Commission Decision of 26 February 2010 on State aid C 9/09 (ex NN 49/08, NN 50/08 and NN 45/08) implemented by the Kingdom of Belgium, the French Republic and the Grand Duchy of Luxembourg for Dexia SA (notified under document C(2010) 1180) (Only the French text is authentic) (Text with EEA relevance) (2010/606/EU)

ANNEX I U.K. COMMITMENTS OF THE MEMBER STATES CONCERNED NOTIFIED TO THE COMMISSION ON 9 FEBRUARY 2010

Behavioural commitments U.K.

1. Unless otherwise specified, the commitments below, with the exclusion of the commitment under point 7 below, shall apply until 31 December 2014. U.K.

2. Until 31 December 2011, Dexia SA and the subsidiaries over which it exercises exclusive or joint control (‘Dexia’) shall not make any acquisition of more than 5 % of the share capital of other credit institutions or investment firms (within the meaning of Directive 2004/39/EC of 21 April 2004 on markets in financial instruments) or insurance companies, unless authorised to do so by the Commission. U.K.

The commitment above shall not impede the acquisition by Dexia, subject to the prior agreement of the Commission, of a holding, as remuneration for a contribution of holdings or business activities carried out as part of a divestment or pooling (by merger or contribution) of assets or business activities, provided that, in such a case, this holding does not confer on Dexia the exclusive or joint control of the entity receiving the contribution or resulting from the merger.

Dexia shall inform the Commission in advance of any acquisition plans, including any plans considered by undertakings over which Dexia exercises joint control.

3.

(a)

Dexia shall refrain from lending to its PWB customers at a level of risk-adjusted return on capital (‘RAROC’) below 10 %. The RAROC shall be calculated as the ratio between the net margin after tax and the economic capital. Within the meaning of this commitment letter:

(i)

the gross margin is the difference between the margin invoiced to the customer (expressed in basis points above the IBOR reference rate) and Dexia’s funding cost (expressed in basis points above the IBOR reference rate) represented by the internal transfer price;

(ii)

the internal transfer price will reflect the estimated cost of Dexia’s new funding, taking account of the characteristics (maturity, eligibility for funding by covered bonds, etc.) of the loans to PWB customers;

(iii)

the net margin is equal to the gross margin less (i) costs of all kinds (overheads, salary costs, operating costs, amortisation and depreciation, etc.) estimated on the basis of the observation of the costs of lending to PWB customers, (ii) cost of average risk calculated for each transaction in accordance with the Basel II methodology (cost of average risk over a long period) and (iii) a tax charge. The economic capital is calculated in accordance with the Basel II methodology.

(b)

An independent expert shall be appointed, in accordance with the terms and conditions set out under point 17 below, to verify every six months that:

(i)

the RAROC within the meaning of this commitments letter and its components (costs of new funding, overheads, wage costs, operating expenses, amortisation and depreciation, cost of risk, tax charge, etc.) reflects the contribution of the activity of lending to PWB customers to the profitability of the group;

(ii)

The calculation of the RAROC is correct; and

(iii)

The methodology is respected.

(c)

The independent expert shall verify every six months that the commitment entered into under point 3(a) is respected.

(d)

The independent expert shall have access to Dexia’s internal rules of procedure, specifying and generalising the use of the RAROC (within the meaning of this commitments letter) and to the list and conditions of each loan granted by Dexia to its PWB customers.

4. Dexia shall end the intra-group finance currently made available to its Turkish subsidiary DenizBank by 30 June 2011 at the latest and shall not grant it any new financing until 31 December 2014. U.K.

5. Dexia shall reduce the proportion of short-term funding in its balance sheet and shall lengthen the average maturity of its long-term funding. Compliance with this commitment shall be assessed overall by means of three quantitative indicators. In this context: U.K.

(a)

Dexia shall maintain the ‘short-term funding/total balance sheet’ ratio defined in Annex II to this decision, at 30 % at 31 December 2009, at a level below or equal to 23 % at 31 December 2010, below or equal to 20 % at 31 December 2011, below or equal to 14 % at 31 December 2012, below or equal to 13 % at 31 December 2013 and below or equal to 11 % at 31 December 2014. For the purposes of this commitment, the ratio shall also be monitored as an annual average over the entire reference period.

(b)

Dexia shall lengthen the maturity of its funding and shall reduce its duration gap by maintaining the average term of the liabilities of the group as defined in Annex II to this decision, at a level above or equal to the levels below:

(years)
31.12.2009	31.12.2010	31.12.2011	31.12.2012	31.12.2013	31.12.2014
[…]	[…]	[…]	[…]	[…]	[…]

(c)

Dexia shall increase its stable sources of funding. A ratio shall be calculated, with the numerator equal to the sum of the funding in the form of covered bonds and the funding in the form of RCB and PWB commercial deposits and with the denominator equal to the sum of all the assets of the Dexia group. This ratio, equal to 36 % at 31 December 2009, must be above or equal to 40 % at 31 December 2010, above or equal to 45 % at 31 December 2011, above or equal to 53 % at 31 December 2012, above or equal to 55 % at 31 December 2013 and above or equal to 58 % at 31 December 2014.

6. Until 31 October 2014, Dexia: U.K.

(i)

shall not use its status as a bank with a guarantee by the States for some of its commitments for commercial advertising purposes in relation to third parties other than third party beneficiaries; and

(ii)

shall not use the guarantee for purely arbitrage transactions.

7. By 30 June 2010, Dexia shall establish a reporting line known as ‘Legacy Portfolio Management Division’. The assets allocated to this line shall be placed in run-off or sold under the commitment set out under point 13(n) below. These assets shall be the following: (i) the CSP/PSP portfolios (estimated at approximately EUR 134 billion at 31 December 2009), (ii) the FP portfolio (estimated at approximately EUR 10,7 billion at 31 December 2009) and (iii) the non-core PWB loans portfolio (estimated at approximately EUR 17 billion at 31 December 2009). The funding raised by Dexia with the funding guarantee shall be allocated in full to this line. U.K.

8. Dexia shall limit the amount of: U.K.

(a)

any form of dividends distributed by Dexia SA in respect of its ordinary shares; and

(b)

any discretionary early repayment or payment of coupons on hybrid Tier 1 instruments or Tier 2 instruments (i) issued by entities over which Dexia has exclusive control (ii) held by persons or entities other than Dexia SA and its subsidiaries and (iii) the payment or exercise of which is discretionary by virtue of the contractual provisions covering these instruments;

so that, after the distribution or the payment under consideration (and taking account of any payments which have become mandatory on account of the payment of a dividend in respect of ordinary shares), the Dexia group’s Core Tier 1 (calculated by reference to the latest consolidated annual accounts prepared in accordance with IFRS).

(i)

remains above or equal to the level below:

31.12.2009	31.12.2010	31.12.2011	31.12.2012	31.12.2013	31.12.2014
10,7 %	10,6 %	[…] %	[…] %	[…] %	[…] %

(ii)

and remains above or equal to the sum of:

(i)

12,5 % of the risk-weighted assets of the Legacy Portfolio Management Division, as defined in point 7 above; and

(ii)

9,5 % of the risk-weighted assets of the other activities of the group (the ‘Core Division’).

The commitment above:

(i)

shall be without prejudice to the distributable profit requirement (within the meaning of Article 617 of the Belgian Companies Code) at Dexia level;

(ii)

shall be without prejudice to the operations which Dexia shall be legally required to undertake in respect of hybrid Tier 1 or Tier 2 instruments or operations which Dexia shall be required to undertake in relation to such instruments by virtue of contracts concluded before 1 February 2010;

(iii)

shall be revised in the event of significant change in the definition of the prudential own funds and accounting standards applicable to Dexia; and

(iv)

shall apply to any distribution made up to 31 December 2014.

9. Moreover, without prejudice to the operations which Dexia may be legally required to carry out, or the operations which it may be required to carry out by virtue of contracts concluded before 1 February 2010, relating to hybrid Tier 1 or Tier 2 instruments, Dexia shall refrain until 31 December 2011 from: U.K.

(a)

making any payments of coupons on hybrid Tier 1 or Tier 2 instruments held by persons or entities other than Dexia SA and its subsidiaries, the payment of which is discretionary by virtue of the contractual provisions covering these instruments;

(b)

approving or voting in favour of the payment of any form of dividend by any entity over which Dexia SA directly or indirectly exercises exclusive control (including entities which it fully owns) when such a payment would involve an obligation to pay a coupon on hybrid Tier 1 or Tier 2 instruments held by persons other than Dexia SA and its subsidiaries; and

(c)

exercising a discretionary early repayment option for the hybrid Tier 1 or Tier 2 instruments referred to in point (a) above.

Dexia SA shall refrain from the distribution of dividends on its ordinary shares until 31 December 2011. This prohibition shall not apply to distributions of dividends made entirely by the allocation of new shares, provided that the amount of these distributions is (i) in accordance with point 8 above and (ii) below or equal to 40 % of the net result made by Dexia SA for the financial year 2009 as regards the distributions made in 2010 and below or equal to 40 % of the net result made by Dexia SA for the financial year 2010 with regard to the distributions made in 2011.

10. Dexia shall continue to implement the principles of remuneration agreed by the G-20 and the national bodies concerned regarding the remuneration of members of the Management Board and the Executive Committee of Dexia SA and of the main operating entities of the Dexia group. U.K.

11. In accordance with the restructuring plan submitted on 17 December 2009, Dexia: U.K.

(a)

under its new turnover policy, shall limit new PWB turnover to EUR 12 billion in 2009, EUR 15 billion in 2010 and EUR 18 billion from 2011 to 2014;

(b)

shall reduce its operating costs by 15 % by 31 December 2012;

(c)

in its trading activities, shall ensure that it does not take risks on its own account which would not be in line with the objective of returning to viability on the basis of prudent management. Consequently, Dexia shall reduce its trading activities (44 % reduction in terms of value of average annual risk, which amounted to EUR 126 billion in 2008) and shall cease its proprietary trading activities from the date of the Commission Decision;

(d)

shall definitively waive the benefit of the Dexia BIL convertible bond for an amount of EUR 376 million, to which Luxembourg had undertaken to subscribe in September 2008, with immediate effect from the date of the Commission Decision.

Funding guarantee U.K.

12. Dexia’s recourse to the funding guarantee, as extended by the addendum of 14 October 2009 (‘the Guarantee’) shall be limited under the following conditions: U.K.

(a)

The possibility for Dexia to make use of the Guarantee shall be ended for all deposit contracts concluded as from 31 March 2010;

(b)

The possibility for Dexia to make use of the funding Guarantee shall be ended for all short-term issues (at less than one year) as from 31 May 2010;

(c)

The possibility for Dexia to make use of the funding Guarantee shall be ended for all issues floated or contracts concluded as from 30 June 2010;

(d)

The total outstanding amounts guaranteed may at no time exceed EUR 100 billion;

(e)

During the period covered by the guarantee, Dexia shall pay the States additional remuneration on any amount exceeding the following thresholds of outstanding amounts guaranteed:

Threshold/tranche (outstandings guaranteed in EUR billion)	[60-70]	[70-80]	[80-100]
Additional remuneration for excess in basis points	+ 50	+ 65	+ 80

Divestments and run-offs U.K.

13. Dexia shall undertake the divestments of the assets according to the list and schedule set out below: U.K.

(a)

Divestment or stock exchange flotation of the group’s 70 % stake in its Italian subsidiary, Crediop, by 31 October 2012. Under point 15 of the Bank Restructuring Communication, Dexia shall not be required to sell its stake in Crediop at an excessively depressed price (less than […] times the book value in 2010 and 2011 and […] times the book value in 2012).

(b)

Divestment by 30 June 2010 of Dexia Epargne-Pension (DEP), French subsidiary of DIB (Dexia Insurance Belgium), which operates in the fields of life assurance and collective insurance. The sales agreement was signed on 9 December 2009 and the sale should be completed during the first half of 2010.

(c)

Divestment or stock exchange flotation by 31 December 2010 of Dexia’s 51 % stake in AdInfo, a subsidiary active in the provision of IT services to local authorities in Belgium.

(d)

Divestment of Dexia’s stake in SPE by 31 December 2010.

(e)

Divestment of Dexia’s 20 % stake in Crédit du Nord. This divestment took place on 11 December 2009 (actual transfer of the securities and cash).

(f)

Closure by 2010 of about 80 branches in Belgium under the new group distribution model.

(g)

Cessation of the following activities of RCB International:

(i)

the divestment of Experta Jersey, the run-off of Dexia PB Jersey, the cessation of Montevideo’s PB activities, the cessation of the PB development project in Singapore, the cessation of the consumer finance project in Russia and the cessation of the activities of Dexia Asset Management (DAM) in the countries of Central and Eastern Europe and the divestment of the trust activities of Experta in Switzerland were carried out in 2009 and early 2010;

(ii)

the divestment of Experta’s trust activities in the Bahamas and the divestment of the Danish subsidiary of Dexia BIL, which engages in asset management, private banking and market activities/structuring are to be realised by 31 December 2011.

(h)

Divestment or stock exchange flotation by 31 October 2012 of Dexia’s stake in its Slovak subsidiary Dexia Banka Slovensko (DBS). Under point 15 of the Bank Restructuring Communication, Dexia shall not be required to sell DBS at an excessively depressed price (less than […] times the book value in 2010 and […] times the book value in 2011).

(i)

Cessation and run-off of the following PWB international activities:

1.

India: sale of the entity carried out in 2009;

2.

Switzerland (Dexia Public Finance Switzerland) and Sweden (Dexia Norden): closure and liquidation by 31 December 2010;

3.

Mexico, Australia and Japan: run-off of the balance sheet and staff cuts. The Mexican entity was closed in 2009 and its assets were transferred to DCL New York where they are placed in run-off; the workforce in Japan and Australia was halved in 2009 and the related activities will be placed in run-off.

(j)

Divestment of FSA (finalised on 1 July 2009) then divestment of Dexia’s holdings in Assured Guaranty (AGO) by 31 December 2011.

(k)

Divestment of the group’s 49 % stake in Kommunalkredit Austria (KA), which took place in the fourth quarter of 2008.

(l)

Divestment or stock exchange flotation of Deniz Emeklilik, the insurance subsidiary of DenizBank by 31 October 2012.

(m)

Divestment of the group’s 60 % stake in Dexia Sabadell by 31 December 2013.

(n)

Fast-track divestment of Dexia’s bond portfolio at the rate of EUR [10-20] billion per year in 2010 and 2011, EUR [5-15] billion to EUR [10-20] billion in 2012, EUR [0-10] billion to EUR [5-15] billion per year in 2013 and 2014.

(o)

In accordance with the restructuring plan submitted on 17 December 2009, run-off of the Standby Bond Purchase Agreements (SBPA) and Tender Option Bonds (TOB) activities (USA/Canada).

The divestment commitments listed in points (a) to (n) above shall be deemed to have been met when Dexia and the purchaser have concluded a binding, definitive agreement (i.e. an agreement which cannot be cancelled unilaterally by Dexia without payment of a penalty) for the divestment of Dexia’s entire holding in the entity or asset concerned, even if all the authorisations or declarations of non-objection have not yet been obtained from the competent supervisory authorities when the agreement is signed.

14. The divestments of assets described under point 13 above, and the amortisation of Dexia’s assets and liabilities shall lead to the following results: U.K.

(a)

The 35 % reduction in Dexia’s total balance sheet by 31 December 2014 compared to its amount at 31 December 2008, under the conditions and according to the accounting conventions described in the additional measures of Dexia’s restructuring plan notified to the Commission on 17 December 2009. In absolute value, the total balance sheet shall be reduced from EUR 651 billion at 31 December 2008, to EUR 580 billion at 31 December 2009, EUR [510-550] billion at 31 December 2010, EUR [485-545] billion at 31 December 2011, EUR [425-490] billion at 31 December 2012, EUR [405-465] billion at 31 December 2013 and EUR 427 billion at 31 December 2014, i.e. a reduction of EUR 224 billion. These amounts will have to be corrected for the trend in the market value of the derivatives recorded in Dexia’s balance sheet if this trend differs from that described in Dexia’s restructuring plan and provided that such a divergence does not result from a significant rise in the notional amount of these derivatives.

(b)

The total balance sheet of the Core Division shall amount to EUR [390-410] billion at 31 December 2010, EUR [385-415] billion at 31 December 2011, EUR [345-380] billion at 31 December 2012, EUR [335-365] billion at 31 December 2013 and EUR 353 billion at 31 December 2014, i.e. a reduction in the order of 45 % in relation to the group’s total balance sheet at 31 December 2008. The annual trend in sizes of the balance sheet of the activities of the Core Division and Legacy Portfolio Management Division respectively shall be consistent with the description given in Annex II to this decision.

Agent responsible for the sale U.K.

15.

(a)

In the absence of compliance with any of the asset divestment commitments referred to under points 13(a), 13(c), 13(d), 13(h), 13(l) or 13(m) within the time limits set above, and in the absence of approval of an alternative commitment by the Commission, the French, Belgian and Luxembourg authorities shall submit for prior approval by the Commission, no later than one month after the time limit set for the sale, a list of one to three persons, selected in agreement with Dexia, for appointment as agent(s) responsible for carrying out the aforementioned sales.

(b)

The agent responsible for the sale must be independent, possess the required skills and may not be exposed to conflicts of interest when performing his task.

(c)

The Commission may either approve or reject the agent(s) proposed. If the Commission rejects the agent(s) responsible for the sale proposed, Dexia and the French, Belgian and Luxembourg authorities shall propose, within one month of communication of the rejection, one to three new candidates who shall also have to be approved or rejected by the Commission. If all the candidates proposed are finally rejected by the Commission, the latter shall designate an agent, whom Dexia shall appoint or contribute to appointing, on the basis of a mandate approved by the Commission.

(d)

The French, Belgian and Luxembourg authorities undertake that Dexia shall grant the necessary and appropriate powers of attorney to the agent responsible for the sale:

(i)

to carry out the sale of the assets referred to in point (a) above (including any necessary powers to ensure satisfactory execution of the documents required to carry out the sale); and

(ii)

to perform any action or make any declaration necessary or appropriate to carry out the sale, including the appointment of advisers to accompany the sale process.

(e)

The agent responsible for the sale shall include in the contract(s) of purchase and sale the usual, reasonable terms and conditions he considers appropriate to conclude the sale in the year following his appointment. The agent responsible for the sale shall organise the sales process in such a way as to ensure a divestment […].

(f)

The costs of the services of the agent responsible for the sale shall be paid by Dexia.

Implementation U.K.

16. If a change occurs in the control of Dexia, the Commission may decide that some or all of the commitments set out above cease to apply. It shall take account of the effect of the proposed change on the long-term viability and competition and, in particular, shall apply the principle that the sale of the beneficiary of aid to a competitor in itself constitutes a form of compensation for any distortions of competition. U.K.

17.

(a)

The Belgian, French and Luxembourg authorities shall submit to the prior approval of the Commission, and at the latest one month after this final decision, a list of one to three persons, chosen in agreement with Dexia, to be appointed as independent expert responsible for detailed verification of the application of the commitments above (the ‘independent expert’).

(b)

The independent expert must have the required skills and may not be exposed to conflicts of interest when performing his task.

(c)

The Commission may either approve or reject the independent expert(s) proposed. If the Commission rejects the independent expert(s) proposed, Dexia and the Belgian, French and Luxembourg authorities shall propose, within one month of communication of the rejection, one to three new candidates who shall also have to be approved or rejected by the Commission.

(d)

If all the candidates proposed are finally rejected by the Commission, the Commission shall designate an ‘independent expert’.

(e)

The costs of the services of the independent expert shall be paid by Dexia.

18.

(a)

Throughout the restructuring plan, the Commission shall have unrestricted access at all times to the information necessary to implement its decision approving the restructuring plan. With the agreement of the Belgian, French and Luxembourg authorities, it may apply to Dexia directly to obtain the required explanations and specifications. The Belgian, French and Luxembourg authorities and Dexia shall provide full cooperation with regard to all the verifications which the Commission or, where appropriate, the independent expert may request.

(b)

The independent expert, in cooperation with Dexia, shall submit a half-yearly report to the Commission on the implementation of the commitments above. This report shall include a detailed account of the progress in the implementation of the restructuring plan and shall cover in particular: (i) the reduction in the size of the balance sheet as provided for in point 14 above, (ii) the liquidity and funding ratios as provided for in point 5 above; (iii) compliance with the RAROC commitment during the previous six months provided for in point 3 above; (iv) the divestments and closures of activities provided for in point 13 above, including the date of the divestment or closure, the book value of the assets at 31 December 2008, the value of the divestment, the capital gains or losses made and the details of the measures still to be implemented under the restructuring plan. This report shall also include the cost components and the calculation of the RAROC (mentioned in point 3 above) applicable for the six months following the submission of the report. This report shall be submitted no more than one month after the presentation of the half-yearly accounts and the approval of the annual accounts and in any event before 1 October and 30 April of each year.

(c)

If, in his report presented before 1 October of each year, the independent expert considers it possible that the annual objectives provided for above may not be attained at the end of the year in progress, the Belgian, French and Luxembourg authorities shall present to the Commission, within a month of submission of the report, the measures planned with Dexia to enable these objectives to be attained by the appropriate means before the end of the year.

(d)

If, in his report presented before 30 April of each year, the independent expert finds that the annual objectives provided for above have not been attained, the Belgian, French and Luxembourg authorities shall present to the Commission, within a month following the submission of the report, the measures planned with Dexia to enable these objectives to be attained by the appropriate means before 30 June of the current year.

19. If the measures envisaged under points 18(c) and 18(d) above are not presented within the time limit laid down or if the objectives are not attained by 30 June (concerning the measures presented, where appropriate, after the report to be filed by 30 April), the Commission may, pursuant to Regulation (EC) No 659/1999, reopen the formal investigation procedure. […] U.K.

Revision of the commitments U.K.

20. On the basis of a duly substantiated request by France, Belgium and Luxembourg, the Commission may: U.K.

(a)

authorise Dexia to delay the divestment of one or more assets referred to in point 13 above; or

(b)

authorise Dexia to substitute for the divestment of one or more assets referred to in point 13 above a divestment of assets representing an equivalent proportion of Dexia’s balance sheet; or

(c)

decide that one or more of the commitments set out above no longer applies;

(d)

take account of Dexia’s ability to cover its short-term funding need by mobilising its asset reserves eligible for repos if one or other of the indicators defined in point 5 is not achieved.

21. The Commission may take one of the decisions mentioned in the previous paragraph if it considers that such a decision is necessary, for example to maintain effective competition in the market or to restore financial stability in the event of a lasting financial or economic crisis, or if the trend in the economic environment, and notably the exchange rates, or accounting and prudential rules, so justify. U.K.

Competition and transparency regarding the bank loans of the local authorities U.K.

22. With a view to boosting competition and transparency still further regarding local authorities’ bank loans, France undertakes to ensure that the local authorities develop their competitive procurement practices when procuring money or capital. U.K.

The State shall expressly issue recommendations along these lines to the local and regional authorities before the end of 2010, concerning both bank finance and the use of complex financial products.

These recommendations shall stress the inherent economic interest, in this sector, of implementing competitive procurement measures and shall indicate the different practical arrangements under which these measures can be implemented. The good practices advocated shall provide for the public nature of the competitive procurement for the largest borrowings.

These recommendations shall be brought to the attention of the departments responsible for providing the local and regional authorities in particular with assistance and advice. If these recommendations were to prove insufficient to ensure by 2013 the generalisation of transparent, non-discriminatory calls for tender by the local authorities for bank finance, France undertakes to make proposals for legally binding measures to this effect.

23. With a view to boosting competition and transparency still further regarding local authorities’ bank loans, the Belgian Government, in agreement with the Regions, undertakes to monitor the publication by the contracting authorities of contract award notices relating to the financing of the local public authorities. U.K.