Dutch Deficit to Widen on SNS Takeover, Dijsselbloem Says

The budget deficit of the Netherlands, the euro area’s fifth-largest economy, will widen this year after the government decided to take control of SNS Reaal NV at a cost of 3.7 billion euros ($5.1 billion).

“This will lead to a worsening of the budget deficit” by 0.6 percentage point in 2013, Finance Minister Jeroen Dijsselbloem told journalists in The Hague today. The Dutch government and the central bank said the nationalization of the bank will cost the state 2.2 billion euros in capital injections, 800 million euros to write off earlier aid and 700 million euros to separate SNS’s property-finance unit.

The government’s central planning agency CPB had forecast a shortfall equivalent to 3.3 percent of gross domestic product this year. The government will decide in March on possible budget measures, Dijsselbloem said. The CPB is expected to release new economic forecasts this month, he said.

The Netherlands took control of SNS, the country’s second banking nationalization since 2008, after real-estate losses brought the fourth-largest Dutch lender to the brink of collapse. SNS, which acquired ABN Amro Holding NV’s property-finance unit in 2006, has been hurt by losses on real-estate loans that have left it struggling to repay a government bailout before next year’s deadline and bolster capital buffers.

The nationalization includes all issued shares, core Tier 1 capital securities and subordinated bonds.

More Cuts?

The government won parliamentary support to keep the budget deficit below 3 percent next year. The coalition of Prime Minister Mark Rutte’s Liberal Party and the Labor Party of Diederik Samsom, sworn in on Nov. 5, is planning cuts of about 16 billion euros in the next four years. The SNS nationalization may force the government to make even deeper cuts to meet the 3 percent target.

Dijsselbloem declined to say whether the government plans to offset the cost of nationalizing SNS by using the 3.8 billion euros it received following a frequency auction for telecommunications providers that was concluded in December. The government will look at windfalls and setbacks and then make a decision after the new forecasts are made public, he said.

Before it's here, it's on the Bloomberg Terminal.