ESA sparks acquisition wave in the Norwegian financial sector?
On 11 March 2020, the EFTA Surveillance Authority (ESA) finally concluded that Norwegian rules applying an ownership ceiling of 20-25 per cent in banks and insurance companies for non-financial institution shareholders is in breach of the EEA Agreement. Norway must ensure compliance within two months.
Pursuant to long-standing administrative practice, no single shareholder has, as a main rule, been allowed to own more than 20-25 percent of the total shares in a Norwegian bank or insurance company, unless the shareholder is itself a financial institution. In addition, in connection with the establishment of any new bank or insurance company, three quarters of the share capital must be placed without preferential rights for existing shareholders. These rules have effectively excluded, among others, private equity funds from acquiring more than 25 per cent of the shares in Norwegian banks and insurance companies.
As set out in our newsletter of 24 April 2019, ESA held in a letter to the Norwegian Government of 10 April 2019 that as a result of the foregoing administrative practices and legislation, Norway has failed to fulfil its obligations arising from Articles 31 and 40 of the EEA Agreement. ESA has now confirmed, in very clear language, its position that ownership ceiling in banks and insurance companies are in breach of the EEA Agreement.
Norway has two months from receipt of the reasoned opinion to take the measures necessary to comply with ESA's reasoned opinion. If Norway does not comply, ESA will bring the case to the EFTA court, which will have the final say.
The Ministry of Finance's previous attempts to delay the ESA process until final adjudication of the Netfonds case by Norwegian courts and consideration of the expert report prepared by law professor Tarjei Bekkedal have, hence, not been successful.
We consider it most likely that the Norwegian Government will now acknowledge that they are fighting a lost cause and, hence, adjust their administrative practice in accordance with applicable EU law (i.e., fit and proper assessment above statutory thresholds of 10 per cent, 20 per cent, 30 per cent and 50 per cent).
ESA's reasoned opinion will open opportunities for takeovers of Norwegian banks and insurance companies. Ending the administrative practice of restricting owners from holding more than 20-25 per cent of the total shares in established banks and insurance companies does not require any legislative steps. It is unlikely that the Ministry of Finance or the Financial Supervisory Authority will be able to continue its practice of rejecting ownership applications above 25 per cent on the basis that the acquirer is not a financial institution, as this could potentially expose the Norwegian Government to lawsuits and claims for compensation of financial loss.
Private equity funds have several times been approved as qualified owners of Norwegian banks (up to 25 per cent), and in accordance with the above it is likely that such funds will in the near future be able to complete takeovers of Norwegian banks and insurance companies.