Sale of a Bank without State aid

Sale of a Bank without State aid - StateAidHub blogpost38 saleofbank scaled

The sale must be open, transparent, non-discriminatory, unconditional and the winning bid must be the offer with the highest price.


The German HSH Nordbank used to be the largest provider of ship finance in the world. It had commercial presence in over 20 major financial centres. Before the outbreak of the financial crisis in 2008, HSH Nordbank had a balance sheet of EUR 208 billion.

However, the financial crisis hit it hard. By the end of 2017, its balance sheet shrank to EUR 70 billion. In the meantime it needed State aid to survive. In September 2011, the European Commission approved a state guarantee of EUR 10 billion to HSH Nordbank. The guarantee was granted by HSH Finanzfonds [HSH Finanzfonds] which was owned by the city Hamburg and the state [Länder] of Schleswig-Holstein. Until 2016, Hamburg and Schleswig-Holstein held 85.4% of HSH Nordbank, directly or via the HSH Finanzfonds.

In addition to the EUR 10 billion guarantee, the bank received EUR 3 billion of fresh capital from HSH Finanzfonds. The German Financial Market Stabilisation Fund (SoFFin) also provided liquidity guarantees covering new issuance of debt of up to EUR 17 billion.

Following certain adjustments, the guarantee from HSH Finanzfonds was approved again by the Commission in May 2016 [SA.44910]. The approval was conditional on acceptance of commitments by Germany, the main of which were the following:

  1. The bank would be split into a holding company and an operating subsidiary.
  2. The holding’s shares in HSH would be sold by 28 February 2018 through an open, non-discriminatory, competitive and transparent bidding procedure.
  3. After successful completion of the sale procedure, the acquisition of HSH would be notified to the Commission for assessment and eventual approval.

It is good to mention here that this kind of commitments requested by the Commission have been challenged before EU courts which have, nonetheless, found them compatible with Article 345 of the Treaty. This Article prohibits the EU from discriminating in favour or against private or public companies. As it happens the challenge came from a German bank which argued that the Commission was not entitled to ask for what was in effect privatisation of a public bank. The reply of the General Court was that the Commission was entitled to ask for the holding structure to change since that structure was the source of problems for the bank.

Following the 2016 decision, the bank’s corporate structure changed so that a holding company, HSH Beteiligungs Management [HSH BM], held 94.9% of the shares. HSH BM was majority-owned by the Länder. Jointly they held, directly and via the HSH Finanzfonds, 94.15 %.

In its latest decision on the bank [SA.52288], the Commission assessed whether the sale was effected through a competitive procedure that was free of State aid to the purchaser and the bank and whether the new entity was viable.[1]

The sale process

The sale took place in a four-stage process. The details of the sales process are described in the Commission decision as follows:

  • January 2017: Launch of the sale process with a public notice inviting expressions of interest.
  • February 2017 – March 2017: Expressions of interest were submitted by potential investors.
  • March 2017: 24 potential bidders were invited to submit indicative offers by 31 March 2017. Ten indicative offers were received. Three bidders did not fulfil the requirements with respect to, for example, proof of sufficient financial resources or relevant sector specific expertise.
  • April 2017: The remaining seven bidders were invited to submit extended indicative offers by 30 June 2017. Five of the seven bidders submitted extended indicative bids.
  • July 2017: The five bidders were invited to submit binding offers by 27 October 2017.
  • October 2017: Three potential investors submitted binding offers with one additional bidder submitting a non-binding offer.
  • November 2017: The three bidders that had submitted binding offers were informed that they had been selected to participate in a negotiation phase and were invited to revise the binding offer by 5 January 2018 and to further specify and develop the business plan that the bidders had submitted with their binding offers.
  • January 2018: On the basis of the three revised binding offers received, one bidder was selected as the preferred bidder. This was the best place to successfully conclude the negotiation process. The preferred bidder was a consortium composed of Flowers, Cerberus, BAWAG, Golden Tree and Centaurus.
  • February 2018: Following further clarifications with respect to the business plan, a signed purchased agreement [SPA] was concluded.

“(47) The SPA determines a value of EUR 1.05 billion for 100% of shares in HSH (“Basic Purchase Price”). The Basic Purchase Price is based on the assumption that the full EUR 10 billion are settled under the Guarantee. If less than EUR 10 billion are paid out, the price paid will be reduced by the difference between the amount paid and EUR 10 billion (the “Guarantee Adjustment Amount”). The result is the “Adjusted Purchase Price”. Given that HSH BM only holds 94.9% of HSH shares, the actual price payable to the seller is equal to 94.9% of the Adjusted Purchase Price (the “Final Purchase Price”).”

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Absence of State aid for the purchaser

In its decision, the Commission checked whether the sales process involved State aid to the winning consortium [the purchaser], whether the sale price was positive and whether the sale agreement did not include any aid in favour of HSH.

No aid to the purchaser

“(95) Economic transactions do not confer an advantage on either of the parties involved, and therefore do not constitute aid, if they are carried out in line with normal market conditions. In other words, a transaction does not confer any advantage if the Member State’s behaviour is consistent with that of a private market economy operator or, more specifically in this context, a market economy vendor (“private vendor test”). Where a sale is carried out through an open, transparent and unconditional tender procedure and where the asset or shareholding is sold to the bidder who made the highest binding and credible offer, market conditions can be presumed and, consequently, there is no advantage.”

“(96) The tender procedure did not contain any limitation as to the parties that could submit offers. The deadlines, in particular for submitting indicative, binding and final binding offers, as communicated in the process letters gave enough time and were, therefore, not eliminatory.”

“(97) Moreover, clear guidance was given for each phase of the sale process by means of the process letters, access to relevant documents and question & answer rounds. According to the Commission’s information, this information was sufficient for the bidders to carry out a proper valuation.”

There was “(98) no indication that the sale process was discriminatory at any stage or that bidders did not receive the same information in any given phase of the sale process. Moreover, those bidders that had submitted binding offers were all given the opportunity to improve their bids.”

“(99) There are furthermore no indications that the process letters imposed conditions on potential bidders that are not customary in comparable transactions between private parties and capable of potentially reducing the sale price. Apart from standard requirements such as the bidder’s disposal over sufficient financial resources and the non-existence of a priori hindrances for regulatory approvals, the only specific conditions stemming from the 2016 Decision were the positive price with no further aid element and the preparation of a business plan for the Commission’s viability assessment post-signature of the SPA.”

“(100) Finally, the shareholding is being sold to the bidders who made the highest binding and credible offer, namely the Purchasers who had submitted the highest and at the same time credible binding offer regarding criteria such as financial resources, track record and the likelihood of regulatory approvals.”

“(101) On that basis, the Commission considers that HSH BM’s shareholding in HSH was indeed sold on market terms, i.e. through an open and non-discriminatory tender procedure to the bidder submitting the highest binding and credible offer. Consequently, no advantage was conferred to the Purchasers, and therefore no State aid was granted to them.”

Here is a summary of the issues that Member States need to address when they organise sales of state assets so that they are open, transparent, non-discriminatory and unconditional:

Launch of sale procedure:

The terms of the sale should contain no exclusionary clauses or after-sale conditions.

During the sale procedure:

The various stages of the procedure should allow sufficient time for the submission of documents, questions and bids.

Each stage should be accompanied with clear guidelines.

At each stage bidders should be treated equally and transparently.

Termination of the sale procedure:

The winner should be the highest, credible and binding offer.

Then the Commission proceeded to examine whether the price for the bank was positive. This immediately raises an important question. If the Commission had already concluded that the sale contained no State aid for the purchaser, why was it necessary to check whether the price was positive? Neither the latest, nor the 2016 decision explained why it was necessary that the price was positive. Presumably, a negative sale price [i.e. a payment to the purchaser] would imply that the purchaser would take on liabilities that exceeded the value of the assets of the bank. Who would be the beneficiary in this instance? Again, presumably, the beneficiaries would be the bank itself or the creditors or depositors who would not lose their money by a write-down of liabilities. However, as will be seen below, the Commission examined the price paid by the purchaser in relation to the EUR 10 billion guarantee. It is not clear why the presence of that guarantee was not fully taken into account by the purchaser in the bidding process.

Positive price

“(102) The overall economic benefit received by the seller for the bank consists of the Final Purchase Price paid for the transfer of the shares to the Purchasers and the compensation to be paid for the accelerated settlement of the Guarantee.”

“(103) The Purchasers pay to the seller the Final Purchase price for the transfer of the shares equal to (EUR 1 054 million – Guarantee Adjustment Amount) multiplied by 0.949 (see recital (47)).”

“(104) According to the report of 15 June 2018 by HSH Finanzfonds, losses covered by the Guarantee amount to EUR [>10] billion – i.e. in excess of EUR 10 billion – so that the Guarantee Adjustment Amount equals to zero. Germany has further submitted that even in the best case, an amount of EUR […] billion would be settled under the Guarantee in which case the Guarantee Adjustment Amount would amount to EUR […] million.”

“(105) On that basis, the lowest Adjusted Purchase Price would be EUR [900-1100] million and the corresponding Final Purchase Price EUR [900-1100] million. In addition to the Final Purchase Price paid by the Purchasers, HSH will pay EUR 100 million to HSH Finanzfonds as compensation for the accelerated payment under the Guarantee.”

“(106) In sum, the price paid for HSH is significantly positive fulfilling the conditions of the 2016 Decision.”

No new aid to HSH, compatibility of 2013 aid measures and viability of the new bank

In addition, the Commission examined and concluded that 1) the SPA contained no provisions that could lead to new aid in favour of the bank, 2) the 2013 measures were compatible with the internal market and that 3) the new bank was likely to be commercially viable without any state assistance.


[1] The full text of the Commission decision can be accessed at:



Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He is professor at the University of Maastricht and the University of Nicosia. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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