Judgement of the European Court of Justice: Non-Cash Implementation of the Commission´s Decision on the Integration of the Wfa Permissible in Principle
WestLB AG views the judgement passed today by the Court of Justice of the European Communities in Luxembourg on the proceedings for failure to fulfil an obligation in connection with the implementation of the Wfa decision as an important decision of principle – even though the Federal Republic of Germany was formally defeated in the proceedings.
Commenting on the judgement, Jürgen Sengera, Chairman of the Managing Board of WestLB AG, said in Düsseldorf today: "Non-cash solutions for implementing the decision of the European Commission are compatible in principle with European law. Of course, we would have wished that the Court had followed our line of argument in every respect and accepted the implementation. The crucial point, however, is that the European Court of Justice agrees with our view that a non-cash solution is consistent with European law." Together with the Federal Government, the State of North Rhine-Westphalia and the Commission, the Bank will work out a final solution of the Wfa issue on the basis of this decision.
Sengera: "Now that the parent-subsidiary structure has been implemented, this issue has been resolved anyway as far as the future is concerned. We are only concerned here with finding a solution for the past; the Wfa is now integrated in the public-law Landesbank NRW and is therefore strictly separated from the commercial business of WestLB AG."
The European Commission had previously decided that the integration of Wohnungsbauförderungsanstalt des Landes NRW (Wfa) into Westdeutsche Landesbank Girozentrale (WestLB) in 1992 constituted inadmissible state aid because the level of remuneration was allegedly inadequate. Although the Federal Government, the State of North Rhine-Westphalia and WestLB considered this decision to be illegal and instituted proceedings before the European Courts (proceedings for annulment), the decision had to be implemented prior to the judgement in the Proceedings for Annulment. The guarantors agreed that additionally a part of the increase in the value of WestLB resulting from the integration of the Wfa would be assigned to the State of North Rhine-Westphalia (value increase model). The European Commission did not accept this implementation proposal and filed so-called proceedings for failure to fulfil an obligation against the Federal Republic of Germany in May 2000.
"The pending proceedings for annulment are completely independent of this issue," Sengera explained. "The outcome of this remains to be seen." A judgement of the Court of First Instance is expected in the near future. If the Court follows the line of argument of the German side, the decision of the European Commission in 1999 would be null and void. The implementation would be invalid and would have to be reversed. This is also the reason why the Federal Government, the State of North Rhine-Westphalia and WestLB insist on an implementation which can be reversed without any negative repercussions for the Bank.
Background
In July 1999, the Commission ruled that the transfer of Wfa to WestLB, which added DM 4 billion (€ 2.045 billion) to WestLB’s liable capital recognised by the Federal Banking Supervisory Authority, was inconsistent with EU state aid law. In the Commission’s opinion, the remuneration paid by WestLB to the State of North Rhine-Westphalia (NRW) was too low and not in line with the general market rate. The Commission required WestLB to repay the difference between the remuneration actually paid by the Bank and the remuneration considered by the Commission to be in line with the general market rate. This would mean a payment of approx. € 807 million plus interest to the State of North Rhine-Westphalia. Although the Federal Government, the State of North Rhine-Westphalia and WestLB challenged this ruling before the European Court of Justice (Federal Government) and the Court of First Instance (NRW and WestLB), the ruling had to be implemented, given that a nullity suit in the proceedings for annulment has no suspensive effect under EU law. Before the beginning of the court dispute between the Commission and the Federal Government, the Commission rejected two implementation proposals submitted by the Federal Government as being insufficient, as they did not provide for a cash repayment.
Today’s judgement is merely a declaratory judgement, which has no immediate negative consequences for the Federal Government and WestLB AG. However, the Court of Justice has declared that the fact that the Commission’s ruling has not been implemented is inconsistent with EU law, which means that this situation must be remedied by the Federal Government.
The proceedings for failure to fulfil an obligation, which address the lawfulness of the repayment of the alleged state aid in favour of WestLB, are independent of the proceedings for annulment against the Commission’s ruling that the transfer of Wfa to WestLB was inconsistent with EU state aid law. The judgement in the proceedings for failure to fulfil an obligation will not impact the outcome of the proceedings for annulment. A ruling by the Court of First Instance is expected in early 2003. Should the Court of First Instance accept the complaints filed by the State of North Rhine-Westphalia and WestLB, the Commission’s ruling would be null and void and would not have to be implemented. Any implementation completed by that time would have to be reversed and the Bank would have to be put in a position such as if the Wfa transfer had been consistent with European state aid law from the beginning.