egs of merger wpis:
– to preserve financial stability, when a toobigtofail bank is in trouble, gov may impose an emergency to; or a bailin; or subsidies; or nationalisation.
<> padi can challenge nationalisations [expropiations] , on the basis that, instead of expropriation, a merger should have been cleared…expropriations result in taxpayers losing ew, as they need to pay more, than if a merger was cleared.
-local or national employment…… a merger may generate jobs.
banking emergency tos, are anticomp uas. balancing is needed between: cl v banking regulation
106.2 tfeu: eu may not prevent undertakings from providing an SGEI…so, if a merger is needed for an undertaking to render an SGEI, the merger should be cleared.
SGEI = [private services of general economic interest]eg royal mail, nat.rail, energy, comms.etc. Current eu state aid rules for SGEIs, allow exemptions from state aid control, for up to 500k, as they are asumed not to affect competition in eu…...[ <> padi can challenge this asumption]
as a result from the 2008 fincrisis, eu introduced 2 directives: brrd, and srm, giving public authorities powers of compulsion of sale of a bank that is a ‘likely failure’, or sell parts of it, to a willing private buyer…. since these 2 directives are silent about the eumr not applying to the mandatory sale, the eu mcr applies. These 2 directives only set aside the memberstates mcr.
however, it would be best , for fin stability, that a bank, or parts of it, are sold, before the bank is a ‘likely failure’ , so that the public authorities cannot exercise the mandatory sale power.
lloyds/hbos emergency t.o. case:
is an emergency to, imposed by gov forcing lloyds tsb to acquire hbo in 2009.
in the 2008 crisis, hbos share price fell by 40%, but it was a bank ‘toobigtofail’. the merger did not fall under eu mcr, since more than 2/3 of the turnover of both banks[undertakings] was in the uk. unlike the eu mcr, the uk mcr does not require mandatory notification (to cma) for mergers that may affect a list of 17 wpis listed in the EA (enterprise act), thus, there was no standstill requirement for this merger. instead, the cma just issued a report to sosbib..[the cma report concluded that the merger would significantly lessen competition in the personal accs market; the scottish banking market for smes, and the mortgage market.]…then, the law was changed just to clear this merger. before this date, only national security and media plurality, were wpis that could allow sosbib to issue an IN…. now, there are 17 wpis…..and the new law allows the uk chancellor (fin minister), to set aside the merger control regime [mcr], because it would not have passed the siec test.
then, the chancellor, min of fin, issued an in (intervention notice)to the cma, to clear the merger on one of the new 17 wpi grounds: maintining the stability of the uk fin.system.
other countries’ compauths also assessed this merger: spain, netherlands, germany, ireland and usa.
the chancellor gave these ejwpis to justify this (private) emergency, rescue merger.:
- enhancement of fin.stability
- improved confidence: this could also have been achieved by gov. support, or by a private t.o.
- improved business model: hbos buiness model was dependent on wholesale funding. it gave out more funds than it received (from depositors), and had to borrow liquidity from large, wholesale lenders. it also had significant exposure to the mortgage market. this was unsustainable when the wholesale funding market dried up after the lehman brothers collapse. Therefore, a merger with a bank that has a good business model makes more sense than expropriation, or gov.capital injection.
- better capital base: soon after the merger was announced, it became known that the capital of both banks combined, was insufficient. so gov recapitalised them. but this is better (for taxpayer) than gov.support. but such recapitalisation could also have been done without the merger.
- reduced reliance on wholesale funding
- improved credit rating: better bank rating means bank can borrow at lower interest rates. lloyds credit rating would have fallen, had it no been by the gov’s recapitalisation.
- broader business base: lloyds was more diversified, thus less exposed
- addressing funding issues
my opinion:
the only benefit of this merger [over just state support, or expropriation] , was the improvement of the business mode….however, the chancellor did right, because by choosing merger over state support, the taxpayer had less to pay. in expropriations, there is no purchase price [the ‘rightprice’] to be paid by the state; and is a distortion of the free market system.
bank consumers [bank’s creditors] also prefer a merger, because the credit claims are maintained. in fact, large depositors and debt holders may have to contribute to a bank rescue that is saved by the gov, and they also lose their credit claims. this is called bailin by creditors. also, the acquirer (lloyds), value the ailing bank higher than gov. ‘rightprice’ of expropriation. also expropriation costs are higher…..Also, the dep.guarantee.scheme means that the other banks must pay the guaranteed deposits if a bank fails. …so, in expropriation, the other banks are saved from having to pay…but they may be asked to contribute by paying the gov…. these additional costs may be passed to banks’ consumers.
Thus, is much better a merger, than state support or expropriation, for both taxpayers and bank consumers
why did the uk gov prefered forcing an emergency private to, instead of state support, or private rescue measures [eg capital contributions from bank owners; or the bailin of creditors]…or a combination of the above measures, as usual?:
types of state support : additional guarantees for bank debts; new capital injections; the purchase or guarantee of impaired assets; [gov t.o.= nationalisation= expropriation]; private t.o.;
but these do not remedy the fin. wrongs…they just the owners of the ailing bank….only the transfer of liabilities into equity can solve the fin. wrongs…many times, this transfer is only possible via expropriation [the state buys the ailing bank]….but expropriations may escape the mcr.: if expropriations were treated like private acquisitions, it would be subject to the usual mcr…. however, in uk, in expropriations, only the turnover of the PB’s economic unit that gains control, is considered… and if the target co will, post merger, be part of an indep centre of commercial decisionmaking that does not control other business, no turnover of the PB will be considered. …thus, since the cma jurisdictional thresholds are not reached, the expropriation needs not be notified to the cma/ec.
however, expropriations may be more costly for taxpayers, than private t.o.s/mergers.
THE SIEC TEST:
protects consumer/citizen ew, rather than just cl
but…. to be able to get the (private) t.o. allowed, is first needed to apply the mcr’s siec test: [art 2.3 eumr]: ‘a concentration that significantly impedes effective comp in eu, is prohibited’…… Thus, the t.o. is allowed, when its ebwpiua [to taxpayers and bank consumers <> padi’s EEAFOC]] , outweigh:
a. the anticomp effects [cl [eumr], and/or
b. any other law violation, other than cl [eumr],
undertakings that are about to go bankrupt, they can use the failing firm defence FFD, to partly exempt the proposed t.o. from the siec test, so that they have more chances of be allowed, because the postmerger comp will be the same, or better, than the postfailure comp [without the t.o].
the siec test is a counterfactual analysis [=a balancing of anticomp, with, and without, the proposed merger] = would future comp be affected too much if the t.o. is allowed, wrt the situation where it is blocked?….if answer is no, is best to allow it, because if the bank goes bankrupt [no t.o. allowed], there will be the same or even less comp, than if is allowed….this is the FFD. is a prospective analysis (unlike in antitrust=cartel prohibition, where the analysis is retrospective: what would comp have looked like, if the conduct had not occurred?)
ec has rightly rarely acepted the FFD. ….but ec set 3 conditions that ,if met, will make the FFD acceptable. [see pg.232]
my opinion: emergency tos imply a bank toobigtofail. thus, there is no failing firm, because gov.rescue is guaranteed. …thus, the FFD is not suitable for emergency tos , because it fails 2 of the EP conditions…. cma sometimes have accepted the FFD, but their analysis was flawed and failed to apply the 3 ec conditions….the chancellor, in tsbo/lloyds, failed to apply the siec test properly [failed his counterfactual analysis] because by failing to notice that a toobigtofail bank will never be allowed to fail, he grossly overestimated the benefits of the continuance of the target bank.
the benefits that are not dependent on whether a t.o. is allowed or not, cannot be included in the siec test, because they do not require balancing. such benefits are:
- costs avoided due to preventing a systemic risk
- gains in fin. stability
- benefits of the continuance of the ailing bank’s public function.
also, the benfits for society, a private to, over state rescue, must not be included in the siec test, because a toobigtofail bank implies that it has a gov rescue guarantee.
the siec test does not allow for balancing of anticomp harm for consumers. v welfare benefits for non consumers [society at large]…why is not allowed? [to prevent welfare redistribution between citizens…only demolegitimised pbs can make such redistributions]
the siec test does not use the EP, but the CE [commonality exception]:
the CE= the balancing must include the benefits enjoyed by parties that are not anticompharmed consumers, if there is sufficient commonality between these parties, and the consumers harmed by the anticomp….for consumers in different markets, the anticompharm in one of these markets, can be balanced v the benefits in another, as the harmed buyers are also the ones who benefit….due to this commonality, no wealth redistribution happens.
thanks to the comm.exception, these societal benefits can be considered for balancing:
-the change to a more effective bus.model at the ailing bank
-cost savings for the state , and taxpayer, due to the better capital position of the acquiring bank, and
-the avoidance of outofpocket expenses to save the ailing bank.
only the benefits that a t.o. has for consumers, can be considered in the siec test… exception: all benefits for society at large, may be included in the siec test, only if the commonality exemption applies…eg: where all taxpayers are consumers in the market/s affected by the anticomp t.o. [because only then there will be no wealth redistribution between citizens]
On the other hand, if , say, the merger only resulted in higher prices for sme loans, balancing the benefits for taxpayers that are not smes v the anticomp harm for smes, would not be commonality.
the siec test can balance financial stability benefits v anticompharm, but only to the extent that the financial stability benefits are benefits for consumers, and are not limited to improvements in the affected markets, due to the commonality exemption. it is doubtful whether these benefits will suffice to outweigh the anticompharm.
the siec test does not consider benefits that would also materialise in a state rescue. …but, as the benefits for the state cannot be in the siec test, this test may block a merger that is beneficial for society…thus, are there other rms that do consider [for balancing] benefits for the state?…yes:
21.4 EUMR is such a rm: ‘if a eu dimension merger is cleared, but which could harm the legitinterests of a memberstate, such memberstate can take measures to protect itself from such merger.. ….public security, media plurality, and prudential rules, are automatically legitinterests….any other wpis must be communicated to ec for assessment’
but, what does it mean the statemembers may take measures?:
can they both block mergers approbed by ec, and also authorise mergers that are banned by ec?
ec: 21.4 eumr only gives memberstates the possibility to block , not to clear mergers, that infringe their legitinterests…..however, ec does not have the power to interpret eu law. this is the role of the ecj, and ecj has not yet had a chance to decide on this.
may a memberstate clear a merger that violates its legitinterests.?…yes, memberstates can force through mergers that are blocked by ec.
21.4 eurm is not limited to offsetting benefits for harmed bank consumers only. it allows memberstates to consider the benefits for the whole society of a private merger, v a state rescue…. thus, 21.4 eurm is better than the siec test, which is limited to that…
if a memberstate invokes 21.4, to clear a merger, the member would have no duty to mitigate anticomps, nor would the ec have the power to impose this. 21.4 would solve the balancing by hierarchy: the fin.stability wpis, override any anticomps. this is sad, as both the anticomps and the fin.stability wpis, can be reflected in ew terms. thus, a computation of the ew outcome, rather than exclusion, is a better solution to serve the overarching wpi goal of ew.
21.4’s legitimacy argument only applies to states in respect to welfare redistributions in their own jurisdictions…. thus, 21.4 would be more effective if :
1-it allowed for the remedying of anticomps… thus, society’s welfare can be3 maximised by capturing the shourterm benefits of maintaing fin.stability, as well as the longterm benfits of comp, when fin.stability is no longer at stake….first the merger is cleared and finstability is kept. then, the merged entity is required to solve anticomps in the longterm, both inside the state, and outside it. the decison of one member to save its finstability should not disadvantag3e other members.
and
2-it ensured that a member’s decision that forces through a merger, voids the ec prohibition.
conclusion:
21.4 eumr is an adequate rm to balance mcr v fin.stability, only if 1/ and 2/ above are complied…if so, 21.4 is better than the siec test, as it allows a faster decision, and more legal certainty.
THE STANDSTILL REQUIREMENT
= WAITING FOR CMA/EC MERGER APPROVAL, BEFORE IT CAN BE IMPLEMENTED
Emergency/rescue mergers must comply with the standstill, however, since time is of the essence, the standstill may be exempted…7.3 eurm gives ec power to waive the standstill. ec used it on the santander/bradford case.
…… but, if after the merger, the cma/ec decide that it should be blocked, the merger will have to dissolve.