ABN Follows ING to Court as Dutch Call Foul on EU Terms

The Netherlands is seeking to loosen the shackles the European Union placed on rescued Dutch banks, after a property market-led economic slump left the nation vulnerable to a rekindling of the continent’s debt crisis.

Nationalized ABN Amro Group NV is challenging a 2011 ban on acquisitions at a Luxembourg court today. Separately, Finance Minister Jeroen Dijsselbloem is asking regulators to stop barring bailed-out Dutch banks from undercutting rivals in mortgages, saying the measures have increased interest rates.

The Netherlands, which controls two of its four largest banks after providing more than 95 billion euros ($124 billion) for rescues from 2008, has slipped into a third recession in four years, causing it to diverge from other AAA rated euro-area nations, the International Monetary Fund says. The government says EU banking curbs are one reason borrowers paid 1 percentage point more in interest than the EU average, contributing to a 20 percent slump in house prices over the past five years.

“There is a lot of pressure on Dijsselbloem in these weak economic circumstances,” said Arnoud Boot, a professor of corporate finance and financial markets at the University of Amsterdam. “It fits in with a focus on reviving lending in the Netherlands and to establish that, there has to be competition between banks. Eliminating the price leadership bans would contribute to that.”

Acquisition Ban

The EU General Court, the 27-member bloc’s second-highest court, heard the case brought by ABN Amro today. The bank claims that an acquisition ban imposed as a condition of state aid was stricter than those placed on other lenders. EU regulators approved recapitalizations of as much as 5.45 billion euros after ABN Amro agreed to a ban on takeovers of as long as five years and to stop undercutting competitors on some products in return for a bailout.

The Netherlands bought Fortis’s Dutch banking and insurance units, including parts of the former ABN Amro Holding NV, in 2008 for about 16.8 billion euros, after the Belgian firm collapsed. The cost of the rescue later swelled to about 30 billion euros.

ABN Amro’s takeover ban hampers its ability to enhance efficiency, Winfred Knibbeler, a lawyer for the bank, told a panel of three judges in Luxembourg today. After the nationalization the bank was left with “dispersed assets which were subscale” outside the Netherlands, he said.

Narrower Restrictions

The bank “isn’t sitting ready here for massive acquisitions,” he said, adding that a more tailored ban could allow ABN to make its private bank in Germany and asset-management operations in Brazil more efficient, and enhance the lender’s economic value for the state.

ABN Amro has sold assets, including a trust business, for about 1.2 billion euros, and should be allowed to use some proceeds of disposals to improve its remaining operations, Knibbeler said.

The EU disagreed. “Why should the Dutch taxpayer have to contribute at least 4.2 billion euros in order for ABN Amro to go shopping,” said Leo Flynn, a lawyer representing the commission. Aid should be kept to a minimum to ensure viability, not to “boost this bank on public money steroids,” he said.

Not Healthy

ABN, once among Europe’s biggest banks, is following ING Groep NV, the largest Dutch financial company, into Europe’s courts. ING had a price leadership ban on mortgages and savings in the Netherlands lifted in November after winning a court challenge forcing the European Commission to re-examine terms of its rescue. The company agreed to establish a new Dutch consumer bank called Nationale-Nederlanden Bank, adding a “competitive force” in the Dutch retail market, the commission said in November.

Barring banks from price leadership, or offering more favorable rates than others, has contributed to higher costs of credit in the Netherlands, ABN Amro Chairman Gerrit Zalm said in an interview. Removing or avoiding the constraints on the biggest banks would be desirable, he said.

“We can deal with the current restrictions, both on acquisitions and price leadership,” Zalm, 61, said in the May 30 interview. “But it isn’t healthy for competition on the Dutch market, as we have seen.”

ING and ABN Amro, together with Rabobank Groep, the largest Dutch bank, control about 70 percent of the market for home loans, according to Dutch central planning agency data. Following the 2008 bailouts, the two were prohibited by the commission from undercutting rivals on prices in mortgages and savings, leaving Rabobank, with 30 percent of the market, with the most influence over interest rates.

Mortgage Rates

Rates on 10-year mortgages in the Netherlands are higher than in neighboring economies and the euro area on average, according to European Central Bank data. In March, Dutch institutions charged 4.95 percent a year on home loans with a maturity of more than 10 years. That compared with 3.64 percent in Belgium and 2.99 percent in Germany, according to the ECB. Rates on deposits are also higher in the Netherlands as banks seek to reduce reliance on capital market funding.

Reports by the Dutch Competition Authority, the central bank and the country’s central planning agency have cited the limited number of market participants and the commission’s restrictions as potential explanations for higher mortgage rates. Parties challenging the top three banks disappeared as the Netherlands combined Fortis and ABN Amro assets and Paris-based BNP Paribas SA withdrew from mortgage lending in the country in 2011.

IMF Warning

“The price leadership bans are a complicating factor in a market where competition is already limited,” said Benoit Petrarque, an Amsterdam-based analyst at Kepler Cheuvreux. “More competitors are needed.”

Dutch mortgage debt is the second highest in the world, amounting to 108 percent of gross domestic product, according to the country’s central bank.

House prices in the Netherlands, where the size of the finance industry measures 4.8 times the economy, have dropped almost 20 percent from a peak in August 2008, the Dutch Statistics Bureau said last month. The price of a home fell an average 7.6 percent in April from a year earlier to levels not seen for 10 years, according to the agency.

The IMF said on May 10 that “significant financial sector challenges, declining real estate prices and weak domestic demand” were hurting the Dutch economy.

Dijsselbloem, 47, is seeking concessions from Europe on ABN while he negotiates with regulators on a rescue plan for another bailed out bank, SNS Reaal NV.

EU Talks

The government nationalized SNS Reaal, the fourth-biggest lender, in February at a cost of 3.7 billion euros to taxpayers, widening the budget deficit as a portion of GDP by an estimated

0.6 percentage point this year. The European Commission objected to proposals by Dijsselbloem to involve Rabobank, ABN Amro and ING in the rescue on the basis that it would violate takeover bans imposed on the two lenders, the minister said on Feb. 1.

Dijsselbloem has said he will seek to resist further limitations by the EU on competition as he prepares a restructuring plan for SNS, scheduled to be completed by August. He said in a letter to parliament on May 21 that he spoke to European antitrust chief Joaquin Almunia about “the undesirability of price leadership bans on the Dutch mortgage market, partly in light of the nationalization of SNS Reaal.”

The European Commission has expressed its own concerns about the country’s housing market. Tax incentives on property are leaving Dutch households with high levels of mortgage debt and vulnerable to fluctuations in house prices, the commission said May 29. Furthermore, imbalances and rigidity in the housing market are hurting the economy, it said in a report.

The case is T-319/11, ABN Amro Group NV v. Commission

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