the Ministry of Economy is made upon request of a bank. The application must be filed with the Bank of Italy and the Ministry of Economy at least 30 days prior to the expected subscription date.
1 On October 9, 2008, the Italian Government issued Law Decree No. 155 and on October 13, 2008, Law Decree No. 157. 2 Law No. 190/2008 requires further ministerial decrees to be implemented. The law provides for a 60-day term for the issuance of the ministerial decrees running from October 9, 2008; in the absence of the ministerial decrees, no concrete action can be taken under the program. Thus far, the only measure that has been used is the Bank of Italy’s temporary exchange program between government securities held by the Bank of Italy and assets held by Italian banks.
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3 Law Decree No. 185/2008 is currently in force pending its approval by the Italian Parliament which must take place by no later than January 28, 2009. In addition, Law Decree No. 185/2008 requires a further ministerial decree before it can be implemented, which was supposed to be adopted before December 29, 2008. No such decree has been approved to date. In the absence of the relevant ministerial decree no concrete action can be undertaken by the Ministry of the Economy under this law decree.
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JAPAN SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES The Government has relaxed On December 19, 2008, the BoJ Japan, China, South Korea and On December 12, 2008, the regulations on companies decided to introduce outright other Asian countries are Japanese Government buying up their own shares. purchases of commercial paper working to form an $80 billion announced an economic issued by companies to raise reserve-pool scheme from mid- stimulus package valued at short-term funds. 2009 to boost liquidity in the 23 trillion yen, which includes region. 10 trillion yen in Government spending and 13 trillion yen to stabilize the financial system (including 10 billion yen to recapitalize banks and 2 trillion yen to purchase commercial paper through the Development Bank of Japan). This brings the Japanese Government’s total economic stimulus package announced to date to around 44 trillion yen.
On December 19, 2008, the BoJ decided to increase its outright purchase of JGBs from 14.4 trillion yen per year to 16.8 trillion yen per year, effective immediately. The BoJ also decided to expand the range of JGBs accepted in outright purchase and to introduce purchases from specific maturity segments. On March 18, 2009, the BoJ announced that it would increase the amount of outright purchases of Japanese government bonds from 16.8 trillion yen per year to 21.6 trillion yen per year.
On December 19, 2008, the BoJ also decided the terms and conditions of the new operation utilizing corporate debt, of which introduction had been decided at the Monetary Policy Meeting
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES held on December 2, 2008.
On December 19, 2008, the BoJ decided to include the Development Bank of Japan Inc. as a counterparty in operations such as commercial paper repo operations.
On January 22, 2009, the BoJ decided to purchase up to 3 trillion yen of commercial paper and asset-backed commercial paper rated a-1 or higher and with the residual maturity up to 3 months, with certain restrictions.
Beginning on February 26, 2009, the BoJ will provide funds against collateral for a period of three months for a fixed rate, currently at 0.1%, which is the same as the current uncollateralized overnight call rate.
On February 3, 2009, the BoJ announced that it will resume the purchase of stocks held by financial institutions so that the financial institutions may offload some of their stocks and reduce market risks. The total purchase amount is for 1 trillion yen.
The BoJ has also decided to purchase up to 1 trillion yen of corporate bonds rated single A or higher and have a remaining term of one year or less from the last date of the month in which the Bank of Japan will make such a purchase. The limit per issuer of the corporate bonds is
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES 50 billion yen.
On April 22, 2009, the Diet enacted the Industrial Revitalization Law which will enable the government-backed Japan Finance Corporation to guarantee investments by designated financial institutions such as the Development Bank of Japan. The guarantee will be limited to investments in companies that have announced a plan to improve profitability within three years. Among other requirements, eligible companies must also have at least 5,000 employees in Japan and, between October 2008 and September 2009, revenue must have decreased by at least 20% on a quarterly basis or at 15% on a semi-annual basis compared to the same periods of the previous year. The guarantee will be from 50% to 80% of investments.
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LUXEMBOURG SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Following the recapitalization of As of January 1, 2009, the level Fortis In a statement made to the the Dexia group (see the of the protection of the deposit Luxembourg Parliament on the Recapitalization Measures guarantee in Luxembourg has The Luxembourg Government financial crisis on October 15, column), a Grand-Ducal been increased from €20,000 to has announced, on the basis of 2008, Prime Minister Jean- Regulation was enacted on €100,0003. an agreement of September 28, Claude Juncker declared that October 10, 2008, authorizing 2008 with the Dutch and Belgian “… the Luxembourg the Luxembourg Government to Governments, that as a first step Government and the grant a financial guarantee to it would invest €2.5 billion in Luxembourg Central Bank will the Dexia group (the Fortis Banque Luxembourg S.A. take all necessary steps to “Regulation”). (“Fortis”) in the form of a secure the liquidity of money convertible loan.4 The market funds established under This Regulation further aims at Luxembourg Government would Luxembourg law.” implementing an thus take 49% in the capital of intergovernmental agreement Fortis. between the Luxembourg, Belgian and French On October 6, 2008, the Governments that, pursuant to Luxembourg Government the common press release of announced that it had sold 16% these Governments1, aims to of Fortis to the BNP Paribas assure depositors that the Dexia group. Under the agreement, group will have sufficient BNP Paribas will hold 67% in liquidity. Fortis,5 while the Luxembourg State will hold 33% in Fortis and Pursuant to the Regulation, the will acquire 1.1% of the share Government is authorized to capital of BNP Paribas. guarantee, for the account of the Luxembourg State, funding Dexia obtained by the Dexia group2 with credit institutions and The Luxembourg, Belgian and institutional depositories as well French Governments and the as bonds and debt instruments shareholders of Dexia agreed to issued by the Dexia group to recapitalize the Dexia group on institutional investors (the September 30, 2008. Pursuant abovementioned credit to this agreement, the institutions, institutional Luxembourg Government depositories and institutional announced that it would investors being referred to as subscribe to the issuance by the “Creditors”). In order to be Dexia B.I.L. S.A. of convertible eligible for the guarantee, this bonds/loan of €376 million,6 funding and the bonds and debt which if converted would instruments must have been represent roughly 20% in Dexia issued between October 9, 2008
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES and October 31, 2009, and must B.I.L. S.A. mature before October 31, 2011.
In accordance with the state aid rules of the EC Treaty, on November 19, 2008 the European Commission approved this state financial guarantee for the Dexia group.7
Further to the European Commission’s approval and in accordance with the Regulation, a first demand guarantee has been granted in favour of the Dexia group (and its Creditors) on December 9, 2008 by Luxembourg, Belgium and France.8
The guarantee of the Luxembourg State cannot exceed €4.5 billion. It is granted jointly but not severally with Belgium and France.
1 Communiqué (Public release), Communication conjointe des gouvernements français, belge et luxembourgeois relative à Dexia, October 9, 2008, available at www.gouvernement.lu. 2 i.e., Dexia S.A. and Dexia Banque Belgique S.A., Dexia Banque Internationale à Luxembourg S.A., Dexia Credit Local de France S.A. as well as their issuing vehicles. 3 Loi du 19 décembre 2008 concernant le budget des recetteset des dépenses de l’Etat pour l’exercice 2009. 4 Article d’actualité (News), Les gouvernements belge, luxembourgeois et néerlandais investissent 11,2 milliards d’euros dans Fortis, September 29, 2008, available at www.gouvernement.lu. 5 Article d’actualité (News), Fortis Banque Luxembourg devient BGL-BNP Paribas, 06-10-2008, available at www.gouvernement.lu. 6 Article d’actualité (News), Les gouvernements belges, français et luxembourgeois ainsi que les actionnaires investissent 6,4 milliards d’euros dans Dexia, September 30, 2008, available at www.gouvernement.lu 7 See Press release at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1745&format=HTML&aged=0&language=FR&guiLanguage=fr. 8 Communiqué de presse conjoint des États belge, français et luxembourgeois relatif à Dexia: signature d’une convention, December 10, 2008, available at www.gouvernement.lu.
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THE NETHERLANDS SPECIAL CENTRAL BANK RECAPITALIZATION ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES As of October 23, 2008, a Credit On March 10, 2009, the Minister DNB will grant special credit to The Dutch State announced on Fortis Reference is made in other Guarantee scheme (“the of Finance announced that the individual financial institutions October 9, 2008, a €20 billion columns. scheme”) set up by the Dutch increase of the guaranteed against adequate collateral, if fund to recapitalize financial On October 3, 2008 the Dutch State of €200 billion is amount under the deposit and for as long as necessary. institutions, with €13 billion State acquired all of Fortis operational for non-complex guarantee scheme from €40,000 The short-term financing of already committed to individual Group’s Dutch activities for a senior unsecured loans to to €100,000 per person per bank these institutions against institutions (see Assistance to total consideration of €16.8 financial institutions made by (regardless of the number of collateral will hence be secured. Individual Institutions). billion. These activities include other financial institutions and accounts) will apply indefinitely. Fortis’ interest in ABN AMRO, institutional investors. These This increase was first Funds will be directly available Fortis Verzekeringen Nederland guarantees are available until announced on October 7, 2008 to fundamentally sound and N.V. and Fortis Corporate December 31, 2009 to financial to apply for one year. All EU viable financial institutions that Insurance N.V. institutions with their principal member states are obliged to may run into liquidity or capital place of business in the guarantee a minimum amount of problems. €20 billion is The sale of these entities to the Netherlands and to subsidiaries €100,000 from January 1, 2010. available until January 20, 2009 Dutch State was challenged established in the Netherlands to financial institutions and before the Belgian courts, of foreign banks with substantial Where two people have a joint insurance companies through together with the sale of Fortis business in the Netherlands.1 account, either accountholder participation, preference shares Bank S.A./N.V. to the Belgian can claim payment under the or by any other means. State and the subsequent sale Instruments eligible to be deposit guarantee scheme. The thereof to BNP Paribas. On guaranteed are limited to maximum joint deposit covered December 12, 2008, the securities denominated in is therefore €200,000. Brussels Court of Appeal held EURO, US$ and GBP with that the share transfers required maturities from three months to All Dutch banks that operate the approval of the general five years and extend only to under a licence from the Dutch meeting of shareholders. non-complex senior unsecured Central Bank (De loans; “plain vanilla” commercial Nederlandsche Bank (DNB)) are At an extraordinary meeting of paper, certificates of deposit and covered by the Dutch deposit shareholders held in February medium-term notes. guarantee scheme. 2009, the shareholders of Fortis voted against the sales referred Fees to be paid by participating DNB has activated the deposit to above. financial institutions will depend guarantee scheme for on their creditworthiness and will accountholders of As regards the sale to the be based on historical credit Icesave/Landsbanki Ísland hf. Belgian State and to BNP default swap spreads (or an on October 13, 2008, and for the Paribas, in March 2009, Fortis, approximation if necessary), accountholders of N.V. De BNP Paribas and the Belgian with an addition of 50 basis Indonesische Overzeese Bank Government reached a new points. Maturities of less than a (Indover) on November 11, agreement on the proposed year will have a fixed fee of 50 2008. transactions, which agreement basis points. was approved by the shareholders meeting of Fortis Participating institutions will also Holding on April 28 and 29, be required to meet certain 2009. The acquisition of the
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SPECIAL CENTRAL BANK RECAPITALIZATION ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES additional requirements on Dutch activities of Fortis by the corporate governance with Dutch State was already an respect to bonuses and accomplished fact and as such resignation premiums. will not be renegotiated. Therefore, with respect to this Up to the date of this overview, transaction, no new agreement the following financial was submitted for approval to companies have issued debt the Fortis shareholders meeting. instruments under the guarantee scheme: LeasePlan, NIBC ING Groep N.V. Bank, SNS Bank and ING Bank. Actual information on debt Issuance of Tier 1 securities issues under the guarantee scheme may be obtained on the ING Groep N.V. (“ING”) website of the Dutch State announced on October 19, 2008 Treasury Agency (see that it had reached an www.dsta.nl). agreement with the Dutch Government to strengthen its capital position.
ING has issued non-voting core Tier 1 securities for a total consideration of €10 billion to the Dutch State.
The Government has obtained the right to nominate two Supervisory Board members (and has exercised this right on October 22, 2008), who will have the right to veto fundamental decisions.
All members of ING’s Executive Board have relinquished their bonuses over 2008, both in cash payments and in options or shares. Resignation premiums have been restricted to one year’s fixed annual pay.
Illiquid Assets Bank-up Facility
On January 26, 2009, ING and
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SPECIAL CENTRAL BANK RECAPITALIZATION ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES the Dutch State have reached an agreement on an Illiquid Assets Back-up Facility covering 80% of ING's Alt-A mortgage securities.
Under the terms of the Back-up Facility, a full risk transfer to the Dutch State will be realized on 80% of ING's €27.7 billion portfolio of Alt-A RMBS at ING Direct USA and ING Insurance Americas. The Dutch State therefore will participate in 80% of any results of the portfolio. This risk transfer will take place at a discount of 10% of par value. ING will remain the legal owner of 100% of the securities and will remain exposed to 20% of any results on the portfolio.
The effects of the transaction on ING's capital and balance sheet will include a reduction of equity volatility, a positive impact on shareholders' equity of €5 billion through a reduction of the negative revaluation reserve. Risk-weighted assets will be reduced by approximately €15 billion, raising ING Bank's Tier 1 ratio by approximately 40 basis points to 9.5% and the core Tier 1 by 32 basis points to 7.4%, both on a pro forma basis.
For the duration of the Back-up Facility, ING will maintain the corporate governance measures agreed upon issuing core Tier 1 securities to the State in November 2008 (see above). In addition, the government-
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SPECIAL CENTRAL BANK RECAPITALIZATION ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES nominated members of the ING Supervisory Board will have approval rights on certain executive appointments. The Executive Board of ING has agreed to forego all bonuses until a reviewed remuneration policy will be completed. This policy will include criteria on sustainability for the Executive Board and is expected to be proposed to the annual General Meeting of Shareholders in 2010.
The transaction is expected to close in the first quarter of 2009, subject to further and regulatory approval.
AEGON
On October 28, 2008, the Dutch State reinforced the capital position of AEGON Group by €3 billion.
The Government will obtain €3 billion in securities, which have largely the same features as shares. The capital reinforcement is made available to AEGON via the Association AEGON, which is AEGON’s largest shareholder.
All members of the Executive Board will relinquish their bonuses over 2008, both in cash payments and in options or shares. AEGON will develop a sustainable remuneration policy. Resignation premiums will be restricted to one year’s fixed
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SPECIAL CENTRAL BANK RECAPITALIZATION ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES INSTITUTIONS OTHER MEASURES annual pay.
SNS REAAL N.V.
On November 12, 2008, the Dutch State has reinforced the capital position of SNS REAAL N.V. (hereafter: SNS) by €750 million. The Government has obtained €750 million in securities, which have largely the same features as shares.
The Government has obtained the right to nominate two Supervisory Board members, who will have the right to veto fundamental decisions. All members of SNS’s Executive Board have relinquished their bonuses over 2008, both in cash payments and in options or shares. Resignation premiums have been restricted to one year’s fixed annual pay.
1 The Dutch Government issued specific rules on its Credit Guarantee scheme on October 21, 2008, which is administered by the Dutch State Treasury Agency (see
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NEW ZEALAND GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED (WHOLESALE FACILITY) (RETAIL SCHEME) ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES A Wholesale Funding Guarantee The New Zealand Government On October 23, 2008, spurred Additional liquidity facilities have Facility (the “Wholesale Facility”) has guaranteed all deposits in by fears of a recession, New been provided by the Reserve has been established to facilitate institutions that ‘opt-in’ to the Zealand’s central bank cut its Bank of New Zealand to access to global financial Retail Scheme to a limit of benchmark interest rate by a registered banks. markets by registered banks. NZ$1 million per depositor per record full percentage point to guaranteed institution. 6.5%, warning that financial The Wholesale Facility is market turmoil will further available to financial institutions Institutions with total deposits at constrain the economy. that have a rating of BBB- or more than NZ$5 billion will be better and have substantial New charged a 10 bps p.a. fee for Cuts of 150 basis points were Zealand borrowing and lending guaranteed deposits in excess made on December 4, 2008 and operations. It is not available to of NZ$5 billion. A further fee will January 29, 2009 meaning that institutions that are primarily be charged on the growth of the official cash rate at 3.5% financing a parent or related deposits held by guaranteed was at its lowest level since company, non-financial issuers institutions that have a total being introduced as the key (e.g., corporate or local authority deposit value of less than official interest rate in 1999. issuers) or collective investment NZ$5 billion.1 schemes. Further cuts of 50 basis points The Retail Scheme extends were made on March 12, 2009 All newly issued senior beyond registered banks to non- and April 30, 2009 bringing the unsecured negotiable or bank deposit takers (finance official cash rate to a further transferable debt securities by companies, building societies record low of 2.5%. eligible financial institutions in all and credit unions) and to major currencies are eligible for collective investment schemes coverage. The Wholesale (such as unit trusts).2 Facility covers any paper issued until the earlier of its maturity or The opt-in scheme takes the for up to five years. form of a bilateral contractual agreement between the Eligible institutions are required Government and the individual to “opt-in” to the Wholesale institutions which take up the Facility and must then apply for guarantee. The Treasury has an eligible instrument to be discretion to decline applications covered. A fee of between 70 to participate in the Retail bps p.a. and 200 bps p.a. will be Scheme.3 charged on each issue differentiated upon the Participating institutions in the “riskiness” of the issue and the Retail Deposit Guarantee term of the security. As part of Scheme are exempted from the “opt-in” process institutions certain provisions of the will enter into a guarantee facility Securities Act 1978 and the with the Crown and then the Securities Regulations 1983,
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GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED (WHOLESALE FACILITY) (RETAIL SCHEME) ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Crown will issue the actual subject to certain conditions. guarantee as a separate The exemptions relate to document. Accompanying the required information about guarantee will be an opinion as guarantors in registered to enforceability issued by a prospectuses and solicitor of the Treasury in their advertisements. capacity as a legal advisor to the Crown. Guarantees for banks and non- bank deposit takers are currently The Treasury has reduced the being approved. Approvals of fees that apply to the Wholesale guarantees for collective Facility in order to take into investment schemes will follow. account the changing market There have been no approved environment. guarantees for collective investment schemes as at Once an institution has been January 23, 2009. approved, application may be made for an individual instrument to be covered by the guarantee. The guarantee itself does not provide for the guarantee of any individual instrument – this must be done separately. If approval is given by the Crown an eligibility certificate will be granted.
Deposit-taking institutions that wish to participate will be expected to have opted-in to the Retail Scheme. Any institution which joins the Wholesale Facility will be required to agree that the securities eligible for a wholesale guarantee (whether actually guaranteed or not) are not covered by the Retail Scheme.
The Wholesale Scheme will require institutions to enter into a deed of guarantee which gives them access to the guarantee but does not in and of itself
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GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED (WHOLESALE FACILITY) (RETAIL SCHEME) ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES guarantee any debt. In order for a debt instrument to be guaranteed an institution will need to apply for a guarantee eligibility certificate. As at February 25, 2009 only two institutions have entered into a deed of guarantee with the Crown and no eligibility certificates have been issued.
Participating institutions will be required to have: additional capital buffers; prudential supervision; and undertaken that the foreign exchange risk associated with foreign currency borrowing will be hedged and managed.
Two major New Zealand banks have had guarantees issued in their favor and the first successful issue of government guaranteed debt took place on March 27, 2009.
1 The fee charged on institutions with less than $5 billion in deposits will only apply to the increase in total deposits since the scheme was announced (above the 10% allowed growth per annum). A further fee will be imposed upon non- bank deposit takers that are non-rated or rated BB (or below) of 300 bps p.a. New non-bank deposit takers wishing to join the scheme will need to be rated BBB- or better in order to be eligible. 2 Non-bank deposit takers and collective investment schemes will be subject to stringent requirements under the Retail Scheme. In order to be eligible, non-bank deposit takers will be subject to increased reporting requirements, limitations on entering transactions with related companies and personal undertakings from directors. Collective investment schemes will access the Retail Scheme by way of a Deed of Nomination which allows those schemes to benefit from the Guarantees already in place without being subject to the $1 million cap. Each scheme will only be guaranteed if it: invests only in New Zealand Government securities or debt securities issued by institutions participating in the Retail Scheme; and does not increase investments in participating institutions (other than registered banks) beyond the levels that existed as at October 12, 2008. The Wholesale Scheme and the Retail Scheme will be administered by the New Zealand Treasury. Further information can be found on its website: www.treasury.govt.nz. 3 Participating institutions in the Retail Deposit Guarantee Scheme are exempted from certain provisions of the Securities Act 1978 and the Securities Regulations 1983, subject to certain conditions. The exemptions relate to required information about guarantors in registered prospectuses and advertisements.
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NORWAY SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES NOK2 million per person. Norges Bank has since On February 8, 2009, the State On October 24, 2008, the In May 2008, Norges Bank and October 1, 2008 made the Finance Fund was established Norwegian Government Sedlabanki Islands agreed on a following measures: with total capital in the amount presented a NOK350 billion swap facility, entitling of NOK50 billion. In order to Government bond swap facility Sedlabanki Islands to borrow ▪ Offered two-year fixed-rate ensure that financial institutions to be administered by Norges €500 million if and when the loans particularly designed to will be able to access this capital Bank on behalf of the Ministry of need arises. On November 3, secure funding for small and through this, increase their Finance. 2008, Norges Bank announced banks. The loans are offered lending capabilities, the fund will that the agreement would be by auction on market terms to invest in financial instruments Under the swap arrangement, extended to December 31, 2009 banks operating in Norway which will count towards capital government securities are subject to certain conditions. At and are provided against adequacy requirements (tier exchanged in return for the same time, Norges Bank collateral in the form of capital). The fund will be a Norwegian covered bonds. The expressed its willingness to offer securities. separate legal entity. arrangement is governed by Sedlabanki Islands a medium- guidelines issued on term loan (five years) of The maximum bid for a two- The fund will supply banks with November 3, 2008. The €500 million. Such loan will year loan is NOK1 billion. core capital through two types of guidelines set out the require a state guarantee. financial instruments, both with requirements for the securities ▪ Offered banks new three- requirements regarding a and their valuation. In a joint statement made on month fixed-rate loans of continuous rate of return and November 20, 2008, the maximum NOK10 million and redemption within five years. A number of securities and Ministers of Finance in six-month fixed-rate loans of Where redemption does not funds are pre-approved and Denmark, Finland, Norway and up to NOK1 billion. occur within five years, the listed at the website of Norges Sweden stated that these Nordic instruments will be converted to Bank (www.norges-bank.no), countries have decided to ▪ Entered into an agreement ordinary shares. but other types of collateral may provide medium-term financing with the US Federal Reserve be approved upon application. to Iceland within the framework under which Norges Bank A bank wishing to use this core of the IMF-supported program. may borrow up to capital contribution scheme will Bonds and short-term paper US$15 billion against be subject to caps on from Norwegian and foreign On January 26, 2009, the collateral in NOK. The renumeration for its managers. issuers are accepted as Norwegian Government will agreement expires in The agreement between the collateral. Norwegian bond and announce additional measures April 2009. State Finance Fund and the money market funds may be to strengthen the economy. The bank will also contain provisions used as collateral on certain details of such financial package ▪ Offered banks NOK for € or on dividend limitations and conditions. are currently unknown. US$ in auction based reporting requirements for the FX-swaps to banks active in bank. Securities issued by foreign the Norwegian money entities must have a S&P or market. The Government has also Moody’s credit rating. Securities established a Norwegian State issued by foreign private entities On May 6, 2009 the key policy Bond Fund with a capital of are required to be listed on the rate was reduced by 0.5% to NOK50 billion. This fund is stock exchange. 1.5%. intended to make it possible for industrial companies to get It is required that securities in
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES On April 17, 2009 the Revised funding not only directly from foreign currency issued by Lending Regulation came into banks, but also in a private entities have a minimum force, with changes regarding: strengthened bond market. The volume outstanding equivalent State Bond Fund will be to at least €100 million. • Auctions and buy-backs of F- administered by loans and F-deposits. Folketrygdfondet, the The bonds will be made administrator of the Norwegian available to the banks for • Limits on interest-bearing domestic sovereign wealth fund. periods of up to three years deposits of the banks. against collateral. Banks may surrender covered bonds, • Capitalization of interest. including bonds issued by a mortgage association within the • Availability of borrowings to a bank group. The facility will be bank in respect of made available against a assets/capital base vs. market-based premium. There collateral. will, however, be a floor price on the premium. The facility will be • Requirements of increases of administered by Norges Bank on collateral in light of a bank’s behalf of the Ministry of Finance. borrowings and accrued Bi-weekly auctions are planned interest as long as there is a demand for such government bonds.
A bank may only pledge up to 20% of the outstanding volume of its loans and up to 35% of its total collateral in the form of securities issued by Norwegian banks.
Banks’ claims on mortgage companies issuing covered bonds will be eligible as collateral for loans. A bank’s issued bonds or short-term paper are not accepted as collateral.
The value of a security will, as a main rule, be based on the security’s market value adjusted according to set rates available on the website of Norges Bank.
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PEOPLE’S REPUBLIC OF CHINA1 SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES On October 9, 2008, the Since September 2008, Central On November 9, 2008, the Chinese central bank, the Huijin Investment Co., Ltd. Chinese Government People’s Bank of China (“Huijin”), an investment arm of announced an economic (“PBOC”), lowered the one-year the Chinese Government, has stimulus plan aimed at benchmark deposit and lending increased its shareholdings in bolstering its weakening rates by 0.27%, respectively. each of the Bank of China, economy, a sweeping move that The interest rates of loans and China Construction Bank, and could also help fight the effects deposits with other maturities the Industrial and Commercial of the global slowdown. The were adjusted accordingly. On Bank of China through share Government would spend an October 15, 2008, the PBOC purchases on the secondary estimated US$586 billion over lowered the deposit reserve ratio market. The total value of such the next two years in ten areas, by 0.5%. On October 30, 2008, share purchases is estimated to including low-income housing, the PBOC further lowered the be over RMB1.3 billion railway, highway and airport benchmark deposit and lending (approximately US$190 million). construction, electricity, water, rates by 0.27%, respectively. Huijin may continue to increase rural infrastructure and projects its shareholdings in the three aimed at environmental The PBOC also announced on banks on the secondary market. protection and technological November 3, 2008, that it will innovation. The package is the loosen its strict control over On March 4, 2009, the deputy largest economic stimulus effort credit plans of PRC commercial general manager of China ever undertaken by the Chinese banks to boost economic Investment Corporation (“CIC”) Government. growth. said Huijin will continually increase its shareholdings in On December 5, 2008, Chinese On November 27, 2008, the Bank of China, Industrial and Vice Premier Wang Qishan and PBOC further lowered the one- Commercial Bank of China and US Treasury Secretary Henry M. year benchmark deposit and China Construction Bank where Paulson announced a new lending rates by 1.08%, deemed appropriate given the cooperative plan for increasing respectively. The interest rates state of the market. trade-related finance to on loans and deposits with other emerging markets. According to maturities were adjusted On March 30, 2009, the State the plan, China, through the accordingly. On December 5, Council approved the takeover Export-Import Bank of China, is 2008, the PBOC further lowered by Huijin of the shareholdings in providing US$ 8 billion in short-, the deposit reserve ratio by 1% Xinhua Life Insurance Co., Ltd. medium-, and long-term trade for large banks and 2% for (“Xinhua Life”) from China finance facilities for export of medium- and small-sized banks. Insurance Protection Fund Chinese goods and services to The prevailing one-year deposit Limited. The parties will begin emerging markets. (The US, and lending rates are 2.52% and negotiations on the transaction through the US Export-Import 5.58%, respectively. price following the publication of Bank, intends to provide Xinhua Life’s 2008 audit report. US$4 billion in new short-term On December 23, 2008, the Xinhua Life is the fourth largest trade finance facilities and PBOC further lowered the life insurance company in China. US$8 billion in new medium- benchmark deposit and lending After this transaction, Xinhua and long-term trade finance
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES rates by 0.27%, respectively. Life will become a state- facilities for export of US goods The interest rates of loans and controlled life insurance and services to emerging deposits with other maturities company. markets.) were adjusted accordingly. On December 25, 2008, the PBOC On March 6, 2009, Mr. Zhou lowered the deposit reserve ratio Xiaochuan, the governor of the by 0.5%. PBOC, stated that the pilot programs of renminbi On February 24, 2009, the international trade settlement PBOC issued buyback notes to are to commence imminently. the public market in the value of These programmes will reduce RMB 80 billion (approximately “institutional obstacles for cross- US$11.7 billion). border trade settlement in renminbi”. On March 10, 2009, The PBOC will create a new Hong Kong was selected as the department to manage first pilot region to be allowed to exchange rate policies and use renminbi to settle monitor cross-border short-term international trade. China's capital flows. According to an State Council announced last unidentified PBOC official, it is December to settle international likely that the new department trade in renminbi between will be modeled on the Guangdong, the Yangtze River Exchange Rate Policy Division Delta and Hong Kong and of the Monetary Policy Macao, and between Guangxi, Department. Wang Yu, deputy Yunnan and members of the director of the Monetary Policy Association of Southeast Asian Department, was named as a Nations on a trial basis. likely head of the new department by the same official, On March 6, the National who added that the details were Development and Reform not yet ready to be made public. Commission (“NDRC”) published on its website the Mr. Zhou Xiaochuan, governor breakdown of China's RMB 4 of the PBOC, published an trillion stimulus plan, which will article on the central bank's cover construction for the official website on March 23 and purposes of livelihood; rural 24, 2009. Mr. Zhou pointed out areas in need, agriculture, and that it is clear that the Chinese farmers; infrastructure government intends to lower construction; health, culture and interest rates on deposits to education; ecological and expand domestic demands. environmental protection; as well as proprietary innovation On March 23, 2009, the PBOC and restructuring. and China Banking Regulatory
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Commission (the “CBRC”) jointly The Administration over the promulgated the Guiding Transfer of State-owned Assets Opinions on Further in Financial Enterprises was Strengthening Credit promulgated by the Ministry of Restructuring to Promote the Finance on March 17, 2009. Steady and Rapid Development According to the new rules, of China’s National Economy China moved to prevent the sale (the “Opinions”), in which it is of state-owned stakes in emphasized that while financial companies at below- maintaining a reasonable market prices. There were increase in the total quantity of complaints that domestic state- the monetary credit facilities, owned banks sold stakes to something must be done to foreign investors and employees further strengthen credit at below-market prices. The restructuring so as to promote new rules will be effective May the steady and rapid 1, 2009. development of China’s national economy. The Opinions In recent months, the PBOC has expressly encourage banking signed bilateral three-year financial institutions to offer currency swap agreements with more loans and highly the central banks or monetary diversified financial support to authorities of Republic of Korea, small and medium enterprises Hong Kong, Malaysia, the which are basically well Republic of Belarus, Indonesia operated and have good credit, and Argentina totaling RMB650 competitive power, market share billion. The purpose of these and purchase orders but are currency swap arrangements is currently experiencing business to promote bilateral trade and or financial difficulties. The investment so as to boost Opinions also encourage economic development and commercial banks and vehicle heighten confidence in the financing companies to jointly money market. support eligible vehicle financing companies to issue bonds, On March 25, 2009, the State expand the scale of vehicle loan Council gave the green light to securitization and open more speed up the process of turning channels for financing vehicle Shanghai into a major financing companies. international financial and shipping center by 2020. The The PBOC issued the 11th, 12th State Council urged Shanghai to and 13th period central bank bills develop into a multi-functional on April 2, April 9 and April 16 financial center by 2020 to keep respectively with the total up with "China's economic amount of 250 billion yuan influence and the renminbi’s
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES (US$36.6 billion). international position".
The State Council has approved the issue of RMB 200 billion local government bonds through the Ministry of Finance. The bonds will be used to fund key central government projects, improve people's livelihoods and improve local government debt management. On March 30, 2009, the Xinjiang Uyghur autonomous region launched bonds worth RMB 3 billion (US$ 441 million) in the first batch of RMB 200 billion local government bonds. On April 2, 2009, the Anhui Provincial Government launched bonds worth RMB 4 billion (US$ 585 million) on the market.
On April 2, 2009, the Ministry of Finance (the “MOF”) said it will issue RMB27.31 billion (US$4 billion) of book-entry treasury bonds – the fourth batch this year. The bonds, with a maturity of five years, have an annual interest rate of 2.29%. China has increased its issues of treasury bonds to finance its RMB4 trillion stimulus package for the next two years, with the central government to spend RMB1.18 trillion.
On April 8, 2009, the MOF announced the issue of the 5th batch of long-term book-entry treasury bonds worth 22 billion yuan (US$3.22 billion). The bonds, with a term of 30 years, have an annual interest rate of
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES 4.02 percent. On April 9, 2009, MOF announced the issuance schedule of the 6th batch of long- term book-entry treasury bonds worth 24 billion yuan (US$3.51 billion) with a term of seven years. The MOF said 10 batches of book-entry treasury bonds would be issued in the second quarter of this year.
On April 8, 2009, China's insurance industry regulator, CIRC, specified the proportion of insurance fund that insurers were allowed to invest in infrastructure projects in an effort to reduce risks. Life insurance companies will be allowed to invest a maximum of 6 percent of their total assets of last quarter, while property insurance companies could invest up to 4 percent of their total assets of last quarter.
The State Council announced on April 8, 2009 a pilot program to allow exporters and importers in five cities to settle cross- border trade deals in renminbi. The cities are Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan. The latter four are all in South China's Guangdong province.
China's big four state-owned banks will be allowed to run their own insurance companies under a pilot program. The big four banks are the Industrial and Commercial Bank of China, Bank of China, China
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Construction Bank and the Agricultural Bank of China. Besides the big four, a number of medium-sized banks, such as China Merchants Bank, have also submitted applications to the regulators, eyeing the business potential in the insurance sector - a sector that has grown at an annual average of 20 percent in the past decade.
On April 13, 2009, China's banking regulator, CBRC, said it will step up efforts to control risk management in Chinese banks as domestic lending continued to grow in March. In addition, China will ask foreign investors to commit to a lockup period of five years or more when they acquire stakes in Chinese banks, as an effort to shield domestic banks from the impact of stake sales by overseas investors. The CBRC said it has released new rules to make it easier for small- and medium- sized banks to open more branches. Under the new rules, the CBRC will remove a cap on the number of branches and outlets that can be opened by the banks. The CBRC also said it would transfer approval power to the provincial level to simplify branch expansion procedures for smaller banks.
1 China, according the website of the State Administration of Foreign Exchange, has about US$ 1.946 trillion in foreign reserves as of December 31, 2008.
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PORTUGAL SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES State Guarantee The Government has increased Accounting of Bond Porfolios Recapitalization Program Banco Português de Negócios Increase of Core Tier 1 Capital the coverage of the deposit Requirements The Government of Portugal guarantee scheme from €25,000 The Bank of Portugal published The Government has approved The Government announced on passed legislation fully effective to €100,000. Regulation nr. 6/2008 on a recapitalization program of up November 2, 2008 that it will The Governor of the Bank of from October 24, 2008 pursuant October 14, 2008 aimed at to €4,000 million to be used to submit, for parliamentary Portugal announced on to which it will guarantee at its Although the Portuguese allowing credit institutions to recapitalize banks, to help them approval, the nationalization of November 2, 2008, that discretion the funding of credit Minister of Finance has disregard the potential gains and reach an 8% Core Tier 1 ratio (a BPN. In the mean time, the Portuguese banks will be institutions of up to €20 billion. represented in the media that losses of their bond portfolios for ratio that will become Bank of Portugal appointed two required to hold a minimum of the Portuguese State would the calculation of their own mandatory). The program has government administrators who 8% of Core Tier 1 capital The maturities of the covered cover all the deposits held with funds, to the extent that such entered into force on are also directors of the state- (against the 4% previously credits may range between Portuguese credit institutions, gains and losses are not related November 25, 2008. owned bank CGD. Its shares required by the Bank of Portugal three months and five years. the fact is that until now only the to impairment. will be valued by two and the Portuguese market increase from €25,000 to The stated purpose of this independent entities to practice that sets it currently at However, inter-bank deposit €100,000 per depositor has This measure is of significant program was said to be to determine the amount that 7%). operations in the money market, been implemented. importance in the current protect national banking shareholders will receive as subordinated debt operations, financial crisis scenario since institutions against hostile compensation for the Legislation Protecting operations already covered by due to the low liquidity of bonds takeovers, and to create a level nationalization. Consumers any other type of guarantee or the banks are not able to sell playing field for the Portuguese security and financing them out of their trading banking sector, since other This measure was aimed at On November 3, 2008, a operations in jurisdictions not portfolio, and until now have jurisdictions have already ensuring the safety of deposits legislation was enacted requiring complying with internationally been obligated to account for implemented similar measures and at preventing systemic risks. prior approval of the Bank of accepted transparency them as potential gains or aimed at helping the financial The nationalization comes after Portugal for advertising complex standards are excluded from this losses in the calculation of own sector. The reaction from credit rescue plans directed at its financial products, establishing a scheme. funds. institutions to this measure was recapitalization and asset sales duty to provide a prospectus to favorable. have failed, which included a clients before subscription of Qualifying institutions must Eligible Collateral in proposal to the State for the such products and in general demonstrate that the guarantee Eurosystem Operations: The bill makes provision for two acquisition of preferential shares broadening the duty of is required for the normal distinct regimes: amounting to €600 million. information and assistance to functioning of the institution. Further to the European Central According to public statements banking institution customers, Bank measure of broadening the (i) An increase in the equity by the Governor of the Bank of primarily at the consumer credit The guarantee is available to types of assets eligible as levels of credit institutions which Portugal, the financial disruption pre-contractual stage. Portuguese credit institutions collateral in Eurosystem under the applicable legislation was the result of alleged which inter alia demonstrate that operations, the Bank of Portugal possess the necessary liquidity doubtful operations by the bank The Bank of Portugal has also the same is necessary in order has issued an instruction, and soundness conditions; and that, until recently, had not been submitted to public consultation to obtain funding. effective between December 1, revealed on BPN accounts, a new regulation imposing new 2008 and December 31, 2009, (ii) Direct state intervention in reports and investigations rules applicable to players upon A fee will be paid by credit confirming that the following the recovery and remedial aggravated by the current opening of current and deposit institutions amounting to may be elected: processes for credit institutions market situation and causing it accounts. (i) 50 bps where the guarantee’s which have or are at risk of severe losses and a serious duration is one year or less or (i) debt instruments having an equity, solvency or liquidity shortfall. In the The Bank of Portugal has (ii) the institutions’ median five denominated in US dollars, yen liquidity level of less than the beginning of February, the recently submitted to public years CDS spread plus 50 bps and pounds sterling, which are current management of BPN consultation two regulations, the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES where the guarantee’s duration issued, held and liquidated in legal minimum. announced that the Bank has main innovation of which are the is more than one year. the Eurozone and whose issuer estimated imparities amounting prohibition on banks to sell is established in the European These measures will only apply to €1.8 billion. financial products named as If the Portuguese State decides Economic Area; to the capitalization operations “banking deposits” when the to honor a payment claim of Portuguese-based credit Banco Privado Português customers are not able to totally presented under the guarantee, (ii) syndicated loans fulfilling the institutions carried out before recover the amounts deposited. it may (i) subscribe for capital requirements laid down in recent December 31, 2009. On November 19, Banco In addition, the prospectus for issued by the credit institution; decisions and regulations of the Privado Português requested a structured banking deposits (ii) decide on various corporate ECB; (Re)capitalisation can be carried €750,000,000 guarantee for a shall follow a standard model, matters of the credit institution, out through distinct transactions, period of three years from the and be subject to prior approval such as distribution of dividends (iii) certain types of debt including (i) acquisition of the government. On November 24, from the Bank of Portugal. or remuneration of managers; or instruments issued by credit credit institution’s own shares or the Governor of the Bank of (iii) impose compulsory institutions and marketed in non- (ii) increase in the share capital Portugal advised the New Rules on Disclosure of administration. regulated markets as listed by of the credit institution through Government not to issue such a Information ECB; ordinary shares, preference guarantee, in view of the small The legislation authorizes the shares which do not carry voting dimension of the Bank, and of On November 3, 2008, a scheme to continue until (iv) certain assets rated as rights and shares which confer the fact that only a fraction of its legislation was passed to December 31, 2009. Until now, “BBB-”; special rights; (iii) other capital business is directed to the increase the information to be Banco Privado Português has securities which are admissible granting of credit to customers provided to the Bank of Portugal already requested an (v) subordinated assets that are by law or the articles of the (the main business of this bank by the credit institutions, €750,000,000 Portuguese state covered by guarantees provided company; (iv) joint venture is private banking). Nonetheless, particularly in relation to (i) the guarantee, and Banco by guarantors with a solid agreement or other contracts the State has agreed to provide risks incurred, including the Português de Investimento, financial situation; and which have similar effects. a guarantee covering the exposure level of different types Banco Comercial Português, repayment obligations under an of financial instruments; (ii) the Banco Espírito Santo, (vi) fixed term deposits created The issue of the above financial €450,000,000 loan recently risk management and control Santander Totta and Caixa by the credit institutions before instruments may also be granted by a syndicate of practices to which they are or Geral de Depósitos have the Bank of Portugal, in destined for credit institution Portuguese banks to BPP. The may be subject; and (iii) the confirmed that they intend to accordance with an instruction shareholders, the public or both, guarantee was issued under the methods used in valuing their apply for it. In addition, issued by the regulator. with a full or partial underwriting general regime, as the assets, in particular those which according to information publicly or placement guarantee by the Government has understood are not traded in high liquidity available, Banco Espírito Santo Softening of the Impact of state. that the exceptional state and transparent markets. and Caixa Geral de Depósitos Pension Funds Actuarial guarantee scheme recently were already granted a Losses At the duly-grounded proposal of approved was not applicable to Possible Waiver or Increase of guarantee by the State under the Bank of Portugal, a the BPP case. The guarantee is Requirements Applicable to the guarantees scheme covering The Bank of Portugal has capitalisation operation may covered by security over certain Investment Funds an issuance of bonds. Banco approved a regulation until 2012 take on the nature of a debt BPP’s assets granted in favor of Espírito Santo has already allowing banking institutions to issue (convertible to or the State. The above-mentioned legislation closed a debt issue amounting gradually soften the negative exchangeable for ordinary or also provides for the temporary to €1.5 billion on January 8, impact of the actuarial losses of preference shares) without On December 1, 2008, the Bank waiver of compliance with 2009. their pension funds in 2008 in breaching the limits set out in of Portugal decided to certain matters related to the calculation of their own the Portuguese Companies reorganize BPP and has investment fund management, Other banks have in the funds. Code. compulsorily appointed three at the request of the interested meantime sought the comfort of people to serve on BPP’s board parties; (i) the portfolio tapping capital markets with the Analysts expect that this The financial institutions that of directors. The regulator also composition regime, its limits,
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES support of a State guarantee. measure will have a relevant benefit from this aid will have decided on the same date that techniques and instruments for Recent caes include State impact in the calculation of certain obligations imposed on BPP will be discharged for a investment fund management; guarantees provided on April 6, solvency ratios of certain them, such as financing the period of 3 months from (ii) the terms and conditions for 2009 in respect of the Portuguese banking institutions. economy, including families and obligations arising from its financing investment funds; obligations of Banco Finantia SMEs, the implementation of portfolios management activity. (iii) carrying out operations with S.A. under a €100 million bond good corporate governance related funds and entities; issuance and on April 16, 2009 practices and a pay and (iv) the vagaries which in respect of the obligations of dividends policy as well as investment funds are liable to, Banco Internacional de Funchal, increased contributions to the particularly with regard to S.A. under a €500 million bond Deposit Guarantee Fund mergers, splits, transformation, issuance to raise the funds (conditions to be set by order of liquidation and division of funds. required to reinforce its liquidity the Ministry of Finance). position and the correction of Conversely, the same legislation maturity mismatches in its The reaction from credit imposes additional duties on balance sheet. institutions to this measure was investment funds and their favourable. respective managers, depositaries or marketing On May 8, 2009, an entities in exceptional situations implementing order was including turmoil in the financial published regulating the instruments market. procedures for accessing this recapitalization plan. This Review of the Financial Sector implementing order details: (i) Penalty Regime application procedures and conditions; (ii) rules on the Bank A legislative bill has been of Portugal’s decision process; presented to Parliament by the (iii) conditions applicable to the Government with a view to debt issue, such as the issued enhancing the penalty regime debt instruments’ remuneration; for the financial sector in (iv) restrictions on the payment criminal and administrative of dividends; (v) caps on the offence matters, modernising - remuneration of the credit and bringing into line - the institution’s directors; (vi) duties punitive framework and the of the credit institutions amounts of the fines to the size benefiting from these measures; and characteristics of the current and (vii) provisions concerning financial sector. the breach of the abovementioned duties. Transparency and Disclosure of Board Remuneration Decrease of the Nominal Value of Shares without In the context of the recently Reduction of Share Capital enacted economic stimulus planes, a legislative proposal, The Government has passed still awaiting parliamentary
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES legislation, entering into force on approval, was globally passed March 21 2009, allowing on April 16, 2009, establishing companies to reduce the the following measures: nominal value of their shares. A. Listed companies This legislation serves the purpose of facilitating (i) the duty to disclose, in the recapitalization operations in the annual report and accounts, all current financial and market direct and indirect remuneration scenario and will only be received by each of the applicable until December 31, directors, including variable 2009. components and any other amounts received by virtue of According to the Act, any other reward mechanisms; companies listed in regulated markets may reduce the nominal B. State participated and/or value of their shares without supported companies reducing their share capital whenever: (i) the duty to disclose, in the annual report and accounts, all (a) The nominal value of the direct and indirect remuneration shares before reduction is equal received by each of its directors, or inferior to their balance sheet including variable components accounting value, as established and any other amounts received in a financial statement certified by virtue of any other reward by the company’s auditor; and mechanisms; (ii) a cap on the remuneration of directors; (iii) a (b) A resolution for the raising of ban on dividend distribution in capital is simultaneously or the abovementioned companies priorly passed. whille the Portuguese economy is in technical recession The amount of reduction must conditions. be set in accordance with the corporate interest and current Additionally, complementing the market conditions, and the above described measures, a reduction will only take place new regime on taxation of following an approval from the directors’ bonuses is also Portuguese securities regulator. currently under appreciation by the Parliament. Additionally, the portion of share capital corresponding to the amount of the reduction of nominal value shall only be used for the following purposes: (i)
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES raising the shares’ nominal value; (ii) issuing new shares to be allotted to existing shareholders, which will be entitled to ordinary preemption rights in the event of a share issue, with a view of fostering the egalitarian treatment of shareholders.
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REPUBLIC OF KOREA SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES On October 19, 2008, the On November 6, 2008, the Foreign Currency Liquidity Recapitalization of State-run Purchase of Troubled Project Bond Market Stabilization Korean Government announced Korean Government published Provision Banks Financing Loans of Savings Fund that it will guarantee the foreign- its proposal regarding Bank currency debt of local banks amendments to the enforcement On October 6, 2008, the Korean On November 3, 2008, the On November 13, 2008, the borrowed up to June 30, 2009. decree for the Depositor Government provided US dollar Korean Government announced On December 3, 2008, the Korean Government announced Protection Act so that foreign- liquidity in the amount of US$15 plans to inject funds into state Korean Government announced plans to set up a KRW10 trillion On October 30, 2008, the currency deposits would be billion by utilizing the foreign run banks and other financial plans to arrange for the Korea bond market stabilization fund National Assembly approved the covered by deposit insurance. equalization fund. institutions to strength their Asset Management Corporation that will mainly invest in bonds Korean Government’s bank debt This proposal was confirmed credit extension capacity. (KAMCO) to purchase KRW1.3 issued by corporations and guarantee program up to a limit and promulgated on On October 19, 2008, the trillion worth of troubled project financial companies. of US$ 100 billion. Each bank November 26, 2008. Korean Government announced The actual amounts of such fund financing loans from mutual participating in this program will plans to provide loans of US$20 injections in respect of the savings banks. On November 24, 2008, the be subject to a 1% per annum billion to local banks by utilizing relevant financial institutions Bank of Korea announced its guarantee fee. the foreign equalization fund and reflected in the annual In accordance with such plan, plans to provide liquidity up to the Bank of Korea announced government budget for 2009 that on December 30, 2009, KAMCO KRW5.0 trillion to banks and On November 14, 2008, 18 local plans to provide US$10 billion to were approved by the National made its first purchase of other financial companies banks executed a memorandum local banks through swap Assembly on December 15, KRW500 billion of troubled through the purchase of of understanding pertaining to transactions. 2008 and executed accordingly project financing loans from 30 government bonds and other the Korean Government’s bank by the Korean Government in mutual savings banks. In low-risk securities held by such debt guarantee program and the On November 13, 2008, the January 2009 are as follows: addition, on March 18, 2009, banks and financial companies, banks’ plans for efficient Bank of Korea announced plans KAMCO made its second the proceeds of which will be management with the Financial to provide US$10 billion to local - The Korea Development Bank: purchase of KRW1.2 trillion of used to finance their investment Supervisory Service. banks for export financing of KRW900 billion troubled project financing loans in the BMSF. small and medium businesses. from 51 mutual savings banks On February 18, 2009, the - Industrial Bank of Korea: On December 9, 2008, the Korean Government lowered the Since December 2, 2008, the KRW500 billion Restructuring Fund under BMSF task force1 formed the guarantee fee rate of the bank Bank of Korea has provided KAMCO BMSF as a non-redeemable debt guarantee program from US$16.4 billion to local banks, - The Export-Import Bank of private equity fund with a term of 1% to 0.70% per annum. utilizing its US$30 billion Korea: KRW300 billion On February 19, 2009, the three years. The BMSF will be currency swap line with the Korean Government announced set up as a fund of funds, with On April 9, 2009, Hana Bank Federal Reserve of the United - Credit Guarantee Fund and its plan to establish the each underlying fund focusing issued US$1 billion of senior States. Since April 2009, a Kibo Technology Fund: KRW1.1 Restructuring Fund under its investment on a particular fixed rate 3-year notes based on portion of this swap line that was trillion KAMCO to purchase troubled type of bond (e.g., bank bond, the bank debt guarantee utilized has been repaid and the assets from financial institutions. corporate bond, etc.). program. outstanding utilized amount as - Korea Housing Finance This Fund will be financed by of May 4, 2009 is US$14.0 Corporation: KRW200 billion the issuance of government- On December 17, 2008, the first On April 29, 2009, the National billion. guaranteed bonds. BMSF (KRW5 trillion) was set Assembly approved the Korean - Korea Asset Management up and commenced operations. Government’s revision proposal KRW Liquidity Provision Corporation: KRW400 billion On March 13, 2009, the Korean of the bank debt guarantee Government announced detailed program, extending the On September 18, 2008, the plans relating to the effectiveness of the program to Bank of Korea provided KRW6.5 management of the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES foreign-currency denominated trillion to the financial market On December 15, 2008, the Restructuring Fund. debt issued until the end of through repo transactions, etc. Korean Government announced December 2009 (from June that it had made investments-in- - The funds required for the 2009) and extending the On October 23, 2008, the Bank kind of KRW1.65 trillion in the Restructuring Fund will be maximum term of the guarantee of Korea increased the credit aggregate to the following three appropriated by issuing from three years to five years. line for support of small and state-run banks: government-guaranteed bonds, medium businesses from KRW with a maximum amount of 6.5 trillion to KRW 9.0 trillion. - The Korea Development Bank: KRW40 trillion. KRW500 billion On October 24, 2008, the Bank - Use of proceeds will include of Korea provided KRW 2.0 - Industrial Bank of Korea: the purchase of troubled assets trillion to non-bank financial KRW500 billion of financial institutions and institutions indirectly through assets being disposed by debtor repo transactions with Korea - The Export-Import Bank of companies in restructuring Securities Finance Corp. Korea: KRW650 billion proceedings.
On October 27, 2008, the Bank On March 23, 2009, the Korean - The Restructuring Fund will be of Korea included bank bonds Government announced that an operated for a limited period of as securities eligible for repo aggregate amount of KRW2.3 time, maturing in 2014. transactions and announced that trillion was reflected in the it would purchase KRW5 trillion revised supplementary budget On April 29, 2009, the National to 10 trillion of bank bonds for the purpose of investments in Assembly approved the bill through repo transactions to five state-run financial submitted by the Korean provide liquidity to the banking institutions to bolster their Government amending the sector. support of small-and-medium- relevant law to enable the sized enterprises (SMEs) and launch of the Restructuring On January 13, 2009, the Bank disposal of troubled assets. Fund. of Korea provided KRW1.5 Such supplementary budget was trillion of liquidity to the financial subsequently approved by the market through repo National Assembly. transactions. Recapitalization of Commercial Banks
On December 18, 2008, the Korean Government announced plans to set up a KRW20 trillion of Bank Recapitalization Fund (BRF) to support banks to strengthen their financial stability.
On February 25, 2009, the Korean Government announced
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES detailed plans relating to the fund-raising for, and management of, the BRF.
- The KRW20 trillion required for the BRF will be comprised of: (a) a KRW10 trillion loan from the Bank of Korea, (b) a KRW2 trillion loan from The Korea Development Bank and (c) KRW8 trillion from institutional and general investors.
- Use of proceeds will be limited to lending activities for SMEs and companies under restructuring.
On March 31, 2009, the Korean Government announced the completion of the first round of purchase by the BRF of hybrid bonds and subordinated bonds issued by eight banks in the amount of approximately KRW 4 trillion.
Financial Market Stabilization Fund:
On March 13, 2009, the Korean Government announced its plan to launch the Financial Market Stabilization Fund (FMSF) with the Korea Policy Banking Corporation (f.k.a. Korea Development Fund) for the purpose of enhancing the soundness of financial institutions and reinforcing the support functions for real economic sectors.
- The funds required for the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES FMSF will be appropriated by issuing government-guaranteed bonds.
- Use of proceeds will include equity investments, loans and loan guarantees for financial institutions.
On April 29, 2009, the National Assembly approved the bill submitted by the Korean Government amending the Act on Structural Improvement of Financial Industry to enable the launch of the FMSF.
1 The BMSF task force is constituted of seven civilian members representing banks and other financial companies investing in the BMSF.
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RUSSIA SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES On March 31, 2009, the Russian With effect from October 17, With effect from September 18, As of November 19, 2008, the There have been reports that On November 20, 2008, the Government announced that it 2008, the Central Bank of 2008, the CBR, aiming to Russian Government had Russia will acquire up to US$ 20 Russian Government will provide government Russia (the “CBR”) increased stabilise the situation in the allocated approximately RUB5.7 billion of equity in various announced its proposed guarantees on bonds issued by the maximum amount, which in Russian financial markets and to trillion (approximately US$211 Russian companies in order to measures aimed to support strategically important accordance with the support liquidity in the Russian billion) to stabilise the situation support the stock market. A Russia’s real economy sector, companies (including banks and requirements and procedures banking sector, decreased in the Russian markets. Of this, number of transactions were which provide, amongst other, Russian military industrial established by Russian interest rates on loans from the the Russian Government spent announced in October- for certain tax advantages for enterprises) in the amount of legislation, is payable by the CBR secured by the pledge of RUB175 billion (US$6.5 billion) November 2008 relating to the businesses. In particular, with RUB300 billion. CBR to an individual depositor promissory notes, receivables or on highly-rated and liquid purchase by entities allocated effect from January 1, 2009, having a claim against an suretyships provided by credit Russian shares and bonds to with the Russian Government of profit tax will be decreased from On December 12, 2008, RIA insolvent Russian bank, from organisations as follows: from support liquidity in the Russian shares in various Russian 24% to 20%, which will leave Novosti reported that the state- RUB400,000 to RUB700,000. 8% to 7.5% per annum for stock market. RUB450 billion companies and banks. For RUB400 billion with Russian owned Agency for Housing rouble loans with a term of up to (US$16.6 billion) was earmarked example, on November 1, 2008, companies. Tax for small Mortgage Lending (AHML) On December 2, 2008, 90 calendar days; and from 9% to provide long-term RIA Novosti reported that the business is expected to be announced that it is ready to Kommersant released a to 8.5% per annum for rouble subordinated loans to Russian Russian Federal Agency for decreased in Russia’s regions offer Russian banks RUB500 statement by the Deposit loans with a term of 91 to 180 banks on favourable terms, Management of Federal from 15% to 5%. As of May 4, billion worth of guarantees for Insurance Agency ("DIA") calendar days. RUB200 billion (US$7.4 billion) Property purchased 3.3% of the 2009, only six regions of Russia mortgage bonds, which would stating that it may raise the was allocated to VTB to provide shares in a large diamond- decided to support Russian involve repackaging senior guarantee limit to RUB1 million. At the same time, the CBR loans to Russian enterprises to mining company “ALROSA” and companies and decreased the RMBS with guarantees that will As of May 4, 2009, however, the raised the adjustment coefficient support the real economy sector is now holding a controlling tax to 5%. According to the then make them eligible guarantee limit remained to calculate the value of security and RUB25 billion (US$925 stake in the company (50.9%). A estimates of the Russian collateral for repo lending from unchanged at RUB700,000. on the loans provided by the million) was provided to controlling stake in Svyaz-Bank Ministry of Finance made on the CBR. Only financial CBR, which is calculated based Rosselkhozbank (a government- was bought by November 20, 2008, the institutions with mortgage pools On April 8, 2009, the DIA said on potential fluctuations or owned bank active in the Vnesheconombank (the announced package of tax of at least RUB3 billion could be that it had lost one-seventh of changes in price of securities, agricultural sector) to support its transaction was announced on measures will cost RUB556.6 eligible for the scheme. the cash earmarked to and which is intended to lending program. In addition, the September 23, 2008). In billion. However, on March 23, 2009, compensate depositors of decrease the CBR’s risks Russian Government addition, on October 27, 2008, AHML announced that in 2009 it defaulted banks due to related to the potential contributed RUB60 billion Vnesheconombank’s board of On April 6, 2009, Vedomosti will help troubled borrowers of unsuccessful investments. "The depreciation of the security. (US$2.2 billion) to the charter directors approved the purchase reported that the Ministry of mortgage loans, but will not help financial crisis has led to a steep capital of Agency for Housing of 99% of the shares in Globex Economic Development and Russian banks as had fall in the market prices for With effect from September 18, Mortgage Lending thereby Bank for the purposes of further Trade suggested a new way to previously been promised. The equities, which has caused a 2008, the CBR decreased the significantly increasing its stabilization of the Russian decrease tax for small business decision not to support Russian significant reappraisal of their interest rate on collateral loans capacity to refinance the banking sector. A controlling in regions - from 5% as banks was taken in light of the price," said the 2008 report with a term of one day from 9% mortgage portfolios of Russian stake in KIT-Finance was previously declared to 0% to fact that RUB200 billion (US$7.2 posted on the agency's web site. to 8%. banks. According to the Russian bought by Russian Railways 10%. billion) will no longer be provided In 2009, the DIA invested in news agency Interfax, as of April (the transaction was announced to AHML under the 2009 budget. sovereign debt, regional In order to further improve 1, 2009, the Russian on October 8, 2008); Sobinbank On December 4, 2008, Russian government bonds, corporate market liquidity, in October Government spent was bought by Prime Minister Putin suggested paper and Russian stocks. The 2008, the CBR took the approximately RUB400 billion Gazenergoprombank (the that the DIA provide Russian DIA put its losses for the year at following measures: (US$14.9 billion) to support the transaction was announced on banks with government RUB11.5 billion (US$342.8 Russian financial system in the October 15, 2008); Yarsotsbank guarantees in respect of million) or one-seventh of the (i) with effect from October 15, seven months since September was bought by Promsvyazbank mortgages of individuals who
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES fund, which as of January 1, 2008, the CBR reduced its 2008. On April 6, 2009, Russian (in October 2008); Russian lose their employment as a 2009, stood at RUB79.1 billion. reserve requirements as follows: Prime-Minister Putin announced Capital Bank was bought by the result of the financial crisis. The fund's yield, taking into on liabilities to individuals (in that in 2009 the Russian National Reserve Bank (the Consequently, the Russian account the write-downs, stood roubles) from 1.5% to 0.5%; on Government will spend another transaction was announced on Government approved a at -14.8%, the report said. credit institutions’ liabilities to RUB3 trillion (US$108 billion) to October 23, 2008); VEB’s board programme of government non-resident banks (in roubles combat the consequences of the of directors approved the support for mortgage borrowers. and foreign currency) from 4.5% crisis and to redevelop the purchase of 99% of the shares As part of the programme, in to 0.5%; and on credit economy. in Globex Bank on October 27, December 2008 the DIA institutions’ other liabilities (in 2008. approved "Rules for roubles and foreign currency) On October 13, 2008, Russia Restructuring of Mortgage from 2.0% to 0.5%. This new adopted the Federal Law According to official Residential Loans for Certain legislation brings the CBR No.173-FZ “On Additional announcements, these Categories of Borrowers in reserve ratios to unprecedented Measures Regarding Support of transactions were made to 2009" and published "Standards low levels. These new reserve the Russian Financial System”, support the banks which had for Restructuring of Mortgage requirements are valid until April pursuant to which the CBR become technically insolvent Loans for Certain Categories of 30, 2009. provided Vnesheconombank and could no longer perform Borrowers" which provide for the (VEB) with US$ 50 billion (from their obligations to the following restructuring schemes: On April 23, 2009, the CBR the CBR’s gold and currency depositors and creditors. reported that with effect from reserves). VEB was given a (i) the mortgage lender and the May 1, 2009, the CBR will mandate to refinance Russian On November 28, 2008, VTB DIA will provide funds to the increase its reserve major companies’ debt to foreign Group announced that it will mortgage borrower; or requirements as follows: on banks, which arose before lend Alrosa US$ 1.6 billion to liabilities to individuals (in September 25, 2008. VEB’s help the state-owned diamond (ii) the DIA will provide a roubles) from 0.5% to 1%; on public criteria are to extend mining monopoly refinance its "stabilization loan" to the credit institutions’ liabilities to loans of between US$100 debt. mortgage borrower. non-resident banks (in roubles million and US$2.5 billion for and foreign currency) from 0.5% one year at a minimum of 500 In December 2008, the Russian According to the DIA, option (i) to 1%; and on credit institutions’ basis points above LIBOR. As of Government announced its above is likely to be the main other liabilities (in roubles and October 29, 2008, VEB had intention to support liquidity and scenario for the time being. foreign currency) from 0.5% to approved loans in the amount of mortgage lending and to provide 1%. Every month the reserve approximately US$10 billion (out for these purposes up to RUB There have been significant requirements will increase by of applications for loans 200 billion (US$ 7.2 billion) to changes to the Russian 0.5%. These new reserve exceeding US$100 billion, AHML to buy out mortgages insolvency framework with the requirements are valid until approximately US$70 billion from Russian private banks in introduction of two new laws on August 1, 2009. from Russian banks and order to reduce banks' risk December 30, 2009, namely approximately US$30 billion exposure (under the current dealing with insolvency and On May 1, 2009, the CBR from Russian corporates). threat of wide-scale mortgage pledge enforcement. expects to raise the reserve defaults). However, as of April requirements on all credit On December 1, 2008, VEB 29, 2009, AHML has not The pledge enforcement law institutions’ obligations to 1.5%, announced that, of the loans received any of these funds and provides for new methods of then again on June 1, 2009, to approved for banks and it announced in March 2009 that enforcing pledges over assets 2.5%; corporates, US$7.5 billion had in the absence of the promised (in addition to enforcement already been transferred. support it will have to harden its through auction which was the (ii) the interest rate on loans only option until the introduction
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES from the CBR secured by the Under this programme VEB mortgage lending standards. of this new law). pledge of promissory notes, announced further tranches of receivables or suretyships subordinated loans on On December 17, 2008, it was The Russian Government has provided by credit organisations November 11, 2008 - of announced that Ukraine's raised custom duties on was decreased by 0.25% to RUB200 billion - and on Prominvestbank, which has imported cars from 25% to 30- 8.25% per annum for rouble December 10, 2008 - of been in receivership since 35% with effect from January loans having terms of between RUB17.1 billion (of which October, had signed a 12, 2009 until October 2009. 91 and 180 calendar days; RUB10.2 billion was allocated to memorandum with Russia's VEB The aim of this measure is to Alfa Bank, RUB4.9 billion to to help restore its financial support the Russian car industry (iii) the term for secured loans Nomos Bank and RUB2 billion position. It was reported that the during the economic crisis. was raised from 30 to 90 to Khanty-Mansiysk Bank. sum needed to recapitalize the calendar days; and bank would be announced soon On January 16, 2009, the According to the Russian and submitted to the Russian Russian State Duma (iv) the CBR was granted the Minister of Finance Alexey Government for consideration. (parliament) approved right to provide rouble loans to Kudrin, as of May 4, 2009, VEB amendments to the Fiscal Code Russian banks with no collateral had already lent US$11 billion to According to the recapitalization that allow the Russian for a term of up to six months. companies and banks to plan, Prominvestbank received Government to directly provide refinance foreign debt. the first tranche in the amount of subsidies to Russian regions in On October 3, 2008, the CBR US$ 390 million on February 10, order to support them during the expanded the list of the assets, In September 2008, the Russian 2009, the second tranche in the economic crisis. The amount which can be provided as Government set aside US$50 amount of US$ 325 million on and specific purpose of the security on the loans granted by billion to refinance foreign February 20, 2009, and the third subsidies is to be determined by the CBR. In addition to the corporate debt through VEB, but tranche in the amount of US$ the Russian Government without assets accepted by the CBR in March 2009 the program was 285 million on March 20, 2009. the prior approval of the Duma. previously as security (such as shut down by the Russian It is likely that primarily RUB promissory notes or Government. On February 12, 2009, the 43.7 million will go towards the receivables), the CBR allowed Moscow Times reported that the stabilization of the employment issues of bonds to be provided The CBR provided government- Russian Government had market, according to the as security on its loans as well, owned Sberbank, which suffered refused to consider taking toxic Russian Ministry of Finance. provided that such bonds meet an unprecedented withdrawal of assets off banks' balance the following criteria established retail deposits in October 2008 sheets. On March 2, 2009, the Russian by the CBR: (approximately RUB80 billion Government will discuss the (US$2.9 billion), representing On March 6, 2009, Troika establishment of a new non- (i) the relevant issue of bonds is 2.5% of its retail deposits base, Dialog, a major Russian profit government body, the included into a list of issues of with a RUB300 billion (US$1.1 investment company, Russian Finance Agency bonds (published in “Vestnik of billion) subordinated loan in announced its intention to ("RFA"). It is proposed that the the CBR”), which can be addition to the RUB150 million acquire "troubled" Russian RFA will oversee the National accepted by the CBR as security (US$5.5 billion) subordinated assets together with Standard Reserve Fund that is currently in accordance with the decision loan. As of mid-March 2009, the Bank Group. No further details under the control of the CBR, as of the CBR’s board of directors; situation with retail deposits in have been announced as of well as other financial activities Sberbank has reportedly April 7, 2009. as seen fit by the Russian (ii) the bonds are registered on improved. According to the Government. These could be the securities (depo) account CBR, as of March 15, 2009, in On April 8, 2009, Reuters the reserve fund (RUB 4 billion), Sberbank retail deposits reported that AFK Sistema had pension savings (RUB 350
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES opened with a depository; constituted RUB3.116 trillion, an sold a stake in its property unit million) as well as the national increase in the amount of to creditor, VTB Bank, and and foreign debt of the Russian (iii) the bonds are owned by the RUB40 billion (US$1.45 billion) granted it an option which allows Federation. The RFA will be run borrowing bank, these are not compared with mid-February. it to take control, all for less than by a supervisory board. It is charged by any other obligations US$2 billion. As of July 1, 2008, expected that initially, the RFA of the bank and there are no On April 28, 2009, the Moscow Sistema-Hals' portfolio was will not control the money itself, disputes and/or submitted Times reported that Sberbank valued at about US$3.7 billion. but will appoint Russian and claims in respect of the bonds; saw its fourth-quarter earnings Moscow developers have since foreign experts to provide advice tumble 80% to RUB7.5 billion reported net asset values down prior to investing the funds. (iv) the bonds have to be repaid (US$224 million), driven mainly about 60% at the end of 2008. not earlier than six days after the by increased provisions for Sistema, whose main asset is On April 15, 2009, Prime repayment date under the CBR nonperforming loans. mobile network Mobile Minister Putin said that Russia loan; and Sberbank's non-performing TeleSystems, sold 19.5% of would stand by its plans to build loans have already grown from property unit Sistema-Hals for more nuclear power reactors (v) the borrowing bank is not the 1.8% at the year-end to 2.8% at the nominal value of RUB30 and promised US$1.5 billion issuer of the bonds to be the start of April 2009. (US$0.898) to state-controlled more in state money to Rosatom provided as security. Delinquent loans for the sector VTB, which purchased an option to support its projects at home as a whole, however, stand for another 31.5 percent for an and abroad. State nuclear On October 23, 2008, the more than twice as high, at 7.5% additional RUB30. corporation Rosatom, which is Federal Law “On Additional of the total loan portfolio, constructing nuclear plants in Measures Aimed to Strengthen Finance Minister Alexei Kudrin On April 2, 2009, Vedomosti Iran, China, India and Bulgaria, Stability of the Banking System told Vedomosti. reported that Mosmart's owners is planning to build 26 new for the Period until December are seeking to sell a stake in the reactors in the country by 2030. 31, 2011” was adopted, with In September 2008, the Russian Russian food retailer to a unit of effect from October 28, 2008, Ministry of Finance, with the Sberbank to help pay off its debt The Russian Government will giving VEB RUB1.3 trillion CBR’s approval, relaxed the to suppliers. Mosmart owners cut the investment program for roubles (US$50 billion) to pay off requirements for Russian banks are in talks about selling a stake state-run power companies by or service Russian legal entities’ to participate in state auctions of as much as 50%, chief 40% in 2009, Energy Minister foreign loans obtained before with a view to placing budgetary executive Semyon Slutsky said. Sergei Shmatko said on April 9, September 25, 2008. It came funds with banks more The number of stores that the 2009. The investment program after President Dmitry efficiently, which allowed company runs has dropped to had been worth about RUB900 Medvedev announced RUB950 Russian banks to attract more 25 from 83 in the middle of billion (US$26 billion), and the billion (US$36.4 billion) of long- funds from the Russian Ministry 2008. cut, brought on by the economic term help for banks at an of Finance. In particular, 25 crisis, marks a rollback on the emergency Kremlin meeting on more banks (in addition to PIK Group, a Moscow home government's plans to boost October 7, 2008. Sberbank, VTB and builder that has lost 74% of its electricity output, which is Gazprombank) were allowed to market value in six months, needed to power the economy. Further, this legislation provides participate in state auctions. The announced on April 1, 2009, that that in order to strengthen following requirements were billionaire Suleiman Kerimov Residential construction should stability of the Russian banking applied to such banks: general bought a 25% stake in the become a key tool for getting the system and to protect creditors’ banking licence issued by the company from its biggest economy back on track, interests, if a Russian bank CBR; own funds of not less than shareholders. Kerimov's Nafta Regional Development Minister shows any signs of financial 5 billion roubles; no budgetary Moskva bought the stake from Viktor Basargin wrote in a instability threatening the legal funds-related indebtedness; CEO Kirill Pisarev and chairman commentary in Rossiiskaya
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES interests of its depositors and obligatory participation in the Yuri Zhukov, PIK said on its web Gazeta on April 21, 2009. As an creditors, the CBR and the DIA, deposit insurance system; and site. PIK Group is considering anti-crisis measure, RUB55 are allowed to take measures to long-term solvency rating not mergers and acquisitions to pay billion (US$1.6 billion) will be prevent such bank’s insolvency. less than “BB-” by Fitch and off or restructure its debt of US$ spent for apartment building In particular, the DIA and the Standard & Poor’s and “Ba3” by 1.2 billion at the end of 2008, the renovation and maintenance, he CBR can, amongst other things, Moody’s. In October 2008, the company said on March 20, said. A total of RUB116 billion provide loans; acquire shares or Russian Ministry of Finance 2009. has already been allocated for participatory interests in such further relaxed these building and maintaining bank’s charter capital in such requirements to allow Sedmoi Kontinent has hired residential housing in 79 amounts as to allow them to participation in state auctions by MDM-Bank to restructure its regions. make decisions within the banks having long-term RUB7 billion (US$209 million) competence of the bank’s solvency rate “BBB-” and “BB+”. bond, the firm said on its web The Russian Government will shareholders or participants; site on April 20, 2009. Sedmoi ease life for small businesses by perform functions of temporary In addition, on September 15, Kontinent managers met with simplifying their taxes and administration on the basis of 2008, the Russian Ministry of investors to discuss the bond, abolishing a requirement that the relevant CBR decision; and Finance increased the amount which has a put option in June they must all use cash registers, arrange auctions for the bank’s of temporarily available 2009, Vedomosti said, citing four Prime Minister Vladimir Putin assets representing collateral in budgetary funds from RUB668 unidentified investors. The said on April 22, 2009. The cut- respect of the bank’s billion (US$24.7 billion) to retailer may offer to pay 20% of off level for small businesses to obligations. RUB1.232 trillion (US$45.7 the bond in June 2009 and pay gain access to the simplified tax billion) to support the liquidity of down the rest within one and a system will be raised to RUB60 For the purposes of the above- the Russian banking sector. half years with interest, the million (US$1.77 million) in mentioned law, on November 1, newspaper said, citing one of annual revenues from the 2008, the CBR approved the On December 11, 2008, the DIA the investors. current RUB30 million, Putin told model form of the agreement started to apply the RUB200 the All-Russia Forum on Small between the CBR and credit billion (US$7.4 billion) provided On April 20, 2009, Vedomosti and Middle-Sized Businesses. organizations, which provides to it by the Russian Government reported that VEB may buy 40% The Russian Government will for compensation by the CBR of to prevent the insolvency of of the shares of phone operator lose more than RUB100 billion part of the losses or expenses Russian banks. The DIA has the "Rostelecom" from the bank in taxes as a result, the Russian incurred by the credit authority to prevent the "KIT Finance"; the DIA will Finance Ministry estimated. organization as a result of its insolvency of Russian banks, by provide VEB with a loan (RUB Putin said an extra RUB15 transaction(s) made with other taking measures, that include 70 billion) for this purpose. In billion would be earmarked for credit organizations (if their providing financial assistance to addition, the DIA may spend up regional funds that offer state banking licences have been the persons that acquire shares to RUB20 billion on the financial guarantees as collateral for revoked) on or after October 14, (participation interest), assets or rehabilitation of the bank "KIT small businesses. The funds 2008 until December 31, 2008 liabilities (or their part) of a bank; Finance". have received RUB2.5 billion as (inclusive). As of November 20, providing financial assistance to of April 29, 2009. In another 2008, the CBR concluded such the bank (provided that the DIA On April 20, 2009, the DIA measure of support, at least agreements with MDM Bank, or investors will be purchasing acquired 100% of the shares of 20,000 microloans of up to Raiffeisenbank and Sberbank. shares (participation interest) of an additional issue of bank, RUB1 million each will be given The CBR also offered the same the bank in the amount, that "Tarkhani". The DIA also out in 2009, Putin said. possibilities to other major would allow them to make provided a RUB0.2 billion Sberbank chairman German Russian banks. These decisions within the competence subordinated loan to "Tarkhani" Gref said on April 21, 2009, that measures are aimed at of the bank’s shareholders (or the state-controlled bank would
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES stabilizing the situation in the participants). For example, on bank. introduce a microloan program Russian interbank market. As of November 14, 2008, the DIA for small businesses, under May 4, 2009, the CBR had entered into an agreement for On April 20, 2009, the DIA which borrowers could obtain concluded such agreements Probusinessbank to acquire reported that in order to the funds in two to five days. with 13 Russian banks. Gazenergobank. Under the rehabilitate "VEFK" the DIA The state's bailout of banks will agreement, Probusinessbank as acquired 50% of its shares. be tightly connected with the On January 20, 2009, Prime- investor will acquire Nomos-Bank and "Otkritiye" number of loans they issue to Tass reported that the CBR Gazenergobank’s shares and each acquired 25% of the small and middle-size withdrew 33 banking licences in will elaborate a plan for the shares. businesses, Putin said. The 2008. Between November 14, financial rehabilitation of Russian Government has 2008 and March 18, 2009, the Gazenergobank with the aim of On April 23, 2009, the DIA earmarked RUB10.5 billion to CBR withdrew the licences of 12 settling Gazenergobank’s reported that it acquired the support small businesses in banks, including Sotscreditbank creditors’ claims by March 1, assets of Sobinbank which 2009. (March 18, 2009), NPK-Bank 2009. The DIA, in turn, amounted to RUB11 billion. and Federal Investment Bank undertakes to provide financial (March 30, 2009). assistance to Probusinessbank to assist it to fulfil its obligations. On April 22, 2009, the CBR Under the agreement, on reported that in March 2009 it January 22, 2009, withdrew six banking licences. Probusinessbank increased its Between April 9, 2009 and April shareholding in Gazenergobank 23, 2009, the CBR withdrew five from 19.79% to 99.99203%. banking licences, including Siberian-Moscow Commercial On March 17, 2009, the DIA Bank (April 15, 2009), Petro- announced that it spent Aero-Bank and Uniqbank (April RUB132.8 billion (US$3.8 22, 2009). billion) from November 2008 to February 2009 to support On November 27, 2008, the troubled banks. CBR announced that a third of all Russian banks posted a loss On October 14, 2008, to support last month, amid the country's the liquidity of the Russian worst financial crisis in a banking system, the CBR decade. increased fixed interest rates on operations with deposits, with On February 25, 2009, the CBR effect from October 15, 2008, reported that a total of 171 which is aimed at encouraging banks were unprofitable in companies and individuals to January 2008, with combined make deposits. losses of RUB16.99 billion (US$620.5 million). On March 19, 2009, the head of the Ministry of Economic On November 27, 2008, the Development and Trade, Mrs CBR urged banks not to Nabiullina announced that the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES increase their foreign currency outflow of capital from Russia is longs in December 2008. The expected to be approximately CBR advised organizations with US$80 billion in 2009. a net short position in foreign currency not to build longs in the The specific mechanisms of final month of 2008, stating that government support have not the monthly average net long been disclosed and there are balance positions in each reports that the situation in currency should not be higher Russia may be exacerbated by than for the October 25, 2008 to geo-political tensions. November 25, 2008 period. In December 2008, the CBR The CBR has been carrying out extended the application of regular loan auctions, with these recommendations to the varying terms and interest rates, first quarter of the year 2009. to 136 eligible banks since October 2008. The CBR On December 1, 2008, the CBR announced on November 21, reduced the rating requirements 2008, that it would reduce for banks eligible to be requirements for banks to take compensated for their inter-bank part in collateral-free money lending losses to BB-/Ba3. auctions, to include banks rated by Russian rating agencies (less Of RUB60 billion provided to than 12% of Russia's banks are AHML in 2008, RUB 8.4 billion rated by international agencies). has been disbursed as to April 29, 2009. On November 28, 2008, the Russian Government On December 5, 2008, the announced that it intends to Russian Government provide RUB10 billion (US$365 announced that it would provide million) in subsidies for grain RUB200 billion (US$7.2 billion) exports. The subsidies and to support the mortgage market. accelerated refunds of value- This would be distributed among added tax would allow 10 million banks that issue mortgages, tons of grain to be exported while any mortgage-backed without providing a timeframe. bonds issued by banks would be guaranteed by AHML and On December 12, 2008, Prime refinanced by the CBR. Minister Vladmir Putin However, on March 23, 2009, announced that the Russian AHML announced that in 2009 it Government had reserved will not support banks on the around RUB9 trillion (US$323 mortgage market, because billion) to support Russia's RUB200 billion (US$7.2 billion) banking system. As of for the support of mortgage December 12, 2008, of this
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES lending programme was not approximately RUB4 trillion included in the 2009 budget as (US$144 billion) has already had been hoped. been spent.
On December 16, 2008, the On February 5, 2009, Russian CBR announced that it would Prime Minister Vladimir Putin increase the term of unsecured announced that the Russian loans to banks to one year. Government will offer RUB500 Prime Minister Putin said billion (US$14 billion) to banks in legislation regulating the CBR the next few months. This must be amended to extend the followed an announcement the term. The CBR has also cut previous day that the Russian limits on collateral-free loans for Government had earmarked 34 out of the 136 banks eligible another US$40 billion for to take part in CBR money domestic banks. auctions. This measure comes after repeated warnings from the VTB will receive RUB200 billion CBR and the Russian in Tier 1 capital, while VEB will Government that banks that use receive RUB100 billion in Tier 1 state aid to buy foreign currency capital, and possibly another will be punished. RUB100 billion in Tier 2 capital or subordinated loans. The CBR holds regular repo auctions, lending to commercial The scheme will allocate an banks at low rates. On January additional RUB100 billion to be 12, 2009, the CBR held an given in subordinated loans to unsecured loan auction on the private banks. This will, Russian Trading System (RTS, however, come with the one of Russia's two major stock condition that shareholders of exchanges) providing those banks match the state participating banks with support on an equal rouble unsecured loans amounting to basis. RUB64.6 billion at 13.25% p.a. Another auction was held on The funds were aimed at January 19, 2009, with increasing lending in the unsecured loans amounting to banking sector, and the Russian RUB22.7 billion at the annual Government instructed rate of 13.41% being provided recipients of the funds to by the CBR. increase the amount they lend by 2% per month. On January 27, 2009, the CBR issued RUB77.43 billion in five- According to RIA Novosti, on week collateral-free loans, out of February 3, 2009, Prime RUB80 billion on offer. The Minister Vladimir Putin warned
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES average rate was 16.77%, while Russian banks against using the cut-off rate stood at 15.55%. state funds for currency speculation, reminding bankers On February 10, 2009, the CBR that state assistance to the injected RUB94.47 billion financial system was not charity: (US$2.62 billion) of seven-day "Funds are given to banks on funds into the banking system at the basis they will be returned, a rate of 11.63%. A maximum of and they should be spent not on RUB100 billion had been on financial speculations but go to offer. The week before the CBR the real sector in the form of injected RUB82.5 billion of loans to enterprises". seven-day funds at 10.51%. VEB deputy chairman Mikhail On February 16, 2009, the CBR Kopeikin said on March 16, auctioned RUB19.31 billion in 2009, that the Russian three-month collateral-free loans Government would recapitalize to commercial banks, out of the state development bank by RUB25 billion on offer. The cut- just RUB130 billion (US$3.7 off rate at the auction was billion), dropping a plan to 17.54%. provide VEB with an additional RUB100 billion as a On February 19, 2009, Alexei subordinated loan. Ulyukaev, the CBR's First Deputy Chairman, announced President Dmitry Medvedev that the CBR has been cutting announced on March 16, 2009, limits on collateral-free loans. that the Russian Government would stop handing out easy On March 16, 2009, the CBR bailouts to companies unless auctioned RUB1.625 billion in they can present concrete three-month collateral-free loans restructuring plans. The 295 to Russian banks. The cut-off companies from a list of rate at the auction was 18.83%. economically vital businesses published by the Russian On March 31, 2009, the CBR Government late last year have auctioned RUB6.910 billion in reportedly asked for RUB350 five-week collateral-free loans to billion (US$ 10 billion) in aid and Russian banks. The cut-off rate RUB213 billion (US$6.1 billion) at the auction was 16.73%. in state guarantees. According to the Russian Government, a On April 6, 2009, the CBR company's presence on the list auctioned RUB26.617 billion in does not automatically mean five-week collateral-free loans to that it will receive aid, and Russian banks. The cut-off rate Russian companies need to work with domestic banks to
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES at the auction was 16.62%. solve their foreign debt problems and not rely on Russian The CBR will introduce half- Government bailouts. The yearly and annual repurchase Russian Government will only operations next month, First offer direct aid in "extreme Deputy Chairman Alexei cases". Ulyukayev said on March, 30, 2009, RIA Novosti reported. The The revised Russian budget interest rate on the planned contains RUB300 billion to operations will not be higher recapitalize banks and RUB255 than 13%, Ulyukayev said. The billion for subordinated loans to CBR holds overnight and weekly banks. repo auctions and conducted its first three-month operation this The Russian Finance Ministry month. announced on March 25, 2009, that it will sell RUB529 billion Mr. Alexei Ulyukayev dismissed, (US$15.7 billion) of treasury on April 15, 2009, a proposal to bonds in 2009 and issue 50% to regulate commercial banks' 100% more bonds in 2011 and interest rates. The idea of state 2012, as the Russian regulation of bank lending rates Government looks for ways to was proposed by Russian finance a growing budget deficit President Dmitry Medvedev, but in 2009 in the amount of 8% of as of May 4, 2009, no decisions gross domestic product and have yet been taken on the increase liquidity in its financial issue. system. The Russian Government may also further The CBR has bought more than amend some of its key rules in US$2 billion of foreign currency efforts to recapitalize the since the start of April 2009 as it banking sector, while shying seeks to retain a positive trade away from the U.S. model of a balance and replenish reserves, "toxic assets" fund. Alexei Ulyukayev said on April 8, 2009. The rouble has already On March 26, 2009, the Russian gained 0.6% against the dollar in Minister of Finance Alexey April 2009 as stabilization in oil Kudrin announced that Russia prices and global equity markets plans to swap sovereign rouble lures investors back to the bonds for shares in banks to world's largest energy exporter. boost their capital without Ulyukayev said in March 2009 spending budgetary funds, that the CBR would buy dollars although Mr Kudrin said that it is and euros to prevent the rouble too early to talk about the size of from strengthening above 38.50 the program or which banks will versus its target currency be involved. It is also unclear
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES basket. The rouble at 35 or 36 when the initiative will start. against its target basket is "more Participants are expected to be indicative" of a balanced current required to buy back their account than the rate of 41 set shares within three years. The before the stabilization of the Russian Government has also economy, he said. budgeted RUB555 billion (US$20 billion) in new funding On April 23, 2009, the CBR for banks this year and RUB300 decreased its refinancing rate billion (US$10.8 billion) of that from 13% to 12.5%. sum is earmarked for recapitalization. On April 23, 2009, the CBR fixed the interest rate on collateral On April 20, 2009, Bloomberg loans with a term of one day, reported that Russia had seven days and thirty days at provided funds and loans to 11.5% per annum; and the AHML in an attempt to reduce interest rates on loans from the mortgage rates to pre crisis CBR secured by the pledge of levels of about 12%, President promissory notes, receivables or Dmitry Medvedev said. "We suretyships provided by credit have increased its capital by organisations as follows: 11.5% RUB20 billion (US$600 million), per annum for loans with a term and another RUB40 billion of up to 90 calendar days; 12% (US$1.2 billion) will come as per annum for loans with a term loans," Medvedev said, of 91 to 180 calendar days; and according to the transcript of an 12.5% per annum for loans with interview with NTV television a term of 181 to 365 days. posted on April 19, 2009, on the Kremlin web site. On April 13, 2009, the CBR auctioned RUB8.739 billion in On April 21, 2009, Reuters five-week collateral-free loans to reported that the Russian Russian banks. The cut-off rate Ministry of Finance placed all of at the auction was 15.5%. the offered RUB50 billion (US$1.49 billion) of temporarily On April 20, 2009, the CBR free budget funds in three-month auctioned RUB14.924 billion in deposits at commercial banks. five-week collateral-free loans to The ministry said the demand at Russian banks. The cut-off rate the auction exceeded the at the auction was 15.52%. amount on offer and totaled RUB85 billion (US$2.533 As of May 4, 2009, the CBR billion). provided a RUB500 billion subordinated loan to Sberbank. Russian Prime Minister Vladimir Putin on April 22, 2009, outlined
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES aggressive new measures for recapitalizing the banking sector and spurring lending to cash- strapped enterprises. Speaking at the Russian Government meeting discussing economic issues, Putin said any banks receiving government assistance would be required to lend out as much as they were receiving and to keep interest rates relatively low. "It's very important that interest rates aren't more than three percentage points higher that the CBR's refinancing. As of April 29, 2009, that means 12.5% plus 3% or 15.5%. And this must be the final price for borrowers, including all commission," Putin said. Putin also ordered the Russian Finance Ministry and the CBR to change the mechanism by which the Russian Government guarantees certain loans, allowing the bank to receive government funds immediately after a borrower becomes insolvent rather than having to sell off the collateral first. The Russian Government has set aside RUB300 billion (US$8.84 billion) to provide guarantees on loans to strategic enterprises, but banks currently have to go through a long process that involves selling the deposit before they can cash in on the guarantee. Putin also expanded on the Russian Government's plans for providing additional capital to the financial sector. A total of RUB550 billion is set
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES aside in 2009 to recapitalize the banks. That is in addition to the RUB757 billion put to that purpose in 2008. Russian Government aid to the banking system currently matches shareholder equity at a one-to- one ratio. That aid should be increased so that "for every rouble of shareholder equity, the government adds three roubles in the form of subsidized loans," Putin said. He also asked the Russian Government to send him a plan for using government bonds to build up banks' capital base.
In February 2009, the Russian Government gave RUB30 billion to VEB in a program intended to help refinance small business loans.
Reuters reported on April 23, 2009, that Alfa Bank expects to receive a state-subordinated loan for RUB20 billion (US$587 million). Earlier in 2009, Alfa received a RUB10.2 billion subordinated loan from state bank VEB as part of the government's support package for the banking sector.
On April 23, 2009, Prime-Tass reported that VTB provided RUB4 billion loan to OAO "Avtovaz".
On April 22, 2009, the head of VEB Vladimir Dmitriev announced that in 2009 the number of banks with whom
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES VEB works will increase from 70 to 130-140 in order to cover the whole territory of the Russian Federation. He stated that RUB100 billion will be provided to support the Russian economy.
On April 22, 2009, Russian Finance Minister Alexey Kudrin announced that RUB280 billion will be provided from the budget for 2009 to support the financial sector. Approximately RUB100 billion will be provided to VEB in order to carry out investment projects. It is expected that an additional RUB280 billion will be transferred to the capital stock of VTB.
On April 23, 2009, Vedomosti reported that in order to support Russian banks, in March 2009, the deputy director of the Russian Federal Tax Service sent a letter to all territorial tax departments in order to prohibit the distribution among companies of so-called "black lists" of banks. Banks face problems with liquidity and such lists may provoke the loss of their clients.
On April 23, 2009, Vedomosti reported that Russian Prime- Minister Putin announced that all money provided to banks by VEB in the form of subordinated loans, should be lent to companies and individuals at an interest rate no higher than 15.5% - refinancing rate (which
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES is 12.5% as of May 4, 2009) plus 3%. The term of a loan cannot be less than one year. The amount of loans should correspond with the amount of support. The CBR will check how these requirements are being followed.
As of May 4, 2009, VEB has provided subordinated loans to six banks: VTB (state bank) - RUB200 billion, Rosselkhozbank (state bank) - RUB25 billion, Alfa Bank - RU 10.2 billion, Nomos- Bank - RB 4.9 billion, Bank Khanty-Mansyisk (state bank) - RU 2 billion and Gazprombank - RU 15 billion.
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SLOVAKIA SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES The Government announced the The Slovak legislative body has The Government of the Slovak In order to facilitate accessibility intention to introduce new decided to implement the Republic announced that it of SME’s to working capital from measures including state Economic and Financial Affairs intends to adopt measures to commercial banks through guarantees for debts of Council of the Council of the increase the equity capital in loans, the Ministry of Finance of individuals who were unable to European Union (“ECOFIN”) state bank institutions being the Slovak Republic, commercial pay for mortgage loans due to recommendation on the Eximbank (focusing on support banks and state banks losing their jobs. These increase of deposit guarantees of export/import) and Guarantee Eximbank and Guarantee and measures were expected to be through the adoption of the and Development Bank Development Bank concluded submitted to the Parliament in amendment of the Act (dedicated mainly to support the Memorandum for March, but so far no such No. 118/1996 Coll. on Protection business activities of SMEs and cooperation, concerning legislative initiative has been of Deposits, as amended. This their accessibility to capital), provision of so-called introduced. legal instrument is effective as of allowing them to increase their accelerated guarantees. November 1, 2008, and liquidity and thus the ability to increases the guarantee of compensate for the expected According to presently available deposits in the commercial worsening conditions for loan public information, selected banks provided by the Fund on availability provided by loans of up to €340,000 (in each Protection of Deposits to a commercial banks to business individual case) to be drawn by 100% of the value of depositions enterprises. SME’s from commercial banks without a limit of a maximum will be able to utilize guarantees amount of the guarantee (from The increase of registered provided by the state banks up the previous level of 90% capital will be effectuated in the to the level of 55% of the loan. compensation and maximum beginning of 2009 and will This will allow SME’s to draw the guarantee amount of €20,000). present approximately bank loans even under currently €30 million (Slovak Guarantee more strict policy of banks and Development Bank) and regarding provision of securities. €11 million (Eximbank) According to representatives of respectively, with the commercial banks, this project Government’s planned will be employed mainly to assessment for any potential finance working capital (not further increases in loan investments). On the basis of capacities of the mentioned the Memorandum, separate banks by €45-55 million (through agreements stipulating details of a loan from the European state guarantees will be signed Investment Bank and subsidy with respective commercial from the state to the insurance banks participating on the funds of Eximbank). project in a short period of time.
The Government also The project of the Ministry of announced the intention to Finance of the Slovak Republic introduce new measures is a response by the State in including financial aid to the relation to published information State Housing Development on lower availability of loan
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Fund. These measures were capital from commercial banks expected to be submitted in in the recent period due to the March, but so far no such global capital crises. initiative has been introduced. Investment Measures
The Government also declared its intention to support significant public investments in PPP projects; €1,33 billion is expected to be spent in 2009.
The amendment to the Investment Aid Act No. 561/2007 Coll., as amended, will be introduced for the period from April 1, 2009 to December 31, 2010. The minimum investment amount for the provision of long- time tangible and intangible property required to obtain the grant is decreased by half for the projects in industrial production. For projects in tourism, the minimum investment amount is lowered to €9.960.000 for tangible property and €4.980.000 for intangible property, respectively. The provision of new production and technological devices for production purposes is lowered to 40% of the overall value of the provided long-time tangible and intangible property in the industrial production, and 20% in tourism.
Tax and Employment Measures
From March 1, 2009, the non- taxable part of the tax base of individuals' income tax will be
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES increased from 19,2-multiple of the life minimum (€3.435,26) to 22,5-multiple of the life minimum (€4.017,80). This measure is aimed at decreasing the tax burden of individuals with low and medium income.
The minimum input price for assets depreciation for the purpose of income taxation will change from €996 to €1,700 for tangible property, and from €1.660 to €2.400 for intangible property, respectively. This measure should increase tax depreciation, which should improve cash-flow and stimulate purchase of property. Furthermore, several sorts of tangible property will be transferred into lower depreciation groups. Separate depreciation of detachable parts of tangible property is introduced.
Entrepreneurs who do not have any employees and whose income does not exceed €170.000 per year will be exempted from the duty of book- keeping.
Administrative burden for SMEs in respect of notification duties and sale licences for alcohol in consumer packages is lowered. Analogous measures were adopted in respect of the mineral oils excise tax.
The Act No. 5/2004 Coll. on Employment Services is
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES amended from March 1, 2009, providing state assistance measures to the employment market in order to preserve the employment rate and create new job opportunities using active measures on employment market. Conditions for establishment of so-called social enterprises employing at least 30% of handicapped employees are simplified, mostly for municipalities and self-governing regions.
A new employment-sustaining grant has been introduced for employers which sustain work positions even in case of serious operational reasons (pursuant to Section 142 (4) of the Labour Code), provided that they preserve existing work positions and provide employees salary compensation of 60% of agreed salary. The grant is aimed at covering salary and levies expenses and is granted for a maximum period of 60 days during one year.
A grant for the creation of new work positions will be granted to employers performing their activities for at least 12 months, in the amount of 15% of overall labour value in Bratislava region, 30% in other regions, at most 50% of overall labour value of new employee. The grant will be provided for a maximum period of 12 months.
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Levies Measures
The amendment to the Social Insurance Act changed the system of calculation of levies, such as sick pay, for individual/self-employed undertakings. Previously, the calculation basis was so-called minimum salary. Since April 1, 2009, levies for self-employed individuals have been calculated based on 44.2 % of average salary in Slovakia for the two years preceding the year in question.
Aggregate payable levies are reduced by lowering the amount of levies to the reserve solidarity fund. From April 1, 2009 to December 31, 2010, self- employed individuals shall pay 2% of their average salary and the rest of contributions shall be covered by the state.
The amendment to the Health Insurance Act changed the system of calculation of levies for health insurance for self- employed individuals. Since April 1, 2009, the calculation basis has been (instead of minimum salary) 44.2% of average salary in Slovakia for the two years preceding the year in question.
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SLOVENIA SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES As of November 20, 2008, Slovenia has implemented the The amendment of the Public The amendment of the Public Granting Loans Slovenia may guarantee loans amendment of the Banking Act Finance Act (OG of the RS Finance Act provides the granted to credit institutions with (OG of the RS no. 131/06 as no. 79/99 as amended) provides Government with power to The amendment of the Public a registered seat in Slovenia up amended) pursuant to which the the Government with the power purchase troubled financial Finance Act provides the to a maximum nominal amount amount of the guaranteed to recapitalize credit institutions, assets of credit institutions with Government with power to grant of €12 billion. Only loans with deposit is not limited anymore.3 insurance companies, a registered seat in Slovenia. loans to credit institutions, maturities from three months to The measure is valid from reinsurance companies and insurance companies, five years are eligible. The November 20, 2008 to pensions companies with a Credit institutions may also be reinsurance companies and guarantee does not extend to December 31, 2010. registered seat in Slovenia. required to meet certain pensions companies with a structured financial instruments, Detailed provisions have not yet requirements on corporate registered seat in Slovenia. subordinated debt and loans to been adopted. governance. related entities. The maturity of the loans is one Participating institutions may to five years. The interest rate is Participating institutions may also be required to meet certain determined in each specific case also be required to meet certain additional requirements on by the Government. The interest additional requirements on corporate governance with rate is calculated by adding (i) corporate governance with respect to bonuses, dividend the cost of a loan (including respect to bonuses, dividends payments and other interests) with similar maturity payments and other requirements. which is secured with the state requirements. guarantee and (ii) a credit risk margin. The credit risk margin is The Government Regulation determined by taking into valid from December 6, 20081 account the beneficiary’s rating, sets the amount of state as follows: guarantee fees. The annual fee is generally dependent from the AAA rating: 25 bps + 50 bps beneficiaries’ rating and loan maturity. The fees for AA (all) rating: 40 bps + 50 bps guarantees with maturities over one year are as follows: A (all) rating: 45 bps + 50 bps
AAA rating: 25 bps + 50 bps BBB (all) rating: 50 bps + 50 bps AA (all) rating: 40 bps + 50 bps BB (all), lower rating, no rating: A (all) rating: 45 bps + 50 bps 55 bps + 50 bps. 4
BBB (all) rating: 50 bps + If granted a loan, the beneficiary 50 bps must undertake to provide Slovenia with the right to BB (all), lower rating, no rating: subscribe the beneficiary’s shares by way of contribution in
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES 55 bps + 50 bps. kind (the object of which is Slovenia’s claim towards the For state guarantees up to one beneficiary – debt-to-equity year, the fee is 50 basis points swap). The beneficiaries may (bps) irrespective of the rating. also be required to meet certain requirements on corporate Liquidity Guarantee Program governance.
The Republic of Slovenia Fiscal Measures Guarantee Scheme Act, effective from May 1, 2009, Wage Related Subsidies: gives effect to the Liquidity Employers who reduce the Guarantee Program (the number of hours of work from 40 “Program”). The Program to 36 (weekly) are entitled to provides €1.2 billion of state monthly €60 subsidies for each guarantees for the banks with employee. If employers reduce intention to finance the real the number of hours of work to sector economy. The Program 32 (weekly), they are entitled to is effective until December 31, monthly €120 subsidies for each 2010. employee. The employees are in such cases considered as full The Slovenian Government will time employees in all respects. 5 guarantee a maximum of 80% of each loan granted to a company Income Tax: Income tax under the Program. Program general rate of taxation will conditions are: by granting a gradually decreased. The loan, each bank undertakes a general rate of taxation will be minimum of 20% of the credit 20% of the tax base for year risk; loan maturity ranges from 2008, 19% of the tax base for one to ten years; loan is properly year 2009 and 18% for year secured; only new loans are 2010 and the subsequent years. eligible, a debtor has A, B or C ranking according to the rules of The amount of the prepayment the Central Bank of Slovenia. of the income tax has been reduced by one percent, and is The annual fees range from therefore fixed at 21% for the 0.4% up to 0.8% (dependent year 2009. 6 from debtor’s ranking) of the principal amount of a loan The amount of the tax relief for granted. The fees are reduced investments has been increased for the first two years by 25% for to 30% of the invested amount SMEs and by 15% for large (but cannot exceed the amount companies. An additional fee of of the tax base). The tax relief 0.05% of the principal amount of can be exercised in the year of
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES a loan granted is due quarterly.2 the investment.7
State guarantee to SID banka Personal Income Tax: The d.d. amount of the tax relief for investments (for sole State guarantee to SID banka proprietors, farmers, etc.) has d.d. is planned to be granted in increased to 30% of the invested an amount of € 500 million, of amount (but cannot exceed the which € 300 million is envisaged amount of the tax base) and the to be financed by the EIB. limitation in the absolute amount of €10.00 has been abolished.8 State guarantee to NLB banka d.d. Special tax relief has been granted to sole proprietors for NLB has been granted a state the years 2008, 2009 and 2010; guarantee in an amount of € 2.5 they are entitled to lower tax billion. base for the amount of the investments in cargo vehicles (EURO V) and buses (Euro IV).9
Loans to the Industrial Sector: The Government shall prepare a new de minimis program which will include granting loans and subsidies to the industrial sector in the total amount of €20 million. The Program shall be in force until December 2010.10
The Government shall prepare a program for strategic projects in clean technology and technological advanced industry sector which will include granting long-term loans in the total amount of €100 million.
VAT Reclaim
From December 31, 2009 onwards input VAT shall be refunded by the State in 21 days (before: 60 days).11
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1 The Regulation on the Measures and Conditions for Guarantee Issue Pursuant to the Article 86.a of the Public Finance Act (OG of the RS no. 115/08). 2 The Republic of Slovenia Guarantee Scheme Act (OG of the RS no. 33/09). 3 Before the respective amendment, the amount of the guaranteed deposit was limited to €22,000. 4 The Regulation on the Measures and Conditions for Granting Loans Pursuant to the Article 81.a of the Public Finance Act (OG of the RS no. 119/08). 5 The Act on Subsidies for Full Time Employment (OG of the RS, no. 5/09). 6 The Amendment of the Tax Procedure Act (OG of the RS, no. 125/2008). 7 The Amendment of the Income Tax Act (OG of the RS, no. 5/09). 8 The Amendment of the Personal Income Tax (OG of the RS, no. 125/2008). 9 The Amendment of the Personal Income Tax (OG of the RS, no. 20/09). 10 The decision on such Program has been adopted by the Government on February 19, 2009 and has to be approved by the European Commission. 11 The Amendment of Value Added Tax Act (OG of the RS, no. 33/09).
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SPAIN SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES The Spanish Minister of The Spanish Government has On March 29, 2009, the Spanish The Government has also In a move to drive liquidity, the On November 28, 2008, the Economy and Finance has been implemented the Economic and government approved by Royal authorized the Minister of Financial Assets Acquisition Spanish Government approved authorized by Royal Decree to Financial Affairs Council of the Decree 4/2009 the intervention Economy and Finance until Fund (the “FAAF”) has been a Royal Decree containing guarantee new funding Council of the European Union of the savings bank Caja Castilla December 31, 2009, to acquire, established (on a temporary certain economic, tax, operations of Spanish credit (“ECOFIN”) resolution on raising La Mancha (CCM), the first upon request of the relevant basis) to invest in the financial employment, and access to entities. depositor guarantee levels by Spanish financial institution that entity, securities, preferred assets of credit entities or housing measures. In particular, increasing the maximum amount is on the brink of collapse since capital securities or other similar securitization funds backed by these measures are aimed at: In 2008, €100 billion were guaranteed by the Deposit the beginning of the credit capital instruments issued by loans granted to individuals, available for the Spanish Guarantee Fund and the crunch. Spanish credit entities. companies and non-financial - promoting the recruitment of Government to guarantee Investment Guarantee Fund entities. Assets backed by new certain unemployed people and issuances of debt instruments from €20,000 to €100,000 per The measures adopted so far The securities that the credit transactions originated on facilitating self-employment; traded on official Spanish account holder and entity. involve: Government acquire will not be or after October 7, 2008, will secondary markets, of which subject to the limitations have priority for the purpose of - establishing a new bonus in €90 billion had been allocated to This measure is applicable to (i) The substitution of the established by the legislation for its acquisition by the FAAF. the employer’s Social Security 53 eligible entities upon their deposits of cash or securities in savings bank Board of regulatory capital purposes. contributions for those request by December 31, 2008. credit entities and investment Directors by the three The FAAF will be financed employers who hire unemployed In 2009, a further €100 billion services firms authorized to administrators appointed by Purchase agreements will be through the issuance of workers for an indefinite period will be available for this matter. operate in Spain, including those the Bank of Spain that will finalized following the issuance Government bonds. €30 billion that have one or more The guarantees are available that are subsidiaries of foreign manage the instituion going of a report by the Bank of Spain. is available and may be dependent children. This bonus until December 31, 2009. The credit entities or foreign forward. increased to €50 billion if will be €125 per month and per expiry date of the guaranteed investment services firms, as On April 29, 2009, CCM required. employee for two years; transaction must not exceed five well as the branches of such (ii) Making available to CCM announced that it had reached years. entities that have adhered to facilities up to €9,000 an agreement with the Deposit Unlike the U.S. TARP, the FAAF - increasing the amount of the these funds. million from the Bank of Guarantee Fund (“DGF”) targets high quality assets of the unemployment benefit payable On November 21, 2008, through Spain. Indebtedness arising whereby it will issue €1,300 financial institutions rather than by way of a one-off upfront a Ministerial Order, the Spanish from the amounts drawn million in preferred capital troubled assets. payment to unemployed workers Minister of Economy and down under these facilities securities to the DGF to raise its who set up a new business, in Finance has established: will be guaranteed by the capital levels. With this On October 31, 2008, the order to facilitate that these Kingdom of Spain. transaction CCM’s capital ratio Minister of Economy and workers become self-employed; (i) The main features of the will increase to 11 percent, and Finance issued the guarantees include among its Tier 1 ratio will reach 7.2 corresponding developing - enabling the unemployed them, the irrevocable and percent. regulations governing its (jobless workers and unconditional nature of the operation, and the General pensioners) and the self- guarantees and the waiver of Directorate of the Treasury and employed who have seen their the benefit of prior exhaustion of Financial Policy, as secretary of income reduced significantly as the guaranteed entity’s assets. the Governing Council of the a result of the crisis to have FAAF, published the access to a temporary and (ii) The entities eligible to adhere composition of the Executive partial mortgage moratorium. to the guarantee scheme: Committee (the body that Under this measure, such Spanish credit entities and manages the FAAF) and the persons will be allowed to delay consolidated groups of Spanish criteria for the selection of half their mortgage payments credit entities provided that (a) (maximum €500/month) for up to
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES they have a share of at least assets eligible for purchase. three years4 (beginning March 1, 0.1% of the aggregate 2009 to February 28, 2011) outstanding amount of loans and The selection of assets to be provided they meet certain credits to Spanish residents, and purchased by the FAAF is made requirements, including: (i) that (b) have issued in the previous by auctions, where the bids mortgage loan is made prior to five years securities of like submitted may be competitive or September 1, 2008 (maximum nature to those for which the not-competitive. The assets in eligible mortgage is €170,000); State guarantee is sought. which the FAAF may invest by (ii) that there is a prior way of firm and definitive agreement between the (iii) The financing transactions purchases include mortgage- appellant and the lending credit; that may be guaranteed, which backed bonds and asset-backed and (iii) that the debtor is not in comprise issuances of securitization bonds, and by way arrears in its payment unsecured and unsubordinated of sale and repurchase (repo) obligations; and commercial paper, bonds and transactions the FAAF may notes in Spain with a maturity of invest in mortgage-backed - extending, on an extraordinary between three months and three bonds, asset-backed and temporary basis, the tax years (securities with a longer securitization bonds and benefits enjoyed by owners of maturity, up to five years, are mortgage-backed securitization housing savings accounts and eligible for guarantee subject to bonds (backed by loans granted owners of houses who are a report by the Bank of Spain) to individuals, companies and bearing mortgages or who have and which meet other non-financial entities) provided purchased a new house and conditions, including the they meet certain requirements have not yet been able to requirement of a minimum regarding: (i) the date of dispose of its primary residence. issuance amount of €10 million.2 issuance, (ii) admission to trading on a regulated market, In addition, tax legislation has (iv) The basis for calculation of (iii) credit rating, and (iv) been amended in order to permit the fees to be charged by the maturity date or estimated monthly VAT reimbursement State for the granting of the average maturity. upon taxpayers’ request. guarantee. The results of the auctions are Moreover, a €400 annual (v) The maximum amount of published on the website of the reduction in the Personal guarantees to be granted to FAAF within a maximum period Income Tax (“PIT”) for each tax each individual entity and the of three business days, including payer has been put into place. procedures to be followed for the following details: (i) the The amount will be paid in the granting of the guarantees. aggregate amount of the bids advance be decreasing the received, (ii) the amount amount of the monthly The State will guarantee only effectively allocated to the bids, withholdings carried out by the principal of the loan and the (iii) the total number of bids, (iv) employers on payrolls on ordinary interests. In the event the number of allocated bids, (v) account of PIT. Pursuant to the that the issuances are the marginal rate of the auction, Royal Decree 2/2008, dated denominated in foreign and (vi) the weighted average April 21, in 2009 the amount currencies, the guarantee will rate of the auction. withheld will be reduced by also cover the exchange risk.3 €33.33 per month, which will The first auction was held on provide tax payers with
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Moreover, in the event of November 20, 2008, and the approximately €6,000 million. enforcement of the guarantee, acquisitions of assets were the State will pay interest at made by way of sale and On March 27, 2009, the Spanish market rates from the maturity repurchase (repo) transactions. Government approved a Royal date of the secured and The FAAF acquired assets Decree Law partially reforming defaulted obligations until the worth €2,115 million of the the insolvency legislation by payment date, provided certain €5,000 million available. The introducing the following requirements are met. remainder €2,885 million measures: increased the €5,000 million set In consideration the issuer must aside for the following auction, (i) Providing a safe harbour for provide collateral in the form of which was held on December certain pre-involvency Spanish debt securities to the 11, 2008, where the FAAF refinancing and restructuring General Directorate of the acquired €7,224 million by way plans that meet stipulated Treasury and Financial Policy. of firm and definitive purchases requirements. The amount of collateral will be of assets. reassessed monthly. The (ii) Providing for a swifter and General Directorate of the In the third auction, which was cheaper insolvency proceeding. Treasury and Financial Policy held on January 20, 2009, the will be entitled to enforce such FAAF acquired assets worth (iii) Facilitating the collateral on the date of the €4,000 million, by way of repo implementation of pre-packaged enforcement of the guarantee to transactions. plans. recover the damages resulting from exchange rate fluctuations, Lastly, in the fourth auction, held (iv) Clarifying the existing doubts if any. on January 30, 2009, the FAAF concerning credit classification acquired, by way of firm and and subordination in specific Finally, in the event of definitive purchases, assets scenarios. enforcement of the guarantee, worth €6,002 million. the Government shall notify the On April 24, 2009, the Spanish Bank of Spain so that it can Government approved a Royal analyze if the requirements for Decree providing for two new intervention of the guaranteed measures aimed at easing the entity are met. liquidity problems of the small and medium size companies So far medium terms notes in and self-employed workers who the amount of approximately are owed money by the €25,000 million with the Municipalities. Both intiatives will guarantee of the Kingdom of be endowed with nearly €14,000 Spain and with maturity on 2012 million. Firstly, the Municipalities have been issued by several and other local entities will be entities. able to borrow funds from the State in order to settle the debts they incurred until last December 31, 2008. The second measure consists in the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES creation of a new facility of the Official Credit Institute, amounting to €3,000 million, in order to guarantee the receivables of small and medium size companies and self-employed workers vis-a-vis Municipalities.
1 The Spanish Minister of Economy and Finance has finally decided not to guarantee inter-bank debt. 2 The form to apply for the state guarantees on the issuance of debt securities by banks was published on November 25, 2008. 3 On December 23, 2008, through a new Ministerial Order, the Spanish Minister of Economy and Finance amended some of the requirements provided in the previous Ministerial Order which, given the critical situation of the market, could be an obstacle to the effectiveness of the guarantees. 4 On February 6, 2009, the Minister of Economy and Finance delayed the period of computation of the payments subject to the moratorium, deferred the repayment (from January 1, 2011 to March 1, 2012) and extended the maximum repayment term (from 10 to 15 years).
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SWEDEN1 SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES A guarantee scheme was Effective as of October 6, 2008, On April 29, 2009, the Executive The Swedish Government will Kaupthing Bank hf. On October 30, 2008, the Act introduced the last days of Sweden has amended the Act Board of the Riksbank decided provide a fund to recapitalize (2008:814) on State Support to October 2008 in order to secure (1995:1571) on Deposit to cut the repo rate by 0.5 banks if required as well as Riksbank will loan as much as Credit Institutions came into the medium term financing Guarantees such that the percentage points to 0.5 per providing banks with liquidity (a SEK5 billion (US$700 million) to force. needs of Swedish banks. The government guarantee for cent. This rate cut was the last capital injection will likely be in the Swedish unit of Kaupthing total amount which may be deposits was increased from in a series of rate cuts during the the form of preference shares). Bank hf., after the subsidiary Pursuant to the provisions of the guaranteed under the program SEK250,000 up to a maximum autumn of 2008. The rate failed to meet payment Act, state support in the form of is SEK1,500 billion; hereof amount of SEK500,000. The prevailing in September 2008 The Swedish Financial obligations and was put up for guarantees, capital contributions 500 billion may be allocated to Government has initiated was 4,75 per cent. The repo rate Supervisory Authority has, as of sale. or otherwise may be provided to covered bonds with terms of legislative work to amend the is expected to remain at a low December 12, 2008, amended Swedish banks and credit three to five years. This Act in order to ensure that level until the beginning of 2011. its Regulations (FFFS 2008:27) Swedbank institutions (credit market possibility is now being depositors covered by the pertaining to Capital Adequacy companies) if deemed broadened to include debt guarantee will receive to the effect that Tier 1 capital On November 4, 2008, necessary to prevent serious securities without special compensation faster than under contributions may now represent Swedbank (the country’s largest disruption to the Swedish collateral. No more than a third the present regime. a maximum of 30% a firm’s savings bank) became the first financial system. If the support of the total limit, or SEK 500 original own funds, whereas Swedish bank to seek state help takes the form of a capital billion, may concern guarantees previously the limit was 15%. to lower its funding costs by contribution to the affected for debt securities with The purpose of this change is to signing up for the Government’s institution this will be against maturities of between three and increase the Swedish banks’ SEK1,500 billion guarantee preference shares with higher five years. The program was lending capacity. On December program. Swedish banks had voting rights than existing initially open until April 30, 2009 18, 2008, the responsible suffered little direct impact to the shares. The State can also and has been extended and Minister stated that the Swedish credit crisis because they had provide support by underwriting made available until October 31, state may make Tier 1 capital little subprime exposure, but are (and guaranteeing) a new share 2009. It may be extended until contributions to Swedish banks now suffering from short-term issue. December 31, 2009. in order to help increase their liquidity pressures and longer- lending capacity. On February term concerns over the The Act provides that any state Eligible under the guarantee 3, 2009 the Government slowdown in the Nordic and support must be commercially scheme are Swedish banks, announced that the National Baltic economies. sound and not distort savings banks and credit market Debt Office may provide capital competition. Moreover, the companies that have a to solvent banks, either within Carnegie Investment Bank terms and conditions of any considerable share of their the context of new share issues state support must be drafted lending secured by real estate or by making Tier 1 capital On October 26, 2008, the such that the existing pledges. Moreover, it is contributions. The National Debt Swedish Riksbank granted a shareholders of the institution required that an applying bank Office has been authorised to credit of SEK1 billion to bear any losses incurred by the or credit market company provide capital as aforesaid up Carnegie Investment Bank in institution. satisfies certain requirements to a total amount of SEK 50 order to avoid a possible default regarding capital adequacy, i.e., billion (SFS 2009:46). One situation for the bank. On The Act also gives the State the in respect of the Tier 1 capital condition for Tier 1 capital October 28, 2008, the credit was right to redeem the shares of a ratio and the capital base, and if contributions is that the increased to a maximum of credit institution under certain considered sufficiently receiving bank accepts SEK5 billion. As security for the circumstances – i.e., if the capitalized it will be eligible. restrictions as to compensation credit, the parent holding institution or its shareholders schemes for the top five company D Carnegie & Co AB, have refused to accept the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Guarantee undertakings which executives. pledged i.e., all of its shares in terms for state support; provided are issued to an individual bank Carnegie Investment Bank and that the Settlement Board (for may not from time to time (See other columns.) Max Matthiesen (insurance settlement of disputes exceed the higher of (i) the brokers and pension concerning support provided aggregate of maturing debt consultants). The credit was under the Act) has declared the instruments issued by the bank subsequently assigned to the terms of the proposed support and (ii) 20% of bank’s deposits Debt Office. On November 10, not to be unreasonable. on account from the public as at 2008, the Swedish FSA September 1, 2008. withdrew Carnegie’s banking The Act provides for the licence (for violations of banking establishment of a stabilization The National Debt Office (the regulations, i.e., the large fund. The fund will be financed “Debt Office”) will request exposures provisions). through fees collected from the applying banks to enter into a Following the withdrawal of the banks and credit institutions. It Guarantee Agreement with the banking licence, the Debt Office, is expected that the fund will Debt Office. Under the terms of under the pledge agreement, reach SEK150 billion within a the Guarantee Agreement, the took over the title to the shares period of 15 years. The fund will banks have to restrict in the banking company and the be administered by the National compensation levels to the top insurance brokers. As a result Debt Office. five executives, such that their of the takeover, the FSA salaries must not be increased reconsidered its decision and in Iceland and bonuses or stock options view of the new ownership, not granted as long as the revoked its withdrawal decision On November 5, 2008, officials Guarantee Agreement is in and instead issued a warning to from the central banks and force. There is also a the bank. finance ministries of Norway, commitment not to increase the Sweden, Finland and Denmark remuneration to Board directors. held a meeting in Stockholm to Moreover, the terms of the discuss their contributions to a Guarantee Agreement further $6 billion rescue package for provide that the relevant bank Iceland. The four Nordic nations may not refer to the government have said that they are willing to guarantee when marketing support Iceland, but only after it credit and the bank will also agreed to design and implement have to undertake not to an economic stabilization plan in significantly expand its activities, association with the IMF. The if the expansion would not have loans would also require taken place in the absence of approval from the respective the government guarantee. countries’ parliaments.
The government guarantee may Home Owner Protection be issued in respect of bonds and other instruments subject to BKN, the National Housing trading on the capital market. Credit Guarantee Board, a The relevant bank’s debt national government agency instrument must have a term of under the Ministry of Finance,
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES more than 90 days but less than administers Government credit 3 years, except for covered guarantee programs for housing bonds which may have a term of development. Government credit up to 5 years. guarantees can be provided for loans advanced by financial A guarantee issued by the institutions operating in Sweden. Swedish State (the Kingdom of On December 16, 2008, the Sweden) through the Debt responsible Minister instructed Office, will be irrevocable and BKN to draft a program, the unconditional (subject to the purpose of which was to protect terms of the guarantee). There house owners against significant is no requirement to exhaust any falls in value of their housing remedies against the bank properties, causing a lending issuer prior to making a demand bank to call its loan, because the under the guarantee. value of the bank’s security has depreciated. As this program is Banks availing themselves of presently understood, the the state guarantee will have to Government would guarantee pay a fee, based on the the loans vis-a-vis the bank. It Recommendations on has been emphasized by the Government Guarantees on Minister that only house owners bank debt issued by the capable of servicing their debts European Central Bank on an on-going basis will be October 20, 2008. The fee eligible under the program. payable is based on market benchmarks and will take into account institution-specific risk (median spread for credit default swaps or credit rating) plus a mark-up of typically 50 basis points.
The Swedish Government guarantee scheme has been notified and approved by the European Commission (State Aid No. 533/2008).
At this point in time major Swedish commercial banks and an automotive financing company have joined the scheme, whereas other major Swedish banks have indicated a
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES reluctance to join. It is believed that the banks have issues with: (i) the fee and (ii) the restriction imposed on any expansion by the banks. In view hereof, the National Debt office has waived the restriction on expansion and has lowered the fees slightly in order to make the scheme more attractive to the banks.
1 In summary, the Swedish stabilization measures include the implementation of a general framework for giving state support to ailing credit institutions, the creation of a stabilization fund and a temporary guarantee program. The guarantee program is governed by the Ordinance (2008:819) on State Guarantees for Banks and the National Debt Office Regulation (2008:1) concerning State Guarantees for Banks.
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SWITZERLAND SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES2 MEASURES FINANCIAL ASSETS OTHER MEASURES The Government did not take Under a temporary act of the The Swiss National Bank Credit Suisse Group AG See recapitalization measures. Assistance to Other Financial any ad hoc measures to Swiss Federal Assembly, the (“SNB”) and the Swiss Central Institutions guarantee inter-bank debt. maximum amount under the Bank, took several special On October 16, 2008, Credit In October 2008, UBS AG However, in connection with the deposit guarantee scheme was measures to overcome the Swiss raised CHF10 billion announced that it would transfer The Federal Council, the Swiss bill seeking the approval of the raised to CHF 100,000 (or financial crisis using open Tier 1 capital through a up to US$60 billion in illiquid executive, has announced in UBS AG recapitalization roughly €66,666). The system market transactions: combination of a sale of treasury securities of its balance sheet to connection with the bill seeking measure, it expressly mentioned will continue to be based on shares, the issuance of a SNB StabFund, a fund set up by the approval of the UBS AG that it would act should the both a preferential treatment in USD Auctions mandatory convertible bond and the Swiss National Bank. 90% recapitalization that it would prevailing conditions require insolvency proceeding and an the issuance of a non-dilutive of this sale is financed by a loan provide on a case-by-case basis such action. insurance system but with an Since December 2007, in hybrid instrument through a from the Swiss National Bank at similar assistance to other banks increase capped at CHF 6 billion conjunction with the Federal private placement with a group LIBOR plus 250 basis points, of systemic relevance. (approx. €4 billion). In addition to Reserve, the Bank of England, of investors, including a wholly which shall not exceed US$54 this insurance system, however, the Bank of Japan and the owned subsidiary of the Qatar billion. Since then, the size of Stabilization Measures institutions with guaranteed European Central Bank (ECB), it Investment Authority.3 the portfolio of illiquid assets deposits exceeding CHF 6 repeatedly injected liquidity was reduced and the transaction The Federal Council announced billion will have to cover these through several US$ auctions. UBS AG closed with assets amounting to on November 12, 2008, that it deposits by holding approved a total of US$38.7 billion. The would take various measures to securities in an amount equal to CHF Liquidity Facilities In December 2007, UBS AG Swiss National Bank controls stabilize the economic situation:8 125% of the guaranteed raised CHF 15 billion in Tier 1 the SPV and is entitled to an deposits, subject to a possible In October 2008, acting with the capital through the sale of equity kicker of CHF1 billion plus First, it anticipated certain exemption from FINMA, the ECB to improve the liquidity of treasury shares and the private 50% of any remaining equity expenditures that were already Swiss Financial Market the Swiss Franc, the SNB placement of a CHF13 billion after repayment of the loan in approved by Parliament. These Authority. entered into a EUR/CHF swap, mandatory convertible note with principal and interest. expenditures relate mainly to allowing the ECB to auction the Government of Singapore specific projects of various Whereas until now, individual Swiss Francs to Eurosystem Investment Corporation Pte. departments which were retirement accounts (so-called Institutions. This measure Ltd., the sovereign state fund of approved by Parliament but not 3a accounts) were added to an sought to offer Swiss Francs to the Government of Singapore yet implemented pending individual’s ordinary savings for financial institutions that do not and a private investor.4 budgetary approvals. It also the purposes of the deposit have access to the normal open accelerated various projects, guarantee system. Under the market operations of the Swiss In June 2008, UBS AG carried mainly in the construction sector revised act they will be treated National Bank. out a CHF15.97 billion rights (e.g., protection against natural as separate claimants. Thus, a offering.5 threats, measures to promote given person may receive up to To neutralize the monetary energy efficiency, CHF200,000 (or €133,333) in effect of this added liquidity, it On October 16, 2008, the encouragement for public guaranteed deposits: half of issued CHF-denominated SNB Federal Council and the Swiss interest housing, and them through its individual Bills with a seven-day term. National Bank announced a government buildings savings and the other half concerted effort to recapitalize construction projects). Through through the investment In November 2008, the Swiss UBS AG. these measures, the executive retirement account. However, National Bank entered into a will be allowed to spend an the individual retirement similar arrangement with the The measure is divided into two aggregate amount of ca. accounts will not be covered Narodowy Bank Polski (“NBP”), legs: CHF340 million (or roughly under the deposit insurance the Polish central bank, allowing €212.5 million) in addition to the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES2 MEASURES FINANCIAL ASSETS OTHER MEASURES scheme. 7 the NBP to offer banks in its First, the Federal Council, acting ordinary expenditure covered by jurisdiction Swiss Francs against on the basis of its emergency the budget. The Federal Council Certain financial institutions, Polish Zlotys. powers, will subscribe a expressly mentioned that it e.g., some cantonal banks and CHF6 billion mandatory would examine and, if Post Finance, benefit from a In February 2009, the Swiss convertible note with necessary, present further statutory guarantee from their National Bank entered into a two-and-half-year term and measures in 2009. canton or, in the case of Post similar agreement with Magyar paying 12.5% p.a. Finance, the Federal Nemzeti Bank ("MNB"), allowing Second, it accelerated its Government. MNB to provide Swiss Francs to Second, UBS AG agreed to decision to allow firms to use banks in its jurisdiction through transfer up to US$ 60 billion in their crisis reserves, an foreign exchange swaps. illiquid securities and other institution which provided tax assets of its balance sheet to a incentives to firms to set aside a Promoting Interbank Liquidity special purpose vehicle SNB share of their profits for a crisis. StabFund. On December 19, This mechanism was due to be To overcome difficulties in the 2008, SNB StabFund acquired abolished by 2012. In December domestic interbank lending the first tranche of assets from 2008, the Federal Council market, which normally operates UBS AG in an amount decided to accelerate this through unsecured money equivalent to US$ 16.4 billion.10 decision to January 1, 2009.9 market operations, the Swiss Another US$22.2 billion was This will allow the 650 firms that National Bank intermediated a transferred in the course of the put aside CHF500 million to use work around involving the big first quarter of 2009 so that the these funds at their discretion as banks (Credit Suisse and UBS transaction closed with a total of the beginning of next year. AG) pledging top-rated Swiss size of US$38.7 billion. mortgage bonds to the Other Conjuncture Measures Pfandbriefbank der UBS AG will finance 10% of the schweizerischen transaction in equity up to a On February 11, 2009 the Hypothekarinstitute (Pfandbrief maximum of US$ 6 billion.The Federal Council launched a institution acting for all other remainder is funded by a non- second step to its conjunctural Swiss mortgage lenders) in recourse from the Swiss programme including an return for liquidity in the form of National Bank, up to a maximum investment of CHF700 million in a Pfandbrief loan. The of US$54 billion. The term of various projects, ranging from Pfandbrief institution then the loan will be from eight to 12 investments in rail and road refinances itself by issuing years and it will bear interest infrastructure, increased Pfandbriefe, which were bought equal to LIBOR plus 250 basis subsidies for applied sciences, by banks with surplus liquidity. points. encouragement for environmental protection and The entity is controlled by the sustainable energy, renovation Swiss National Bank, which of buildings of the ETH and upon repayment of the loan in armasuisse, and the marketing principal and interest, is entitled of tourism. It also reduced the to an equity kicker amounting to financing fees for the export US$1 billion and 50% of any guarantee scheme, extended remaining equity.6 benefits for the renovation of subsidised housing, and
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES2 MEASURES FINANCIAL ASSETS OTHER MEASURES The Swiss Federal Assembly reviewed the unemployment (the Swiss parliament) has benefit scheme by both approved the principle of the extending from 12 to 18 months CHF6 billion mandatory the duration of these benefits convertible bond subscribed by and reducing the cool off periods the Swiss Government. before employers can meet their pay-roll obligations with Glarner Kantonalbank unemployment benefits under reduced working hours More anecdotally, on schemes. Parliament extended October 29, 2008, the this programme by adding an Parliament of the Canton of additional CHF10 million for Glarus announced that it would investments in photovoltaic provide an additional energy. CHF20 million capital to the Glarner Kantonalbank, a bank In addition to the conjuctural controlled by the canton. In any programme the Government case, deposits with the Glarner also announced for 2010 a Kantonalbank are subject to an CHF600 million tax cut for unlimited guarantee by the families with children, hoping to Canton of Glarus. boost consumption through this mechanism. Finally, the Government plans to review its budgetary and task programme to adjust to the conjuctural uncertainty.
1 See http://www.credit-suisse.com/news/en/media_release.jsp?ns=40924. 2 See generally http://www.snb.ch/en/ifor/media/id/media_releases. 3 See http://www.credit-suisse.com/news/en/media_release.jsp?ns=40924. 4 See http://www.ubs.com/1/e/about/news/archive/archive10?newsId=133686. 5 See http://www.ubs.com/1/e/about/news/archive/archive10?newsId=143689. 6 See http://www.snb.ch/en/mmr/reference/pre_20081016_1/source/pre_20081016_1.en.pdf; See also http://www.efd.admin.ch/aktuell/medieninformation/00462/index.html?lang=en&msg-id=22019. See also http://www.ubs.com/1/e/about/news.html?newsId=154213; and See also http://www.ebk.admin.ch/e/publik/medienmit/20081016/mm-massnahmenpaket-20081016-e.pdf. 7 http://www.efd.admin.ch/00468/index.html?lang=fr&msg-id=22499. 8 http://www.seco.admin.ch/aktuell/00277/01164/01980/index.html?lang=fr&msg-id=22775.
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9 http://www.evd.admin.ch/aktuell/00120/index.html?lang=fr&msg-id=24000. 10 Swiss National Bank, Accountability report for the Federal Assembly 2008, http://www.snb.ch/en/mmr/reference/annrep_2008_rechenschaft/source p. 77 et seq.; http://www.snb.ch/en/mmr/reference/pre_20090403/source/pre_20090403.en.pdf.
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UKRAINE SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Law no.639-VI dated Since October 31, 2008, On November 25, 2008, the Law no.639-VI introduces Law no.639-VI allows the The IMF announced on October 31, 2008, on immediate deposits are guaranteed for National Bank of Ukraine special procedures to accelerate Ministry of Finance to purchase October 26, 2008, that it has measures to prevent negative UHR150,000 (approx. adopted a special procedure for banks’ capitalization. shares of Ukrainian banks. reached a tentative agreement consequences of the financial US$26,000). the regulation of bank liquidity with Ukraine for a crisis and amending certain laws and correspondence of The Government adopted The Government of Ukraine US$16.5 billion loan. of Ukraine, allows the Ukrainian At least UHR 1 billion will be refinanced credits to given special procedures for state twice increased the capital of Government to issue state transferred annually to the securities (No. 395). participation in the bank two state owned banks, Saving The loan is contingent on the guarantees of an amount up to Guarantee Fund of Physical capitalization on November 4, Bank and Ukreximbank, by Ukrainian Government passing UHR10 billion in 2008. Persons Deposits. Due to the critical situation of the 2008 (No. 960). regulation enacted on November specific legislation to address Ukrainian currency exchange 26, 2008 (No. 1031). financial sector liquidity and market,2 the National Bank of solvency. Ukraine decreased obligatory The Government of Ukraine reservation limits on November increased the capital of The National Security Council 25, 2008 (No. 396). Such new Ukreximbank to UHR6,763 proposed limiting imports under limits take effect from December million (twice the previous Article 12 of GATT on 5, 2008. increase) on December 17, October 20, 2008. 2008 (No. 1116). The National Bank of Ukraine The President of Ukraine (under has issued a regulation No. 413 The Government of Ukraine Decree N 1046/2008 dated which concerns bank liquidity increased the capital of Saving November 17, 2008) will transfer maintenance. Bank to UHR13,892 million UHR50 billion (approx. (seven times the previous US$8 billion) to the Stabilization Due to the foreign currency increase) on December 29, Fund in 2009, including deficit on the internal market, the 2008 (No. 1119). UHR10 billion in the first quarter National Bank of Ukraine of 2009. mandated that local banks with The Government of Ukraine credits in foreign currency must increased the capital of The Stabilization Fund may be put special reserves in the same Ukreximbank to UHR7353 used among others to cover, currency in the National Bank of million (four times from the refinance a service of credits Ukraine (December 22, 2008, middle of 2008 when the first obtained before September 15, No. 442; December 29, 2008, increase was made) on April 2008 by Ukrainian banks and No. 473). 15, 2009 (No. 375). companies.
The National Bank has Special laws as to building approved special procedure to industry support were enacted render credit to local banks that on January 14, 2009. These need liquidity support laws stipulate privileged (December 25, 2008, No. 459). financing of the contactors, final customers and banks creding The National Bank of Ukraine building industry. has introduced an additional requirement for commercial A law introducing a special extra
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES banks refinancing dated charge to import duty in the February 9, 2009, No. 57. amount of 13% for six months has been adopted. The law The National Bank of Ukraine takes effect on March 6, 2009. has issued some regulations directed to stabilization of the A law increasing the excise- credit market in Ukraine (No. duty on alcohol, tobacco and 442 dated December 22, 2008; fuel was adopted on December No. 33 dated January 30, 2009). 25, 2008.
The National Bank of Ukraine The law amending existing laws has adopted new limits of on social security was adopted minimum regulatory capital for on December 25, 2008 to commercial banks (Regulation miminize the negative influence No. 116 dated March 4, 2009) in of the financial crisis on addition to establishing new employment. limits for open currency positions taken by banks To decrease the deficit (Regulation No. 107 which takes amendments to the State budget effect on April 23, 2009). have been introduced on December 26, 2008 and February 3, 2009.
The Law On Concessions on construction and operation of highways, adopted in new version on January 31, 2009, is aimed at stimulating investments in the sector and developing the economy.
Amendements to the law made on March 5, 2009 exempt cultural, educational, sporting, and other entities financed by state budget from payment for land.
1 The National Bank of Ukraine will maintain only banks organized as open joint stock companies with paid statutory fund of UHR500 million (approximately US$81 million). 2 In September 2008, US$1 cost UHR5. In today’s market, US$1 costs from UHR10 to UHR13, depending on the Ukrainian city. In January 2009 the currency rate has been stabilizing at the level of UHR7.7 per US$1.
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UNITED ARAB EMIRATES (“UAE”) SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES The Government has stated that The Government has declared On September 22, 2008, the No publicly announced Amlak Finance PJSC and The UAE Central Bank is it would guarantee inter-bank that it would guarantee deposits UAE Central Bank launched an measures at this stage. Tamweel PJSC, two leading discussing plans to launch new lending in local institutions. and interbank lending in local emergency funding facility for its UAE real estate finance facilities to support property institutions and on October 13, banks, pumping as much as providers in Dubai, were merged lending in the UAE. On October 14, 2008, the Prime 2008, the UAE extended its AED50 billion (€9.3 billion, with the Real Estate Bank, an Minister ordered the transfer of three-year guarantee on £7.4 billion, $13.6 billion) into entity wholly-owned by the The Dubai Government has AED70 billion to the UAE deposits to foreign banks with the banking sector in order to Federal UAE Ministry of Finance (through the Investment Ministry of Finance and Industry substantial operations in the help the local interbank market. and Industry. The Real Estate Corporation of Dubai) deposited to inject further liquidity to UAE after concerns grew that Bank itself merged with the US$1.3 billion with certain Dubai banks. the previous day’s decision to The UAE Ministry of Finance Emirates Industrial Bank under state-owned banks for the guarantee such monies in local and Industry offered a further the name Emirates purposes of those banks The UAE has previously injected institutions could trigger runs on AED70 billion ($19 billion) Development Bank. refinancing existing loans of AED50 billion of liquidity to the 28 foreign banks operating liquidity injection to domestic Borse Dubai. banks to encourage inter-bank in the UAE. The legislative banks, on top of the lending. framework for these guarantees AED50 billion ($13.6 billion) on The Dubai Government has has yet to be finalized. offer by the UAE Central Bank. issued bonds to the value of US$20 billion, of which US$10 On October 8, 2008, the UAE billion were subscribed for by Central Bank cut its base rate by the UAE Central Bank. The 0.5% in a move timed to proceeds are expected to be coincide with other central used to support a number of banks. It again cut its base rate Dubai owned companies. by a further 0.5% to 1% on January 18, 2009.
Under Central Bank notice 4312/2008, the UAE Central Bank agreed to allow banks to obtain funding from the UAE Central Bank through:
(i) the use of the Central Bank CD balances; and
(ii) liquidity support facility at 300bps over the prevailing UAE Central Bank rate (provided no new lending to foreign borrowers).
On December 24, 2008, the UAE Central Bank introduced
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES UAE Dirham/US Dollar swap facilities with tenors between one week and 12 months to all banks operating within the UAE.
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UNITED KINGDOM SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES Credit Guarantee Scheme The UK Government has Operational Standing Bank Recapitalization Scheme Northern Rock Guarantee Scheme for Asset- increased the protection given to Facilities backed Securities On October 8, 2008, the UK savings from £35,000 to The UK Government announced Northern Rock was nationalized Government announced that in £50,000. The Bank of England (“BoE”) that it is establishing a new on February 21, 2008. The bank On January 19, 2009, the return for an appropriate fee the has set up these new facilities to facility of £25 billion which will had approached the BoE for Government announced its UK Government will guarantee However, Chancellor Alistair replace the existing standing make Tier 1 capital in the form emergency funding in decision to set up a new newly issued (initially up to April Darling announced that the UK facilities. The rate charged on of equity (underwritten by the September 2007. As the guarantee scheme for asset- 9, 2009 but now extended to would guarantee all the UK retail the Operational Standing Government) as well as Government subsequently failed backed securities (“ABS”). The December 31, 2009) short- and deposits of Icesave and Lending Facility is 25 basis preference shares (placed with to attract private buyers to take scheme launched on April 22, medium-term unsecured debt Heritable (both branches of points above Bank Rate, and the the Government) available at the over the bank, it decided to 2009 and the Government will (including certificates of deposit, Icelandic Bank, Landsbanki, rate paid on the Operational request of eligible institutions. nationalize it. issue guarantees up to October commercial paper and senior which has been nationalized by Standing Deposit Facility is 23, 2009 (subject to any unsecured bonds and notes) of the Icelandic Government). 25 basis points below Bank Eligible institutions are Bradford & Bingley extensions). The guarantees will participating institutions with Rate. UK-incorporated banks which have a maximum term of up to maturities of up to three years in have a substantial business in Bradford & Bingley was either three years or five years. GBP, EUR, and US$, and to be The eligible collateral for the the UK and building societies. nationalized on September 29, used for refinancing maturing Operational Standing Lending Applications to be included as 2008. The Company’s The Government will provide obligations. The aggregate Facility will comprise high-quality an eligible institution will be mortgage book was assumed by guarantees to be attached to notional amount of the debt to debt securities. Transactions will reviewed. the UK Government and the eligible triple-A rated ABS. be guaranteed by HM Treasury be for overnight maturity. BoE Company’s retail deposit book These are securities backed by is estimated to reach £250 will cease to publish a list of A further £25 billion will be was transferred to Abbey residential mortgages over billion. banks and building societies available as assistance for National plc. On March 27, 2009 property in the UK which are signed up for access to the eligible institutions for ordinary the Treasury sought approval able to attract an AAA rating (or On December 15, 2008, HM Operational Standing Facilities equity fund-raising. The from the European Commission equivalent) at the time of issue Treasury announced changes to and the reserves-averaging UK Government would not be for the continuation of the from at least two international the Scheme. The Government scheme. subject to bank supervision if it guarantee arrangements in credit rating agencies. The now proposes to extend the acquired control of a bank relation to certain wholesale instruments must be single guarantee in the future to Asset Purchase Facility through stock ownership. borrowings, and derivative currency and denominated in instruments in a wider range of (“APF”) However, in the past the transactions of, and wholesale GBP, EUR, US$, Yen, currencies: Yen, Australian U.S. Federal Reserve has deposits with, Bradford & Australian dollars, Canadian dollars, Canadian dollars and Private Sector Assets frowned on allowing institutions Bingley. These arrangements dollars or Swiss francs. UK Swiss francs. The term of the with capital from the will remain in place while the banks and building societies instruments guaranteed will On January 19, 2009, the Government to make European Commission eligible to participate in the remain no longer than three Government authorized the BoE expansionary acquisitions in the considers the Treasury's request Credit Guarantee Scheme (see years. to purchase high quality private United States. It is not clear and, if approved, will continue column on far left of this page) sector assets, including whether the U.S. Federal until the wind-down of Bradford will also be able to access this On January 19, 2009, the commercial paper, corporate Reserve might make an & Bingley is completed. scheme. Eligible guarantees can Government extended the bonds, paper issued under the exception in the current only have the benefit of one of drawdown window of the Credit Guarantee Scheme circumstances. Dunfermline Building Society the two types of guarantee Scheme from April 9, 2009, to (“CGS”), syndicated loans and offered under the scheme: December 31, 2009, subject to asset-backed securities created In a release on October 13, It was announced on March 30, state aid approval. During the in viable securitization 2008, the HM Treasury stated 2009 that about £3.4 billion of (i) Credit guarantee – this is an
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES drawdown window, eligible structures. that institutions requesting deposits, mortgages and other unconditional and irrevocable institutions can issue new government recapitalization will, quality assets would be guarantee of the timely payment guaranteed debt. After the Under the Commercial Paper inter alia, need to: (i) limit purchased from the failing of all amounts contractually due closure of the drawdown Facility (which began on remuneration of senior Dunfermline Building Society by in respect of the eligible window, those institutions can February 6, 2009), the BoE can executives both for 2008 (no Nationwide Building Society, instruments; or continue rolling over any purchase investment grade cash bonus for board), and, for with the Government paying an outstanding guaranteed debt (all sterling commercial paper remuneration policy going additional £1.6 billion to the (ii) Liquidity guarantee – this of it until April 13, 2012, and up issued by UK corporates, both at forward, limit bonuses to reduce acquirer to make up the applies if the issuer of the to one-third of the total until April issuance and in the secondary “moral hazard” activities; (ii) difference between assets and eligible instrument fails to 9, 2014). market, subject to a minimum agree to modify dividend liabilities. About £500 million of exercise a call right in respect of spread. Purchases are made policies; and (iii) maintain, over other healthy assets would be the eligible instrument in The fee for the guarantee will be during a defined period each the next three years, the transferred to a "bridge bank" accordance with its terms or fails based on 100% of the day. Eligible issuers are availability and active marketing wholly owned by the BoE. The to purchase the eligible institution’s median five-year companies, including their of competitive credit to remainder of the business instrument at the option of the CDS spread during July 2007 to finance subsidiaries, that make homeowners and small (riskier assets worth more than holder of the instrument in July 2008, as determined by HM a material contribution to businesses at 2007 levels. £900 million) were to be placed accordance with its terms. Treasury, plus 50 basis points. economic activity in the UK. UK under the management of Participating institutions will be Prior to December 15, 2008, the incorporated companies, RBS administrators. These steps required to undertake to fund the fee was based on the median including those with foreign- were taken using powers – for issuer of eligible instruments so five-year CDS spread for the incorporated parents, of On October 13, 2008, RBS the first time – under the that it can meet the call or preceding 12 months to October sufficient size to sustain a announced the UK Treasury Banking Act 2009 (see "Other purchase obligation on the due 7, 2008. It is expected that this commercial paper program and would underwrite £15 billion of Measures"). date. In each case, the change will result in a lower fee with a genuine business in the ordinary shares (common stock) Government will irrevocably being payable by institutions for UK, are normally regarded as and purchase £5 billion of undertake that, if the issuer fails the guarantee. meeting this requirement. Paper preference shares (preferred to pay the relevant price to the issued by non-bank financial stock). The UK Government holder of such eligible As the changes announced on companies is in principle would have representatives on instrument on the due date, the December 15, 2008 and eligible, subject to the BoE being the bank’s board. The bank has Government will purchase such January 19, 2009, vary the satisfied that the issuer makes a announced that it has agreed to eligible instrument from the Scheme, the Government is significant contribution to maintain the availability of SME holder at the relevant price. The seeking the approval of the corporate financing in the UK. and mortgage lending at 2007 relevant price will be the European Commission to the Paper issued by leveraged levels. principal amount outstanding of revised Scheme (the investment vehicles is ineligible. the eligible instrument at the due Commission had approved the Only sterling-denominated On January 19, 2009, the date, adjusted for accrued previous version of the Scheme commercial paper is eligible. Government decided to convert interest and reduced to take into on October 13, 2008). There are many other its preference shares in RBS account any losses which may requirements (relating to into ordinary shares. It also have been incurred on the The scheme is open to maturity and credit rating) that agreed a number of lending portfolio of mortgage loans UK-incorporated banks apply in determining whether commitments with RBS, backing the eligible instrument (including UK subsidiaries of paper is eligible. The names of including a new commitment to prior to the due date and which foreign institutions) that have a issuers and securities that are increase lending by £6 billion in are allocable to the eligible substantial business in the UK purchased or eligible are not the next 12 months. instrument. and UK building societies. Any disclosed publicly. other UK-incorporated bank RBS announced on February The fees will be based on a per
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES (including UK subsidiaries of Under the Corporate Bond 26, 2009, that it will seek £13 annum rate of 25 basis points foreign institutions) can apply for Secondary Market Scheme billion of additional capital from plus 100% of the participating inclusion. Within a banking (which began on March 25, the Government in the form of institution's median 5-year CDS group, only a single entity can 2009), the BoE gives market non-voting ‘B’ Shares, together spread during the period from participate in the scheme (and participants a back-stop offer to with a further Treasury July 2, 2007 to July 1, 2008, as this entity will normally be the purchase modest amounts of a commitment to subscribe to an determined by the Treasury. primary UK deposit-taker). wide range of investment-grade additional £6 billion of B Shares Participating institutions and the sterling UK corporate bonds with at RBS’ option. issuers of the eligible The Financial Services Authority the aim of improving secondary instruments will also be required has deemed that, under the market liquidity, initially by HBOS & Lloyds TSB to grant counter-indemnities to Standardized Approach for facilitating market-making by the Government. calculating capital requirements, banks and dealers. The BoE Similarly, the UK Government securities guaranteed under the purchases bonds issued by will underwrite £8.5 billion of Asset Protection Scheme scheme will qualify for zero risk companies, including their HBOS ordinary shares and weighting. finance subsidiaries, that make purchase £3 billion of preference The Government has now a material contribution to shares. The UK Government published details of the Asset Furthermore, guaranteed economic activity in the UK. UK- will underwrite £4.5 billion of Protection Scheme, including a instruments are eligible as incorporated companies, Lloyds TSB ordinary shares and Term Sheet setting out the collateral in the BoE’s extended- including those with foreign- purchase £1 billion of preference terms and conditions on which collateral open market incorporated parents, capable of shares. The two banks are institutions can participate in the operations. issuing a bond into the capital currently in the process of Scheme. The basic features of markets and with a genuine merging. the Scheme are: The description of the guarantee business in the UK, are normally and the guarantor in any offering regarded as meeting this Management of the (i) In return for a fee, HM document (including listing requirement. Bonds issued by Government’s investments Treasury will provide to each particulars, information non-bank financial companies participating institution memorandum or offering are in principle eligible, subject The Government’s investments protection against credit losses circular) or in any other to satisfying the BoE that the will be managed on a incurred on one or more document or announcement issuer makes a material commercial basis by a new portfolios of defined assets to issued by or on behalf of the contribution to corporate “arm’s-length” company called the extent that credit losses issuer must be substantially in a financing in the UK. Paper UK Financial Investments exceed a “first loss” amount to form set out in the Rules of the issued by leveraged investment Limited (“UKFI”), wholly owned be borne by the institution. The Credit Guarantee Scheme. vehicles is not eligible. Only by the UK Government. UKFI Treasury protection will cover Subject to this, no institution that listed sterling-denominated will manage the investments 90% of the credit losses which obtains a guarantee is permitted bonds are eligible. There are arising from the Government’s exceed this “first loss” amount, explicitly to promote itself on the many other requirements recapitalization of RBS, Lloyds with each participating institution basis of the guarantee. (relating to maturity and credit TSB and HBOS, and, in due retaining a further residual rating) that apply in determining course, those arising from the exposure of 10% of any credit whether a bond is eligible. nationalization of Northern Rock losses exceeding this amount. Convertible or exchangeable and Bradford & Bingley. bonds are not eligible. (ii) Eligible Institutions are: UK UKFI will work to ensure that incorporated authorized deposit- The BoE has also announced management incentives for takers (including UK subsidiaries that it is ready to implement a Government assisted or of foreign institutions) with more
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES CGS Bond Secondary Market acquired banks are based on than £25 billion of eligible Scheme (to purchase CGS- “maximizing long-term value and assets. HM Treasury will backed paper) on terms broadly restricting the potential for consider extending the Scheme similar to those above, should rewarding failure”. However, the to other authorized deposit market conditions deteriorate. assisted or acquired companies takers in the future. Eligible will continue to have their own institutions may request to The BoE is currently consulting independent boards and participate in the Scheme until with market participants on the management teams, March 31, 2009. details of any purchases of determining their own syndicated loans and asset- commercial strategies. (iii) Participants will be required backed securities to be made to enter into legally binding under the APF. The BoE may commitments to increase also decide to extend the APF to lending to creditworthy non-sterling denominated borrowers, comply with instruments. remuneration policy consistent with the FSA’s Code of Practice Government Assets on remuneration policy (see below) and meet the highest The range of assets that could international standards of public be purchased under the APF disclosure in relation to their was expanded on March 3, assets. 2009, to include UK Government debt. (iv) Eligible Assets are:
Funding of Purchases • Corporate and leveraged loans
Under the APF, assets are • Commercial and residential purchased by a wholly owned property loans subsidiary of the BoE, called “Bank of England Asset • Structured credit assets, Purchase Facility Fund Limited”. including RMBS, CMBS, CLOs The purchases were originally and CDOS financed by the issuance of Treasury Bills by the UK • Participations in respect of the Government, and about £984 above, million in assets were purchased this way. in each case, held by the participating institution or an However, the issuance of affiliate as at December 31, Treasury Bills was suspended 2008. The Treasury will assess after March 5, 2009 in favor of each asset category for using newly-created reserves inclusion in the Scheme on a (i.e., quantitative easing). The case-by-case basis. BoE is authorized to create up to
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES £150 billion in new reserves, Assets included in the Scheme and plans to spend around £75 will continue to be managed by billion by June 2009. Since the institution and will remain on quantitative easing began, its balance sheet but will be almost £54 billion has been required to be “ring-fenced” by spent on Government debt, the institution so that actions in corporate bonds and relation to them, including commercial paper. On May 7, enforcement and disposal, will 2009 the BoE announced that it be subject to appropriate would increase its spending by Treasury controls. The Scheme £50 billion to £125 billion. also provides for the Treasury to take over ownership and/or Discount Window Facility management of the assets in (“DWF”) certain defined circumstances.
The DWF is intended to provide RBS announced on February liquidity insurance, not to tide 26, 2009 that it would seek over firms facing fundamental protection under the Scheme for solvency problems. Under the £325 billion par value of assets. DWF, BoE will swap the The fee for the Government’s Government securities on its protection under the Scheme will balance sheet for high quality be £6.5 billion, funded through eligible collateral from banks the issuance of non-voting B and building societies. In shares. exceptional circumstances, BoE may lend cash, rather than gilts, The Lloyds Banking Group against eligible collateral under announced on March 7, 2009 the DWF. The transactions will that it would, similarly, seek normally be for 30-day protection under the Scheme for maturities. Gilts borrowed may up to £260 billion par value of not be used as collateral for assets, with a participation fee of Operational Standing Lending £15.6 billion being paid to the Facility borrowings but may be Government, funded through the used as collateral in open issuance of non-voting B shares. market operations. On January As part of the deal, £4 billion of 19, 2009, the BoE announced Government-held preference that it would permit drawings shares will be converted into from the DWF with a term of 364 ordinary shares, to be offered to days, in addition to the standard existing shareholders on a pre- option to draw for 30 days. emptive basis and fully There would be an additional 25 underwritten by the basis points fee for any Government. drawings with initial maturity beyond 30 days. The BoE has In conjunction with the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES now published a Market Notice Government’s announcement of on the DWF. This sets out the details of the Asset details of how the facility will Protection Scheme, the FSA has operate, securities eligible for issued two new statements exchange, institutions eligible to related to this Scheme, one on join the facility and the fees remuneration policy and the charged. Instruments eligible as other on capital treatment of collateral will be classified into assets protected by the four levels, each attracting Scheme: different fees upon exchange: (i) A new Code of Practice for (i) Level A: high-quality debt remuneration policy. The securities that are routinely principles in this Code are eligible as collateral in the BoE’s relevant to all FSA-regulated short-term repo open market firms. The aim of the Code is to operations; ensure that firms have remuneration policies which are (ii) Level B: third party debt consistent with sound risk securities trading in liquid management, and which do not markets; expose them to excessive risk. It is not concerned with levels or (iii) Level C: other third party quantum of remuneration. The debt securities including those principles embodied in the Code that are not trading in liquid include: markets; • The bonus pool calculation (iv) Level D: own-name should include an securitizations and own-name adjustment for current and covered bonds. future risk, and take into account the cost of capital Instruments may be deemed employed and liquidity ineligible for the DWF if the BoE required. judges that they were created for the express purpose of • Firms should not assess obtaining funding from the BoE. performance solely on the results of the current Term Auctions financial year.
In September 2007, BoE • Non-financial performance announced that it would conduct metrics, including adherence four auctions to provide funds at to effective risk management three months maturity against a and compliance with wider range of collateral regulations, should form a (including UK residential significant part of the
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES mortgages) than that used in its performance assessment weekly open market operations. process. Banks and building societies with reserve accounts with BoE • The measurement of or with access to the BoE’s performance for long term standing facilities were eligible incentive plans, including to participate. On October 8, those based on the 2008, the UK government performance of shares, announced that the BoE would should also be risk-adjusted. continue to conduct auctions against extended collateral, • The major part of any reviewing the size and bonus which is a significant frequency of the operations as proportion of the fixed necessary. component should be deferred, with a minimum Special Liquidity Scheme vesting period.
The Scheme, launched in April (ii) A statement of capital 2008, enabled banks and treatment of assets insured building societies with access to under the Asset Protection the BoE’s standing facilities to Scheme. The FSA expects the temporarily exchange their high Scheme to protect against credit quality mortgage-backed and losses experienced in respect of other securities for UK assets in the Banking Book, Government securities. The although participants can drawdown period of the Scheme request HM Treasury to provide was initially six months, due to cover for assets in the Trading end on October 21, 2008. This Book. The Scheme will be period was then been extended considered the equivalent of to January 30, 2009. On eligible unfunded credit January 19, 2009, the protection under the Prudential Government announced that the Sourcebook for Banks, Building window for swapping illiquid Societies and Investment Firms assets for Treasury Bills in the (BIPRU). The “first loss amount” Special Liquidity Scheme would of an asset will not qualify for close on January 30, 2009. The any special capital treatment. scheme will continue to provide The FSA expects firms to deduct liquidity support for a further the First Loss tranche from three years from that point. capital resources (although impairments already taken at the Extension of Eligible commencement of the Scheme Collateral will reduce the extent of deduction). The Senior Tranche On October 3, 2008, the BoE (i.e., where losses are
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES extended the collateral eligible reimbursed by the Treasury) is for use in its weekly sterling subject to the risk weight of the three-month repo operations to protection provided, which would include AAA rated asset-backed typically be 0% and would securities based on some therefore attract no capital corporate and consumer loans, charge. and approved highly-rated, asset-backed commercial paper Capital Regulation programs, where the underlying assets would be eligible if On January 19, 2009, the FSA securitized. The collateral is issued a statement clarifying its subject to haircuts as set out in approach to regulatory capital, the market notice of October 13, following the recapitalization of 2008. the UK banking sector announced on October 8, 2008. On November 14, 2008, the BoE The FSA stated that the purpose announced that it would of the recapitalization scheme continue to hold extended- was to ensure that bank capital collateral three-month repo open ratios were sufficiently high to market operations twice-monthly provide a buffer to allow the up to and including the banks both to withstand the scheduled long-term repo challenging economic conditions operation on January 20, 2009. and to continue lending on normal commercial criteria. It was not intended to create new statutory capital requirements.
The FSA also endorsed the view expressed by the Basel Committee in a statement of January 16, 2009, that the capital regime should incorporate counter-cyclical measures which ensure that banks build up capital buffers in good years which they can draw down during economic downturns.
The FSA confirmed that each of the participating banks are expected to have a minimum core tier 1 of 4%. At the time of the recapitalization in October
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES 2008, the FSA used a tier 1 ratio of 8%. The FSA estimates 6 – 7% to be a comparable post- stress tier 1 number to the core tier 1 number of 4%. This approach is intended to be a supervisory framework, and not a new set of rules.
The FSA also intends to ensure that the application of the Basel Accord (implemented through the Capital Requirements Directive) does not create any unnecessary or unintended pro- cyclical effects. In particular, the FSA is amending the variable scalar method of converting internal credit risk models from point in time to through the cycle. These changes will significantly reduce the requirement for additional capital resulting from the procyclical effect.
Banking Act 2009
The Banking Act was passed on February 12, 2009. The Act is designed to strengthen the existing UK framework for financial stability and depositor protection. Most of the provisions of the Act came into force on February 21, 2009.
Part 1 of the Act introduces a permanent special resolution regime (“SRR”) for dealing with banks that get into financial difficulties. HM Treasury, the Financial Services Authority and the Bank of England (the “BoE”)
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES all play a role. The BoE will have the power to transfer a failing bank’s business or its shares to a “bridge bank” (i.e., a company wholly owned by the BoE), with a view to restructuring it for onward sale to the private sector. It can also carry out a direct transfer to a private sector purchaser. The UK Treasury is given the power to nationalize a failing bank.
The BoE has the power to make partial transfers, i.e., to transfer healthy assets out of a failing bank and into a bridge bank. This may result in prejudice to those creditors whose claims are not transferred to the bridge bank. One of the objectives of the special resolution regime is to “protect depositors”.
Part 2 establishes a new bank insolvency procedure (“BIP”), based largely on existing liquidation provisions of the Insolvency Act 1986 as amended by the Enterprise Act 2002. The BIP provides for the orderly winding up of a failed bank, including prompt payments from the Financial Services Compensation Scheme (“FSCS”) to eligible depositors. There are powers to extend the BIP to building societies and credit unions.
Part 3 establishes a new bank administration procedure, based largely on existing administration provisions of the Insolvency Act
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES 1986, as amended by the Enterprise Act 2002. This procedure is to be used where there has been a transfer of part of a failing bank’s business, assets or liabilities to a bridge bank or a private sector purchaser under the SRR, leaving an insolvent residual entity. It is designed to ensure that essential services and facilities that cannot be immediately transferred to the bridge bank or private purchaser continue to be provided for a period of time.
The Government has also enacted regulations that provide safeguards in the event of a “partial property transfer”. These include safeguards for set-off and netting arrangements where partial transfers are made so that contracts covered by set-off or netting agreements are protected from disruption in a partial transfer subject to express carve-outs. Furthermore, security-holders will also be given explicit protection (including holders of floating charges). There are also third-party compensation safeguards to ensure creditors remaining in the residual bank may not be left worse off than they would have been had the bank been subjected to ordinary insolvency procedures.
EC Competition Laws
The UK Government has
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SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES advised the European Commission of its planned support of the UK financial sector in relation to the Government scheme for consideration under EC competition laws.
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UNITED STATES OF AMERICA OTHER ASSISTANCE TO THE SPECIAL CENTRAL BANK RECAPITALIZATION INTER-BANK MARKET OR TO ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES OTHER MONEY MARKETS INSTITUTIONS Temporary Liquidity FDIC Transaction Account Financial Stability Plan On October 14, 2008, the U.S. Mortgage-Backed Securities U.S. Government Loan to the Guarantee Program (“TLGP”) Guarantee Program (“TAGP”) Congress announced the Purchase Program Auto Industry On February 10, 2009, the Troubled Assets Relief Program On October 14, 2008 the FDIC The TAGP is second component Treasury, Federal Reserve, (“TARP”) Capital Purchase The U.S. Treasury Department In late September 2008, the announced the TLGP1 in which of the FDIC's TLGP. FDIC, Comptroller of the Program providing for direct will be authorized to purchase U.S. Congress approved a more there are two components: Currency (“OCC”), and Office of equity investments in certain up to US$700 billion of than US$630 billion spending The TAGP provides a temporary Thrift Supervision (“OTS”) financial institutions under the distressed mortgage-backed bill, which included a measure (1) A temporary guarantee of full guarantee for funds held at announced a new Capital Economic Emergency securities and other assets and for US$25 billion in loans to the newly issued senior unsecured FDIC-insured depository Assistance Program to help Stabilization Act (“EESA”). then resell the mortgages to auto industry. These low- debt of certain banks, thrifts and institutions in non-interest- ensure that U.S. banking investors under the Economic interest loans are intended to aid holding companies. bearing transaction accounts institutions have sufficient capital The EESA authorized the U.S. Emergency Stabilization Act the industry in its push to build above the existing deposit to withstand any new challenges, Treasury to use US$ 250 billion (“EESA”).16 more fuel-efficient, (2) A temporary unlimited insurance limit for participating paired with a supervisory without further action. Another environmentally-friendly guarantee of funds in non- entities that did not opt-out. process to produce a more US$100 billion can be obtained On November 12, 2008 the vehicles. U.S. auto giants interest bearing transaction consistent and forward-looking upon the President notifying Treasury Secretary, Henry General Motors, Ford and accounts at FDIC-insured Assessments under the program assessment of the risks on Congress. Finally, the Paulson, stated “Over these Chrysler will be the primary institutions (discussed in the will be based upon reports of banks' balance sheets and their remaining US$350 billion of the past weeks we have continued beneficiaries. next column). condition and income and will be potential capital needs.27 total US$700 billion can be to examine the relative benefits collected as part of the quarterly obtained by giving notice to of purchasing illiquid mortgage- Automotive Industry Under the first component, the collection process for deposit Capital Assistance Program Congress, who then have related assets. Our assessment Financing Program (AIFP) Debt Guarantee Program insurance assessments (“CAP”) 30 days to deny funding if they at this time is that this is not the (“DGP”), the FDIC will fully generally. wish. most effective way to use TARP AIFP is to prevent a significant guarantee all senior unsecured Banking supervisory agencies funds, but we will continue to disruption of the American debt issued by FDIC-insured In addition to this assessment, will “stress test” each major U.S. The EESA has two definitions of examine whether targeted forms automotive industry, which institutions, subject to the an institution that did not opt out banking institution to determine “troubled assets”, one being of asset purchase can play a would pose a systemic risk to limitations discussed below, and of the deposit guarantee portion whether the institution could mortgage-related assets and the useful role, relative to other financial market stability and their parent companies up to of the TAGP will pay 10 basis withstand economic conditions other being assets on which the potential uses of TARP have a negative effect on the October 31, 2009, with any points on non-interest-bearing even more adverse than those Treasury believes it should resources, in helping to economy of the United States. guarantee ceasing on June 30, transaction account balances in anticipated. If additional capital spend money. It is the second strengthen our financial system The program requires 2012. excess of US$250,000. is needed, the Treasury will definition that Treasury is using and support lending. But other participating institutions to make available a new capital to buy stock in banks, and it has strategies I will outline will help implement plans that will Assessment rates under the Every institution, regardless of facility. The expectation is that chosen to spend US$250 billion to alleviate the pressure of achieve long-term viability. DGP are as follows: risk category, is charged its the capital will be in the form of on bank securities; the first illiquid assets.”17 normal quarterly risk-based convertible preferred shares, US$125 billion of which went to Participating institutions must - for debt with a maturity of deposit insurance assessment. with a dividend rate to be nine banks.14 also adhere to rigorous 180 days or less (excluding That assessment is equal to its specified and a conversion price executive compensation overnight debt), 50 basis points; assessment rate times its set at a modest discount from As of April 29, 2009, over 500 standards and other measures assessment base (which is the institution's stock price up to banks have received funds for a to protect the taxpayer’s - for debt of 181-364 days, almost equal to total domestic February 9, 2009. This security total of US$199,010,094,000.15 interests, including limits on the 75 basis points; and deposits). would serve as a source of institution’s expenditures and “contingent” common equity, The recapitalization scheme is in other corporate governance
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OTHER ASSISTANCE TO THE SPECIAL CENTRAL BANK RECAPITALIZATION INTER-BANK MARKET OR TO ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES OTHER MONEY MARKETS INSTITUTIONS - for debt of 365 days or greater, Several banks have opted out of convertible solely at the option the form of non-voting preferred requirements.23 100 basis points. the general guarantee program of the issuer for an extended shares that are redeemable by and the transaction-account period of time. In addition, with the issuing bank after three JPMorgan Chase & Co. The rates set forth above will be program.22 supervisory approval, banks will years. The preferred shares increased by 10 basis points for be allowed to exchange existing pay an annual dividend of 5% The Federal Reserve Bank of senior unsecured debt issued by The FDIC temporarily increased Capital Purchase Program during the first five years and New York provided a a holding company or another the standard maximum deposit preferred stock (that of the first step-up to 9%. US$29 billion credit line to non-insured depository insurance amount (‘‘SMDIA’’) TARP tranche) for the new CAP JPMorgan Chase & Co. for its institution affiliate that becomes from $100,000 to $250,000, instrument. Participation in the Warrants were issued to the purchase of Bear Stearns for an eligible and participating effective October 3, 2008, and stress test is mandatory for U.S. Government based on 15% of US$236 million or US$2 per entity, where, as of ending December 31, 2009 for banking institutions with over the face value of preferred share, subsequently raised to September 30, 2008, or as of all depository institutions. After US$100 billion of assets on a shares on issue with this halved US$10 per share, to ensure the the date of eligibility, the assets that date, the SMDIA will return consolidated basis, but banks if the preference shares are sale could move forward. of the holding company’s to $100,000. not meeting that threshold may redeemed prior to the December JPMorgan agreed to guarantee combined insured depository also apply for CAP capital. 31, 2009. Bear Stearns’s trading institution subsidiaries constitute Stress testing reportedly began obligations. less than 50% of consolidated at some banks on February 25. On February 27, 2009, the holding company assets. The results are reportedly American Recovery and American International Group scheduled to be released on Reinvestment Act (“ARRA”) (“AIG”) Under the Final Rule, May 7, 2009. was signed into law. Under the assessment fees accrue on all ARRA, banks with CPP money The Federal Reserve Bank of senior unsecured debt with a Public-Private Investment are now permitted to buy the New York intervened after AIG maturity of greater than 30 days Program (“PPIP”) preferred shares and warrants was unable to secure a private- issued by it on or after back with retained.31 sector loan, and granted a December 6, 2008.2 Also under On March 23, 2009, the two-year revolving credit facility the Final Rule, negotiable order Treasury announced a two- To date, several banks have of US$85 billion in return for an of withdrawal accounts with pronged program that is repaid the CPP funds from option to acquire an 80% stake interest rates of 0.5% or less intended to deal with troubled retained earnings received from in the insurance giant. and IOLTAs (lawyer trust assets on financial institution the U.S. government. The accounts) are included in the balance sheets. Treasury, in banks have returned a total of On October 8, the Federal transaction account program. conjunction with the FDIC and US$1,036,540,000.32 Reserve Board authorized the The program includes certain the Federal Reserve, has Federal Reserve Bank of New issuances of mandatory established the PPIP, the On March 23, 2009, the Federal York to lend up to convertible debt under DGP.34 purpose of which is to purchase Reserve announced the delay of US$ 37.8 billion by purchasing the troubled assets owned by the March 31, 2009, investment-grade, fixed-income All insured depository financial institutions through a implementation date for securities from certain regulated institutions and those additional combination of private and amendments to the Federal U.S. insurance subsidiaries of participants, such as holding public capital, utilizing private- Reserve's capital adequacy AIG. companies, that have actively sector expertise and the guidelines for bank holding participated in the DGP (by resources of the U.S. companies on trust preferred On March 2, 2009, the Treasury issuing guaranteed debt before Government.28 securities and the definition of and the Federal Reserve April 1, 2009) may continue to capital published by the Federal announced a new AIG issue guaranteed debt through The PPIP has two parts, Reserve in the Federal Register restructuring plan.30 The plan
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OTHER ASSISTANCE TO THE SPECIAL CENTRAL BANK RECAPITALIZATION INTER-BANK MARKET OR TO ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES OTHER MONEY MARKETS INSTITUTIONS October 31, 2009, without addressing both the legacy on March 10, 2005.33 Due to the includes: application. The guarantee on loans (“Legacy Loans Program”) continuing stressed conditions in debt issued before April 1, 2009, and legacy securities (“Legacy the financial markets and in Preferred Equity will expire no later than June 30, Securities Proram”) clogging the order to promote stability in the 2012. The guarantee on debt balance sheets of financial firms. financial markets and the The Treasury will exchange its issued on or after April 1, 2009, banking industry as a whole, the existing US$40 billion will expire no later than The Legacy Securities Program Federal Reserve has decided to cumulative perpetual preferred December 31, 2012. consists of two related parts: (1) delay until March 31, 2011, the shares for new preferred shares debt financing from the Federal implementation date of new with revised terms that more Participants that are not insured Reserve under the TALF and (2) requirements. closely resemble common equity depository institutions and that matching private capital raised and thus improve the quality of have not issued FDIC- for dedicated funds targeting AIG's equity and its financial guaranteed debt before April 1, legacy securities. It is intended leverage. The new terms will 2009 must apply by June 30, to facilitate the creation of provide for non-cumulative 2009, if they wish to issue Public-Private Investment Funds dividends and limit AIG's ability guaranteed debt after that date. (“PPIFs”), which are investment to redeem the preferred stock funds that will invest in legacy except with the proceeds from The FDIC will impose securities. They will be managed the issuance of equity capital. surcharges on guaranteed debt by qualifying private sector asset that has a maturity of one year managers (“Fund Managers”). Equity Capital Commitment or more and is issued on or after April 1, 2009. For guaranteed The Legacy Loans Program is The Treasury will create a new debt that is issued by June 30, intended to facilitate the creation equity capital facility, which 2009, and matures by June 30, of PPIFs that will purchase pools allows AIG to draw down up to 2012, the surcharge will be 10 of legacy loans. Unlike Legacy US$30 billion as needed over basis points (on an annualized Securities PPIFs, Legacy Loan time in exchange for non- basis) for an insured depository PPIFs will be formed at the time cumulative preferred stock to the institution and 20 basis points that a selling institution Treasury. This facility will further (on an annualized basis) for all successfully sells a pool of loans strengthen AIG's capital levels others. For all other guaranteed to bidders. Treasury intends to and improve its leverage. debt that utilizes the extension provide approximately 50% of (either through a maturity after the equity capital in each loan Federal Reserve Revolving June 30, 2012, or through PPIF, with the other 50% Credit Facility issuance after June 30, 2009), coming from private investors. the surcharge will be 25 basis Private investors will manage The Federal Reserve will take points (annualized) for an the pools of assets, with several actions relating to the insured depository institution oversight from the FDIC. The US$60 billion Revolving Credit and 50 basis points (annualized) loan PPIF will be financed Facility for AIG established by for all others. through the issuance of second the FRBNY in September 2008. non-recourse debt guaranteed Surcharges will be will be in by the FDIC and collateralized Fannie Mae and Freddie Mac addition to current fees for by the assets purchased by the guaranteed debt and deposited The U.S. government seized
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OTHER ASSISTANCE TO THE SPECIAL CENTRAL BANK RECAPITALIZATION INTER-BANK MARKET OR TO ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES OTHER MONEY MARKETS INSTITUTIONS into the deposit insurance fund PPIF. control of Fannie Mae and instead of being set aside to Freddie Mac and made a cover potential TLGP losses. Commercial Paper Funding commitment to provide up to Facility (“CPFF”) US$100 billion to each company Effective April 27, 2009, the to ensure they would not fall into Federal Reserve increased the The CPFF (announced bankruptcy. Together, the two lendable values for group October 7, 2008) will purchase companies own or guarantee deposited loans pledged to the through a Special Purpose nearly half the US$ 12 trillion Federal Reserve Banks for Vehicle three-month unsecured mortgage market, and by discount window or PSR and asset-backed commercial July 2008 operated at leverage collateral purposes, to reflect paper (“ABCP”) from eligible ratios of approximately 50 to 1. recent trends in the values of issuers.4 some types of loans. The The seizure involved both Federal Reserve also announce All U.S. issuers of commercial companies being placed in a the acceptance of senior paper are eligible. The government conservatorship unsecured debt issued under maximum amount of a single (analogous to a bankruptcy the FDIC's TLGP. The new issuer’s commercial paper reorganization) and also collateral margins for TLGP covered at any time will be the replaced senior management. have been added to the discount greatest amount of U.S. dollar- Dividends were eliminated and window and PSR collateral denominated commercial paper the U.S. Government took an margins table.35 the issuer had outstanding on option to acquire 80% of each any day between January 1 and company’s common stock. August 31, 2008. However, the U.S. Government did not guarantee the The CPFF will not purchase subordinated debt or preferred ABCP from issuers that were stock issued by these inactive prior to the creation of companies, which is held on the the CPFF. An issuer will be balance sheets of many banks. considered inactive if it did not The U.S. Federal Reserve will issue ABCP to institutions other also begin purchasing short- than the sponsoring institution term debt obligations issued by for any consecutive period of Fannie Mae, Freddie Mac and three months or longer between the Federal Home Loan Banks January 1 and August 31, 2008. in the secondary market.18
Liquidity Fund Fannie Mae, Freddie Mac and Ginnie Mae The Liquidity Fund, which began on September 19, 2008 and On November 24, 2008, the ends on October 30, 2009, will Federal Reserve Board lend funds to depository announced that it will initiate a institutions and bank holding program to purchase the direct companies in order for them to obligations of Fannie Mae,
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OTHER ASSISTANCE TO THE SPECIAL CENTRAL BANK RECAPITALIZATION INTER-BANK MARKET OR TO ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES OTHER MONEY MARKETS INSTITUTIONS purchase eligible ABCPs from Freddie Mac, and the Federal money market mutual funds Home Loan Banks—and (“MMMF”) under certain mortgage-backed securities conditions.5 (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Money Market Investor Mae.19 Funding Facility (“MMIFF”) Purchases of up to A special purpose vehicle US$ 100 billion in GSE direct established by the private sector obligations under the program (“PSPV”) will cease purchasing will be conducted with the assets and will enter the wind- Federal Reserve’s primary down process on October 30, dealers through a series of 2009, unless the Board extends competitive auctions and will the MMIFF.6 Eligible assets begin next week. Purchases of include U.S. dollar-denominated up to US$ 500 billion in MBS will certificates of deposit, bank be conducted by asset notes and commercial paper managers selected via a issued by highly rated financial competitive process with a goal institutions and having of beginning these purchases remaining maturities of 90 days before year-end. Purchases of or less. both direct obligations and MBS are expected to take place over Money Market Funds several quarters. Guarantee Program (“MMFGP”) Government Sponsored Enterprise Credit Facility The MMFGP will provide (“GSECF”) coverage to shareholders up to the amount held in participating The lender of last resort for money market funds as of the GSEs (Fannie Mae, Freddie close of business on September Mac and FHLB) will ensure 19, 2009. All money market continued access to funding and funds that currently participate in ensure market stability.20 the MMFGP and meet the extension requirements under Citigroup the guarantee agreements are eligible to continue to participate On November 23, 2008, the in the MMFGP. Funds that are U.S. Treasury Department and not currently participating in the the Federal Deposit Insurance MMFGP are not eligible to Corporation announced that it participate.12 will provide protection against the possibility of unusually large
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OTHER ASSISTANCE TO THE SPECIAL CENTRAL BANK RECAPITALIZATION INTER-BANK MARKET OR TO ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES OTHER MONEY MARKETS INSTITUTIONS Primary Dealer Credit Facility losses on an asset pool of (“PDCF”) approximately US$306 billion of loans and securities backed by The PDCF, effective residential and commercial real September 15, 2008, is an estate and other such assets, overnight loan facility that will which will remain on Citigroup’s provide funding to primary balance sheet. As a fee for this dealers, who will participate arrangement, Citigroup will issue through their clearing banks, in preferred shares to the Treasury exchange for tri-party eligible and FDIC. Treasury will invest collateral. It is scheduled to US$20 billion in Citigroup from expire October 30, 2009.7 the Troubled Asset Relief Program in exchange for Term Securities Lending preferred stock with an 8% Facility (“TSLF”) dividend to the Treasury.21
The TSLF is a 28-day facility Targeted Investment Program that offers general Treasury (TIP) collateral, such as Treasury bills, notes, bonds and inflation- TIP is designed to prevent a loss indexed securities, to primary of confidence in financial dealers of the New York Federal institutions that could result in Reserve Bank in exchange for significant market disruptions, other eligible collateral. It is threatening the financial strength scheduled to expire October 30, of similarly situated financial 2009.8 institutions, impairing broader financial markets, and Term Auction Facility (“TAF”) undermining the overall economy. Institutions will be The TAF, established in considered for this program on a December 2007, is a temporary case-by-case basis.24 credit facility that allows a depositary institution to place a On December 31, 2008, bid for an advance from its local Citigroup received US$20 billion Federal Reserve Bank at an under this program. interest rate determined as a result of the auction. The first Bank of America auction took place on December 17, 2007.9 Federal On January 16, 2009, the U.S. Reserve intends to conduct bi- Treasury Department and the weekly TAF auctions as long as Federal Deposit Insurance necessary. Corporation announced that they will provide protection
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OTHER ASSISTANCE TO THE SPECIAL CENTRAL BANK RECAPITALIZATION INTER-BANK MARKET OR TO ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES OTHER MONEY MARKETS INSTITUTIONS Foreign Exchange Swap Lines against the possibility of unusually large losses on an On October 13, 2008, the U.S. asset pool of approximately Federal Reserve announced the US$118 billion of loans, expansion of swap lines with, securities backed by residential among others, the BoE, the and commercial real estate ECB10 and the Swiss National loans, and other such assets, all Bank. These three European of which have been marked to central banks will conduct current market value. The large tenders of U.S. dollar funding at majority of these assets were 7-day, 28-day and 84-day assumed by Bank of America as maturities.11 Swap lines with the a result of its acquisition of U.S. Federal Reserve will be Merrill Lynch. The assets will increased to accommodate remain on Bank of America's whatever quantity of U.S. dollar balance sheet. In addition and if funding is demanded. necessary, the Federal Reserve stands ready to backstop Term Asset-Backed Securities residual risk in the asset pool Loan Facility (“TALF”) through a non-recourse loan.
Under the TALF announced on The U.S. Treasury will invest November 25, 2008 the Federal US$20 billion in Bank of Reserve Bank of New York America from the Troubled (“FRBNY”) will lend up to Assets Relief Program in US$ 200 billion on a non- exchange for preferred stock recourse basis to holders of with an 8% dividend to the certain AAA-rated Asset-Backed Treasury. Bank of America will Securities (“ABS”) backed by comply with enhanced executive newly and recently originated compensation restrictions and consumer and small business implement a mortgage loan loans. The FRBNY will lend an modification program.25 amount equal to the market value of the ABS less a haircut and will be secured at all times by the ABS. The U.S. Treasury Department—under the Troubled Assets Relief Program (“TARP”) of the Emergency Economic Stabilization Act of 2008—will provide US$20 billion of credit protection to the FRBNY in connection with the
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OTHER ASSISTANCE TO THE SPECIAL CENTRAL BANK RECAPITALIZATION INTER-BANK MARKET OR TO ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES OTHER MONEY MARKETS INSTITUTIONS TALF.13
Under the TALF, the definition of “eligible borrower” has been modified to permit participation by the following entities regardless of whether they are “controlled by a foreign government”: (i) U.S. branches and agencies of international banks that maintain reserves with the Federal Reserve and (ii) U.S. FDIC-insured depository institutions.26
Under TALF, the FRBNY will lend up to US$200 billion to eligible owners of certain AAA- rated ABS backed by newly and recently originated auto loans, credit card loans, student loans, and SBA-guaranteed small business loans. Issuers and investors in the private sector are expected to begin arranging and marketing new securitizations of recently generated loans, and subscriptions for funding will occur on the first Tuesday of every month through December 2009 or longer if the Federal Reserve chooses to extend the facility. Each following week, the new securitizations will be funded by TALF, creating new lending capacity for additional future loans.29
To date, two auctions have been completed.36
On April 21, 2009, the Federal
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OTHER ASSISTANCE TO THE SPECIAL CENTRAL BANK RECAPITALIZATION INTER-BANK MARKET OR TO ASSISTANCE TO INDIVIDUAL GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES OTHER MONEY MARKETS INSTITUTIONS Reserve announced two new interest rates applicable to loans under the TALF. The rates apply to certain loans secured by ABS with weighted average lives to maturity of less than two years. The new rates will be based on one- and two-year London interbank offered (“Libor”) swap rates, resulting in a better match to the duration of the underlying ABS collateral.
The new rates will take effect for the May TALF funding. Subscriptions for the May funding were accepted on May 5. The loans will settle on May 12.37
On May 1, 2009, the Federal Reserve announced that, starting in June, commercial mortgage-backed securities (CMBS) and securities backed by insurance premium finance loans will be eligible collateral under TALF TALF loans with maturities of five years. TALF loans with five-year maturities will be available for the June funding to finance purchases of CMBS, ABS backed by student loans, and ABS backed by loans guaranteed by the Small Business Administration.38
1 Invoked through the systemic risk exception provisions of the FDIC Improvement Act of 1991. See the FAQ’s at http://www.fdic.gov/regulations/resources/TLGP/faq.html. 2 The FDIC’s TLGP final rules were issued on November 21, 2008. See http://www.fdic.gov/news/board/08BODtlgp.pdf. 3 The FDIC Insurance Program is effective from October 3, 2008 until December 31, 2009. See http://www.treas.gov/initiatives/eesa/.
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4 Expires October 30, 2009. See http://www.newyorkfed.org/markets/cpff_terms_conditions.html. 5 Expires October 30, 2009. See http://www.frbdiscountwindow.org/mmmf.cfm?hdrID=14. 6 Expires October 30, 2009. See http://www.newyorkfed.org/markets/mmiff_terms.html. 7 Expires October 30, 2009. See http://www.newyorkfed.org/markets/pdcf.html. 8 Expires October 30, 2009. See http://www.newyorkfed.org/markets/tslf.html. 9 In September 2008 the U.S. Federal Reserve announced (1) an increase in the size of the 84-day maturity TAF auctions from US$ 25 billion to US$ 75 billion per auction beginning on October 6, 2008; (2) two forward TAF auctions amounting to US$ 150 billion and (3) an increase in swap authorization limits with foreign central banks. See http://www.federalreserve.gov/monetarypolicy/taffaq.htm. 10 The swap line amount with the ECB was increased from US$120 billion to US$240 billion. Other foreign country swap lines include: Australia, Canada, Denmark, England, Japan, New Zealand, Norway, Sweden, and Switzerland. See http://www.federalreserve.gov/newsevents/press/monetary/20081013a.htm, http://www.federalreserve.gov/newsevents/press/monetary/20080924a.htm, http://www.federalreserve.gov/newsevents/press/monetary/20081028a.htm, and http://www.federalreserve.gov/newsevents/press/monetary/20090406a.htm. 11 In August 2008 the ECB, in conjunction with the U.S. Federal Reserve, began operating 84-day operations in addition to its operations with a 28-day maturity. 12 The Treasury’s full press release can be viewed at http://www.ustreas.gov/press/releases/tg76.htm. 13 Expires December 31, 2009. See http://www.federalreserve.gov/newsevents/press/monetary/monetary20081125a1.pdf. 14 The rescue package involves a plan to buy stakes of circa: US$ 25 billion each in Citigroup, JPMorgan and Wells Fargo; US$ 25 billion between Bank of America and Merrill, which agreed last month to be acquired by Bank of America; US$ 10 billion each in Goldman Sachs and Morgan Stanley; US$ 3 billion for Bank of New York Mellon; and US$ 2 billion for State Street. 15 The Treasury has listed all completed transactions on its website. See http://www.financialstability.gov/docs/transaction-reports/transaction_report_042809.pdf. 16 Expires December 31, 2009. See http://www.ustreas.gov/press/releases/reports/mbs_factsheet_090708hp1128.pdf. 17 Secretary Paulson’s full statement can be viewed at http://www.ustreas.gov/press/releases/hp1265.htm. 18 Expires December 31, 2009. See http://fpc.state.gov/documents/organization/110096.pdf. 19 The Federal Reserve’s full press release can be viewed at http://www.federalreserve.gov/newsevents/press/monetary/20081125b.htm. 20 The Treasury Department’s full statement on the program can be viewed at http://www.ustreas.gov/press/releases/reports/gsecf_factsheet_090708.pdf. 21 The joint press release among the Treasury Department, FDIC and Federal Reserve on Citigroup can be viewed at http://www.federalreserve.gov/newsevents/press/bcreg/20081123a.htm. 22 The lists of the banks are available at http://www.fdic.gov/regulations/resources/TLGP/optout.html. 23 Guidelines for the AIFP are published on Treasury’s website. See http://www.treasury.gov/initiatives/eesa/program-descriptions/aifp.shtml. 24 Program guidelines for the TIP were published on Treasury’s web site on January 2, 2009 as required by section 101(d) of the EESA. See http://www.treasury.gov/press/releases/hp1338.htm. 25 The term sheet for this deal can be viewed at http://www.fdic.gov/news/news/press/2009/pr09004a.pdf. 26 The FRBNY most recent set of TALF documents can be viewed at http://www.newyorkfed.org/markets/talf_docs.html. 27 The Federal Reserve’s full press release can be viewed at http://www.ustreas.gov/press/releases/tg21.htm. See also http://financialstability.gov/. 26 The Federal Reserve’s full press release can be viewed at http://www.federalreserve.gov/newsevents/press/monetary/20090210b.htm. 27 The Federal Reserve’s full press release can be viewed at http://www.ustreas.gov/press/releases/tg21.htm. See also http://financialstability.gov/. 28 The Federal Reserve’s full press release can be viewed at http://www.treas.gov/press/releases/tg65.htm. 29 The Federal Reserve’s full press release can be viewed at http://ustreas.gov/press/releases/tg45.htm. 30 The Federal Reserve’s full press release can be viewed at http://federalreserve.gov/newsevents/press/other/20090302a.htm. 31 The complete ARRA is available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h1enr.pdf. 32 The full Treasury transaction report is available at http://www.financialstability.gov/docs/transaction-reports/transaction_report_042809.pdf.
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33 The Federal Reserve’s full press release can be viewed at http://www.federalreserve.gov/newsevents/press/bcreg/20090317a.htm. 34 The FDIC releases can be viewed at http://edocket.access.gpo.gov/2009/pdf/E9-4586.pdf, http://www.fdic.gov/news/news/financial/2009/fil09011.html. 35 The Federal Reserve’s full press release can be viewed at http://www.frbdiscountwindow.org/announcement090330.cfm?hdrID=21. 36 The FRBNY’s full press release can be viewed at http://www.newyorkfed.org/markets/TALF_operations.html. 37 The Federal Reserve’s full press release can be viewed at http://www.federalreserve.gov/newsevents/press/monetary/20090421b.htm. 38 The Federal Reserve’s full press release can be viewed at http://www.federalreserve.gov/newsevents/press/monetary/20090501a.htm. 39 The FDIC interim rule was issued Oct. 17, 2008, 73 Fed. Reg. 202, and can be viewed at http://edocket.access.gpo.gov/2008/pdf/E8-24626.pdf.
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Shearman & Sterling LLP – LONDON Shearman & Sterling LLP – NEW YORK Broadgate West 599 Lexington Avenue 9 Appold Street New York, New York 10022 London, EC2A 2AP United States of America United Kingdom T: +1 212 848 4000 T: +44 20 7655 5000 F: +1 212 848 7179 F: +44 20 7655 5500 Azam H. Aziz Barney Reynolds Partner Partner T: +1 212 848 8154 T: +44 20 7655 5528 [email protected] [email protected]
Shearman & Sterling LLP – BRUSSELS Shearman & Sterling LLP – SÃO PAULO Avenue des Arts 53 Avenida Brigadeiro Faria Lima, 3400 B-1000 Brussels 17th Floor 04538-132 T +32 2 500 9800 São Paulo - SP, Brazil F +32 2 500 9801 T: +55 11 3702 2200 Silvio Cappellari F: +55 11 3702 2224 Partner T: +32 2 500 9815 Andrew B. Jànszky [email protected] Partner T: +55 11 3702 2202 [email protected]
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Shearman & Sterling LLP – HONG KONG Shearman & Sterling LLP – TOKYO 12/F, Gloucester Tower Fukoku Seimei Building, 5th Floor The Landmark 2-2-2 Uchisaiwaicho 15 Queen’s Road Central, Central Chiyoda-ku, Tokyo, 100 Hong Kong, China Japan
T: +852 2978 8000 T: +81 3 5251 1601 F: +852 2978 8099 F: +81 3 5251 1602
Matthew Bersani Masahisa Ikeda Partner Partner T: +852 2978 8096 T: +81 3 5251 1601 [email protected] [email protected]
Shearman & Sterling LLP – SINGAPORE Shearman & Sterling LLP – SHANGHAI 6 Battery Road #25-03 11th Floor, Platinum Singapore, 049909 233 Tai Cang Road Singapore Shanghai, 200020, China
T: +65 6230 3800 T: +8621 6136 5000 F: +65 6230 3899 F: +8621 6136 5001
Bill McCormack Andrew Ruff Partner Partner T: +65 6230 3877 T: +8621 6136 5088 [email protected] [email protected]
Shearman & Sterling LLP – FRANKFURT Shearman & Sterling LLP – PARIS Gervinusstrasse 17 114, Avenue des Champs-Elysées D-60322 Frankfurt am Main 75008 Paris Germany France
T: +49 69 9711 1000 T: +33 1 53 89 70 00 F: +49 69 9711 1100 F: +33 1 53 89 70 70
Hans Diekmann Hervé Letréguilly Partner Partner T: +49 211 17888 818 T: +33 1 53 89 71 30 [email protected] [email protected]
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Shearman & Sterling LLP – ROME Via Borgognona, 47 00187 Roma Italy
T: +39 06 697 679 1 F: +39 06 697 679 300
Fabio Fauceglia Partner T: +39 06 697 679 208 [email protected]
The following law firms contributed the sections dealing with their respective countries:
ARGENTINA AUSTRALIA
Bruchou, Fernández Madero & Lombardi Mallesons Stephen Jaques Ing Enrique Butty 275 Level 61, Governor Phillip Tower Psio 12 C1001AFA 1 Farrer Place Buenos Aires, Argentina Sydney, Australia T: +5411 5288 2300 T: +61 2 9296 2000 www.bfmyl.com http://www.mallesons.com/
Hugo Nicolas Bruzone, Partner Martin James, Partner [email protected] T: + 61 2 9296 2198 [email protected]
Philip Harvey, Senior Associate T: +61 2 9296 2484 [email protected]
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AUSTRIA BELGIUM
BINDER GRÖSSWANG Rechtsanwälte OG CMS DeBacker A-1010 Wien, Sterngasse 13 Avocats – Advocaten Austria Ch. de La Hulpe 178 T: +43 1 534 80 B-1170 Brussels, Belgium www.bindergroesswang.at T: +32 (0) 2 743 69 00 www.cms-db.com Dr. Florian Khol, Partner [email protected] Carl Dotremont, Partner T: +32 2 647 85 24 Mag. Emanuel Welten, Partner [email protected] [email protected] Razvan Emanoil, Senior Associate T: +32 2 674 85 23 [email protected]
BELGIUM BRAZIL
Lydian Veirano Advogados Av. Das Nações Unidas, 12.995 - 18o andar Tour & Taxis Brooklin Havenlaan - Avenue du Port 86c b113 São Paulo - S.P, Brasil 1000 Brussels T: 04578-000 Belgium http://www.veirano.com T: +32 2 787 90 00 www.lydian.be Roberto Rudzit, Partner [email protected] Peter De Ryck, Partner T : +32 2 787 90 20 Guilherme Peres Potenza, Associate [email protected] [email protected]
Tom Geudens, Counsel T : +32 2 787 90 08 [email protected]
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BULGARIA CANADA
Dinova & Rusev Law Office Stikeman Elliott LLP 15 Shipka Street, Floor 2 5300 Commerce Court West 1504 Sofia, Bulgaria 199 Bay Street T: +359 2 943 4350 Toronto, ON M5L 1B9 +359 2 946 3418 T: + 1 416 869 5500 F: +359 2 944 1508 www.stikeman.com Anelia Dinova, Partner [email protected] Peter Hamilton, Partner T: + 1 416 869 5564 [email protected]
Lewis Smith, Partner T: + 1 416 869 5210 [email protected]
DENMARK ESTONIA
Accura Advokataktieselskab Raidla Lejins & Norcous Tuborg Boulevard 1 Roosikrantsi 2 DK-2900 Hellerup 10119 Tallinn Copenhagen, Denmark Estonia T: +45 3945 2800 T: +372 640 7170 www.accura.dk http://www.rln.ee
Claus Bennetsen, Partner Sven Papp, Partner T: +45 3945 2828 [email protected] [email protected]
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FINLAND GREECE
Krogerus Attorneys Ltd PotamitisVekris Law Partnership P.O. Box 533 (Jaakonkatu 3 A) 9 Neofytou Vamva Str. FI-00101 Helsinki, Finland 10674 Athens, Greece T: +358 29 000 6200 T: +30210 3380000 http://www.krogerus.com http://www.potamitisvekris.com
Mikko Mali, Partner George Bersis, Partner T: +358 29 000 6219 [email protected] [email protected]
Päivi Toivari, Specialist Counsel T: +358 29 000 6237 [email protected]
HONG KONG HUNGARY
Richards Butler in association with Reed Smith LLP Szabó Kelemen & Partners Attorneys 20F Alexandra House Váci út 20 16-20 Chater Road 1132 Budapest, Hungary Central, Hong Kong T: + 36 1 288 8200 T:+ 852 2810 8008 http://www.sz-k-t.hu http://www.reedsmith.com/ Domonkos Kiss, Partner C.J. Williams, Partner [email protected] T: +852 2507 9738 [email protected] Tamás Kárpáthegyi, Associate [email protected]
ICELAND INDIA
Logos Legal Services Amarchand & Mangaldas & Suresh A. Shroff & Co. Efstaleiti 5 Peninsula Chambers 103 Reykjavík, Iceland Peninsula Corporate Park T: 00 354 5 400 300 Ganpatrao Kadam Marg, Lower Parel (W) http://www.logos.is/ Mumbai – 400 013 T: +91(0)11 2692 0500 Gunnar Sturluson, Partner [email protected] Vandana Shroff, Partner T: +91 22 2496 4455/ 6660 4455 [email protected]
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IRELAND KOREA
Arthur Cox Kim & Chang Earlsfort Centre 5th Floor, Seyang Bldg. Earlsfort Terrace 223 Naeja-dong, Jongno-gu Dublin 2, Ireland Seoul 110-720, Korea T: 00 353 1 618 0000 T: 822 3703 1114 www.arthurcox.com http://www.kimchang.com/
Robert Cain, Senior Associate Sang-Hwan Lee T: + 353 1 618 1146 T: (822)-3703-1074 [email protected] [email protected]
Sang-Jin Ahn T: (822) 3703-1180 [email protected]
LUXEMBOURG THE NETHERLANDS
Arendt & Medernach NautaDutilh N.V. 14, rue Erasme P.O. Box 7113 B.P. 39 1007 JC L-2010 Luxembourg Amsterdam, The Netherlands T: (352) 40 78 78 1 T: +31 20 717 1000 http://www.arendt-medernach.com http://www.nautadutilh.com
Philippe Dupont, Partner Pim Rank, Partner T: +352 40 78 78 205 T: +31 20 71 71 864 [email protected] [email protected]
NEW ZEALAND NORWAY
Bell Gully Advokatfirmaet Haavind Vislie AS Vero Centre Bygdøy Allé 2 48 Shortland Street P.B. 359 Sentrum Auckland, New Zealand NO-0101 Oslo T: +64 9 916 8800 T: +47 22 43 30 00 http://www.bellgully.com/ www.haavind.no
Murray King, Partner Peter L. Brechan, Partner T: +64 9 916 8971 [email protected] [email protected]
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PORTUGAL RUSSIA
PLMJ - A. M. Pereira, Sáragga Leal, Lovells CIS Oliveira Martins, Júdice e Associados 5th Floor Usadba Centre Av. da Liberdade, 224 22 Voznesensky Pereulok Edifício Eurolex 125009 Moscow, Russia 1250-148 Lisbon, Portugal T: +7 495933 3000 T: + 351 21 319 73 00 http://www.lovells.com http://www.plmj.pt/en/index.php Michael Pugh, Partner Maria Castelos [email protected] T: +351213197409 [email protected]
Sónia Teixeira da Mota T: +351213197564 [email protected]
SLOVAKIA SLOVENIA
Čechová & Partners Jadek & Pensa Bratislava Head Office Tavčarjeva 6 Štúrova 4 1000 Ljubljana 811 02 Bratislava, Slovakia Slovenija T: +421-2 54 41 44 41 T: +386 1 234 25 20 http://www.cechova.sk http://www.jadek-pensa.si
Tomas Maretta Pavle Pensa [email protected] [email protected]
Tina Zvanut Mioc [email protected]
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SPAIN SWEDEN
Uría Menéndez Advokatfirman Lindahl Príncipe de Vergara, 187 P.O. Box 1766 28002 Madrid, Spain SE-111 87 Stockholm, Sweden T: +34 915 860 400 T: +46 8 463 39 00 http://www.uria.com/eng/index.asp www.rydincarlsten.se or www.lindahl.se
Luis de Carlos, Partner Erik Lind, Partner T: +34 91 586 0374 T: +46 8 463 39 08 [email protected] [email protected]
Javier Redonet, Partner T: +34 91 586 0154 [email protected]
SWITZERLAND UKRAINE
Bäer & Karrer AG Jurvneshservice Law Firm Brandschenkestrasse 90 57/3 Krasnoarmeyskaya Str., Suite 229, CH-8027 Zurich, Switzerland Kyiv 03150, Ukraine T: +41 58 261 50 00 T: +380 44 239 23 90 http://www.baerkarrer.ch www.jvs.com.ua
Eric Stupp, Managing Partner Dr. Anna Tsirat, Partner [email protected] [email protected]
UNITED ARAB EMIRATES UNITED ARAB EMIRATES
Trowers & Hamlins LLP Afridi & Angell BurJuman Business Tower Emirates Towers - Level 35 Sheikh Khalifa bin Zayed Road Sheikh Zayed Road (Trade Centre Road) Dubai, United Arab Emirates PO Box 23092 T: +971 4 330 3900 Dubai, United Arab Emirates http://www.afridi-angell.com T: +971 (0)4 3519201 F: +971 (0)4 3519205 Charles Laubach, Partner www.trowers.com [email protected]
Jennifer Bibbings, Partner [email protected]
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