JUDGMENT OF THE COURT OF FIRST INSTANCE (Second Chamber, Extended Composition)
6 March 2003 (1) (State aid - Commission's lack of competence - Infringement of the rights of the defence - Infringement of essential procedural requirements - Concept of aid - Infringement of Articles 87 EC and 295 EC - Market economy investor - Appropriate rate of return - Infringement of the obligation to state reasons)
In Joined Cases T-228/99 and T-233/99,
Westdeutsche Landesbank Girozentrale, established in Düsseldorf (Germany), represented by F. Montag, lawyer, with an address for service in Luxembourg,
Land Nordrhein-Westfalen, represented by M. Schütte, lawyer, with an address for service in Luxembourg,
applicants,
supported by
Federal Republic of Germany, represented by W.-D. Plessing, acting as Agent, assisted by H.-F. Wissel, lawyer,
intervener,
v
Commission of the European Communities, represented by K.-D. Borchardt and V. Kreuschitz, acting as Agents, with an address for service in Luxembourg,
defendant,
supported by
Bundesverband deutscher Banken eV, established in Berlin (Germany), represented by H.-J. Niemeyer, lawyer,
intervener,
APPLICATION for annulment of Commission Decision 2000/392/EC of 8 July 1999 on a measure implemented by the Federal Republic of Germany for Westdeutsche Landesbank - Girozentrale (WestLB) (OJ 2000 L 150, p. 1),
THE COURT OF FIRST INSTANCE
OF THE EUROPEAN COMMUNITIES (Second Chamber, Extended Composition),
composed of: R.M. Moura Ramos, President, V. Tiili, J. Pirrung, P. Mengozzi and A.W.H. Meij, Judges,
Registrar: D. Christensen, Administrator,
having regard to the written procedure and further to the hearing on 5 and 6 June 2002,
gives the following
Judgment
Background to the dispute
I - Facts
1.
These cases concern the integration of the Wohnungsbauförderungsanstalt des Landes Nordrhein-Westfalen (WfA) into the Westdeutsche Landesbank Girozentrale (WestLB) (hereinafter the transfer or the transaction at issue).
A - Requirements relating to own capital imposed by the Own Funds Directive and the Solvency Directive
2.
In accordance with Council Directive 89/647/EEC of 18 December 1989 on a solvency ratio for credit institutions (OJ 1989 L 386, p. 14) and Council Directive 89/299/EEC of 17 April 1989 on the own funds of credit institutions (OJ 1989 L 124, p. 16), banks are required to have own funds equivalent to at least 8% of their risk-adjusted assets and risk-bearing off-balance-sheet transactions. Pursuant to those directives, amendments were made to the Kreditwesengesetz (German Law on credit institutions) on 1 January 1992 and the new requirements entered into force on 30 June 1993.
3.
As regards the new 8% threshold established by those directives, at least half of these own funds have to be original own funds, which consist of capital items available to a credit institution for unrestricted and immediate use to cover losses as soon as they occur. Original own funds are therefore of crucial importance for the level of a bank's total own funds for prudential purposes, as other own funds of lower quality, or additional own funds, are accepted only up to the amount of original own funds to underpin the risk-bearing business of a bank.
4.
Moreover, the amount of own funds limits a bank's exposure to large risks. At the time of WfA's transfer, Section 13 of the Kreditwesengesetz laid down that no single loan granted may exceed 50% of a bank's own funds and that the total of such loans exceeding 15% of own funds may not be higher than eight times the bank's own funds. An amendment of the Kreditwesengesetz in 1994 to bring it into line with Council Directive 92/121/EEC of 21 December 1992 on the monitoring and control of large exposures of credit institutions (OJ 1993 L 29, p. 1) reduced the maximum loan to 25% of a bank's own funds and laid down that the sum of single loans exceeding 10% of a bank's own funds may not be higher than eight times the total of own funds.
5.
The size of qualifying holdings in other credit and financial institutions is limited by Article 12 of Second Council Directive 89/646/EEC of 15 December 1989 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions and amending Directive 77/780/EEC (OJ 1989 L 386, p. 1). Furthermore, Section 12 of the Kreditwesengesetz, a provision not based on European legislation but found in other Member States, limits the total amount of long-term investments, including holdings in non-financial enterprises, to the total amount of the bank's own funds. German banks had to adapt to the new capital requirements by 30 June 1993.
B - WestLB
6.
WestLB is a public-law institution governed by the legislation of the Land Nordrhein-Westfalen (the Land). On 31 December 1991, WestLB's own funds amounted to DEM 5.1 billion. Under the legislation of the Land, WestLB has three functions. WestLB acts as central bank for the independent local savings banks in the Land and, since 17 July 1992, also for those of the Land Brandenburg. WestLB fulfils a State-bank function by handling financial transactions for its shareholders. WestLB operates as a normal commercial bank in its own right.
7.
WestLB is 100% publicly owned. The largest single shareholder is the Land (43.2%), other shareholders being the Landschaftsverband Rheinland and the Landschaftsverband Westfalen-Lippe (municipal associations of the Rhineland and Westfalen-Lippe regions), which each hold 11.7%, and the Rheinischer Sparkassen- und Giroverband and the Westfälisch-Lippischer Sparkassen- und Giroverband (the associations of local public savings banks of Rheinland and Westfalen-Lippe), which each have 16.7%. This ownership structure, which existed at the time of the transfer, remained unchanged, at least until 8 July 1999.
8.
At the time of the transfer, the WestLB group ranked third among German credit institutions behind Deutsche Bank AG and Dresdner Bank AG when measured by balance-sheet total. The WestLB group offers financial services to enterprises and public institutions and is also present on international capital markets, both for its own account and as manager of other issuers' debt instruments. Like many other German all-purpose banks, WestLB holds stakes in financial and non-financial enterprises. Moreover, in 1997, WestLB carried out a significant part of its activities outside the Federal Republic of Germany.
C - WfA
9.
WfA was founded in 1957 and operated until 31 December 1991 as an institution governed by public law. As such, it had legal personality. Its initial capital was DEM 100 million and the Land was the sole shareholder. By law, WfA devoted itself exclusively to the promotion of housing by granting low-interest or non-interest-bearing loans. As a body operating in the public interest, it was exempt from corporation tax, property tax, and tax on business capital.
10.
As a public-law institution, WfA was the Land's responsibility and covered by its guarantor liability for all its liabilities. These guarantees remained unchanged after the transfer.
D - Integration of WfA into WestLB
11.
Pursuant to the Gesetz zur Regelung der Wohnungsbauförderung (Law regulating aid to housing construction), adopted on 18 December 1991 by the Parliament of the Land, WfA was transferred on 1 January 1992 to WestLB.
12.
According to the statement of reasons for that law, the reason for the transfer was to increase WestLB's own funds to enable it to comply with the stricter capital requirements entering into force on 30 June 1993. Moreover, combining the housing promotion activities of WfA with those of WestLB would increase efficiency.
13.
As part of the transfer, the Land waived WfA's guarantee of about DEM 7.4 billion for liabilities of the Land in connection with funds raised for housing promotion.
14.
WestLB became the universal legal successor to WfA (except for WfA's liability vis-à-vis the Land for debts entered into by the Land for reasons of housing promotion, which was waived prior to the transfer). WfA became an organisationally and economically independent public-law institution without legal capacity within WestLB. WfA's nominal capital and reserves must therefore be shown in WestLB's balance sheet as a special reserve. The Land continues to guarantee WfA's liabilities by virtue of its responsibility for any losses and its liability as guarantor.
15.
The assets transferred, namely nominal capital, capital reserves, the housing promotion fund and other claims of WfA, as well as any future return flows from housing loans, remained earmarked for housing promotion, under Article 2, Section 16(2) of the law mentioned in paragraph 11 above, even after their transfer to WestLB. However, the same provision established that the assets transferred were to have another function: as equity capital, within the meaning of the Kreditwesengesetz and hence also of Directive 89/299, which is used to calculate the solvency ratio of the bank and which thus also serves as a guarantee for WestLB's business activities, that is to say those open to competition.
16.
On the occasion of the transfer, WestLB's shareholders changed the covering agreement and agreed that the assets earmarked for housing promotion must always be preserved, even if WestLB suffered losses which absorbed the original capital. Internally, WfA's capital should be called upon only after WestLB's remaining equity had been called upon. The covering agreement made it clear that the responsibility of WestLB's shareholders for any losses also extended to WfA's special reserve. If WestLB were to be wound up, the Land would have a priority claim on WfA's capital. It was also stated in this covering agreement that the increase in WestLB's equity base through the integration of...
