Anstaltslast, translated as maintenance obligation by Moody’s and institutional obligation by Fitch, means that the public sector sponsor (the Anstaltsträger) is obliged to supply the public law institution (the öffentlich-rechtliche Anstalt) it owns with the financial means the institution requires to be viable for the entire duration of its existence. This includes provision such that a public-law bank can pay its debts at all times. Under the Gewährträgerhaftung (guarantee obligation or guarantor liability) the guarantors have an unlimited joint and several liability to the creditors of the bank to meet any obligations it does not meet out of its own assets. With a Gewährträgerhaftung, but not with an Anstaltslast, the sponsors have a direct obligation to the creditors of the bank.
A report by Moody’s therefore finds that: “Gewährträgerhaftung is broadly similar to an indemnity or deficiency guarantee, since the guarantee obligor is fully liable for the unmet obligations of the institution.” As such, the Gewährträgerhaftung is significantly harder to defend. In November last year the Deutsche Sparkassen-und Giroverband (DSGV) indeed considered the possibility of fading out the Gewährträgerhaftung in an appropriate period of time.
But Karl-Heinz Boos, member of the executive board at the Association of German Private Banks, considers this to be a spurious suggestion. “They can easily abandon the Gewährträgerhaftung. A creditor never comes in the situation to claim repayment because the Anstaltslast makes sure the owner injects more capital when the bank is in difficulties.”
The secretary general at the Verband öVentlicher Banken (VÖB), the Association of German Public Service Banks, Bernd Lüthje, agrees that the Anstaltslast is of real structural importance. Without Anstaltslast, there can be no public law institutions. “Anstaltslast is intrinsically linked to our ownership structure, and its abandonment or fading out is not up for discussion”, he says. “If the legal understanding of the complaint were correct it would imply that the public entrepreneur (the öffentliche Hand) could only organize its business activities within a legal form of limited liability, which is clearly stated to be unlawful in the EU treaty on the neutrality with respect to the choice of how a state organizes its public sector.
“We will not implement any changes that are not based on the law,” continues Lüthje. “We will defend our German ownership structures which Brussels cannot touch.”
The Sparkassen and Landesbanken voice their objections in the Koch-Weser group that is developing a German government proposal to the EC. Because of their influence, analysts would be surprised if the group produced an acceptable solution for the EC straight away.
If the German government does not manage to suggest its own preferred solution, the EC can then propose appropriate measures but these only constitute a recommendation.
If these measures are accepted by Germany, the EU then merely monitors their implementation. If the state refuses the proposed measures the commission can initiate a formal state aid investigation, which can end with a decision to declare the aid incompatible with EU law and to request its amendment or abolition.
From that moment on, the existing aid becomes illegal.
“But the EC cannot implement its decisions,” points out Otto Dichtl, analyst at Moody’s. “What the commission could do to Germany is to levy fines, or take it to the European courts.”
“Such a scenario of an endless dispute is unlikely,” finds Gerry Rawcliffe, head of investment grade credit research at Dresdner Kleinwort Wasserstein, “since the federal government does show some spirit of compromise. However, in the individual regions it could be very different.” It is not the German government but rather the federal states that have to implement any changes, because the savings and Landesbanken fall under federal state jurisdiction.
There looms a potential legal nightmare if the federal states – having not signed the EU Treaty of Rome – are unwilling to cooperate.
If the Länder fail to implement a EC decision, the EC has to take the German government to the EU court of justice. The German government, however, will find it hard to completely ignore the demands of the Länder, because they could theoretically take the German state to the Federal Constitutional Court, which would investigate whether the EU treaty is compatible with the German constitution.
Before a dispute lands at the EU court of justice, it would have to go through lower courts. That could easily take a decade. An inquiry into the recapitalization of WestLB by transferring housing assets, the Wohnungsbauförderungsanstalt, from Nord-Rhine Westphalia, started way back in 1989. In 1999 the EC decided that WestLB should pay back Dm1.6 billion – to re-establish the competititve conditions as they were before the illegal aid was paid. To date, WestLB has not complied, and now faces a total payment of Dm2.9 billion. Last year, the EC took the German government to court for failing to execute its decision.
Risk managers at leading banks have, from time to time, pondered possible crises that might cause a break-up of European monetary union, or the EU, often linked to the expulsion of a recalcitrant, profligate sovereign debtor. It would be extraordinary if an obscure legal bust-up over state banks in Germany were to prompt such a crisis. That is a possible, albeit extremely unlikely, end game. “Since the EC cannot physically enforce their payment, in the end some kind of deal has to be reached, or the dispute will end in the break-up of the Union, which all sides will pull back from,” conclude analysts at Fitch.
But any form of legal dispute – it is not a formal procedure yet – will prolong the process. This will only be prevented if a solution can be found that both the EC and the federal states can live with, most likely one involving a long transition period. The deadline for a proposal from Germany is the end of March.
