Netherlands nationalizes SNS Reaal at cost of $5 billion

THE HAGUE/AMSTERDAM Fri Feb 1, 2013 6:30am EST

1 of 3. The logos of Dutch banking and insurance group SNS Reaal are seen in Utrecht November 13, 2008.

Credit: Reuters/Michael Kooren.

THE HAGUE/AMSTERDAM (Reuters) - The Netherlands nationalized bank and insurance group SNS Reaal SR.AS at a cost of 3.7 billion euros ($5 billion) on Friday to shore up confidence in the financial sector after a private investor-led rescue collapsed.

Another state rescue of a financial group will lead to a worsening in the Dutch budget deficit this year - which is already forecast to exceed European Union targets - and is likely to prompt a public outcry given the billions of euros of budget cuts and austerity measures in recent years.

It is also a sign of how many European banks, five years on from the height of the global financial crisis, are struggling to turn a corner amid weak economies and tougher regulations. French bank Credit Agricole (CAGR.PA) announced over $5 billion of charges on Friday, a day after Deutsche Bank (DBKGn.DE) also unveiled big writedowns.

The Dutch government paid out nearly 40 billion euros to rescue the domestic financial sector in 2008 when it provided capital injections for ING (ING.N), Aegon (AEGN.AS) and SNS Reaal, as well as nationalizing ABN AMRO ABNNL.UL.

SNS Reaal, the fourth-biggest financial institution in the Netherlands with about 134 billion euros in assets last year, was hit by losses at its property unit and has been trying for months to sell assets and secure additional funding.

The emergency bailout was necessary after SNS Reaal failed to meet a January 31 deadline to come up with a rescue, Finance Minister Jeroen Dijsselbloem told a press conference.

Its collapse "would have unacceptably large and undesirable consequences for financial stability, the Dutch economy and the Dutch tax payer," Dijsselbloem wrote in a letter to parliament.

"I have studied all the alternative solutions in detail. But last night I found there was no acceptable solution. Therefore we have to nationalize," he added in a statement.

SNS Reaal will receive a capital injection of 2.2 billion euros, 1.1 billion euros in loans, and 5 billion euros in state guarantees. Dutch banks will contribute an additional, one-off charge of 1 billion euros to the rescue in 2014.

"I can understand the reluctance that many will feel again because a large amount of public money is required. Therefore I want the private sector to contribute as much as possible to help pay for the rescue of SNS Reaal," Dijsselbloem said.

SNS Reaal, which received 750 million euros of state aid in 2008, said its top executives - chairman Rob Zwartendijk, chief executive Ronald Latenstein and finance chief Ference Lamp - had resigned, as they still wanted to find a private sector solution.

SNS Reaal's property finance exposure, including commercial real estate loans to small and medium-sized companies, stood at 9.8 billion euros at the end of September, of which 2.3 billion euros were non-performing loans.

It has booked more than 1.3 billion euros of net losses on its property loans since 2009.

Dutch media reported on Thursday that a consortium led by private equity firm CVC Capital Partners was in talks to pump up to 1.8 billion euros into SNS Reaal, but a source familiar with the matter said talks with private investors had not worked out.

(Writing by Sara Webb; Editing by Hans-Juergen Peters and Mark Potter)

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Comments (1)
dareconomics wrote:
The Netherlands is one of the FANG countries that are calling the shots in bailout ridden Europe. Together with the Finns, Austrians and Germans, these countries have triple AAA ratings and low debt to GDP ratios.

All is not well in the FANG. European banks have scary amounts of leverage, and the Netherlands is one of the worst offenders. I analyzed the Dutch banking situation in October in this post

http://dareconomics.wordpress.com/2012/10/22/99-problems-and-the-dutch-banks-are-one/

with this chart:
(chart)

Three of the largest banks as compared to their home countries GDPs are domiciled in the Netherlands. If you thought that American banks are too big to fail, compare them in red with ING all the way on the left.

The Dutch government has spent €3bn in cash, written down €700mm in the SNS loan portfolio and extended an additional €6.1bn in loans and guarantees in this bailout, which began in 2008. The government was forced to act after a bank run began two weeks ago with SNS losing over €2.5bn from its reported €30bn depository base.

Taxpayers are once again paying for bank losses. While shareholders and junior bondholders will be wiped out, holders of senior debt will maintain their positions.

Hiding behind the market rallies, happy talk and “shows of strength” is a mortally wounded banking system. European banks must continue to deleverage to enhance their weak capital positions. The reduction in lending will sap growth for years.

Commentators like to make a distinction between the weak periphery of the Eurozone, the PIIGS, and the strong core, the FANG. Is the core really that strong? Here are some facts that you probably did not know about the Netherlands:

The Netherlands now owns two of its largest banks, ABN Amro and SNS.
The Dutch banking sector carries assets 400% of GDP on its balance sheet.
The property bubble in the Netherlands, which burst in the wake of the GFC, was second only to the Spanish bubble:

(Chart)

Of course, the Netherlands has many advantages over its former Spanish rulers. The country maintains a large current account balance and high savings rates, but problems loom.

The Dutch economy shrunk 0.9% in the 3rd quarter and probably shrank in the 4th fulfilling the technical definition of a recession. Unemployment has risen a full percentage point to 7.2% since the summer, the highest level since 2005. Both of these factors portend a further decline in the Dutch property market. As they do, the cost of the ABN Amro and SNS bailouts will increase, and other institutions will be forced to request government assistance.

Full post with charts at dareconomics.com

Feb 01, 2013 1:03pm EST  --  Report as abuse
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