Dutch Court May Order Compensation for SNS Reaal Bondholders

A Dutch court said it will probably order the government to compensate investors for bonds and shares seized during the February rescue of SNS Reaal NV.

The government’s valuation of zero for the assets appeared to be incorrect and wasn’t sufficiently substantiated, Judge Peter Ingelse said in a statement at the Amsterdam Court of Appeal’s Enterprise Chamber today. The court will appoint investigators to define the compensation required, he said.

SNS Reaal was nationalized after real estate losses brought it to the brink of collapse. Finance Minister Jeroen Dijsselbloem wiped out investors’ holdings of stocks and subordinated bonds to reduce taxpayer costs of the bank’s rescue by 1 billion euros ($1.3 billion). He refused to offer investors compensation, saying their holdings would have been worthless had the firm been liquidated.

Dijsselbloem’s seizure of the assets “implies his offer doesn’t completely compensate damages suffered,” Ingelse said.

Investigators should assess the appropriate level of compensation, taking into account factors such as what a bidder would have paid for the company, its prospects and the price at which securities were trading before the expropriation on Feb. 1, he said. The probe will also look at whether financial aid granted to SNS in 2008 increased the value of the assets.

’Extremely Satisfied’

“We are extremely satisfied” with the ruling, Paul Coenen, a spokesman for Dutch investors’ group VEB, which represents more than 8,000 SNS investors, told reporters. “We can now move on with an independent study into the value of the securities.”

The government awaits the investigation’s outcome “with confidence,” Geertje Janssen, a spokeswoman at the Finance Ministry in the Hague, said in an e-mailed response to questions. Today’s ruling can be appealed at the Netherlands’ highest court, a court official said.

Earlier today, SNS offered to pay 50 million euros to some subordinated bondholders. They weren’t properly informed of risks associated with buying participation certificates sold in June 2003, SNS said in a statement. The payment includes the nominal value of the debt plus interest equal to 10-year government bond yields, it said.

Rescue Costs

Stichting Beheer SNS Reaal, the foundation that was the company’s biggest shareholder, is also among investors challenging the government’s writedown of the assets, saying the terms of the nationalization unfairly penalized it.

The rescue has cost the Netherlands 3.7 billion euros in write-offs and capital injections. The state is also providing another 6.1 billion euros in loans and guarantees.

Dijsselbloem, appointed in November, became the first Dutch finance minister to use powers granted under legislation introduced last year 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. The government must compensate investors taking into account a bank’s prospects had it not been nationalized, the law says.

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