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Dutch Court Hears SNS Reaal Investors Who Lost Everything

A Dutch court began considering an appeal by SNS Reaal NV shareholders challenging the government’s decision to nationalize the country’s fourth-largest lender and refuse to offer compensation.

Finance Minister Jeroen Dijsselbloem “made himself buyer based on dishonorable motives and decided his own purchase price in the process, at zero,” Ilan Spinath, a lawyer representing Stichting Beheer SNS Reaal, the foundation that was the company’s biggest shareholder, told the Enterprise Chamber of the Amsterdam Court of Appeal today.

Dijsselbloem offered bondholders and shareholders no compensation when SNS was taken over in February in the wake of real-estate losses, saying taxpayers will be required to fund 9.8 billion euros ($12.8 billion) of capital injections, write-offs and guarantees to help rescue the bank. In the first day of a two-day hearing, Spinath said the terms of the nationalization were unfair.

For the government, “this could turn out very well, because at a later stage SNS Reaal can be put up for sale and sold at a nice profit,” he said.

Dutch law says the Netherlands must compensate investors, though it has discretion given SNS’s prospects had it not been nationalized, the finance minister has said. Dijsselbloem said last month that investors don’t deserve compensation because there wouldn’t have been any capital left for them had the firm been liquidated.

Minister ‘Sorry’

“The minister is sorry for the losses,” Richard de Haan, a lawyer at Allen & Overy LLP in Amsterdam representing Dijsselbloem, told the court today. “However, these losses were not the consequence of the expropriation.”

The government has said that expropriating bondholders reduced the rescue’s costs by about 1 billion euros.

“Expropriated owners of securities bear the costs of the rescue,” Pieter van der Korst, a lawyer for VEB, a group representing more than 8,000 SNS Reaal shareholders, told the court today. “The minister estimated the value of those as clearly more than zero on the date of the nationalization.”

SNS would have debts of 6.6 billion euros versus 2.1 billion euros in assets had it been liquidated rather than nationalized, leaving it 4.5 billion euros short of being able to repay creditors, government lawyers said. At least 565 million euros in state aid that SNS received in 2008 would also need to be deducted before repaying investors, they said.

CVC Alternative

Spinath told the court that Dijsselbloem ignored a realistic alternative to nationalization that would have preserved some of SNS’s value. Stichting Beheer SNS Reaal, as majority shareholder, was involved in talks with CVC Capital Partners Ltd., he said, adding the Dutch government never seriously got involved in the negotiations.

“There were no serious negotiations from the side of the minister,” Spinath said. “He shifted away further each time and demanded more. CVC has submitted term sheets at least ten times, but never received written comments. CVC managed to meet the minister’s wishes each time, but each time was told it still was insufficient.”

Dijsselbloem on Feb. 1 said the proposal by CVC, a London-based buyout firm, left the government with too much risk.

Judge Peter Ingelse will give an indication of when he will present his ruling at the end of tomorrow’s court session, an Enterprise Chamber official said. He may decide to appoint an expert to investigate the value of the expropriated securities.

Dijsselbloem, sworn in on Nov. 5, became the first finance minister in the Netherlands to use powers granted under legislation introduced last year allowing the central bank to transfer the assets and liabilities of a troubled lender. He may expropriate assets in case of a grave and immediate threat to the stability of the financial system, according to the law.

The highest administrative court ruled on Feb. 25 that Dijsselbloem was entitled to intervene, making the nationalization irrevocable.

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