S. Ex.ª o Ministro dos Negócios Estrangeiros

Rui MACHETE

Largo do Rilvas

P – 1399-030 - Lisboa

Commission européenne, B-1049 Bruxelles – Bélgica Europese Commissie, B-1049 Brussel – Bélgica Telefone: 00-32-(0)2-299 11 11

EUROPEAN COMMISSION

Brussels, 24.07.2015

C(2015) 5199 final

In the published version of this decision,

some information has been omitted,

pursuant to articles 24 and 25 of Council

Regulation (EC) No 659/1999 of 22 March

1999 laying down detailed rules for the

application of Article 93 of the EC Treaty,

concerning non-disclosure of information

covered by professional secrecy. The

omissions are shown thus […].

PUBLIC VERSION

This document is made available for

information purposes only.

Subject: State aid SA.36123 (2013/N) – Portugal – Recapitalisation of Banif –

Banco Internacional do Funchal S.A.

Sir,

The Commission wishes to inform Portugal that, having examined the information

supplied by your authorities on the aid referred to above, it has decided to initiate the

procedure laid down in Article 108(2) of the Treaty on the Functioning of the European

Union.

1. PROCEDURE

(1) Over the course of 2012, in the context of the European financial stabilisation

mechanism established for Portugal on 11 May 20101, the Portuguese authorities

entered into a dialogue with the Commission on the problems that Banif – Banco

Internacional do Funchal, S.A. ("Banif" or "the bank") was facing.

(2) On 9 November 2012, the Portuguese authorities submitted a draft restructuring

plan for the Banif group ("the group") 2 to the Commission. Several meetings and

1 See Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial

stabilisation mechanism, OJ L 118, 12.5.2010, p. 1.

2 Meaning the legal entity Banco Internacional do Funchal S.A. and all entities falling under its control.

At the date of the present Decision, the Banif group includes 17 legal entities (Banif - Banco

Internacional do Funchal, S.A., Banif Mais, S.A., Banif Plus Bank, ZRT, Margem Mediação de

2

telephone calls between Portugal, Banif and the Commission took place between

September 2012 and January 2013.

(3) On 11 January 2013, the Portuguese authorities notified to the Commission urgent

recapitalisation measures for Banif. On 21 January 2013, the Commission

temporarily approved the requested recapitalisation3 ("the Rescue Decision").

According to the Rescue Decision, Portugal was due to submit a restructuring plan

by 31 March 2013. A restructuring plan was submitted on 2 April 2013.

(4) The Portuguese authorities updated Banif's restructuring plan of 2 April 2013

several times, on 10 April 2013, 29 June 2013, 4 February 2014 and 9 June 2014.

All of those versions were subject to electronic mail exchanges and conference

calls between Portugal and the Commission.

(5) On 8 October 2014, the Portuguese authorities submitted a new draft restructuring

plan for Banif containing a set of additional measures along with the proposal of

anticipating of other steps that had already been included in the previous versions

of the restructuring plan.

2. DESCRIPTION

2.1. The beneficiary

(6) Banif was incorporated in 1988 as a successor of the loss-making Caixa Económica

do Funchal (Madeira). In 1991, Banif held 20 branches in Madeira and 11 in

mainland Portugal. By 2012, the number of branches was 312.

(7) Banif grew into a multifaceted bank and insurance conglomerate with 680 points of

sale worldwide through an aggressive expansion and acquisition policy first on

mainland Portugal, but also on the Azores (1996) and abroad [Cayman Islands

(1993), Venezuela (1995), South Africa (1995), Brazil (1996, Banco Primus 1999,

EconoFinance 2001, Indusval 2002), Canada (1996), United States (1996),

Bermuda (1996), Italy (2000), United Kingdom (2005), Cape Verde (2007), Malta

(2008), and Spain (2010)].

(8) One of the main subsidiaries of Banif was Banif Mais, whose main activities were

the provision of collateralized consumer finance (including car financing and

leasing for individuals) and equipment finance. It had EUR 545 million in total

assets at the end of 2013, concentrated in Portugal, but the company also operated

in Hungary, Spain, Poland and Slovakia. On 12 December 2014, the Banif group

announced the sale of 100% of the share capital of Banif Mais to Cofidis

Seguros, Lda., Banif Banco de Investimento, S.A., Banif Gestão de Activos, Banif – Brasil S.A., Banif

– Banco de Investimento (Brasil), S.A., Banco Caboverdiano de Negócios, Banif Bank (Malta), Plc,

Banif International Bank, Ltd, Banif Finance (USA), Corp, Banif Rent, S.A., Banif Açor Pensões,

Banif Imobiliária, Banif Açores Inc Fall River & Newark, Banif Açores Inc San Jose) as per the

Restructuring plan of 8 October 2014, out of which Banif S.A. is the main one, representing over 80%

of the group's assets. The group's organizational and legal structure has evolved over time. Since

October 2012, Banif SA is the parent company of the Banif group.

3 Commission Decision SA 34662, OJ C 5, 09.01.2015, p. 2.

3

Participations, S.A., a company incorporated in France, for an amount of EUR 410

million. The sale was completed on 4 June 2015.

(9) Following the recapitalisation of Banif in January 2013 by the Portuguese State in

the wake of the Rescue Decision and subsequent smaller private capital increases

and a liability management exercise, the current holders of qualifying

shareholdings4 of Banif are listed in Table 1, with their corresponding voting rights.

Banif shares are listed on the Lisbon Stock Exchange (Euronext Lisbon) in the B

Compartment5. Recently, Banif's market capitalisation stood at ca. EUR 810

million against a book value of the equity of EUR 720 million.

Table 1: Qualified Shareholders of Banif and their corresponding voting rights.

Entity Shares % of Share Capital % of Voting rights6

Portuguese State 70,000,000,0007 60.533% 49.374%

Herança Indivisa de

Horácio da Silva

Roque

7,298,748,811 6.312% 8.096%

Açoreana Seguros

SA, 6,953,088,628 6.0127% 7.7127%

Rentipar Financeira

SGPS SA 307,063,133 0.2655% 0.3406%

Members of the

corporate structures

of Rentipar

Financeira SGPS SA

10,043,062 0.0086% 0.0111%

Vestiban – Gestão e

Investimentos SA, 27,583,051 0.0238% 0.0305%

Renticapital –

Investimentos

Financeiros SA,

162,049 0.0001% 0.0001%

4 According to the MANAGEMENT REPORT AND ACCOUNTS - 1º HALF 2014 as published by

Banif.

5 Companies with a capitalisation between EUR 150 million and EUR 1 billion.

6 Voting rights for issues other than those specified in no. 8 of article 4 of Law no. 63-A/2008, of 24

November. For issues that do fall under the mentioned provision of the law, the number of voting

rights equals the percentage of the share capital.

7 Corresponding to 44,511,019,900 shares which have voting rights without restrictions; the

25,488,980,100 remainder shares have voting rights limited to amendments regarding statutory

changes, fusions, spin-offs, transformations, dissolutions and other resolutions requiring a qualified

majority for its approval, under the terms of Law no. 63-A/2008, of 24 November.

*Confidential information

4

(10) In terms of current size and market

position, Banif is a small non-systemic universal banking group in Portugal with a

balance sheet size of approximately EUR 13.1 billion and risk-weighted assets

("RWAs") amounting to EUR 9.5 billion (eighth-largest bank in Portugal) in 2014

and significant market shares only in Madeira and the Azores. Banif offers its

products mainly to individuals and SME clients. […](*) Banif was also not part of

the comprehensive assessment by the European Central Bank (ECB).

(11) Banif is rated by two main rating agencies - Moody's and Fitch Ratings. On 9

January 2013, Fitch downgraded Banif's viability rating from “C” to “F”, following

the disclosure by the Portuguese Ministry of Finance that the State had agreed to

recapitalise the bank. Banif’s rating was upgraded in December 2013 to "CCC". In

December 2013 Fitch upgraded Banif’s viability rating and its long-term and senior

debt rating were confirmed at “BB”. On 15 April 2013, Moody's downgraded

Banif's debt and deposit ratings by two notches to ‘Caa1/NP’ from ‘B2/NP’ with a

negative outlook, following the downgrade of the bank’s baseline credit assessment

to “Ca” from “Caa2”, within the ‘E’ standalone bank financial strength rating. On

30 April 2014, Moody's confirmed Banif's ratings and stated that the bank financial

strength rating (E) reflected “the sizeable execution risks stemming from the bank’s

restructuring plan, which contemplates a significant downsizing of its operations".

(12) On 19 May 2015, Fitch downgraded Banif's long-term rating from BB to B-, with

stable outlook. The rating agency attributed that downward revision to its

assessment of the bank's weak capital position, pre-impairment operating

profitability and asset quality. Fitch noted that Banif's asset quality compares

unfavourably to that of its peers, with a credit at risk/loans ratio of 24%, influenced

by loan de-leveraging. Banif's capital ratios fell to 8.4% at year-end 2014 from

10.9% in 2013, due mainly to the reported losses.

(13) In 2014 and 2015, the bank performed a series of debt issuance operations, they

included a placement of EUR 520 million of bonds in September 2014, resulting

from the securitization of SME loans portfolios with international institutional

investors, and the placement of an issue of EUR 336 million in securities with

international investors in relation to a securitization operation comprising mortgage

loans made by Banif in Portugal. The bank also succeeded in placing on the

markets EUR 110 million of bonds (EUR 80 million of subordinated bonds in

January 2015 and USD 30 million of senior bonds in February 2015).

(14) As reflected by the year-end 2014 financial statements of the bank, Banif had a

consolidated net income of EUR -295 million8 compared to EUR -470 million in

2013. The 1Q2015 consolidated results show a further decrease of the balance

sheet to approximately EUR 12.9 billion and a net income of EUR 6.5 million

compared to a loss of EUR 39.7 million in 1Q2014. The bank's Common Equity

8 Audited financial statements for 2014 indicate a loss of EUR 295 million at consolidated level (which

includes Banif Mais –SGPS SA) and a loss of EUR 363 million at Banif SA level.

5

Tier 1 ("CET1") (CRD IV / CRR9 phasing in) at 31 March 2015 was 8.0%, with a

solvency ratio of 9.0%.

2.2. The aid measures

(15) Banif's overall financial situation was affected both by the deterioration of the

Portugal's economic situation as from 2009 and by serious deficiencies in both

price setting and risk management, leading to exceptionally high levels of

fundamental credit risk, with an extremely weak capital position, and ultimately to

breaches in prudential capital requirements10.

(16) In order to remain compliant with capital requirements, Banif received under the

Rescue Decision a total of EUR 1.1 billion as a recapitalisation (10% of the bank's

RWAs) by the Portuguese State, divided into two measures11:

i. the issuance of 70 billion new shares of Banif at a price of EUR 0.01

each to be subscribed by Portugal, equalling a capital increase of EUR

700 million (referred to as "special shares"); and

ii. the subscription by Portugal of contingent convertible instruments

(“Hybrid Securities” or “CoCos”) in the amount of EUR 400 million

issued by Banif. Those instruments are eligible for solvency purposes as

Core Tier 1 (CT1) capital.

(17) In addition to the recapitalisation temporarily approved by the Rescue Decision,

Banif also benefited from government guarantees on liabilities, under the

Portuguese Guarantee scheme12. As of end 2012, Banif had a total of EUR 1.175

billion of government-guaranteed bonds (GGB) maturing in 2014 and 2017. In

January 2013, subsequent to Portugal’s acquisition of the special shares and

CoCos, Banif reimbursed in advance a five-year GGB amounting to EUR 300

million. A further EUR 280 million were redeemed in July 2014. The remaining

9 Directive 2013/36/EU of the European Parliament and of the Council on access to the activity of credit

institutions and the prudential supervision of credit institutions and investment firms, amending

Directive 200/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, OJ L 176, 16.6.2013, p.

338 ("CRD IV") and Regulation (EU) No 575/2013 of the European Parliament and of the Council of

26 June 2013 on prudential requirements for credit institutions and investment firms and amending

Regulation EU No 648/2012 ("CRR"). OJ L 176, 27.6.2013, p. 1 ("CRD IV").

10 Recitals (11) to (15) of the Rescue Decision.

11 Recitals (20) to (38) of the Rescue Decision describe the approved aid measures.

12 Originally approved through Commission decision in State aid case NN60/2008, OJ C 9, 14.01.2009,

p. 1, a corrigendum to which appears in OJ C 25, 31.01.2009, p. 25, and subsequently prolonged every

six months: in State aid case N 51/2010 OJ C 96, 16.04.2010, p. 1; on 23 July 2010 in State aid case N

315/2010, OJ C 283, 20.10.2010, p. 5; on 21 January 2011 in State aid case SA.32158, OJ C 111,

9.4.2011, p. 5.; on 30 June 2011 in State aid case SA. 33178, OJ C 344, 24.11.2011, p. 1; on 21

December 2011 in State aid case SA. 34034, OJ C 99, 03.04.2012, p. 2; on 27 June 2012 in State aid

case SA.34958, OJ C 246, 15.8.2012, p. 1.; on 17 December 2012 in State aid case SA.35743, OJ C

36, 17.12.2013, p. 1.; on 1 August 2013 in State aid case SA.36869, OJ C 2, 07.01.2014, p. 1.; on 19

December 2013 in State aid case SA.37698, OJ C 50, 21.02.2014, p. 1.; on 30 July 2014 in State aid

case SA.38900, OJ C 348, 3.10.2014, p. 28.; on 4 February 2015 in State aid case 39991, OJ C 94,

20.03.2015, p. 8.

6

EUR 595 million GGBs were redeemed three months ahead of schedule on 1

October 2014.

2.3. The commitments of Portugal

2.3.1. The commitments included in the Rescue Decision

(18) Before the adoption of the Rescue Decision by the Commission, a series of

commitments were presented by Portugal13, setting out behavioural limitations on

Banif, conditions of the recapitalisation instruments and conditions of the bank's

restructuring.

(19) The behavioural limitations included bans and/or restrictions on advertising,

acquisitions, payment of dividends and coupons, and remuneration of

management.14

(20) The conditions of the recapitalisation instruments included, among others, the

following milestones for Banif15:

i. by end-June 2013, to raise private capital of EUR 450 million and the

proceeds to be used to repay CoCos in an amount of at least EUR 150

million;

ii. by end-2013, to repay another tranche of CoCos in an amount of at least

EUR 125 million; and

iii. by end-2014, to repay all outstanding CoCos (i.e. further EUR 125

million).

(21) The commitments of the Rescue Decision state that any breach of the milestones

for CoCo-repayment requires all the outstanding CoCos to be converted into shares

with full voting rights as ordinary shares and a preferential dividend, based on a

conversion price of no higher than EUR 0.01 per share (or equivalent price taking

into account any share consolidation, i.e. leading to the same result in terms of

dilution and shareholder structure as without the share consolidation). Under the

commitments, any breach of the commitment to raise EUR 450 million of private

capital by end-June 2013 required the granting of full voting rights to all the special

shares.

(22) In view of the need to restructure the bank, Portugal committed to submit a

restructuring plan for Banif no later than 31 March 2013. To be compliant with the

Commission's Restructuring Communication16, any such restructuring plan had to

be able to restore the viability of the bank, contain adequate burden-sharing

measures and measures to limit distortions of competition. In particular, the

13

"Annex: Commitments by Portugal" to the Rescue Decision.

14 Paragraphs 1 to 5 of the "Annex: Commitments by Portugal" to the Rescue Decision.

15 Paragraph 7 of the "Annex: Commitments by Portugal" to the Rescue Decision.

16 Communication from the Commission on the return to viability and the assessment of restructuring

measures in the financial sector in the current crisis under the State aid rules, OJ C195, 19.8.2009, p. 9.

7

restructuring plan had to provide for a significant balance sheet reduction compared

to the balance sheet of the bank on 31 December 2012 by undertaking a deep

transformation of the group with the view to focus on core profitable activities and

geographies (with a focus on Madeira and the Azores). The restructuring had to

prescribe a very significant reduction of the balance sheet of the core bank relative

to the balance sheet of Banif as on 31 December 2012. The means to execute the

restructuring and its implementation over time were set to be subject to a detailed

verification exercise conducted during the preparation of the full restructuring

plan17.

(23) As mentioned in recital (3), the Portuguese authorities notified the restructuring

plan for Banif on 2 April 2013, which can be considered to have been in line with

the initial commitment as regards the deadline for the submission. That

restructuring plan was followed by several updated versions, leading up to the most

recent plan of 8 October 2014, aiming at fulfilling the above described

requirements.

(24) After the adoption of the Rescue Decision, the Portuguese authorities have worked

towards achieving the capital raising plan and the repayment of the CoCos by the

specific deadlines to which they had committed. The Commission however

observes that not all of those commitments have been respected in due time.

i. Banif did not succeed in raising EUR 450 million of private capital by

30 June 2013 and was therefore not capable to use the proceeds to repay

EUR 150 million as committed. Instead, the bank raised approximately

EUR 240.7 million by August 2013, another EUR 70.8 million by

October 2013, and EUR 138.5 million in May 2014.

ii. The first CoCo repayment of EUR 150 million was performed in August

2013. However, Banif did not meet the deadline to repay the next

tranche of the CoCos (EUR 125 million) by end-2013 which was

however repaid four months later, in April 2014.

iii. Banif did not meet the final deadline to repay the outstanding tranche of

CoCos (EUR 125 million) by end-2014. At the date of this Decision, the

repayment has not taken place yet.

(25) As explained in recital (21), breach of the commitments on CoCos repayment and

the capital raising exercise should have led to the conversion of the outstanding

CoCos to shares with full voting rights and the attribution of voting rights to the

special shares. However, at the time of this Decision, the outstanding special shares

have not been attributed the full voting rights, nor have the outstanding CoCos

been converted into shares with full voting rights18.

17

Paragraph six of the "Annex: Commitments by Portugal" to the Rescue Decision.

18 That state of affairs is confirmed by the “Information on the number of shares issued and respective

voting rights” document presented to the Shareholders’ General Meeting of 29 May 2015.

8

2.4. The draft restructuring plan

2.4.1. The principles of restructuring

(26) The first draft restructuring plan, of 9 November 2012, set out the guiding

principles of the restructuring process that according to that draft plan Banif had

already launched. Banif's business model was at the time planned to be supported

by three pillars:

i. First, the bank planned to rely on its strong historical ties with Madeira

and the Azores (its origins), where it benefits from high brand

awareness/recognition and from local economies of scale. Tied to that

presence, there is the business associated to the prosperous emigrant

community currently spread along the Atlantic axis (North/South

America and South Africa). The island and emigrant franchise was an

important source of funding for the group, accounting for [40-50%] of

deposits in 2011.

ii. Second, Banif intended to focus more strongly on the Portuguese small

and medium-sized enterprise segment, which corresponded to nearly

[50-60%] of its total credit portfolio in 2011. According to the bank, that

segment had relatively higher net interest margins after risk costs and

lower average maturities.

iii. Third, Banif would rely on its consumer credit operation, mostly

focused on the automobile segment, where it relies on a strong agent

network that has been built over time.

(27) Over the subsequent versions of the restructuring plan, the business strategy

underwent various refinements and changes, leading to the most recent version of

the plan, submitted in October 2014.

(28) As per the latest version of October 2014, the most recent draft restructuring plan

covers a period from 2012 to 2017 ("the Restructuring Period"). It foresees the

implementation of a new strategy, with a Core unit of the bank aiming to focus on

strictly defined target segments and product offerings, and a Legacy unit to inherit

all assets that do not fit in the Core or the domestic part of Banif Mais. Regarding

Banif Mais, the plan projects a sale in 2017, while mentioning a possible

anticipation of the sale. As announced by the bank, on 12 December 2014 Banif

signed a sales and purchase agreement with Cofidis Participations, S.A. and

completed the sale of Banif Mais on 4 June 201519.

(29) The draft restructuring plan provides for a reorganization of Banif's operations in

three managerial units: Banif Retail Bank (Core Unit), Banif Legacy (Non-core

Unit) and Banif Mais (containing only the domestic business of Banif Mais). Banif

Retail and Banif Legacy will be managed separately (for funding and liquidity

19

See recital (8).

9

reasons), with separated accounts, but will not be organized into separate legal

entities.

(30) While the asset base is split across the Core Unit, the Non-core Unit and Mais,

funding and capital are planned to be managed on an integrated basis. At end 2012

(the moment of the separation), the […] Core Unit as currently defined in the plan

had EUR [5-10] billion in assets; Banif Mais had EUR [0-5] billion in assets; and

the Non-core Unit had EUR [5-10] billion in assets.

(31) The delineation between the Core Unit, the Non-core Unit and Banif Mais is based

on the key principle that the business activities of the Core Unit are to be restricted

in terms of eligible (i) geographies, (ii) clients, (iii) products and (iv) other

restrictions as follows:

i. Geographies

a) Madeira and the Azores: the Core Unit will limit its activities on

Madeira and the Azores to clients […].

b) Mainland Portugal: the Core Unit will focus on clients […], in

[…] where Banif currently has a sizeable presence, excluding the

regions of […].

c) International: the Core Unit will focus on clients […].

In addition, the Core Unit envisages doing business with subsidiaries or

branches of companies incorporated under Portuguese law which are

incorporated and based in the geographies mentioned above.

ii. The Core Unit's client base would be limited to the following type of

clients: a) corporations – SMEs and mid-sized Companies20, b) Private

Clients21, c) Affluent Clients and Mass-market Clients22.

The plan also provides for a series of restrictions to apply to the

combinations of clients, products and geographies as defined above

throughout the duration of the Restructuring Period:

a) On the Azores and Madeira, the Core Unit will offer its whole

product range to all types of clients, as defined above.

20

SME means a small or medium Enterprise, i.e. a company with fewer than 250 employees and a

business volume (annual turnover) below EUR 50 million; Mid-Cap (the wording used in the

restructuring plan to describe medium-sized companies) means a company with business volume

(annual turnover) below EUR 400 million.

21 Means a Retail Client (i.e. individual, not undertaking) who has, over the last 12 months, had EUR

600,000 or more on average in net resources with the bank, or a new Retail Client bringing net

resources of EUR 600,000 or more to the bank (threshold lowered to EUR 300.000 for Azores and

Madeira)

22 Affluent means a Retail client having had, over the last 12 months, EUR 50,000 on average in Net

Resources with the bank; or a new Retail Client bringing net resources of EUR 50,000 or more to the

bank; or a Retail Client having a net monthly salary or income exceeding EUR 2,250. Mass-market

means a Retail Client that is neither Affluent nor Private.

10

b) On mainland Portugal, with the exceptions of the regions

indicated in recital (31) ii above, the Core Unit may offer its

whole product range […].

c) In international locations the Core Unit may offer its whole

product range to clients and companies, as defined above, who

[…].

iii. In terms of products, the restructuring plan lists a series of products that

may be offered by the Core Unit, focussing on a simple and transparent

product offering.

(32) Regarding Banif Mais, the draft restructuring plan proposes to transfer all non-

domestic business activities to the Non-core Unit, to be divested or wound down

(Mais Spain, Hungary, Slovakia and Poland will be divested by June 2017). The

resulting Banif Mais (domestic activities) has been sold to Cofidis Participations,

S.A. (deal closure on 4 June 2015).

(33) Based on the draft restructuring plan, the Non-core Unit will include all residual

business lines to be run-down or divested and will be managed in line with an

overall goal of maximizing net present value and balance sheet reduction. The

Non-core Unit would specialise in managing non-performing loans and optimally

divesting assets.

2.4.2. The key objectives and financial projections

(34) Some of the key objectives set out by the draft restructuring plan include:

i. for Banif:

a) To target a return to 100% private ownership by end of June

2016;

b) To maintain a minimum CT1 ratio of 8.5% from 2014 onwards,

in compliance with Basel III rules23;

c) To gradually reduce reliance on ECB funding by 2017;

d) To reduce the branches to 150 by 2017 (52% reduction from

2012);

e) To divest Banif Mais as a compensatory measure by June 2017

unless State aid is repaid by the end of June 2016;

f) To reduce full-time equivalents24 ("FTEs") to 1,560 by 2017

(54% reduction from 2012).

ii. for the Core Unit:

23

Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking

Supervision, to strengthen the regulation, supervision and risk management of the banking sector.

24 Unit that indicates the workload of an employee (e.g., 1.0 F.T.E. means that the person is equivalent to a

full-time employee).

11

a) To maintain a balance sheet below EUR [5-10] billion during the

restructuring period;

b) To return to an investable Return on Equity (ROE) of >10% by

2017;

c) To reduce the Loans to Deposits (LTD) ratio (based on EOY net

loans) to <120% by 2017;

d) To reduce Cost-to-Income ratio to <60% by 2017;

e) Not to exceed certain amounts specified in new credit

generation.

iii. for the Non-core Unit:

a) To reduce the asset side by [~(40-50)%] over the Restructuring

Period until 2017, via run-offs or divestments;

b) To exit […];

c) To exit selected international markets;

d) To maximize recoveries;

e) Not to generate any new business, from one month after a

restructuring decision is adopted by the Commission (unless

limited new business amount is required to preserve value for

sale in case of some of the subsidiaries).

(35) Table 2 reflects the financial projections set by the draft restructuring plan for

Banif, in the base case scenario:

Table 2: Financial projections (Balance sheet and P&L) for Banif

Balance

sheet 2012 2013 2014 2015 2016 2017

Gross Loans 10,914 9,918

[8,500-

9,000]

[7,500-

9,000]

[7,500-

9,000]

[7,500-

9,000]

Total

Provisions -1,098 -1,315

[-1,000 -

-1,500]

[-1,000 -

-1,500]

[-1,000-

-1,500]

[-1,000-

-1,500]

Treasury

Assets 2,974, 2,607

[2,500-

3,000]

[2,500-

3,000]

[2,500-

3,000]

[2,500-

3,000]

Other Assets 2,303 2,394

[2,000-

2,500]

[1,500-

2,000]

[1,500-

2,000]

[1,000-

1,500]

Total Assets 15,092 13,603

[10,000-

15,000]

[10,000-

15,000]

[10,000-

15,000]

[10,000-

15,000]

Deposits 7,750 6,966

[6,000-

6,500]

[5,500-

6,000]

[5,500-

6,000]

[5,500-

6,000]

12

Equity 1,076 877 [800-850] [800-850] [750-800] [800-850]

RWAs 10,757 9,506

[8,000-

8,500]

[7,000-

7,500]

[6,500-

7,000]

[6,000-

6,500]

LTD 127% 123%

[120-

130%]

[110-

120%]

[110-

120%]

[110-

120%]

CET1 11.15% 11.16% [5-10%] [10-15%] [10-15%]

[10-

15%]%

P&L 2012 2013 2014 2015 2016 2017

Interest income 795 579

[450-

500]

[300-

350]

[300-

350]

[300-

350]

Interest Expense -622 -404

[-300-

-350]

[-150-

-200]

[-150-

-200]

[-150-

-200]

NII 173 145

[150-

200]

[150-

200]

[150-

200]

[150-

200]

Total Income 184 218

[300-

350]

[200-

250]

[200-

250]

[250-

300]

Operational Expenses -328 -269

[-200-

-250]

[-100-

-150]

[-100-

-150]

[-100-

-150]

Profit after Tax -578 -470

[-200-

-250] [0- -5] [10-20] [30-40]

ROE -102,6% -48,1%

[-20-

-30%] [0- -5%] [0-5%] [0-5%]

NIM 1,4% 1,0% [0-5%] [0-5%] [0-5%] [0-5%]

Cost to Income 178% 131%

[70-

80%]

[60-

70%]

[50-

60%]

[40-

50%]

(36) Banif's projected return to profitability in 2016 is based on the expected results of

the Core Unit, for which the plan forecasts several significant changes in its

performance, such as sharp increases in net interest income (Compound Annual

Growth Rate – CAGR of [10-20%] over the Restructuring Period) and a drop in

impairment charges (CAGR of [10-20%] over the Restructuring Period).

(37) The net interest income (NII) growth of the Core Unit is projected to increase from

EUR 93 million in 2012 to EUR [150-200] million in 2017 and is mainly driven by

a widening net interest margin (NIM) from 1.8% in 2012 to [0-5%] in 2017 and a

13

growing lending book, from EUR 4,841 million of gross loans in 2013 to EUR

[5,500-6,000] million in 2017. The NIM widening is mostly explained by the plan

through a decrease in the cost of funding, together with a stable lending spread. The

projected increase of the lending portfolio is driven by growth in the Mainland

Business segment, and especially on the micro companies segment. Those

projected increases of NIM and the loan book are essential in Banif Retail's

projections to reach an ROE of [10-20%] in 2016 and [20-30%] in 2017.

(38) The sharp decrease in operational expenses ([60-70%] in the period 2012-2017) is

projected as a consequence of the divestments of subsidiaries and the reduction of

the bank's branch footprint and FTEs. The decrease in interest expenses is mainly

driven by a reduction in the cost-of-deposits (funding cost).

(39) The large size of the legacy portfolio of the Non-core Unit, with its […] and […], is

projected to book continued losses and negative ROEs. The latest projections show

a ROE of [-(5-10)%] in 2016 and [-(5-10)%] in 2017.

(40) Regarding the key tools for calculating and monitoring profitability, according to

the draft restructuring plan, Banif has been developing a Funds Transfer Pricing

(FTP) mechanism, which was expected to be completed by March 2015, enabling

Banif to properly evaluate both its assets and liabilities’ performances. The draft

restructuring plan also notes that a client profitability tool was under development

(expected to be rolled-out by December 2014) and that Banif envisaged a

refinement of the customer segmentation criteria, to increase their level of detail

(planned for November 2014).

2.4.3. The repayment of the State aid

(41) The draft restructuring plan proposes the repayment of the existing State aid in the

following manner:

i. The latest draft restructuring plan projected a full repayment of all

outstanding CoCos by end-2014. As noted in recital (24) however, the

full repayment has not taken place.

ii. The draft plan provides three high-level options for the repayment of the

EUR 700 million State-owned equity: (i) Portugal selling its stake to the

market in stages or in one piece at the end of the restructuring period,

(ii) the distribution of reserves or share capital; or (iii) the acceleration

of divestments, such as the sale of […] to a suitable buyer or of […] to a

[…].

2.4.4. Burden-sharing

(42) Several elements of burden-sharing are described in the draft restructuring plan, the

first being the statement that the restructuring costs that Portugal has borne were

limited to the necessary for restoring viability, to deliver the mandatory increase in

the CT1 ratio and ensure reliance to a stress case scenario.

14

(43) The claimed limitation of the amount of aid is argued through the fact that the bank

projects to contribute to the restructuring process by its own means through, among

others, a divestment programme. That divestment programme targets not only

subsidiaries of the bank, but also loan portfolios and real estate assets. Banif

subsidiaries put forward for divestment in the draft restructuring plan include […]

in 2014, […] in 2015, […] by June 2017, […] by June 2017 and […] by 2017. At

the date of the present Decision, only the sale of Banif Mais has been concluded

through the signing of a sales and purchase agreement in December 2014, and the

transaction was closed on 4 June 2015. The projected sales of Banif Malta and

Banif Brazil have not taken place.

(44) According to the draft restructuring plan, the major shareholders have already

assumed burdens for past risk-taking, following an impairment exercise validated

by external auditors and the ongoing restrictions on dividend payments to private

shareholders. The plan also underlines that the existing shareholders have seen their

stakes diluted by the State intervention.

(45) The private contribution to Banif's restructuring relies also on the debt holders

through a Liabilities Management Exercise that the bank carried out in 2013.

Holders of subordinated debt and hybrid securities (total nominal value of EUR

272 million) were targeted to be exchanged in common shares, with implied

haircuts of 10-74%, with a success rate of 37%.

(46) Finally, the package of burden-sharing measures is completed by reference to the

commitment of the Rescue Decision to raise EUR 450 million of private capital.

2.4.5. Measures to limit the distortions of competition

(47) The key measures included in the draft restructuring plan to limit the distortions of

competition are related to the reduction of Banif's footprint on the market, the

divestments, balance sheet reductions and multiple limitations of its business

activities that Banif will have to implement, as described in recitals (31) to (34).

(48) The reduction of the Banif's footprint on the markets where it is active is composed

from three elements

i. The managerial and accounting split of Banif into a Core Unit, Non-core

Unit and Banif Mais;

ii. a reduction in the number of branches; and

iii. general cost-cutting measures including a reduction of headcount

(FTEs).

(49) The plan also proposes behavioural commitments to apply to the bank, including

bans on acquisitions, dividend and coupon payments, buy-backs, aggressive

commercial practices and advertising invoking State aid, limitations on

remuneration, improvement of risk monitoring activities and application of a

prudent and sustainable commercial policy.

15

3. ASSESSMENT OF THE AID

3.1. Existence of state aid

(50) In recitals (44) to (49) of the Rescue Decision, the Commission assessed Portugal's

subscription of new shares in the amount of EUR 700 million and of Hybrid

Securities in the amount of EUR 400 million, both issued by Banif and found that

those measures fulfil the conditions laid down in Article 107(1) TFEU and hence

qualify as State aid to the benefit of Banif.

(51) The Commission's assessment of the existence of aid laid down in the Rescue

Decision remains applicable. In addition, Portugal accepts that the measures

constitute State aid.

3.2. Compatibility of the aid

3.2.1. Application of Article 107(3)(b) TFEU

(52) In recitals (51) to (54) of the Rescue Decision, the Commission assessed the

applicability of Article 107(3)(b) TFEU in the case of the recapitalisation measures

granted to Banif, concluding that they were meant to “remedy a serious disturbance

in the economy of a Member State”. On that basis, the Commission temporarily

approved those measures.

(53) That evaluation was based on the fact that, although Banif was only the eighth-

largest bank of Portugal, it had a particularly high market share in Madeira and the

Azores, its local presence giving it systemic importance. Given that fact, the

Commission accepted that Banif's failure to satisfy strengthened capital

requirements would have entailed serious consequences for the Portuguese

economy.

3.2.2. Compatibility with the 2008 Banking Communication

(54) In order to establish their compatibility with the 2008 Banking Communication25,

the Commission assessed the recapitalisation measures in respect of their

appropriateness, their necessity, limitation to the minimum and their

proportionality26.

(55) Concerning the appropriateness of the measures, the Commission considered them

as suitable means to re-establish Banif's capital basis in line with regulatory

requirements.

(56) As regards necessity and limitation of the aid to the minimum, the Commission

reached a positive conclusion based on the fact that the amount of capital injected

25

Communication from the Commission - Application of the State Aid rules to measures taken in

relation to financial institutions in the context of the current global financial crisis, OJ C 270,

25.10.2008, p. 8 ("2008 Banking Communication") - which was in force at the time the measure was

granted.

26 Recitals (56) to (65) of the Rescue Decision

16

by Portugal was derived from the calculation of specific needs namely the

achievement of a CT 1 ratio in line with regulatory requirements.

(57) The proportionality of the aid and the measures limiting negative spill-over effects

were also assessed positively by the Commission, based inter alia on the

behavioural safeguard measures imposed on Banif and on the envisaged magnitude

of the restructuring to be implemented the bank.

(58) Based on the Commission's assessment, the circumstances of the Banif

recapitalisation and the need to maintain financial stability in Portugal, the

Commission temporarily approved the aid measure in favour of Banif as

compatible aid, subject to the submission of a restructuring plan for Banif in line

with the Restructuring Communication by 31 March 2013 at the latest.

3.2.3. Compatibility with the 2010 Prolongation Communication and the

Restructuring Communication

(59) In the Rescue Decision, the Commission recalled that based on the 2010

Prolongation Communication27 all entities receiving aid in the form of

recapitalisation measures, as in the Banif case, must undergo restructuring and that

the relevant Member State must submit a restructuring plan to the Commission.

(60) The Commission therefore welcomed Portugal's commitment to submit a

restructuring plan for Banif by 31 March 2013 at the latest. In view of the relative

size of the aid granted (EUR 1.1 billion, approximately 10% of the bank's RWAs)

and the significant problems of the bank, the Rescue Decision explains that the

restructuring plan would need to provide for a material overhaul of the bank's

business model, implying deep restructuring measures, a considerable downsizing

and a limited future geographical focus, or an orderly winding-up if the bank

cannot return to viability.28

(61) As noted in recitals (4) and (5) above, since the adoption of the Rescue Decision

the Commission has been presented with several versions of the restructuring plan

for Banif, which attempted to comply with the guidelines set by the Restructuring

Communication.

(62) In assessing a restructuring plan, the Commission needs to determine whether the

bank is able to its restore long-term viability without State aid (section 2 of the

Restructuring Communication).

(63) According to the Restructuring Communication, long-term viability is achieved

when a bank is able to compete in the marketplace for capital on its own merits in

compliance with the relevant regulatory requirements. For a bank to do so includes

covering all its costs and providing an appropriate return on equity taking into

account the risk profile of the bank. Achieving long-term viability further requires

27

See point 14 of the Communication from the Commission on the application, from 1 January 2011, of

State aid rules to support measures in favour of banks in the context of the financial crisis, OJ C 329,

7.12.2010, p. 7.

28 Recital (67) of the Rescue Decision.

17

that any State aid received is either redeemed over time or is remunerated

according to normal market conditions, thereby ensuring that any form of

additional State aid is terminated. The return to viability should firstly derive from

internal measures and be based on a credible restructuring plan and secondly

should identify the causes of the bank's difficulties and weaknesses and explain

how the restructuring is addressing them. In particular, successful restructuring

entails withdrawal from all activities which would remain structurally loss making

in the medium-term.

3.2.4. Assessment of the draft restructuring plan

Restoration of long-term viability

(64) The draft restructuring plan should be apt to restore the viability of the bank within

a reasonable time frame, based on internal structural measures. In that regard, the

Commission notes positively that Banif plans to focus its potentially profitable

activities on a series of core geographies, client segments and products, and gather

non-performing loans and assets for divestment into a Non-core Unit to be

managed aiming at Net Present Value maximization and balance sheet reduction.

(65) However, the Commission has doubts whether the current draft restructuring plan

provides sufficient grounds to ensure the viability of Banif as a whole within the

restructuring period and to allow Banif to repay or adequately remunerate the State

aid it received. That evaluation is based on a number of shortcomings identified in

the draft restructuring plan, of which the most significant ones are listed in recitals

(66) to (81).

(66) The draft restructuring plan is based on an internal accounting and management

split of Banif into different segments (Core Unit, Non-core Unit and Banif Mais),

as described in recitals (29) to (33), while funding and capital are planned to be

managed on an integrated basis for the bank as whole. The plan puts forward

financial projections for Banif as a whole, underpinned by the projected results of

the three segments resulting from the internal split, and mainly driven by the results

of the Core and Non-core Units, as they represent over [90-100%] of the Banif

assets (based on each of the units' asset size as indicated in recital (30)).

(67) The draft restructuring plan projects a ROE of [10-20%] in 2016 and [20-30%] in

2017 for the Core Unit. The Non-core Unit is projected to have negative ROEs of

[-(5-10)%] in 2016 and [-(5-10)%] in 2017. The negative ROEs are explained by

the large size of the Non-core Unit's portfolio and the reported quality of the assets.

Combining the projected results from the Core and the Non-core Unit, it becomes

clear that an exceptionally high profitability and ROE of the Core Unit is required

to ensure Banif's return to viability. However, as Banif's projected ROE is [0-5%]

in 2016 and [5-10%] in 2017, it is clear that even a minor deviation of the projected

ROE in the units would endanger Banif's profitability and its potential to compete

for capital on its own merits.

18

(68) The Commission considers the execution risks of the draft restructuring plan to be

substantial and that they threaten the potential of Banif to achieve the targeted

profitability. According to the Commission's latest country report for Portugal29, the

financial sector is still vulnerable due to weak profitability and an ongoing

deterioration of the asset quality. The country report mentions that over 20% of

Portuguese firms found it difficult in 2013 to cover their debt service expense,

which suggests that there will be more deleveraging and insolvencies in future.

Given the strong competition in the Portuguese banking market and the banking

sector's challenges to handle the indebtedness of the private sector, the Core Unit's

projected increase of the lending portfolio, driven by growth in the Mainland

Business segment appears to be facing strong obstacles. The Commission thus

questions whether Banif's projections are sufficiently conservative.

(69) As mentioned in recitals (31) to (33), the internal split between the Core Unit, the

Non-core Unit and Banif Mais is mainly done on the basis of client segmentation,

geographies and products. Banif projects to focus on the Azores, Madeira and some

jurisdictions where emigrants from Portugal settle, whereas it would exit several

regions in mainland Portugal. However, the bank's presence in some jurisdictions

(such as the low-tax jurisdiction of the Bahamas and potentially other European

locations such as Switzerland) is preserved in the plan as a part of their strategy

towards emigrants. The draft restructuring plan also shows an increased focus on

specific client segments, such as mid-sized companies, SMEs, private and affluent

clients in mainland Portugal and the full retail segment on Madeira and the Azores.

(70) However, the draft restructuring plan does not provide sufficiently detailed

information as to why certain geographic regions are kept while others will be

exited. While the bank has performed a study on deposit volumes and costs per

branch, it does not make the connection to the branches’ effective current and

future profitability. In fact, the bank only envisaged to implement a reliable fund

transfer pricing as from January 201530. There is no evidence that new business

volumes or their contribution to profitability, taking into account funding, risk and

capital costs, are effectively in line with planning figures. In order to ensure Banif's

return to viability, the restructuring plan should demonstrate each client segment's

and region's past and current profitability.

(71) The draft plan projects a return to profitability by a combination of increased

income and decreased costs. The increased income is based largely on a continuous

increase in the Net Interest Income (NII). According to the plan, the NII will

increase due to a decrease in interest expenses ([-(70-80)%] between 2012 and

2017) while the interest income decreases less sharply ([-(50-60)%] between 2012

and 2017).

29

Commission Staff Working Document, Country report for Portugal 2015, SWD(2015) 41 final, 26

February 2015, available at: http://ec.europa.eu/europe2020/pdf/csr2015/cr2015_portugal_en.pdf.

30 Letter from Banif to the Portuguese Ministry of Finance attached to the 8 October 2014 version of the

restructuring plan.

19

(72) The decrease in interest expenses is projected as a consequence of repaying the

CoCos and external factors, such as lower funding costs for the bank on the

interbank market and deposits. The repayment of the CoCos, in line with the

Commitments of the Rescue Decision, is presented as an internal measure, but the

bank has not been able to perform that commitment fully and within the timeline

established in the Rescue Decision. Moreover, the draft restructuring plan does not

elaborate on alternative measures the bank could take if the external factors do not

materialize.

(73) The evolution of the interest income is also largely dependent on external factors.

The largest impact on the interest income is the sale of Banif Mais (loss of EUR

[100-150] million), while the bank expects to be able to increase its margins

compared to Euribor and to increase its lending book in the client segments of […].

The latter assumptions are not matched to recent new production volumes and

margins.

(74) The cost-to-income ratio is similarly projected to improve, decreasing from 83% in

2013 to reach [40-50%] in 2017. However, the draft plan does not provide

sufficiently detailed information on the implementation of the cost-reduction plan

or explain how the proposed sharp reduction in costs can be combined with the

projected investments in IT and Credit Risk Management that are being done to

improve the IT and Management Information Systems of the bank.

(75) In light of the above, the Commission raises the question whether the managerial

and accounting split that is envisaged to be merely internal would place too heavy a

burden on Banif's profitability, as the losses expected from the Non-core Unit will

have a strong impact. By consequence, the possibility of a full repayment or

adequate remuneration of the received State aid by Banif could also be threatened

by the impact of the Non-core Unit on Banif.

(76) The Commission also questions whether the estimated future profits and their

sustainability can be considered to be realistic projections as the essential tools for

the calculation of funding costs, risk-adjusted profitability and capital costs are still

in a development phase31. The absence of fully functional models allowing the

calculation of the cost-of-funding and a substantiated profitability assessment of

clients at the time of developing the financial projections of the draft restructuring

plan adds to the Commission's doubts on the restructuring plan and Banif's

potential to meet the targets specified therein.

Repayment and adequate remuneration of the received State aid

(77) According to the Restructuring Communication, a bank should generate earnings

allowing it to repay the State and sufficiently remunerate it until repayment. A

restructuring plan should demonstrate that at the end of the restructuring period, the

bank is viable without State aid. As described in recital (41), the draft restructuring

plan provides three high-level options on how Banif can repay the received State

31

See recital (40)

20

aid or sufficiently remunerate it. The draft restructuring plan does not provide a

detailed and realistic description on how those options can take place and which

one is preferred.

(78) The draft restructuring plan does not provide any information on the potential

remuneration for the received State aid and merely outlines nominal State equity

repayments over the period 2015-2017. Thus, the repayment and remuneration of

the aid as proposed in the draft restructuring plan is dependent on a future

privatization of Banif, […] in light of the above risks previously described to its

future profitability.

(79) The Commission notes that existing shareholders were provided in July 2014 with

the option to buy a portion of the Special Shares of the Portuguese State at a price

of EUR 0.0115 per share, representing at that time the minimum acceptable

remuneration of 10% per annum (in line with the planned ROE level of the draft

restructuring plan, mentioned in recital (34) b), and that that option was not used.

(80) Moreover, the Commission finds that the repayment of the State aid, as presented

in the draft restructuring plan, is put further in doubt by the repeated delays in the

repayment of CoCos, as described in recital (24). The Commission notes that at the

date of the present decision the last tranche of the outstanding CoCos, which was

due in December 2014, has not been repaid. No specific timeline or steps have been

communicated by Portugal in respect of that repayment.

(81) The Restructuring Communication provides that long-term viability can only be

achieved if any State aid received is either redeemed over time or is remunerated

according to normal market conditions, thereby ensuring that any form of

additional State aid is terminated. Based on the current version of the draft

restructuring plan, the Commission questions both the potential of Banif to repay

the received State aid by the end of the restructuring period and its potential to

sufficiently remunerate the Portuguese authorities, effectively terminating the State

aid.

Limiting distortions of competition

(82) According to the Restructuring Communication, a restructuring plan should

propose effective and proportionate measures limiting distortions of competition.

Those measures should be tailor-made to address the distortions identified on the

markets where the beneficiary bank operates. The nature and form of such

measures depends on two criteria (1) the amount of the aid and the conditions and

circumstances under which it was granted and (2) the characteristics of the market

or markets on which the beneficiary bank will operate. Finally, the Commission

pays attention to the risk that restructuring measures may undermine the internal

market.

(83) As mentioned in recital (31), Banif will remain active in Azores and Madeira, […]

of Mainland Portugal where it has a sizeable presence, as well as several

international geographies. The Commission questions whether the proposed

reduction of the geographical presence is substantial enough to address the

21

competition distortion stemming from the substantial amount of aid granted,

namely 10% of the RWAs of Banif.

(84) The draft restructuring plan also proposes a timeline for divestments to address the

measures to limit distortions of competition. The divestiture and reduction of

business activities of the bank can be considered as measures to limit the distortion

of competition, if they are well designed and can increase competition, favour the

entry of competitors and contribute to the preservation of the internal market in

financial services.

(85) The timeline for divestments has been changed several times in the different

versions of the restructuring plan. While the sale of Banif Mais has been

implemented, others have been postponed several times and are past their originally

envisaged deadlines such those as for […] and […]. The Commission considers

that that delay has negative consequences on the overall chances of success of the

divestment plan.

(86) The Restructuring Communication allows the Commission to take the own

contribution and burden-sharing of the beneficiary of aid into account when

assessing the measures to limit distortions of competition. Generally speaking,

where there is greater burden-sharing and the own contribution is higher, there are

fewer negative consequences resulting from moral hazard and the need for further

measures is reduced. However, based on the current version of the restructuring

plan and its assessment, the Commission questions whether the proposed measures

to limit the competition distortions are sufficient compared to the aid received.

Burden-sharing

(87) As mentioned in recitals (42) to (46), key measures contributing to burden-sharing

by the bank and its shareholders include the divestment programme concerning

several subsidiaries and the dilution of the shareholders' stake in the bank as a

result of the State recapitalisation. However, the Commission finds that the actual

implementation of both those measures falls short of the draft restructuring plan

and the commitments recorded in the Rescue Decision; therefore it is uncertain

whether sufficient burden-sharing is ensured.

(88) As regards the divestment plan, which is envisaged to act as both a measure to limit

competition distortion and a burden-sharing measure, the Commission notes that,

as already concluded in recital (85), the repeated postponement of several

divestments past their originally planned deadlines calls into doubt the likelihood

of them actually being achieved. Moreover, the Commission questions whether the

divestment programme itself is ambitious enough, considering that the draft

restructuring plan envisages the bank's presence to be maintained in some

jurisdictions (such as the low-tax jurisdiction of the Bahamas) which are not

sufficiently substantiated by the plan as having a key role in the core business

operations of the bank.

(89) Concerning the dilution of the shareholders as a burden-sharing measure, the

Commission recalls that, according to the Rescue Decision, a deviation from the

22

commitments on the CoCos repayment and capital raising exercise should have led

to the conversion of the outstanding CoCos into shares with full voting rights and

the attribution of voting rights to the special shares, as explained in recitals (24)

and (25). Given that such steps have not been carried out, even though the

repayment schedule of the CoCos has not been followed, it is questionable whether

the dilution of the shareholders has reached the full extent envisaged by the Rescue

Decision and the restructuring plan.

(90) In view of all of the above, at this stage, the Commission is therefore not in a

position to conclude that the draft restructuring plan is apt at ensuring the long-term

viability of Banif and the repayment of the State aid. Moreover, as indicated above,

the draft restructuring plan raises concerns from the perspective of burden-sharing

and measures to limit distortions of competition.

4. CONCLUSION

(91) The Commission concludes that based on the information available at the time of

this Decision, it has doubts as to the compatibility with the internal market of the

State aid received by Banif.

(92) In the light of the foregoing considerations, the Commission, acting under the

procedure laid down in Article 108(2) of the Treaty on the Functioning of the

European Union, requests Portugal to submit its comments and to provide all such

information as may help to assess the compatibility of the aid, within one month of

the date of receipt of this letter. It requests your authorities to forward a copy of

this letter to the potential recipient of the aid immediately.

The Commission warns Portugal that it will inform interested parties by publishing

this letter and a meaningful summary of it in the Official Journal of the European

Union. It will also inform interested parties in the EFTA countries which are

signatories to the EEA Agreement, by publication of a notice in the EEA

Supplement to the Official Journal of the European Union and will inform the

EFTA Surveillance Authority by sending a copy of this letter. All such interested

parties will be invited to submit their comments within one month of the date of

such publication.

If this letter contains confidential information which should not be published,

please inform the Commission within fifteen working days of the date of receipt. If

the Commission does not receive a reasoned request by that deadline, you will be

deemed to agree to publication of the full text of this letter. Your request specifying

the relevant information should be sent by registered letter or fax to:

European Commission

Directorate-General for Competition

State Aid Greffe

MADO 12/059

B - 1049 Brussels

Fax No: +32 2 296 12 42

23

Yours faithfully

For the Commission

Margrethe VESTAGER

Member of the Commission