UPDATE 1-SNS rescue won't cost Netherlands its triple-A rating

Mon Feb 4, 2013 10:43am EST

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(Adds S&P comments, detail, background)
    By Marc Jones
    LONDON, Feb 4 (Reuters) - The 10 billion euro rescue of SNS
Reaal will not cost the Netherlands its prized triple-A
credit rating, S&P and Moody's said on Monday, although Moody's
warned it had negative implications for other Dutch banks.
    The two firms both assign the Dutch state their highest
ratings but with a negative outlook, and each has warned it
might downgrade the country if public finances and the economy
continue to deteriorate.
    "The cost being incurred by the government in support of SNS
Reaal is small relative to the size of the State's balance
sheet," Moody's said in an e-mailed statement to Reuters.
    Standard & Poor's later said the bailout had "no immediate
effect", noting that the upfront injection of 2.2 billion euros
added up to only around 0.4 percent of Dutch economic output.
    The Dutch government said on Friday it had put together a
nationalisation package - which follows a much smaller bailout
in 2008 - to prevent SNS Reaal's collapse and shore up
confidence in the financial system. 
    But the rescue will add to a budget deficit that is already
forecast to exceed European Union targets in 2013, and
represents a "serious setback" for the government's finances,   
Prime Minister Mark Rutte said on Friday.
    The Netherlands is one of only four euro zone countries -
along with Germany, Finland and Luxembourg - still assigned the
highest credit rating by all three major rating firms after a
slew of downgrades during the bloc's three-year-old debt crisis.
  
 
    The Netherlands' budget deficit is forecast to reach 3.3
percent of economic output in 2013, above the European Union's 3
percent limit, according to government agency CPB, which is due
to publish revised forecasts in the next few weeks.
    Finance minister Jeroen Dijsselbloem on Friday put initial
aid for SNS Reaal at 3.7 billion euros including 1.5 billion
euros to write down state aid and property assets. He declined
to say whether the bailout would mean further austerity measures
are needed. 
    Rutte's coalition government was forced to come up with
about 16 billion euros of budget cuts soon after it won power in
a September election, and quickly fell in the opinion polls. 

    BANK IMPLICATIONS
    Although Moody's comments on Monday suggested the SNS Reaal
rescue will not be large enough to tip the balance on the Dutch
sovereign, it warned separately that the problems could have
implications for the rest of the country's lenders. 
    "The nationalisation of SNS is credit-negative for Dutch
banks," Associate Managing Director Nick Hill said in a note.
    Such large losses "show that its asset quality problems are
more severe and deep-rooted than previously thought, which has
implications for our assessment of the creditworthiness of other
Dutch financial institutions, in particular those exposed to
commercial real estate and especially the Dutch office sector."
    Moody's Hill said government plans to recoup some of the
cost of the SNS recapitalisation by imposing a levy of 1 billion
euros on other Dutch banks, and its decision to hit subordinated
bondholders hard, would also have a negative impact.
    "It may set a precedent for similar situations elsewhere in
Europe, exposing investors in subordinated debt to greater
loss-given-default than previously the case," Hill added.    
    S&P said it thought the Dutch government's decision not to
bail-in SNS Bank's senior creditors, despite the cost to
taxpayers, reflected a desire to "prevent any funding shocks to
The Netherlands' large externally-funded domestic banks".
    The sector has only just healed the scars of 2008 when the
government paid out nearly 40 billion euros to prop up ING
, Aegon and SNS Reaal, as well as
nationalising ABN AMRO. SNS Reaal aside, the lenders
have either repaid the aid or are getting back on their feet.
    Separately, S&P said on Monday that with the exception of
Greece, euro zone states bailed out during the debt crisis were
making rapid progress in rebalancing their economies.
    "For 2013, we forecast that Spain, Portugal, and Ireland
will operate outright current account surpluses, potentially
enabling them to post an earlier recovery of GDP than we had
previously anticipated, external demand permitting," Frank Gill,
one of the firm's top credit analysts, said in a report.

 (Editing by Catherine Evans)
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