You are on page 1of 21


98 EN Official Journal of the European Communities C 297/3

C 16/98 (NNØ10/98)

(98/C 297/03)

(Text with EEA relevance)

(Articles 92 to 94 of the Treaty establishing the European Community)

Commission notice pursuant to Article 93(2) of the EC Treaty to other Member States and
interested parties concerning aid which Italy has decided to grant to Banco di Sicilia and

The Commission has sent the Italian Government the accordance with Protocol 27 to the Agreement on the
following letter, informing it that it has decided to European Economic Area, the Commission will also be
initiate proceedings under Article 93(2) of the EC sending a copy of this letter to the European Free Trade
Treaty. Association (EFTA) Surveillance Authority and will
publish a notice in the EEA Supplement to the Official
‘The Commission has decided to initiate proceedings Journal, inviting the EFTA Surveillance Authority, the
under Article 93(2) of the EC Treaty in respect of the EFTA Member States and interested third parties to
aid granted to Banco di Sicilia and Sicilcassa. Details and submit their observations.
the reasons for the decision to initiate proceedings are
set out in the Annex to this letter. As this letter will be published in the Official Journal of
the European Communities, the Italian authorities are
As part of the proceedings, the Commission gives the requested to inform the Commission, within 15 working
Italian Government notice to submit, within 30 days of days of the date of this letter, of any information
receipt of this letter, its comments and any information contained herein which they regard as business secrets
the Commission may require for an assessment of the and therefore confidential.
case. In particular, the Commission would ask the Italian
Government to supply the documents and information The Commission would also draw the attention of the
listed in point 6 of the Annex. It would also ask the Italian Government to the letter it sent to all Member
Italian Government to inform Banco di Sicilia and States on 3 November 1983 on the subject of their obli-
Sicilcassa of the initiation of proceedings as soon as gations pursuant to Article 93(3) of the EC Treaty and
possible. the communication it published in Official Journal of the
European Communities C 318 of 24 November 1983
The Commission would also inform the Italian (page 3), according to which any aid granted unlawfully
Government that this letter and its Annex will be without awaiting the Commission’s final decision may
published in the Official Journal of the European have to be recovered from the recipient firms under the
Communities together with a notice seeking observations procedure provided for in Article 93(2) of the EC
from other Member States and interested parties. In Treaty.
C 297/4 EN Official Journal of the European Communities 25.9.98



Following the publication of press reports, at the end of July 1997 the Commission requested the Italian
authorities to supply information on the plans to overcome the crisis facing Sicilian public sector banks and
to create a regional banking centre under the aegis of the public sector Banco di Sicilia SpA, appropriately
strengthened. The Italian authorities replied by letters dated 1 and 11 September 1997, enclosing the
balance sheets of the banks concerned and outlining the main points of the plan in question. The operation
involved the winding-up of Sicilcassa SpA, in extraordinary administration in accordance with Italian
banking law, and the transfer of its assets and liabilities to Banco di Sicilia, with the support of Banca
d’Italia, Mediocredito Centrale, a bank controlled by the Treasury and Fondo Interbancario di Tutela dei
Depositi (the Fund). The measures to assist the transfer included ITL 1Ø000 billion to cover Sicilcassa’s
losses and a contribution from Banca d’Italia under the Treasury Decree of 27 September 1974. Medio-
credito Centrale would thus become the principal shareholder of Banco di Sicilia through a reserved capital
increase of ITL 1Ø000 billion. Although not specifically provided for in the plan, the strengthening of Banco
di Sicilia includes a decision taken by the Treasury in 1995 to transfer to Banco de Sicilia its holding in
Irfis-Mediocredito della Sicilia, a small public financial institution specialising in the management of
regional funding for Sicilian firms.

Taking the view that the transaction may comprise elements of State aid, the Commission asked for further
information in October 1997 concerning:

—Ùthe transfer of Sicilcassa,

—Ùthe amount of the assets and liabilities transferred to Banco di Sicilia and those transferred to the
liquidators of Sicilcassa,

—Ùfunding provided by the Fund,

—Ùparticipation by private sector banks in the Mediocredito Centrale financing of the recapitalisation of
Banco di Sicilia.

The Italian authorities replied by letter of 9 December 1997, giving details in particular of:

—Ùthe procedure adopted for the compulsory liquidation of Sicilcassa,

—Ùthe conditions governing the transfer of Sicilcassa’s assets and liabilities to Banco di Sicilia,

—Ùthe reasons and conditions for the funding from the Fund.

2.ÙDescription of the banks involved in the transaction


Sicilcassa was a small regional bank with 238 branches in Sicily, two in Rome and Milan, and a total
balance sheet at the end of 1995 of some ITL 13Ø925 billion. Formerly a public sector bank, following its
conversion in 1992 into a public limited liability company under Law No 218/90 (Amato Law), its capital
of ITL 400 billion was held by the Sicilian Region (23,1Ø%) and Fondazione Sicilcassa (76,9Ø%). The latter
is a banking foundation which, under the Amato Law, pursues objectives of public interest and social value
previously entrusted to public banks.

Sicilcassa incurred heavy losses in 1995 (ITL 1Ø138 billion), exceeding own funds (capital and reserves of
ITL 910 billion) which made it impossible to comply with the prudential ratios laid down by the banking
rules. The reasons for such losses are many. Lacking an effective commcercial strategy and insufficiently
diversified in the products and services area, Sicilcassa had concentrated on the traditional activities of
savings and loans. It also had higher operating costs than those of the banking system, to a large extent
due to staff costs involving high wages and pensions. In addition to the effects of the serious recession in
25.9.98 EN Official Journal of the European Communities C 297/5

the regional economy, the bank suffered serious administrative irregularities committed by its own bodies;
according to the extraordinary administrators, the inadequate control of credit risks was chiefly due to the
bank’s exposure to the influence of certain debtors engaged in speculative and sometimes ambiguous
activities. As a result, owing to the high concentration of loans, especially loans on which a small number
of customers have defaulted, the survival of the bank was heavily dependent on that of its debtors.

The bank was placed in extraordinary administration under Treasury Decree No 401467 of 7 March 1996
with a view to improving management, verifying the accounts and taking the necessary steps to protect the
interests of depositors. The procedure was extended to the end of the summer of 1997 in order to obtain a
precise picture of the bank’s assets and liabilities. In their report on the financial and economic situation for
1995, the administrators identified ITL 4Ø922 billion of loans as being in default and ITL 495 billion as
highly precarious. Following a value adjustment in respect of claims of ITL 2Ø197 billion, the bank
recorded a loss of ITL 1Ø138 billion which included a negative net worth of ITL 227 billion. Despite an
injection in 1996 of ITL 300 billion by the Sicilian Region which supplemented the contributions provided
for in Regional Law No 39 of 19 June 1991 on the recapitalisation of Sicilian banks, the net worth totalled
only ITL 73 billion. In August 1997 the administrators estimated minimum requirements to recapitalise and
restructure Sicilcassa at ITL 1Ø800 billion.

As the bank’s accounting situation precluded a return to viability in the long term, following a decree of
the Governor of the Banca d’Italia of 5 September 1997 which revoked the bank’s operating licence, the
Treasury decided by Decree No 602529 of 5 September 1997 to order the compulsory winding up of

The following tables show the position of Sicilcassa at 30 May 1997, 31 December 1996 and 31 December

Table 1: Balance sheet of Sicilcassa (ITL billion)

31.5.1997 31.12.1996 31.12.1995

Cash, securities issued by public entities 1Ø024 924 821

Loans: 9Ø605 11Ø070 10Ø974

(a)Ùto banks 656 1Ø394 1Ø183

(b) to customers 8Ø949 9Ø676 9Ø791

Bonds, other securities and shares 755 1Ø044 1Ø820

Fixed assets 335 339 349

Other deferred income 1Ø178 882 1Ø032

Total assetsØ 12Ø897 14Ø258 13Ø925

Loans: 11Ø327 12Ø721 12Ø370

(a)Ùfrom financial institutions 370 709 1Ø483

(b) from customers 10Ø957 12Ø012 10Ø887

Other liabilities 1Ø504 1Ø316 1Ø300

Net worth 2Ø071 1Ø887 1Ø391

(a)Ùcapital and reserves 1Ø211 1Ø211 911

Total liabilitiesØ 12Ø897 14Ø258 13Ø925
Source: Reports of the extraordinary administrators.
C 297/6 EN Official Journal of the European Communities 25.9.98

Table 2: Profit and loss account of Sicilcassa (ITL billion)

31.5.1997 31.12.1996 31.12.1995

Interest on assets and similar income 1Ø626 1Ø182 1Ø362
Interest on liabilities and similar charges 1Ø186 872 934
Interest margin 440 310 428
Commissions received 91 75 64
Commissions paid 8 6 3
Net profit on financial operations 51 49 37
Other operating income 40 26 27
Brokerage income 190 156 131
Brokerage margin 630 466 559
Administrative expenditure: 736 567 602
(a)Ùstaff costs 536 422 441
(b) other administrative expenditure 199 145 161
Value adjustments in respect of fixed assets 34 24 22
Gross operating result –Ù140 –Ù125 –Ù65
Provisions 401 198 147
Value adjustments in respect of claims 413 283 967
Value readjustments in respect of claims 33 19 2
Value adjustments in respect of financial fixed
assets 9 6 3
Loss on ordinary activities 951 609 1Ø194
Extraordinary income 90 82 57
Extraordinary charges 5 3 24
Extraordinary profit or loss 85 79 34
Losses 867 530 1Ø138
Source: Reports of the extraordinary administrators.

Table 3: Economic and financial indicators relating to Sicilcassa

31.5.1997 31.12.1996 31.12.1995

Internal rate of return –Ù71,59 –Ù43,77 –Ù124,92
Staff costs/brokerage margin 85,08 90,36 78,89
Other operating costs/brokerage margin 31,59 11,66 28,80
Operating result/total assets –Ù6,72 –Ù3,72 –Ù8,17
Source: Reports of the extraordinary administrators.

At the same time, pursuant to Article 90 of the Italian banking law and with the approval of Banca d’Italia,
the administrators transferred to Banco di Sicilia the entire banking business of Sicilcassa for symbolic sum
of ITL 1. The administrators will continue to manage 50Ø% of the loan defaults (ITL 1Ø600 billion), as well
as the legal actions in respect of non-transferred or settled debts and legal actions for civil liability and
damages in respect of the former administrators of Sicilcassa. The latter is regarded as a division of Banco
di Sicilia, but its branches are continuing under the same name and, under an agreement with the trade
unions, confirmed by Decree Law No 292 of 9 September 1997, converted into Law No 388 of
8 November 1997, Sicilcassa staff transferred to Banco di Sicilia continue to benefit from the pre-existing
wage and social security arrangements.
25.9.98 EN Official Journal of the European Communities C 297/7

2.2.ÙBanco di Sicilia

Banco di Sicilia is a former public credit institution converted into a limited liability company under the
Amato Law. According to its balance sheet for 1996, the group is engaged in various sectors of banking
and financial intermediation: it is composed of the banking institution Banco di Sicilia SpA, which heads
three subsidiary banks (Banca del Sud SpA, Banco di Sicilia International SA, Irfis-Mediocredito della
Sicilia SpA), three financial companies (Basileasing SpA, Euramerica Fiduciaria SpA, Euramerica gestioni
sim SpA) and two companies in the catering trade. In 1996, the group’s total balance sheet showed ITL
47Ø589 billion, and it employed 8Ø322 persons. A majority of its assets are concentrated in the parent
company. Banco di Sicilia SpA is a national bank with a network of 394 branches, most of which are in
Sicily, three in London, New York and Frankfurt. It has a total balance sheet of ITL 45Ø269 billion and its
equity is held equally by the Treasury (36,52Ø%), the Sicilian Region (32,37Ø%) and Fondazione Banco di
Sicilia (31,11Ø%).

Banco di Sicilia has only just emerged from a period of crisis. Not only was it affected by the difficulties
hitting the Sicilian economy and the resulting deterioration in its assets, it suffered from long-standing
operational and resource allocation inefficiencies. In particular, the group had high operating costs which
significantly reduced profits. In the last three years it incurred total losses of ITL 1Ø781,5 billion. In 1993,
in order to make up the shortfall in own funds, the six largest Italian banks subscribed a subordinated
debenture loan of ITL 700 billion. At the end of 1995, the bank’s own funds comprised ITL 1Ø000 billion
of subordinated debt against a total of ITL 1Ø806 billion.

The restructuring programme undertaken in 1994 was aimed at reorganising the group’s activities and
containing costs, notably staff costs, but the outcome is still poor. Despite the efforts made, the bank is still
very dependent on traditional banking, the profit achieved by the end of 1996 (some ITL 12 billion) being
due more to the satisfactory performance of portfolio holdings and the reduction in value readjustments in
respect of loans than to any improvement in the quality of loans: loan defaults (ITL 3Ø547 billion) still
account for 14,3Ø% of total loans to customers (ITL 24Ø774 billion). The reduction in staff by 800 persons
in the period 1993 to 1996 was encouraged by early retirement measures, which contributed to the 5,2Ø%
increase in staff costs in 1996.

The following tables set out the position of Banco di Sicilia on 31 December 1995 and 31 December 1996.

Table 4: Balance sheet of Banco di Sicilia (ITL billion)

31.12.1996 31.12.1995
in %

Cash, central bank, etc. 221 156 41,58

Loans: 34Ø017 33Ø141 2,64

(a)Ùto banks 9Ø243 7Ø851 17,73

(b) to customers 24Ø774 25Ø290 –Ù2,04

Securities 4Ø586 2Ø705 69,54

Fixed assets 3Ø161 5Ø362 –Ù41,05

Investments 1Ø076 1Ø109 –Ù2,98

Other assets 3Ø284 2Ø935 11,89

Total assetsØ 45Ø269 44Ø298 2,19
C 297/8 EN Official Journal of the European Communities 25.9.98

31.12.1996 31.12.1995
in %

Loans: 38Ø160 37Ø388 2,06
(a)Ùfrom financial institutions 6Ø053 6Ø812 –Ù11,14
(b) from customers 10Ø712 10Ø327 3,73
Secured loans 21Ø213 20Ø068 5,71
Other liabilities 3Ø226 2Ø842 13,51
Short-term subordinated debt 537 1Ø000 –Ù46,30
Assets 1Ø368 948 44,30
Capital, reserves and other elements 1Ø357 1Ø222 11,05
Profit or loss 12 –Ù274 –Ù104,38
Total liabilitiesØ 45Ø269 44Ø298 2,19
Source: Banco di Sicilia, Balance sheet 1996.

Table 5: Profit and loss account of Banco di Sicilia (ITL billion)

31.12.1996 31.12.1995
in %

Interest and similar income 3Ø735 3Ø999 –Ù6,60
Interest and similar charges 2Ø777 2Ø960 –Ù6,18
Dividends and other income 12 12 0,00
Interest margin 970 1Ø051 –Ù7,71
Commissions received 234 213 9,86
Commissions paid 17 21 –Ù19,05
Net profit on financial operations 188 54 248,15
Other operating income 46 45 2,22
Brokerage profits 449 287 56,45
Brokerage margin 1Ø419 1Ø338 6,05
Administrative costs: 1Ø089 1Ø061 2,64
(a)Ùstaff costs 855 813 5,17
(b) other administrative expenditure 234 248 –Ù5,65
Value adjustments 58 65 –Ù10,77
Gross operating result 272 212 28,30
Value readjustments 129 119 8,40
Provisions 77 106 –Ù27,36
Value adjustments 314 543 –Ù42,17
Profit or loss on ordinary activities 10 –Ù318 –Ù103,14
Extraordinary income 61 87 –Ù29,89
Extraordinary charges 59 42 40,48
Extraordinary profit 2 46 –Ù95,65
Profit or loss 12 –Ù274 –Ù104,38
Source: Banco di Sicilia, balance sheet 1996.
25.9.98 EN Official Journal of the European Communities C 297/9

Table 6: Economic and financial indicators relating to Banco di Sicilia

31.12.1996 31.12.1995

Solvency ratio 8,21Ø% 7,01Ø%

Internal rate of return 0,84Ø% –Ù28,89Ø%

Staff costs/brokerage margin 60,24Ø% 60,74Ø%

Other operating costs/brokerage margin 76,74Ø% 79,29Ø%

Total profit/assets 0,03Ø% 0,62Ø%
Source: Banco di Sicilia, Balance sheet 1996.

The bank’s restructuring was also assisted by the capital injected under the Amato Law by the Treasury
(ITL 200,2 billion already paid and ITL 115,5 outstanding) and by the Sicilian Region (ITL 600 billion)
under Regional Law No 39/91 on the recapitalisation of Sicilian banks. The Commission had not objected
to those financial contributions (OJ C 160, 26.6.1992). The capital injected by the shareholders and the
reimbursement of the subordinated loan of ITL 700 billion between 1995 and January 1996 reduced the
subordinated debt and improved the solvency ratio from 7,1Ø% to 8,2Ø%.


Irfis Mediocredito della Sicilia SpA, in which Banco di Sicilia has a stake, is a small public sector financial
institution specialising in the management of regional aid for Sicilian firms.

Irfis has a total balance sheet of ITL 14Ø000 billion, employs 217 persons and is adequately capitalised
(solvency ratio of 32,5Ø%). In 1996 it made a modest profit of ITL 763,2 million. Like all banks in
southern Italy, Irfis has a high ratio of bad to total debt (19Ø%). Until 1995, its capital was held by the
Treasury (52Ø%), the Sicilian Region (21Ø%), Banco di Sicilia (16Ø%), Sicilcassa (8Ø%) and other banks.
Then in 1995, the Treasury transferred its holding to Banco di Sicilia, which now has a controlling interest
(68Ø%). The acquisition of Irfis by the Banco di Sicilia group has not significantly altered the balance of
the group, as in 1995 its assets accounted for only 4Ø% of consolidated assets. Nor has Irfis had much
effect on the consolidated result, most of which is produced by Banco di Sicilia: the loss incurred in 1996
(ITL 31,5 billion) is due to the poor result of a subsidiary, Banca del Sud, which was sold in 1997. It
cannot, however, be ruled out that the acquisition of Irfis helped to improve the consolidated solvency

Recently, the Sicilian Region stated that it was considering transferring its holding in Irfis to Banco di
Sicilia, but no definite decision has as yet been taken.

2.4.ÙMediocredito Centrale

The effort by Banco di Sicilia to integrate Sicilcassa into its own organisational structure and to set up a
Sicilian banking centre was assisted by Mediocredito Centrale, a wholly-owned Treasury subsidiary which
specialises in open-market and subsidised medium- and long-term loans for small and medium-sized firms.
Mediocredito underwrote an increase in Banco di Sicilia’s reserved capital by injecting ITL 1Ø000 billion,
thus becoming its principal shareholder (40Ø%).

Adequately capitalised (ITL 2Ø341 billion), with a balance sheet total of ITL 10Ø347 billion in 1996 and
profits of ITL 96,7 billion, Mediocredito does not have any branches. It has attempted for several years
now to strengthen its competitive position on the Italian banking market by endeavouring to take
advantage of the low prices for branch banks in southern Italy. It has already made an unsuccessful bid for
C 297/10 EN Official Journal of the European Communities 25.9.98

Banco di Napoli. It has concentrated most of its recent activities in southern Italy. Furthermore, Medio-
credito’s efforts also allowed the Treasury to increase its holding in Banca di Sicilia compared with the
Sicilian Region and Fondazione Banco di Sicilia which, owing to lack of resources, were unable to take
part in the capital increase in Banco di Sicilia. At the end of 1997, the Treasury held 22Ø% of Banco di
Sicilia directly and 40Ø% indirectly through its subsidiary Mediocredito Centrale.


In assessing State aid measures in the banking sector, the Commission has already on several occasions
taken account of the special nature of the sector and of the great sensitivity of financial markets to banking
crises. Nonetheless, in cases where the State supplies most of the financial support to a bank in crisis, the
Commission must assess whether there is any aid in the State measures. The fact that State assistance may
sometimes be necessary does not alter the Commission’s assessment of such assistance under Article 92 of
the Treaty. Public measures do not constitute aid in cases where the support is provided voluntarily,
without being imposed by the State, by other banks, with significant contributions from private financial

In assessing public assistance in the form of capital contributions, the Commission applies the principle of a
private investor operating under normal market economy conditionsØ(Î): there is no State aid if the
assistance is provided in conditions acceptable to a private investor. The principle is also applicable to the
banking sector: in particular, in the case of public holdings in the capital of a firm, there is likely to be
State aid where the financial position of the firm is such that a normal return (in dividends or capital gains)
cannot be expected within a reasonable time from the capital invested or where the risks involved in such a
transaction are too high or extended over too long a period.

To enable the Commission to establish whether the private investor test is satisfied, it must be shown that
the State in its capacity as shareholder is indeed acting as a private shareholder would. A coherent and
detailed restructuring plan must be presented which shows that it can reasonably be supposed that there
will be a normal return on the State’s investment in the whole operation which would be acceptable to a
private investor in a market economy. Otherwise, there is a State aid component.

The measures in support of Sicilcassa and Banco di Sicilia examined by the Commission to determine
whether they contain elements of State aid are the following:

3.1.Ùthe contribution of ITL 1Ø000 billion from Fondo Interbancario di Tutela dei Depositi to the liqui-
dation of Sicilcassa;

3.2.Ùthe possibility for Banca d’Italia to grant Banco di Sicilia, as part of the transfer of Sicilcassa’s assets
and liabilities to Banca d’Italia, advances in accordance with the Treasury Decree of 27 September

3.3.Ùthe capital increase of ITL 1Ø000 billion in Banco di Sicilia reserved for Mediocredito;

3.4.Ùthe transfer to Banco di Sicilia of the Treasury’s shares in Irfis (52Ø%).

The transactions under points 3.1 and 3.2 form part of the compulsory winding-up of Sicilcassa.

(Î)ÙBulletin EC 9-1984.
25.9.98 EN Official Journal of the European Communities C 297/11

3.1.ÙThe contribution by Fondo Interbancario di Tutela dei Depositi

Since the entry into force of European Parliament and Council Directive 94/19/EC on deposit-guarantee
schemesØ(Ï), no bank may accept deposits unless it is a member of an officially recognised deposit-
guarantee scheme.

The aim of the Directive is to reinforce the stability of the banking system and the protection of savers in a
Community context from which all restrictions on freedom of establishment and freedom to provide
services have been removed. The Directive lays down the principle of cover by a guarantee scheme in the
home country for deposits collected by the branches of a Community credit institution in other Member
States. In recognising that it is not desirable that the rates and scope of cover offered by guarantee systems
should become competitive, the Directive provides on the one hand that, until 31 December 1999, the
cover provided for branches may not exceed that offered by the corresponding guarantee system of the
host Member State and, on the other hand, that if the level of cover in the home country is lower than that
in the host country, a branch may belong to a guarantee system in the latter enabling it to supplement the
home country guarantee.

The Directive does not specify how the systems are to be set up and organised, but fixes a minimum
threshold of ECU 20Ø000 to cover unavailability of deposits and establishes the principle that the systems
must have the necessary means to that end, chiefly through recourse to the contributions of their associate
members. Nor does the Directive specify how the systems could or should come into play.

It is thus impossible to rule out the possibility that a guarantee system could opt for solutions other than
the refunding of depositors, but which meet the aims of the Directive. In particular, it is possible that a
system may come into operation by granting resources that allow a bank to remain in business although its
position would normally trigger the procedure for the refunding of depositors.

The combination of the two factors, i.e. the compulsory nature of the contributions and the possibility of
using those contributions to allow the financial survival of a bank in difficulty justifies an investigation by
the Commission of such measures under Article 92 of the EC TreatyØ(Ð). Its scrutiny also satisfies and
complements the Directive’s concern as regards stability and competition.

The contributions are likely to be regarded as State aid within the meaning of Article 92(1) because of
their compulsory aspect. The Court of Justice has stated that funds financed through compulsory
contributions imposed by State legislation and managed and apportioned in accordance with that legis-
lation must be regarded as State resources, even if they are administered by institutions distinct from the
public authoritiesØ(Ñ). It also held that a measure adopted by a public authority and favouring certain
undertakings does not lose the character of a gratuitous advantage by the fact that it is wholly or partially
financed by contributions imposed by the public authority and levied on the undertakings concernedØ(Ò).
The nature of the institution administering the aid is irrelevant provided that the public or private insti-
tution has been entrusted with the administration of the State resources; accordingly, an assessment of such
schemes under Article 92 of the Treaty must depend on their arrangements and their effectsØ(Ó).

(Ï)ÙOJ L 135, 31.5.1994, p. 5.
(Ð)ÙThe Commission has already had occasion recently to examine similar action by deposit-guarantee funds, in particular
in the case of the rescue of the Spanish bank Banesto in 1993. In the latter case it concluded that Fund’s measures did
not constitute State aid. However, at the time contributions to the Fund were optional.
(Ñ)ÙCase 173/73 Italy v. Commission [1974] ECR 709, paragraph 16.
(Ò)ÙSee Case 78/76 SteinikeØ@ØWeinlig v. Germany [1977] ECR 595, paragraph 22, and Case 259/85 France v.
Commission [1987] ECR 4393, paragraph 23.
(Ó)ÙSee abovementioned Case 78/76, paragraph 21, see also Case 290/83 Commission v. France (Caisse nationale de
Cr~dit Agricole) [1985] ECR 439, paragraph 14 and Case 57/86 Greece v. Commission [1988] ECR 2855, para-
graph 12.
C 297/12 EN Official Journal of the European Communities 25.9.98

As it cannot be ruled that the resources collected through a deposit-guarantee scheme are likely to be
regarded as State resources, the Commission must decide whether their use can constitute aid within the
meaning of Article 92 of the Treaty. This would clearly not be the case if the resources were used to
reimburse depositors, which is the institutional aim of deposit-guarantee schemes. Funds granted under
such schemes for the direct reimbursement of depositors are not covered by Article 92 as they do not
constitute aid either to an undertaking or for products.

However, where such schemes are used to allow an economic activity to survive, Article 92 is applicable,
even in the event of the liquidation and disappearance of the legal entity in question. As the Commission
stated in its guidelines on State aid for rescuing and restructuring firms in difficulty ‘‘it will not be possible
to evade control by transferring the business to another legal entity or owner’’Ø(Ô).

The Commission must therefore determine whether the measure under the guarantee scheme which
provides a gratuitous advantage in the form of the survival of the business activity of the failing bank is due
to the State and complies with the least-cost criterion. To that end, the operating and decision-making
arrangements of the guarantee scheme should be examined in order to determine whether, directly or
indirectly, the public authorities are able to influence decisions taken under the scheme.

While the Commission is empowered by the Treaty to examine deposit-guarantee schemes, it also takes
account of the role of such schemes in the activity of banks. By protecting depositors, especially the smaller
depositors that are not always in a position to evaluate the soundness of their banks correctly, the schemes
prevent leaks and reinforce confidence in deposit money. All banks are interested in taking part in a
deposit-guarantee scheme in order to avoid as rapidly as possible any crisis and to shield themselves against
the effects, including indirect effects, of banking crises, especially the smaller banks as, without a
guarantee, it is likely that depositors would place their savings with larger, better-known banks that are not
necessarily more efficient. The schemes can thus foster banking intermediation and the efficient distribution
of savings. Because of the need to avoid ‘‘moral hazards’’ and ensure that the market retained control of
the stability of banks, limits on deposit guarantees were introduced.

The Commission also takes the view that making membership of schemes compulsory may be justified by
the need to lend support to more market-oriented solutions to banking crises and to relieve the public
authorities of the moral obligation to intervene in the more serious cases. If banks knew that whatever
happened the State would act to save a credit establishment from bankruptcy and protect its creditors, they
would not keep a direct or indirect watch on the establishment’s management and would be prepared to
advance more funds to it than its situation would warrant. If, however, banks knew that, if necessary, they
would be required to contribute to the costs of rescue and/or liquidation, they would be more inclined to
limit their exposure to the establishment in question and also thus restrict the latter’s capacity to take risks.
Confirmation of this principle can be seen in the fact that deposit-guarantee schemes exclude deposits
made by banks in their own name and on their own behalf.

The measures taken by the Fund are part of the plan for Banco di Sicilia to take over Sicilcassa’s business
activities. All of Sicilcassa’s economic activities were transferred to Banco di Sicilia, i.e. assets and liabilities,
including legal contracts, staff, tangible and intangible goods, facilities, the brand-name and other relevant
items, with the exception of some of the loan defaults (‘‘sofferenze’’) and disputed assets and liabilities tied
to certain loans such as the liability and recovery actions against those responsible for the failure of
Sicilcassa. Accordingly, it must be concluded that the action taken by the Fund allowed Sicilcassa to remain
in business as a whole. The resources used to that end were levied from members on the basis of their
compulsory contribution to the Fund.

(Ô)ÙOJ C 368, 23.12.1994, p. 12.
25.9.98 EN Official Journal of the European Communities C 297/13

In order to determine whether, in the case in point, the Fund acted in accordance with the least-cost
criterion and, in particular, that the public authorities did not influence its decision either directly or
indirectly, the Commission first examined the legal status of the Fund, its composition and the rules and
procedures governing decisions by its bodies.

The Fund (Fondo Interbancario di Tutela dei Depositi) is an association governed by private law between
banks whose object is to guarantee the deposits of its members. There are three types of members:

—Ùall Italian banks, with the exception of cooperative credit institutions, which are members of another
guarantee scheme,

—Ùthe branches of Community banks which operate in Italy and may be members of the Fund in order to
supplement the cover provided by the home country guarantee scheme,

—Ùthe branches of non-Community banks licensed in Italy, unless they are members of an equivalent
foreign guarantee scheme (Article 2).

The composition of its members simply reflects the national banking system where there may be a majority
of public or private banks or officially private banks that are indirectly controlled by the State owing to the
dominant influence of the public authorities. The fact that most of its members may be ‘‘public’’ bodies is
not sufficient to give public status to the guarantee fund.

The financial resources to carry out the aims of the Fund are provided solely by members (Article 1 of the
articles of association of the Fund), according to a contributory mechanism based on the extent of each
member’s assets and its state of health.

The basic principle which would make it possible to prevent this from being a gratuitous advantage
favouring Sicilcassa in regard to the assistance from the Fund would require the latter to be organised in
such a way that a relationship existed between the amount each member contributed and the advantage
enjoyed. This would be the case if the contributions from each member were based, like insurance schemes,
on the principle of probable equivalence between premiums paid and compensation receivedØ(Õ). It cannot
be claimed, under the Fund’s rules, that such a principle is complied with in full as the premiums are not
paid regularly into an actual fund that is available for all purposes but are kept as liquid assets by the
members and are simply paid at the request of the Fund. The total contribution by each bank to the cost of
the action by the Fund tends more to be linked to the probability of action by the Fund on behalf of other
banks. Thus it is possible that a bank with a high-risk profile makes no contributions to the Fund’s
resources but receives assistance from it without any charge. As a result, it cannot be concluded that for
each member there is equivalence between the premium paid and the value of the probability of assistance
from the Fund on their behalf.

The Commission cannot thus at first sight rule out the presence of State aid in the contributions from the
Fund, solely as regards the financing machinery, but must check whether the measures comply with the
least-cost principle and cannot be attributed to the State, taking account of the constraints imposed by the

The Fund’s articles of association provide for three forms of financing for members:

—Ùreimbursement of depositors of banks in compulsory liquidation (Article 27),

—Ùfinancing for transfers of assets and liabilities (Article 28),

—Ùfinancing for banks in extraordinary administration (Article 29).

(Õ)ÙIn other words, the equivalence throughout the life of the insurance contract between the discounted value of
premiums paid by the insured person and the value of the guarantee, calculated on the basis of the probability of
activation of the guarantee and the amount paid by the insurer in that case.
C 297/14 EN Official Journal of the European Communities 25.9.98

Article 90 of the Italian law on banks provides that liquidators may, with the approval of Banca d’Italia,
transfer assets and liabilities of banks in liquidation, either as a whole or separately. Thus it is possible to
combine the mechanisms in Article 90 of the banking law with those in Article 28 of the Fund’s articles of

The body empowered to take decisions on operations, the Board and the Management Committee, is
appointed by the member banks in accordance with the principles of company law and having regard to the
size of each member’s contribution to the Fund. In particular, the Fund’s advisers are elected by the
general meeting of members. Candidate advisers must be supported by 25 members representing at least
10Ø% of total votes. The Board is made up of the advisers, of whom there are between 16 and 22, at least
five being representatives of banks contributing at a lower level, and the Chairman of the Associazione
Bancaria Italiana. The Board adopts decisions by a majority of votes cast. The rules governing the
composition and voting of the Board are not inherently likely to allow the public authorities to influence its
decisions. It should also be noted that no public authorities are represented on the social bodies: the
attendance by a delegate from Banca d’Italia, without any voting rights, at meetings of the Fund’s Admin-
istrative Board is justified by the central bank’s need for information on which to base its decisions. Nor is
there a specific mandate between advisers and their banks. The only stipulation is that smaller banks should
be adequately represented on the Board. The reason for this lies in the disputes that may arise between
larger and smaller banks owing to the different impact a bank’s difficulties may have on the deposits of
banks of a different size (see above). There is thus no direct influence between public authorities and the

The ability of the public authorities directly to influence decisions of the Fund is also limited by the latter’s
articles of association, especially the provisions requiring the choice among the three possibilities to be
based on least cost, taking account of the fact that the maximum reimbursement per depositor provided for
in the articles of association is ITL 200 million. The fact that the rules concerning the contribution
percentages and reimbursement ceilings are the responsibility of the Fund is another factor supporting the
conclusion that, from this point of view, the risk of public authority influence is minimal.

In the present case, following the compulsory winding-up of Sicilcassa, the Fund was thus required to
activate the guarantee on behalf of depositors, within the limits laid down by the articles of association,
and opting for the least-cost solution. The Fund’s Board decided on 13 August 1997 to take action under
the agreements concluded with the Treasury concerning the plan of 7 August 1997 between the Sicilian
Region, Fondazione Banco di Sicilia and Mediocredito Centrale, involving a total of ITL 1Ø000 billion, of
which ITL 750 billion was to cover the provisional liquidation liabilities and ITL 250 billion for any further
losses. Half this amount was paid at the time of liquidation, the balance being paid after six months
provided that Banca d’Italia agrees to grant advances under the Ministerial Decree of 27 September 1974
for winding up losses in excess of the ITL 1Ø000 billion provided by the Fund.

This operation was based on the accounting position inherited by the liquidations at the time of the
transfer of the assets and liabilities to Banco di Sicilia. According to the contract for the sale of Sicilcassa’s
assets and liabilities to Banco di Sicilia, which was based on the provisional accounting statement at 6
September 1997, half the loan defaults, valued at 31 May 1997 at ITL 1Ø600 billion, were entrusted to the
management of the administrators. It is also planned to transfer to the administrators the remaining loan
defaults valued at 31 May 1997 (50Ø% of the difference compared with the situation at 31.5.1997 up to a
maximum of ITL 300 billion, and 100Ø% with regard to the amount exceeding that limit) which may arise
during the period stipulated for the completion of the assessment of assets and liabilities transferred (due

According to the information provided by the Italian authorities, the Fund’s decision to contribute ITL
1Ø000 billion towards the transfer of the assets and liabilities of Sicilcassa was based on the fact that the two
other opinions, namely the reimbursement of depositors and assistance for the members in extraordinary
administration, involved greater expenditure. The repayment of depositors would certainly have entailed
considerable costs and the prospect of recovering them in the liquidation proceedings was uncertain, the
Fund being regarded as an unsecured creditor. In calculating the costs, the Fund took account of the
25.9.98 EN Official Journal of the European Communities C 297/15

difference between the Sicilcassa funds to be repaid (estimated at ITL 6Ø509 billion in the accounts at
31 March 1997) and the discounted share of the realised assets of the Fund, based on various hypothetical
times and percentages for recovery of the assets. With regard to the repayment of ITL 6Ø509 billion (ITL
5Ø074 billion immediately and ITL 1Ø435 billion according to the terms and procedures stipulated by the
Fund), the costs amounted to a minimum of ITL 1Ø222 billion and a maximum of ITL 2Ø073 billion, in
other words more than the solution chosen. The Fund also rejected, in accordance with its articles of
association, the other option of direct intervention for Sicilcassa and its owners, as the gravity of
Sicilcassa’s position and the critical conditions of the Sicilian economy precluded a return to viability
without the bank being associated with a new banking group and a radical change in management. It is
therefore clear that the least-cost criterion has been satisfied.

Pursuant to Commission Directive 80/723/EECØ(Ö), as amended by Directives 85/413/EECØ(ÎÍ) and
93/84/EECØ(ÎÎ) on the transparency of financial relations between Member States and public undertakings,
the Commission verified the significant contribution of the non-public sector banks to the decision, in
order definitively to rule out the possibility of direct or indirect public authority influence over the Fund’s
decision. It concluded that, both at the general meeting and at board meetings, the establishments
concerned participated significantly. It also found that they had contributed significantly to the meeting on
13 August 1997. Lastly, it found that the decision had been taken in accordance with the articles of
association and unanimously.

In conclusion, the Commission takes the view, at this stage and on the basis of the information supplied by
the Italian authorities, taking account of the information set out above, that the decision of the Fund to
contribute ITL 1Ø000 billion to Sicilcassa to cover the loss from the transfer of its assets and liabilities to
Banco di Sicilia, as known at the time of the liquidation (i.e. ITL 762 billion) and some of the additional
losses that will arise during the liquidation, does not constitute State aid within the meaning of Article 92
of the Treaty.

3.2.ÙAdvances granted by Banca d’Italia in accordance with the Decree of 27 September 1974

The transfer of the assets and liabilities of Sicilcassa to Banco di Sicilia was possible as a result of the
support given by the Italian central bank under the Treasury Decree of 27 September 1974. The Decree
provides that Banca d’Italia may grant 24-month advances on government securities at an interest rate of
1Ø% to banks which take the place of depositors of banks in compulsory liquidation and must cover the
losses associated with the impossibility of recovering their claims. Banca d’Italia fixes the amount of the
advances according to the extent of the losses and to the redemption plans.

In the present case, the intervention by the central bank is intended to reimburse Banco di Sicilia for the
losses which it will incur in respect of Sicilcassa’s business activities it has taken over and which are not
covered by the contribution from the Fund. In other words, if total losses were to exceed the ITL 1Ø000
billion contributed by the Fund, Banca d’Italia could grant Banco di Sicilia advances under the Treasury
Decree of 27 September 1974 to cover losses stemming from financing and other support granted to

The Italian authorities stated that Banca d’Italia intervenes only where the resources provided by the Fund
are not sufficient to cover the liquidation liabilities. However, intervention by Banca d’Italia, despite being
only a possibility, is a fundamental factor in the decisions of Banco di Sicilia and Mediocredito, as well as
of the Fund. As the Italian authorities have stated, without such a measure there would not have been any
buyers for Sicilcassa. It therefore constitutes a sort of guarantee which, although officially intended for
Banco di Sicilia, covers the losses arising from Sicilcassa’s economic activities and allows it to survive.

(Ö) OJ L 195, 29.7.1980, p. 35.
(ÎÍ)ÙOJ L 299, 28.8.1995, p. 20.
(ÎÎ)ÙOJ L 254, 12.10.1993, p. 16.
C 297/16 EN Official Journal of the European Communities 25.9.98

In view of the seriousness of the failure and the ever-present uncertainties concerning Sicilcassa as regards
both the risk of loan defaults and the size of future losses, the two banks asked for additional guarantees
so that Banco di Sicilia would not have to bear the costs of transferring the assests. The Fund has estimated
liquidation losses at ITL 2Ø384 billion, well in excess of the Fund’s contribution of ITL 1Ø000 billion. As a
result, the contribution from Banca d’Italia, which allows the Fund to limit its contribution to ITL 1Ø000
billion, seems more than probable, although difficult to estimate with precision.

The distortion caused by a public contribution which allows an economic activity without any apparent
prospect of viability to survive and which should normally have disappeared can also be assumed from the
fact that there was no official and transparent invitation to tender. The Italian authorities stated that, apart
from Banco di Sicilia supported by Mediocredito, no Italian bank had expressed an interest in acquiring
the package of assets and liabilities of Sicilcassa. They pointed out that, when Banco di Napoli had been
put up for sale, no foreign banks had been interested in investing in southern Italy. However, it cannot be
concluded from the information provided by the Italian authorities that there was any actual competitive
tendering, with deadlines, for Sicilcassa between domestic and foreign candidates. On the other hand, the
report of the liquidators contains references to expressions of interest from other banks in the purchase of
part of the banks, after removal of their liabilities. Furthermore, as both banks are in the same area and
may thus have the same customers, the Commission does not have sufficient information to rule out the
possibility of Banco di Sicilia benefiting from the advances from Banca d’Italia in order to improve the
position of its own claims.

At this stage, on the basis of the information available, the Commission considers that the financing from
Banca d’Italia under the Ministerial Decree of 27 September 1974 constitutes State aid within the meaning
of Article 92(1) of the EC Treaty to Sicilcassa or, possibly, to Banco di Sicilia. The Decision to use the
advances from Banca d’Italia for the transfer of Sicilcassa’s business activities should therefore have been
notified in advance to the Commission.

It thus constitutes illegal restructuring aid. As it has already stated in other banking casesØ(ÎÏ), the
Commission considers that, in view of the absence of a transparent and open bidding procedure for the
business activities of Sicilcassa, it is not possible to rule out that Banco di Sicilia benefited from State aid
and acquired Sicilcassa on favourable terms.

3.3.ÙCapital injection in Banco di Sicilia

The Commission first examined the public or private nature of Banco di Sicilia and Mediocredito Centrale
in order to decide whether their contributions sufficed to conclude that the public measure complied with
the principle of a private investor in a market economy. Article 2 of Directive 80/723/EEC on the trans-
parency of financial relations between Member States and public undertakings allows the public nature of
the two banks to be established, as it provides that public undertakings are undertakings over which the
public authorities may exercise directly or indirectly a dominant influenceØ(ÎÐ) because they hold the major
part of the firm’s subscribed capital or exercise de facto control through its social bodies.

In the present case, the private (limited company) status of the two banks does not prevent them from
being regarded as public undertakings, as the shareholders are the public authorities. The two banks were
created through the transformation into limited liability companies of former public credit institutions
under Law 218/90, although in the present case, the Treasury retained a much larger holding. Medio-
credito was converted into a limited company but continued to be wholly controlled by the Treasury. The
financial difficulties of Banco di Sicilia led to a reduction in the share of Fondazione Banco di Sicilia,

(ÎÏ)ÙSee in particular the initiation of proceedings in the SDBO case, OJ C 346, 16.11.1996, p. 4.
(ÎÐ)ÙA dominant influence is presumed when the public authorities, directly or indirectly, hold the major part of the
undertaking’s subscribed capital or control the majority of the votes attaching to shares issued by the undertakings or
can appoint more than half of the members of the undertaking’s administrative, managerial or supervisory body.
25.9.98 EN Official Journal of the European Communities C 297/17

which did not have any financial resources, and of the Sicilian Region, to the benefit of the Treasury. Even
before its capital injection, Banco di Sicilia was in any event controlled by public bodies.

The Italian authorities justified the commercial nature of the transaction by pointing out that the people’s
banks were involved, and had part-financed Mediocredito Centrale. In particular, the Istituto Centrale
delle Banche Popolari Italiane (Istpopolbanche), a limited company formed by the Italian people’s banks,
underwrote a subordinated five-year debenture loan of ITL 500 billion at a variable rate known as
‘‘LIBOR lire 6 mesi flat’’ for Mediocredito. Most of the loan is shared by 14 people’s banks (ITL 395
billion), only ITL 105 billion being subscribed by Istpopolbanche. Under the Italian banking Law (Articles
29 and 30), people’s banks are limited liability cooperatives which must have a minimum of 200 members.
Their social and administrative bodies must be elected by the general meeting of shareholders: each
member has one voting right and none may hold more than 0,50Ø% of the capital. The public authorities
cannot be represented to any significant extent and are thus unable formally to influence decisions. As the
loan was thus granted freely and voluntarily by private banks, it does not constitute State aid under Article
92 of the EC Treaty.

However, the fact that a group of people’s banks has contributed to the financing of Mediocredito
Centrale is not sufficient to rule out the presence of State aid in the capital injected by Mediocredito in
Banco di Sicilia. They are two very separate transactions with different yield prospects and risks. In
practice, the risk and the return on the capital contributed to Banco di Sicilia by Mediocredito does not
have a direct and automatic effect on the risk and return involved in the people’s banks transaction.
Accordingly, the two transactions should be assessed separately as they are not subject to equivalent terms
and conditions. Mediocredito is undoubtedly a public-sector bank. According to the communication on
public authorities’ holdings, there is a presumption that there is State aid where a public undertaking
contributes capital in circumstances that would not be acceptable to a private investor operating under
normal market economy conditions. This is the case in particular:

—Ùwhere the financial position of the company, and particularly the structure and volume of its debt, is
such that a normal return cannot be expected within a reasonable time from the capital invested,

—Ùwhere, because of its inadequate cash flow if for no other reason, the company would be unable to
raise the funds needed for an investment on the capital market.

The position of Banco di Sicilia as described above, however, precludes describing the transactionas having
a commercial nature. Despite its considerable restructuring efforts, Banco di Sicilia has not yet been able to
regain an adequate level of profitability (return on own capital q 1Ø%). It would seem on the contrary that
Mediocredito based its choice more on public objectives than on that of maximising its profitability.

In order to rule out the presence of aid in the measures to assist Banco di Sicilia, the Commission requires
a coherent and detailed restructuring plan indicating a reasonable expectation of a normal return on the
entire transaction, one that would be acceptable to a private market economy investor.

3.4.ÙTransfer to Banco di Sicilia of the Treasury holding in Irfis

Until July 1995 and following the capital increase in 1994, Irfis’ equity was principally divided between the
Sicilian Region (21Ø%), the Treasury (52Ø%) and Sicilcassa (8,26Ø%). The problem of the insufficient capi-
talisation of Banco di Sicilia in relation to that of its competitors had prompted its main shareholders to
propose capital operations with regard to Irfis in order to bring new holdings to Banco di Sicilia.

In July 1995 the Treasury contributed its controlling interest (52Ø%) in Irfis to Banco di Sicilia, which
already held a minority interest. The Treasury’s share was estimated at ITL 218Ø841 billion. Since 1995 Irfis
has thus formed part of the composition of consolidation of Banco di Sicilia, increasing the value of the
group’s holdings.
C 297/18 EN Official Journal of the European Communities 25.9.98

By letter of 16 October 1995 the Sicilian Region informed the Commission of a proposal for a draft
regional law on repurchasing the Treasury’s former holding from Banco di Sicilia, using part of the
regional support funds. The region’s holding in Irfis would subsequently be sold on the market to the
regional cooperative banks. The Commission asked the Italian authorities for further details but learnt in
the mean time from other sources that the proposed plan had not been implemented because, apparently,
the draft regional law had not been discussed by the Regional Assembly, which had ended work in June

With regard to the contribution from the Treasury, according to press reports, the operation had not been
regularised: in 1995 the Treasury had allegedly transferred its holding in Irfis without defining the value of
the latter’s shares in the absence of an evaluation of its assets. The Treasury provided assistance to the
Sicilian bank but wished to wait until the bank recovered in 1996 before establishing the value of the
exchange between the Irfis shares and those of the bank in order to benefit from the reduction in the
bank’s net position.

However, at this stage and on the basis of the information available, the Treasury’s behaviour cannot be
regarded as that of a private investor, as the transaction took place without a restructuring plan for Banco
di Sicilia showing a return to long-term economic and financial viability. The transaction also strengthened
the competitive position of Banco di Sicilia as well as its economic situation and net worth.

As part of this procedure, the Italian authorities are requested to provide the Commission, in order to
allow it to assess whether State aid is present in the transaction and whether it is compatible, with the
restructuring plan for Banco di Sicilia and an independent expert’s report on the value of the share swap
between Banco di Sicilia and Irfis.

4.ÙDistortion of trade between Member States

Aid granted to Banco di Sicilia, which provides firms with loans and other financial resources in
competition with other European banks, while extending its own activities abroad through its network of
agencies outside Italy, may distort intra-Community trade.

The liberalisation of financial services and the integration of financial markets are rendering intra-
Community trade ever more sensitive to distortions of competition. This trend is bound to intensify in the
context of economic and monetary union: with the creation of the single currency, trade within the
Community will be able to develop without exchange risks or exchange costs.

It should also be borne in mind that banks encounter obstacles to expansion abroad, despite the fact that
they can in principle operate without frontiers to activities essentially consisting in collecting deposits and
providing loans. Such obstacles are sometimes owing to the fact that local banks are well-established,
which makes it more costly for foreign competitors to enter the market. As liberalisation is increasingly
offering banks the opportunity to provide their services in other Member States, all aid granted to a bank,
whether international or domestic, is likely to hamper those possibilities. Aid aimed at the survival of local
banks, which would otherwise have been forced out of the market owing to their lower profitability and
competitive capacity, is thus liable to distort competition in the Community as it makes it more difficult for
foreign banks to enter the Italian market.

Without the aid in question, Sicilcassa would probably have been wound up without its assets and liabilities
being transferred to Banco di Sicilia. In that event, the assets could have been purchased by a foreign
competitor interested in acquiring a significant commercial presence in Sicily. The bank’s customers would
have had to deal with another bank, possibly a foreign one. Banco di Sicilia could not have acquired
Sicilcassa’s assets and liabilities without the restructuring made possible through the Fund’s operations and
the advances from Banca d’Italia. Furthermore, the expansion of Banco di Sicilia’s network through its
acquisition of Sicilcassa could not have taken place without the capital injection provided by Mediocredito
Centrale. As a result, it must be concluded that the aid to Sicilcassa and Banco di Sicilia to acquire the
assets and liabilities of Sicilcassa is caught by Article 92(1) of the EC Treaty as it distorts competition to an
extent likely to affect intra-Community trade.
25.9.98 EN Official Journal of the European Communities C 297/19

5.ÙInitial assessment of the compatibility of the aid

Having decided that the financial support granted to Sicilcassa and Banco di Sicilia constitutes State aid,
the Commission must consider whether that aid is compatible within the meaning of Article 92(2) and (3)
of the Treaty. To that end, the Commission takes account of the fact that, in certain situations, specific
measures are necessary to avoid the bankruptcy of a bank having negative effects on the financial markets,
especially if the difficulties are general and not caused by the bank itself.

At the same time, the Commission is aware of the special characteristics of the banking sector and of the
considerable sensitivity of financial markets to difficulties affecting even one bank, facts which must be
taken into account when applying the State aid rules. As, however, Sicilcassa is a small bank and in view of
the existence of a deposit-guarantee fund, the possible negative consequences of the bank’s failure for the
financial markets are clearly marginal.

In the present case, the aid in question does not constitute social aid granted to individual consumers, or
aid to facilitate the development of certain Italian regions. Nor is it intended to remedy a serious
disturbance in the economy as it is aimed at the difficulties of Sicilcassa and not those of all operators in
the sector. The reasons for the bank’s difficulties are specific to it and appear to be related to a lack of
rigorous risk control.

Accordingly, the aid cannot be regarded as being in the common European interest.

Only the derogation provided for in Article 92(3)(c) may be taken into account. The compatibility of the
aid in question should be assessed on the basis of the specific rules concerning rescue and restructuring aid.
According to the 1994 guidelines on State aid for rescuing and restructuring firms in difficultyØ(ÎÑ), the
Commission must examine any distortions which the aid granted to the two firms in difficulty may entail
and its compatibility by checking that the aid satisfies various conditions:

1.Ùfull implementation of a restructuring plan based on realistic assumptions capable of producing the
necessary minimum return on capital invested within a reasonable timescale and of ensuring the
long-term economic and financial viability of the firm;

2.Ùthe existence of sufficient measures to offset the distorting effect of the aid on competition and to
ensure that the aid is not contrary to the general interest;

3.Ùthe aid must be in proportion to the aims and must be limited to the minimum necessary for restruc-
turing so that the firm itself bears most of the restructuring effort;

4.Ùfull implementation of the restructuring plan and of any requirement in the Commission’s final decision;

5.Ùsetting-up of a system for monitoring the abovementioned conditions.

As already stated above, the general principles applicable to firms in difficulty apply to the banking sector.

It must first be pointed out that the aid was not notified, even though the Italian authorities should have
concluded from the criteria set out in the Commission notice on Banco di Napoli that the measures in
question were likely to contain aid.

(ÎÑ)ÙOJ C 368, 23.12.1994, p. 12.
C 297/20 EN Official Journal of the European Communities 25.9.98

The Commission recognises that it is necessary when applying free market laws to the banking sector to
take account of the particular characteristics of the sector and, especially, of the fact that a certain level of
protection of depositors and debtors may be necessary in order to avoid more serious consequences, such
as the risk of a general crisis. It also acknowledges that radical dismantling may be more difficult for banks
than for industrial firms and that it may therefore be preferable to sell assets and liabilities as a block.
Opting for the latter solution during liquidation does not, however, rule out replacing the shareholders and
administrators of the firm in liquidation and thereby imposing disciplinary action on them.

However, such a solution should normally be the sole responsibility of the Deposit Guarantee Fund, taking
as a basis a comparison of the costs of alternative solutions. If the option in question benefits from State
aid, it is liable to distort competition, as the aid allows the survival of an unprofitable economic activity and
prevents a reduction in sectoral capacity, the usual outcome of liquidation proceedings. In a market to
which access has been liberalised and is continually being facilitated through technological progress, aid
which allows a business to survive has the effect of blocking the exit at the other end of the chain and thus
of distorting competition considerably. Improving the deposit guarantee machinery by setting up a real
guarantee fund, established ex ante and having appropriate resources and machinery, can help to
re-balance entries and exits from the banking sector. The artificial obstacle created by such asymmetrical
conditions of entry and exit can on the contrary only reduce the level of banking margins and the profit-
ability of the banking system.

In general, the winding-up of a credit institution and the concomitant transfer of all its banking and
intermediation assets and liabilities is not contrary to Community competition law, whether they are freely
distributed among competitors or whether acquired en bloc by another bank. However, in the case of
measures intended to cover the losses incurred by creditors through liquidation, such as those provided for
in the Ministerial Decree of 27 September 1974, the Commission must decide whether they are compatible
with Article 92(1) of the EC Treaty. If the assets and liabilities are distributed among various purchasers,
the measures are not likely to constitute State aid to the firm in liquidation, which effectively ceases to exist
as an economic entity. On the other hand, if the assets and liabilities of the bank in liquidation are trans-
ferred as a whole to another entity, the provisions of the Ministerial Decree in question which allow the
purchaser to be compensated for the negative value of the acquisition constitute aid liable to distort
competition as they could allow the entity in difficulty to pursue its activities.

Pursuant to those principles, the Commission requires further information in order to carry out a full
assessment of the case.

First, it requires additional details to determine the presence and the amount of State aid in the measures in
question. Quantification of the aid is necessary in order to check that it constitutes the minimum necessary
for restructuring and is in proportion to the costs and benefits of restructuring, as well as to identify the
necessary counterparts to compensate competitors.

Second, the Commission requires a detailed, in-depth restructuring plan to allow it to assess the compati-
bility of the aid.

As already noted by the liquidators, the causes of Sicilcassa’s crisis are structural and require a restruc-
turing plan allowing operational costs to be cut, especially staff costs, and to increase productivity. An
agreement was reached in 1996 with the trade unions on a reduction of 706 employees and a significant
reduction in the average cost per employee, but the recovery of the bank called for a considerable injection
of own funds and the introduction of new managerial skills in order to establish an entrepreneurial
management culture.

The Italian authorities have stated that, in the course of the extraordinary administration procedure, the
administrators investigated possible recovery options for Sicilcassa but were unable to find other banks
prepared to contribute the necessary financing and human resources. Compulsory liquidation thus became
25.9.98 EN Official Journal of the European Communities C 297/21

Despite the fact that the liquidators have already taken a number of measures to halt the deterioration of
Sicilcassa’s position, notably by devaluing the creditors’ portfolio (45Ø% of loan defaults and 25Ø% of
doubtful loans, totalling ITL 2Ø800 billion) and reducing operating costs, all of which was borne by
Sicilcassa’s own capital, a return to profitability remains uncertain. The provisional balance sheet for the
period in extraordinary administration drawn up on 31 May 1997 shows a loss of some ITL 2Ø000 billion,
including losses carried forward again from 1995, as against a net worth of ITL 1Ø210 billion, which could
only mean liquidation. To this was added, inter alia, bad and doubtful loans still in portfolio, amounting to
ITL 3Ø150 billion and ITL 600 billion respectively. Losses in 1997 should total ITL 140 billion.

According to press reports, a restructuring plan for Banco di Sicilia was presented to an administrative
board meeting on 4 December 1997. In order to assess the feasibility of the plan, detailed financial data are
necessary. To determine the effectiveness of the restructuring plan, all the analyses and reports already
drawn up or to be prepared by Banca d’Italia or by the banks advising Banco di Sicilia, Mediocredito
Centrale or the Treasury should be forwarded to the Commission.

Third, it requires information on trade union agreements for the transfer of staff from Sicilcassa to Banco
di Sicilia and on the reduction in labour costs to be achieved by the latter.

As regards the measures to compensate competitors for the distorting effect of aid, the Commission does
not as yet have sufficient information to rule out the danger that the merger between Banco di Sicilia and
Sicilcassa will give rise to excessive concentration on the Sicilian banking market. According to press
reports, it would seem that the acquisition of Sicilcassa by Banco di Sicilia will increase the degree of
concentration on the Sicilian banking market. It would also be costly to retain two networks of branches in
view of the considerable overlapping. The Commission will therefore check closely to ensure that, under
the restructuring plan to be submitted to it, the network resulting from the integration of Banco di Sicilia
and Sicilcassa branches is compatible with the dual aim of a return to viability and compensation for
competitors to offset the distortion of the aid.

Finally, further details are required on the role of the shareholders of Banco di Sicilia, in particular as
regards the plans of the Sicilian Region concerning the holding in Irfis it transferred to Banco di Sicilia.
Without this information, the Commission cannot decide whether the aid in question is compatible with the
EC Treaty.


The Commission considers, at this stage and on the basis of the information available, that some of the
measures provided for to assist the transfer of Sicilcassa may constitute State aid under Article 92(1) of the
EC Treaty. In particular, it considers that the advances from Banca d’Italia granted under the Decree of 27
September 1974, the exact amount of which is not yet known, the capital injected in Banco di Sicilia by
Mediocredito Centrale totalling ITL 1Ø000 billion and the transfer of Irfis to Banco di Sicilia by the
Treasury may contain State aid to Sicilcassa and/or to Banco di Sicilia. The amount of aid cannot be
quantified exactly. On the other hand, at this stage, and on the basis of the information from the Italian
authorities, the resources granted by the Fund totalling ITL 1Ø000 billion towards the transfer of the assets
and liabilities of Sicilcassa do not constitute State aid.

The Commission does not have sufficient information at this stage to decide on the compatibility of the
aid. Accordingly, the measures must be examined under Article 92(3)(c) of the EC Treaty. To that end, the
Commission has decided to initiate proceedings under Article 93(2) of the EC Treaty in respect of the
restructuring aid to Sicilcassa and the measures to facilitate the acquisition of the latter by Banco di Sicilia.
C 297/22 EN Official Journal of the European Communities 25.9.98

As part of the proceedings, the Commission would request the Italian authorities to submit the following
documents and information:

(a) the annual reports and balance sheets of Banco di Sicilia group and Mediocredito Centrale for 1997;

(b) a detailed report on the difficulties encountered by Banco di Siclia and Sicilcassa and on the restruc-
turing measures undertaken. In particular, the report should analyse the restructuring of credit,
investment and risk control, the reduction in labour costs (including pension costs) for the purposes of
comparison with the national banking sector and with regard to the integration of the two inter-

(c) reports on the pension funds of Banco di Sicilia and Sicilcassa;

(d) a recovery and restructuring programme for Banco di Sicilia which, with particular reference to
Sicilcassa, should indicate:

—Ùaccounts and estimates for the next four years and the underlying assumptions,

—Ùprojected development of Banco di Sicilia’s economic and financial position, on the basis of
different assumptions from those used above,

—Ùactual possibility of Banco di Sicilia returning to viability within a reasonable period of time;

(e) all reports and assessments carried out or to be carried out by Banca d’Italia or other banks acting as
consultants to Banco di Sicilia, Mediocredito Centrale of the Treasury;

(f) studies on future trends in the Italian banking sector;

(g) a note on the commercial position of Banco di Sicilia and Sicilcassa in relation to the sector as a whole
and to competitors, with an estimate of market share in the various sectors of activity and geographic
areas, in particular on the Sicilian banking market; the note should also examine the problem of any
overlapping of the branches of the two networks and the steps that Banco di Sicilia plans to take to
remedy it;

(h) details of loan defaults transferred to the liquidation procedure, to be assisted by funding from Fondo
Interbancario di Tutela dei Depositi and details concerning loan defaults common to Banco di Sicilia
and Sicilcassa;

(i) with regard to the advances from Banca d’Italia, an assessment of the planned amount and monitoring
arrangements provided for in order to avoid any transfers of Banco di Sicilia assets to the Fund;

(j) a detailed note on the arrangements and timing of future Banco di Sicilia financing transactions and
capital funding, in particular as regards the prospects, timing and conditions of its privatisation;

(k) a note on relations between the Treasury and other shareholders of Banco di Sicilia;

(l) an assessment report carried out by an independent expert on the terms of the exchange between Irfis
shares conferred on Banco di Sicilia by the Treasury and Banco di Sicilia shares;

(m)Ùthe compensation offered to competitors to offset the distortion of competition caused by the aid;

(n) any other information or document of use in assessing present and future transactions concerning
Banco di Sicilia and Sicilcassa.
25.9.98 EN Official Journal of the European Communities C 297/23

The Commission reserves the right to request further information after analysis of the abovementioned
documents. It also reserves the right to entrust the task of assessing the documents and the feasibility of the
plan to specialist consultants.’

The Commission hereby gives the other Member States and interested parties notice to submit
their comments on the measures in question within one month of receipt of this notice to:

European Commission
Rue de la Loi/Wetstraat 200
B-1049 Brussels.

The comments will be communicated to the Italian Government.

Notice of the expiry of certain anti-dumping measures

(98/C 297/04)

The Commission gives notice that the anti-dumping measures mentioned below will shortly

This notice is published in accordance with Article 11(2) of Council Regulation
(EC) No 384/96 of 22 December 1995Ø(Î) on protection against dumped imports from
countries not members of the European Community, as last amended by Council Regulation
(EC) No 905/98Ø(Ï).

Country of origin
Product Measures Reference Date of expiry
or exportation

Binder and baler Brazil Undertaking Decision 93/521/EEC 9.10.1998
twine (OJ L 251, 8.10.1993)

(Î)ÙOJ L 56, 6.3.1996, p. 1.
(Ï)ÙOJ L 128, 30.4.1998, p. 18.