EU probes German aid to HSH Nordbank

The EU on Friday announced it will investigate €3.0 billion in state aid given by German authorities to HSH Nordbank, citing "doubts" over their compatibility with European competition rules.

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Competition watchdogs are re-opening the case having given "six-month temporary approval" at the end of May for a recapitalisation worth 4.5 billion dollars and an additional €10-billion "risk shield."

The European Commission will probe "whether the rescue measures are capable of restoring the long-term viability of HSH Nordbank and whether they are compatible with the commission's state aid rules on impaired asset relief," said competition commissioner Neelie Kroes in a statement.

The statement said there were "doubts as to the compatibility of the measures... in particular as regards the eligibility and valuation of assets covered by the risk shield and remuneration of the Länder (German states) for the risk shield provided."

The guarantees were put up by regional German authorities in Hamburg and Schleswig-Holstein to the fifth-largest German regional state-backed Landesbank under a recapitalisation plan put to the EU for clearance in September.

Experts will seek to define whether the bank's plans accurately assess and value "foreseeable losses" and establish the "real economic value of the illiquid assets."