First, it was Commerzbank, ING and now Northern Rock - European Union competition regulators are imposing tough conditions on banks that benefited from state bailouts, deepening concerns for the likes of Lloyds, RBS and Dexia. EU competition regulators on Wednesday approved the state aid contained in plans to break up and sell British nationalised bank Northern Rock in the wake of the global financial crisis.
Competition commissioner Neelie Kroes said the proposed changes "will allow the bank to become viable in the long-term and limit distortions of competition." Welcomed on this occasion by the British Treasury, the deal to bring Northern Rock back from the brink of collapse will see it split into a "good bank" that will continue its economic activities, and a "bad bank" management company to run down the remaining assets.
The British government's aid includes recapitalisation measures of up to three billion pounds (4.43 billion euros), liquidity measures of up to 27 billion pounds and guarantees for liabilities of several billion pounds. Once Britain's fifth-biggest home loan provider, Northern Rock faced potential collapse in September 2007 and requested emergency funding from the Bank of England - sparking the first run on a British bank for more than a century.
The commission's ruling comes after Dutch banking and insurance group ING said it would restructure, under pressure from the EU regulator, to pay back emergency state funds. ING said Monday it would sell off its insurance operations and raise up to 7.5 billion euros (11.25 billion dollars). As Kroes heads towards the end of her tenure in the plum competition job, she has made a concerted drive to rein in banks previously considered "too big to fail."
Germany's Commerzbank has already been forced to shed 45 percent of its balance sheet after it received aid from the German state, which now owns 25 percent of the group. And Belgium's Dexia, like ING, was also yellow carded by the commission this month for announcing to markets the early repayment of debt without first alerting European competition authorities.
Dexia - itself under investigation for nearly eight months - and ING have between them announced over one billion euros of such repayments. Bankruptcy is no longer taboo, in the commission's eyes - with one banking source saying it is "frightening" what is happening with ING.
Stock markets seemed to agree. Shares in the banks concerned fell following Brussels' announcements. Kroes has long had the two biggest British bank rescues - Royal Bank of Scotland and Lloyds Banking Group - in her sights. Lloyds is expected to face a forced reduction in its share of the retail banking market from 30 percent to 25 percent, with the disposal of more than a seventh of its 3,000 branches, Britain's Independent newspaper reported on Wednesday.
RBS, which is 70 percent owned by the taxpayer after it was saved from collapse by a government bailout last year, is also working on plans to sell off several hundred branches. RBS had to be rescued after it was ravaged by the credit crunch and weakened by its 2007 take-over of Dutch group ABN Amro at the top of the market. Last year, it recorded Britain's biggest ever corporate loss of more than 24 billion pounds (26 billion euros, 38 billion dollars).