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Dutch Failed to Clean Up SNS After 2008, Committee Finds

Jan. 23 (Bloomberg) -- The Dutch finance ministry failed to take responsibility for a restructuring of SNS Reaal NV after a 2008 bailout and only took charge in the second half of 2012, when nationalization became unavoidable, a government-appointed committee said.

“The Ministry of Finance omitted to act on its responsibility to make a clean sweep at SNS Reaal that had landed in difficulties as a result of the financial crisis and had been forced to appeal for state aid,” Rein Jan Hoekstra and Jean Frijns, who led the evaluation of the 2013 rescue, said in a statement handed out to reporters in The Hague today. In February 2013 nationalization had become unavoidable as no viable alternatives remained, they said.

The Netherlands took control of SNS Reaal in February 2013 after the lender missed a central bank deadline to fill a 1.9 billion-euro ($2.6 billion) capital hole stemming from losses on real-estate loans. Dutch taxpayers are funding 9.8 billion euros in capital injections, guarantees and a write-off on a previous round of state aid, a burden that was reduced as Dijsselbloem seized the company’s shares and subordinated bonds without compensation to investors. The government and regulator have been ensnared in legal procedures and criticized by lawmakers since then.

Bailout Review

Dijsselbloem in March asked Frijns and Hoekstra to review the central bank’s supervision of SNS Reaal since Oct. 2006, when it signed off on the firm’s takeover of the property-finance unit from ABN Amro Holding NV that ultimately brought it to the brink of collapse. They also studied the finance ministry’s actions since it provided a first 750 million-euro capital injection to the firm in 2008, as well of the application of the law in the expropriation of the firm.

The central bank didn’t “sufficiently recognize the implications of a number of SNS Reaal’s acquisitions at the top of the market and the accompanying risks,” Frijns and Hoekstra said.

The Amsterdam-based central bank said it’s studying the report and will comment on the findings and recommendations to the finance minister.

Dijsselbloem became the first Dutch finance chief to use powers granted under legislation introduced in 2012 allowing failing banks to be unwound. The government may expropriate a bank’s assets in case of a grave and immediate threat to the stability of the financial system, according to Dutch law, and compensate investors taking into account a bank’s prospects had it not been nationalized.

Deadline Challenged

In July, a Dutch court said the government’s valuation of the lender at zero appears to be incorrect and wasn’t sufficiently substantiated. The government has appealed the ruling. Dutch investor group VEB, representing more than 5,000 holders of SNS Reaal shares and bonds, have challenged the central bank’s deadline that triggered the nationalization and have also filed a complaint with the European Court of Human Rights.

Dijsselbloem said the legal intervention powers functioned well in the case of SNS Reaal, as he was able to safeguard financial stability by the expropriation. A separate evaluation of the law by the finance ministry did show some improvements should be made, he said in an e-mailed statement today. It should also be aligned with euro-area plan to build a common system for saving or shuttering troubled lenders, he said.

Bank resolution rules are a cornerstone of the EU’s effort to create a banking union and prevent another financial crisis that fuels contagion between nations and private-sector lenders.

To contact the reporters on this story: Corina Ruhe in Amsterdam at cruhe@bloomberg.net; Maud van Gaal in Amsterdam at mvangaal@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net

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