The Court of Justice of the European Union said on July 19 that the 2013 bail-in of five Slovenian banks was valid and not contrary to EU law, according to the verdict issued at the request of the Slovenian Constitutional Court, which has admitted several applications filed by subordinated bondholders. Thus, based on the latest the court decision, estimated losses of €600m suffered by subordinated bondholders were also legal.
Back in 2013, Ljubljana stepped in to recapitalise several major banks, narrowly avoiding an international bailout. On December 18, 2013, the European Commission approved the restructuring plans for five banks - Nova Ljubljanska Banka (NLB), Nova Kreditna Banka Maribor (NKBM), Abanka Vipa, Probanka and Factor banka. A year later, the EC also approved aid to Banka Celje based on its restructuring plan and its merger with Abanka Vipa. The banks received capital from the government amounting to €3.6bn in 2013 and 2014.
Stabilising the banking sector has been an integral part of the Slovenian government's strategy for the restructuring of the financial sector since late 2013, when the country was hit by the eurozone crisis, following the global recession.
The EU Court said on July 19 that the measures at issue, which were adopted on the basis of the law on the banking sector, included writing off not only equity capital, but also subordinated debt.
The court said it also observes that an EU directive provides, in essence, that any increase or reduction in the capital of a public limited liability company must be subject to a decision by the general meeting of the company. The Slovenian government had cited an EU Banking Communication in support of its decision to wipe out subordinated debt.
“The Court considers that, to the extent that the Banking Communication provides that certain alterations to the share capital of banks do not have to be decided upon or approved by the general meeting, the Banking Communication is not incompatible with that directive," the Court press release reads.
"While the member states may possibly find it necessary, in a particular situation, to adopt such burden-sharing measures without the agreement of the general meeting of the company, that circumstance cannot however call into question the validity of the Banking Communication. Those measures can be adopted only in the context of there being a serious disturbance of the economy of a member state and with the objective of preventing a systemic risk and ensuring the stability of the financial system."
Local media in Slovenia reported that the EU Court had cleared the 2013 bail-in of subordinated bank bonds, deciding that the "burden sharing" was not in violation of EU law.
However, the Pan-Slovenian Shareholders’ Association (VZMD), which has been fighting to restore the rights of shareholders since 2013, sees the court decision as its victory and said that it has become clear that legal wrangles caused by the law should be resolved within the Slovenian judicial system.
“This applies all the more as the most controversial solutions of the law (ZBan-1L) and the specific calculations used by the Bank of Slovenia for emergency measures did not have any substantive basis in the European Commission’s Communication whatsoever (such as retroactivity, deprivation of legal remedies, non-compliance with the International Financial Reporting Standards etc.),” VZMD said in a press release issued on July 19.
The association said its president, Kristjan Verbic, was present for the pronouncement of the judgment in Luxembourg, and that he had already reacted to “some false reports which try to show the significant decision of the European Court of Justice in a different light”.
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