The bank always been profitable and already significant equity before the transfer, by virtue not least of the invested by the Bavarian savings banks and by private companies from 1991 onwards.

It agrees with the Commission that the risk attaching to a participation is higher than that attaching to a traditional bank loan.

In addition, unlike in the WestLB case, the Commission does not regard as justified a premium on account of the much larger amount for HLB.

The Commission concludes therefore that the participation and the two guarantees constitute state aid within the meaning of Article 87(1) of the EC Treaty and that the two guarantees were not provided under an approved aid scheme.

In its view, the fact that part of the remuneration is variable is irrelevant as this is common in the case of participations and corresponds to the behaviour of a market economy investor.

and ‘perpetuals’ had been recognised as core capital in Germany since 1991.

The participation and the guarantee for Biria GmbH (now Biria AG) shall be discontinued within two months following notification of this decision.

In response to a request from the Commission, Germany submitted a table showing the trend of and other hybrid core capital instruments for selected large banks in the private sector from 1998 to 2003. Germany argued that this made it clear that the institutions listed had also taken up hybrid core capital beyond the 15 % limit set for banking supervisory purposes, and the extent to which they had done so, since the proportion of total core capital accounted by such instruments exceeded 15 %.

The Commission agrees here with Germany's view that the limited duration or withdrawability of a silent partnership contribution is, neither from the company law nor banking supervision points of view, a necessary characteristic feature for the recognition of a as core capital pursuant to Section 10(4) of the German Banking Act.

First, such were made available by an investor for a limited period only.

Having examined the economic nature of the IBG Fund participations, the Commission identified the following possible differences between standard debt instruments and the IBG Fund silent participations:

The IBG Fund provides further arguments to demonstrate similarities between its participations and loans as regards the conditions for terminating the contract.

The IBG Fund presents further arguments to demonstrate similarities between the information and ownership and change-of-control clauses of the IBG Fund participations and those of debt instruments.

It can therefore be concluded that the IBG Fund participations do not constitute State aid to the target enterprises within the meaning of Article 87(1) of the EC Treaty,

The IBG Fund explains the remuneration structure of its participations, in order to demonstrate that fixed remuneration is the dominant component of the total annual remuneration of 13 %.

Account was taken of the fact that the IBG Fund participations, similarly to debt instruments, do not bear the full exit risk as do equity investors [14].

The Commission finds that the German authorities and the IBG Fund have demonstrated that the IBG Fund participations are typical silent participations and are therefore considered to be debt instruments under the relevant German legislation (civil law, accounting law and tax law) and under the International Accounting Standards (IAS).

silent participations (stille ) (hereinafter IBG Fund participations) of up to EUR 5 million per enterprise, effected by the IBG Fund on its own, independently of private investors, and held for up to 10 years;

The Commission has examined the IBG Fund participations in the light of Article 87 of the EC Treaty.

The Commission has taken into consideration that the differences in the terminology merely reflect the specific nature of the IBG Fund participations as compared to standard debt instruments.