SNS Reaal NV, a Dutch bank and insurer struggling with real estate losses, plans to strengthen capital buffers by selling a stake to private investors and involve bond holders to help limit the burden on taxpayers.
“The efforts of SNS Reaal are focused on a scenario that involves the participation of private investors,” the Utrecht-based company said in an e-mailed statement today. The plan would include “a significant share issue” while “transactions with regard to outstanding subordinated instruments are anticipated,” SNS said. No decisions have been made, it said.
SNS Reaal, which acquired ABN Amro’s property-finance unit in 2006, has been hurt by losses on real estate loans that left it struggling to repay a government bailout. The bank’s core Tier 1 capital ratio, a measure of financial strength, fell to
8.8 percent at the end of the third quarter, below the European Banking Authority’s 9 percent minimum, as risk-weighted assets and loan losses in the property-finance unit increased.
SNS swung from a gain of as much as 9 percent to a drop of as much as 5.1 percent in Amsterdam trading today. The stock was up 2 cents, or 2.4 percent, to 80 cents as of 10:37 a.m., for a market value of 228 million euros ($307 million).
“The situation remains clearly uncertain with respect to feasibility,” said Albert Ploegh, an Amsterdam-based analyst at ING Groep NV. “The main issue whether a private solution can be found in our view is related to the size of estimated losses at Property Finance, demanded guarantees by potential investors” and their credibility, he said. “It seems that time is short.”
SNS, which went public in 2006, is seeking a “comprehensive solution” for cutting credit risks at the property-finance unit and to strengthen its capital. The property unit may be split-off, it said in today’s statement.
It is unclear whether the path SNS is pursuing is feasible as the parties involved are assessing future losses on real estate loans, the company said.
SNS started withdrawing from commercial real estate lending in 2009, when the unit reported a loss of 219 million euros. With loan losses spreading from the U.S. to its home market, it has remained unprofitable every year since. From August 2009 until the end of September, SNS Reaal has cut back its commitments by 48 percent to 8.3 billion euros, according to a presentation on Nov. 15. The run-off hit a glitch as property values decreased and as refinancing of loans became more difficult, it said.
SNS may have to write down as much as 1.8 billion euros on the property-finance portfolio, newspaper Het Financieele Dagblad reported on Jan. 16. SNS hasn’t confirmed the number.
SNS received 750 million euros from the Netherlands in 2008 and 500 million euros from Foundation Beheer SNS Reaal, its largest shareholder. SNS sold shares in 2009 to help repay 250 million euros of aid, of which 185 million euros was returned to the government. The aid, granted in the form of core Tier 1 securities issued to the state, may be converted into ordinary shares, it said in November.
SNS Reaal is the smallest of four Dutch banks designated as “systemically important,” or too big to fail, by the Dutch central bank. It had 32.5 billion euros in savings at the end of the third quarter, according to the Nov. 15 presentation. ING, Rabobank Groep and ABN Amro Group NV are its three largest competitors.
Following the financial crisis that led the government to nationalize the Dutch parts of Fortis and ABN Amro Holding NV and the bankruptcy of DSB Bank NV, the Netherlands adopted legislation allowing its central bank to transfer banks’ assets, liabilities or stock.