SNS Nationalized in Netherlands After Real Estate Losses

The 3.7 billion-euro ($5 billion) nationalization of SNS Reaal NV, the fourth-largest Dutch bank, was the only way to protect savers and the banking system, Prime Minister Mark Rutte said.

“The collapse of SNS would have put both in danger,” Rutte told reporters in The Hague yesterday. “We needed to intervene.”

SNS, which acquired ABN Amro Holding NV’s property-finance unit in 2006, has been hurt by losses on real estate loans that left it struggling to repay a government bailout before next year’s deadline and bolster capital. The nationalization affects issued shares, core Tier 1 capital securities and subordinated bonds, the finance ministry said.

The move comes less than five years after the Netherlands bought Fortis’s Dutch banking and insurance units and its stake in ABN Amro for 16.8 billion euros when the company ran out of short-term funding and customers withdrew deposits. The government also provided aid to ING Groep NV, the biggest Dutch financial-services company, and Aegon NV at the time.

“We carefully looked at all the alternatives,” said Rutte, 45. “We understand very well that many people don’t like the idea that again a bank in need needs to be helped.”

SNS shares were suspended in Amsterdam. They last traded Jan. 31 at 84 cents, valuing the company at 242 million euros, and have declined 57 percent in the past year. The shares were sold for 17 euros in SNS Reaal’s 2006 initial public offering.

‘Last Resort’

Prices of junior bonds of SNS Reaal plunged. SNS’s 250 million euros of 6.258 percent Tier 1 perpetual notes were quoted 25 euro cents, or 61 percent, lower at 15.5 cents in London, according to Bloomberg prices.

Finance Minister Jeroen Dijsselbloem said yesterday that while the government will “expropriate” SNS equity and subordinated debt, senior bondholders won’t be affected. Senior bonds were quoted higher.

Trading in all securities is suspended on regulated markets, Martijn Pols, a spokesman for financial markets regulator AFM in Amsterdam, said yesterday. It’s possible that over-the-counter transactions were still taking place, he said. Trading in securities that weren’t expropriated will resume at a later time.

“I scrutinized all alternative solutions involving market parties,” said Dijsselbloem, 46, who was appointed chairman of euro finance meetings last month. “I found myself compelled to conclude no acceptable total solution was offered. I therefore had to use the instrument of last resort, which is nationalization.”

‘Unique’ Issue

The state will inject 2.2 billion euros of capital into SNS Reaal, write down 800 million euros on its earlier aid package and use 700 million euros to put the real estate portfolio at arm’s length.

The company’s real estate investments had a book value of

8.55 billion euros at the end of June, the finance ministry said. That compares with SNS Bank’s balance sheet of 82.3 billion euros. Dutch banks on average hold about 4.5 percent of assets in commercial real estate.

“The issue is unique in the Dutch banking landscape,” central bank director Jan Sijbrand told reporters in The Hague. “There is no other bank that equals SNS Reaal in terms of problems in quality and composition of the loans.”

A study commissioned by the Dutch government found SNS Property Finance would face additional losses of as much as 3.2 billion euros in a negative scenario, the finance ministry said. On Jan. 18, the Dutch central bank gave SNS a deadline of 6 p.m., Jan. 31 to either add 1.9 billion euros of core capital or present a feasible solution.

Pulling Deposits

It didn’t meet the deadline, according to the Dutch regulator. The analysis “indicated there was no capital left in SNS Bank,” Sijbrand said. “We saw some outflows of savings and we felt we shouldn’t wait until that became fatal.”

Customers withdrew about 1.4 billion of deposits since Jan. 16, according to a finance ministry document.

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 a Nov. 15 presentation. ING, Rabobank Groep and ABN Amro are its three largest competitors.

Following the financial crisis that led to nationalization of the Dutch parts of Fortis and ABN Amro and the bankruptcy of DSB Bank NV, the Netherlands adopted legislation allowing it to transfer banks’ assets, liabilities or stock.

Burden Sharing

“Shocked, stunned, those are a few words that come to mind,” Jan Maarten Slagter, chairman of Dutch investor group VEB, said in an interview in The Hague. “We support the principle of burden sharing; that comes with taking investment risks as a shareholder or subordinated bond holder. This however is a state intervention that interferes with that idea.” It should face an independent legal test, he said.

The Netherlands will impose a 1 billion-euro one-time levy on Dutch banks in 2014 to share the costs of the SNS nationalization. Each lender’s contribution will be proportionate to its share of deposits guaranteed under a plan as of Feb. 1.

ING said it expects a charge of 300 million euros to 350 million euros as a result. Rabobank also said it expects to pay about a third of the 1 billion euros, while ABN Amro sees an impact of 200 million euros to 250 million euros, according to statements yesterday.

Dijsselbloem advocates introducing European Union-wide rules allowing all bondholders to share in losses when a bank fails. Senior bondholders in SNS were safeguarded from expropriation.

Financing Costs

“So far, nowhere in the euro area have unsecured creditors of systemically important banks been forced to contribute to a lender’s rescue,” Dijsselbloem said in a letter to Parliament. “If the Netherlands had made an exception to this nationally, financing costs for other banks could have risen significantly, according to the central bank.”

Almost half of Dutch lenders’ market funding, or more than 400 billion euros, consists of senior unsecured debt, Dijsselbloem said.

Even so, the move will temporarily have a “negative effect on funding costs for Dutch banks,” Albert Ploegh, an Amsterdam-based analyst at ING, said in a note to investors. Ploegh has a sell recommendation on SNS.

Leadership Change

SNS Chief Executive Officer Ronald Latenstein, Chief Financial Officer Ference Lamp and supervisory board Chairman Rob Zwartendijk stepped down, Utrecht, Netherlands-based SNS said in a separate statement. The “reason for this decision is that they don’t want to and can’t take responsibility for the nationalization scenario,” SNS said.

Achmea BV CFO Gerard van Olphen will succeed Latenstein immediately, the Dutch insurer said.

SNS’s core Tier 1 capital ratio, a measure of financial strength, fell to 7.67 percent at the end of the year, below the European Banking Authority’s 9 percent minimum, as risk-weighted assets and loan losses in the property-finance unit increased.

The EU will examine the state aid to SNS Reaal, Competition Commissioner Joaquin Almunia said yesterday.

“It is concerning that about half of the Dutch insurance and banking industry is now state-owned,” said Benoit Petrarque, an Amsterdam-based analyst at Kepler Capital Markets. “That could be a reason for the Netherlands to accelerate some exits.”

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