SNS Reaal Loss Soars on Nationalized Lender’s Bad Property Loans

SNS Reaal NV, the Dutch bank and insurer nationalized in February, posted a first-quarter loss of 1.62 billion euros ($2.12 billion), exceeding last year’s shortfall, as it boosted provisions for bad real-estate loans.

The quarterly loss included 2 billion euros in provisions at the property finance unit, which will be moved to a separate asset-management organization as part of the state bailout. SNS Reaal also reported a 972 million-euro loss for 2012 and said it won’t return to profit this year, according to an e-mailed statement today from the Utrecht, Netherlands-based company.

Chief Executive Officer Gerard van Olphen, who was hired in February to restructure the bank after it was nationalized that month, said the European Union may demand SNS shrink its balance sheet by more than half. Finance Minister Jeroen Dijsselbloem took control of the fourth-largest Dutch bank after it was unable to fill a capital hole caused by losses stemming from a property-finance unit acquired from ABN Amro Holding NV in 2006, which was hurt as local property prices tumbled.

The Netherlands provided 2.2 billion euros in capital and a 1.1 billion-euro bridge loan, and wrote off a previous round of aid granted in 2008. After the additional provisions, the real-estate portfolio’s net exposure was 5 billion euros, SNS said.

The government support boosted SNS’s core Tier 1 ratio, a measure of financial strength, to 11.5 percent at the end of March from 6.1 percent at the end of last year. With the planned transfer of the property finance loans, the core Tier 1 would rise to 15.6 percent, van Olphen told reporters today.

Loan Impairments

Val Olphen, the former finance chief at insurer Achmea BV, said SNS doesn’t rule out the possibility that the EU will demand the bank reduce its balance sheet by 25 percent to 60 percent, given it received assistance twice by the Dutch state and given the amount of aid it received relative to its size.

SNS said last year’s loss included 914 million euros in loan impairments, reflecting weakening real-estate markets. SNS Reaal’s retail bank and insurance units also reported a loss of 159 million euros after incurring 602 million euros in charges, including writing down goodwill and the value of brand names.

Taxpayers are funding a 9.8 billion-euro rescue through capital injections, write-offs and guarantees. To ease the burden on the state, Dijsselbloem expropriated the bank’s shares and subordinated bonds, prompting court challenges from investors. Other Dutch banks were also forced to contribute 1 billion euros to the rescue.

The events leading up to the rescue and the bailout itself are subject to several probes and legal proceedings. SNS Reaal and public prosecutors are investigating possible fraud by employees in the property finance unit, while Dijsselbloem has commissioned Jean Frijns and Rein Jan Hoekstra to evaluate how the ministry and the central bank handled the matter.

The Enterprise Chamber of the Amsterdam Court of Appeal is considering whether Dijsselbloem was entitled to seize investors’ securities without compensating them. EU regulators, who attach conditions to member state bailouts of financial companies, will have to approve SNS’s restructuring plan, which must be submitted by August.

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