I found the following language in the prospectus filed by Aegon explaining the current process that Aegon is undergoing with the European Commission. Aegon was obliged to submit a viability plan to the European Commission as a result of the emergency aid received by it last year. The Dutch State recently submitted Aegon's plan to the EC who is evaluating it. And here is a source of some potential mischief by the EC. The EC is supposed to determine whether the financial institutions are fundamentally sound or suffering more "structural solvency problems". Wow. I hope ING or Aegon are not tagged with that second classification. If the EC determines Aegon is not structurally sound, it "might expect" Aegon to take other or additional measures in order to find the Dutch aid "compatible with the common market". At any time, the EC might "oblige" the Dutch state to unwind its aid if it "ceases to be compatible with the common market". This is the relevant language in the prospectus:
"As required under European Union state aid rules, the Dutch State notified the European Commission of the issuance by us in December 2008 of EUR 3 billion of non-voting convertible core capital securities to Vereniging AEGON, which was funded by the Dutch State. Last year, the European Commission found the aid provided by the Dutch State to be compatible with the common market, raised no objection against the notified aid and authorized it as emergency intervention in the face of the financial crisis for a period of six months. Emergency intervention is required to be re-evaluated after six months on the basis of a credible and substantiated plan for the long term viability of AEGON. Provided a credible plan is submitted, the authorization of the emergency intervention is automatically prolonged until the European Commission reaches its decision on this viability plan. The European Commission distinguishes between institutions which are fundamentally sound and institutions suffering from more structural solvency problems. Should the European Commission conclude that we do not qualify as a fundamentally sound institution, the European Commission might expect us to take other and additional (restructuring) measures than those currently foreseen in order to find the Dutch State aid compatible with the common market. Should the European Commission conclude that, on the basis of the viability plan or at any time as long as the Dutch State loan to Vereniging AEGON is in place, the Dutch State aid ceases to be compatible with the common market, the European Commission might ultimately oblige the Dutch State to unwind the December 2008 transaction.
The Dutch State recently submitted a viability plan regarding AEGON to the European Commission, which is evaluating the plan. Due to a lack of sufficient certainty about the application of state aid provided to financial institutions in the context of the current global financial crisis, it is not possible to provide additional specificity on either the timing or likelihood of outcome of the European Commission’s evaluation. A failure by the European Commission to reach a final decision on the acceptability of this viability plan within a reasonable timeframe could have a material adverse effect on our business, results of operations and financial condition, primarily due to uncertainty regarding the possible consequences of such a decision."
(page s-9:www.aegon.com/Documents/AEGON/Prospectus.pdf)
I would think that any sensible business person would want to avoid this kind of political interference in the operation of a business. This is to me just another nail in the coffin of the European hybrid issues.
Besides that issue, a reader gave me a quote from the Fitch conference call on the 25th, where Fitch claimed that a firm that generates profits to pay the hybrid dividends may not be allowed to do so by the EC. Fitch: If the EC has that power, then that is even more ridiculous than the idiotic burden sharing policy. I am turning more negative by the day on the European hybrid issues. I will not buy another one. The only question is what to do with the small positions that I already have.
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