BRUSSELS -(Dow Jones)- Europe's top appeals court overturned a European Union Commission order forcing Westdeutsche Landesbank Girozentrale (G.WLB) to repay EUR808 million in government aid but said the E.U. could recalculate the amount.

The European Court of First Instance's split decision upholds the E.U.'s campaign against state subsidies to German public banks, but the court said it didn't do enough homework in imposing the penalty.

It scolded investigators for failing to show how they calculated the amount WestLB must repay. That criticism stings the E.U. because it's similar language used in last year's humiliating court defeats over E.U. Competition Commissioner Mario Monti's merger policy.

The court's "judgment shows the way forward" and "reinforces the Commission's determination to ensure a level playing field in the German banking sector," Monti said.

Monti promised to proceed with cases against six other banks, including Bankgesellschaft Berlin AG (G.BEB) and Bayerische Landesbank Girozentrale (G.BLG).

Instead of ratcheting down his repayment order against WestLB after the court's criticism, E.U. sources and Brussels-based lawyers say Monti could now raise the penalty to more than EUR1 billion because WestLB has benefited for a further three years from subsidies since the last ruling in 1999.

WestLB put the best face possible on the ruling. Board Chairman Juergen Sengera called it "an important victory" and said the bank awaits the Commission's new decision.

German private sector banks also cheered. The Association of German Banks said the ruling is a boost to Monti's ongoing investigations into other state-owned German banks. "Today's decision (marks) an important step toward increased competition," association President Wolfgang Arnold said.

The WestLB case dates from July 1999, when regulators said a virtually free transfer of a housing credits agency by North-Rhine Westphalia gave WestLB an unfair advantage over its private-sector rivals. WestLB and the German state appealed.

Thursday, the European court agreed with WestLB that the Commission provided "inadequate reasoning" to support its math. However, the judges upheld a crucial part of the Commission's case in stating that E.U. investigators had not "unlawfully extended the concept of (repaying) state aid" in going after WestLB.

In most cases, regulators try to stop governments from bailing out ailing companies. But WestLB was healthy at the time of the state transfers, and it used the capital to meet solvency requirements. Regulators "rightly considered that unlawful state aid may exist" even in cases involving a healthy enterprises, the court said in a statement.

The trick now will be to find a way of calculating the correct amount. Monti's investigators and economists must juggle a bewildering number of variables in order to calculate the value of the capital transfer.

That could still be difficult, says Michael Tscherny, a former E.U. Commission spokesman now at Brussels consultancy GPlus, because "finding rates of return is far from a precise science."

At the same time, Tscherny called the court ruling "a big victory" for Monti because it allows him to step up his investigations.

-By James Kanter, Dow Jones Newswires; 322-285-0136; james.kanter@dowjones.com

(Edward Taylor in Frankfurt contributed to this article.)