Banks Unwind Swaps Costing Dutch Social Housing Billions

Banks including Citigroup Inc. (C) and Deutsche Bank AG (DBK) agreed to unwind soured derivatives contracts that will cost a Dutch affordable-housing organization 2 billion euros ($2.5 billion) and resulted in a government bailout.

Stichting Vestia Groep, which owns 89,000 homes, will lose 1.3 billion euros of collateral and repay the banks 600 million euros over 10 years, the Rotterdam-based organization said in a statement today. It will also pay the lenders 100 million euros in cash and won’t have to post more collateral.

The deal was signed with nine banks, Dutch Interior Minister Liesbeth Spies said in a letter to parliament today. Neither she nor Vestia disclosed the names of the lenders. Citigroup, Deutsche Bank, ABN Amro Group NV and Rabobank Groep have said they were among the lenders that wrote the swaps.

The Netherlands is probing Vestia’s former treasurer in the wake of the losses, which resulted in 1.6 billion euros of emergency state aid being extended to the nation’s biggest affordable-housing provider. The swaps were structured so that Vestia had to stump up additional collateral after 2008 as interest rates declined.

“The agreement between Vestia and the banks under the conditions applied was a necessary step to avoid worse, a bankruptcy in particular,” Spies’s letter said. “It has caused a loss of about 2 billion euros in capital designated for social housing. That will lead to a loss in investment capacity and pressure to raise rents.”

Financial Support

Vestia said today that it would claim “reorganization support” from Centraal Fonds Volkhuisvesting, a Dutch state- supervised authority. Jan van der Moolen, a CFV spokesman, said it’s providing Vestia with the funds to repay the 600-million- euro loan and the 100 million euros in cash. Those 700 million euros in funds will come from other Dutch housing associations, Spiers said.

“We’re relieved an agreement has been reached and Vestia’s continuity is safeguarded,” said Hendrik Jan Eijpe, a spokesman for Utrecht-based Rabobank.

Spokesmen for Deutsche Bank and Citigroup declined to comment on the agreement.

“It’s good that we’ve reached a sustainable agreement,” said Jeroen van Maarschalkerweerd, a spokesman for Amsterdam- based ABN Amro.

The remaining banks that joined in the agreement were Barclays Plc (BARC), BNP Paribas SA (BNP), JPMorgan Chase & Co. (JPM), Nomura Holdings Inc. (8604) and Societe Generale SA (GLE), said two people with knowledge of the discussions who asked not to be identified because the information is private. Officials at those five banks declined to comment.

Dutch Investigation

The Dutch public prosecutor said on April 14 that it was investigating transfers between an intermediary and a financial official at Vestia for possible bribery in relation to the contracts.

Marcel de Vries, Vestia’s former treasurer, is that official, two people with knowledge of the situation said in April. They declined to be identified as the investigation was still pending.

None of the banks are suspected of wrongdoing, a spokesman for the prosecutor said today, repeating earlier comments. The financial official was released from custody last week while remaining a suspect, he said.

Sales, Job Cuts

“Vestia reserves the right to hold banks liable for any fraud, bribery or other wrongdoing on their part that comes to light,” the letter by Spies, the interior minister, said today.

Ed van Liere, a lawyer at Simmons & Simmons LLP representing De Vries, declined to comment. Vestia is still conducting a probe into the derivative portfolio, Ronald Florisson, a spokesman for the organization, said today.

Vestia said today’s deal will allow it to proceed with previously announced measures to shore up its finances, which include selling 15,000 houses it owns and cutting staff.

“Vestia’s derivative portfolio was far too big and in nature not befitting a housing association,” Spies said.

The housing provider said in February that it had derivatives with a value of 22 billion euros, more than all other such Dutch organizations combined, compared with its 6.1 billion euros in loans outstanding. On May 30, it agreed with the banks to suspend collateral payments on the derivatives.

The Netherlands has about 400 housing organizations, of which 162, excluding Vestia, had 17.9 billion euros in derivative contracts as of Dec. 31, CFV said on June 4. That compared with lending of 62.2 billion euros.

Housing organizations accounted for 58 percent of all new homes built in the Netherlands in 2011. In 2010 they spent about 29 percent of gross rental income on interest charges, according to a CFV report last month.

To contact the reporter on this story: Maud van Gaal in Amsterdam at mvangaal@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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