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Tuesday, 2 September 2014

AFM investigates modus operandi of the Exceptional Management departments of large banks, regarding Small and Medium Enterprises. Possible abuse or just common sense?

The Dutch Authority Financial Markets plans an investigation into the modus operandi of the Exceptional Management departments of the large Dutch banks. These departments have been accused of enforcing unreasonable claims on the bank’s customers (mostly Small and Medium Enterprise companies) and unnecessarily pushing them into bankruptcy. 

While I think that abuse of power might have happened on (rare) occasions, I understand that banks have to play for keeps.

The Exceptional Management department (i.e. Bijzonder Beheer in Dutch) of large, modern banks often consists of two branches:
  • A ‘Restructuring’ branch, which helps customers at risk to restructure their credit lines and reduce (the risk of) their bank debt through deploying additional securities, thus helping their customers’ companies to survive enduring economic hardship or a sudden liquidity shock;
  • A ‘Recovery’ branch, which tries to recover as much of a customer’s loan or credit line as possible for the bank. This is the nuclear option, when all else has failed and there is virtually no hope for better times for the customer anymore.

As a consequence of the enduring economic crisis in Europe and especially the longterm reluctance of consumers to spend their money, the EM departments of banks have run numerous extra hours, during the last six years.

Thousands and thousands of Small and Medium Enterprise businesses had an involuntary encounter with this ‘last line of defence’ for the banks. It is recently estimated that roughly 20% (!) of Small and Medium Enterprises is handled by the EM departments, these days.  

Due to the sheer nature of their activities and the ruthlessness that especially the recovery branch must sometimes deploy, in order to recover pending loans and credit lines, this department has become the ‘boogeyman’ of the bank. When a Small and Medium Enterprise customer of a bank has to deal with this department, he is in deep financial trouble.

For quite some time there have been stories of customers – small and medium enterprises in particular – who felt fiercely pressured by this department, or even said to be pushed into bankruptcy by it, while they thought that their company had a reasonable chance for survival.

These customers earlier often felt reluctant to complain at their bank about the exceptional management department, as the bank will not only be their judge, but also their executioner, when things get really wrong.

Such stories about the EM departments were also heard by the Dutch Finance Ministry; consequently, this ministry has now ordered an investigation by the Dutch Authority Financial Markets (AFM).

The following snippets come from an article on the website of  BNR news radio:

The Authority Financial Markets is going to perform an investigation into ‘Exceptional Management’ departments of banks.

These are the departments, which take care of customers and entrepreneurs – mostly in small and medium enterprises – when these cannot meet their terms for repayment and covenants with the banks anymore.

This Monday, finance minister Jeroen Dijsselbloem announced this ‘exploratory’ investigation in a letter to the Second Chamber of Parliament. The investigation will become a part of a secondary AFM investigation into the general service delivery of banks, in particular during the process of credit supply to companies.

And BNR gave some additional oral information, with respect to the investigation into the Exceptional Maintenance departments of the Dutch banks (link is Dutch-spoken):

According to some politicians, the banks are much too strict for the SME-companies, residing at this so-called ‘intensive care’ for borrowers under jeopardy. These are companies, which are experiencing (temporary) liquidity problems – especially on the repayment of their bank credit - and therefore are not able to meet the repayment terms and covenants of their loans. Over 20% of the SME companies is currently at this intensive care.

According to Eddy van Heijum, MP for the Christian-Democrat Party CDA, this puts a brake on economic growth. These companies are now stuck. Banks force them to make depreciations on their assets and to reorganize their company, which these companies might not want at all. Sometimes, the credit agreement is even totally abolished by the bank.

The problem is that companies might not go to court, as they are fully dependent on the banks.

This snippet contains a typical fallacy from a politician, who is solely thinking about the interest of the entrepreneur in question (his grassroots) and not about the interest of the bank (seemingly everybody’s enemy at the moment), which supplied him the money (see red and bold text):

According to some MP’s, like Van Heijum, it is neither due to (for instance) bad entrepreneurship, a flawed earnings’ model, too much risk being taken with borrowed bank money or simple bad luck that an SME company comes into trouble, nor due to the ubiquitous consumer strike in The Netherlands.

No, the reason is that the banks stopped the ‘gravy train’ of easy, low-interest loans and credit lines to these SME companies. Captain Entrepreneur must be worshipped at all times, as he is the genuine hero of the Dutch economy.

Instead of restructuring or withdrawing their credit lines, the banks should have helped these entrepreneurs with extra credit… and more extra credit… and even more extra credit, until the crisis is over and the sun starts shining again for everybody. That would have helped the Dutch economy to find the path to sustainable growth again. Naughty banks…!

These are the same politicians who cry blue murder, when banks come in financial trouble again, due to an excess amount of bad loans.

See for instance SNS Reaal, which was almost annihilated by a stockpile of bad loans and bad credit lines to untrustworthy companies, through its subsidiary SNS Property Finance. By the way, SNS Reaal did hardly have an Exceptional Management department at the time that the problems with SNS PF were mounting. Consequently, they were not able to recover their loans gone awry.

Because this is exactly the reason that professionally operated banks have an Exceptional  Management department: to prevent the banks from falling over themselves, due to excessive bad credit.

Ultimately, even the most professional banks make hardly any profit on their SME loans in total, but the reasons that they are able to limit their losses or even make a small profit on SME loans are:
  • They ask a considerable risk premium on their loans, which seems unfair for the entrepreneur in question, but is necessary to mitigate the substantial, general risks for the banks on such loans.
  • Their Exceptional Management departments are on top of things at this moment, refusing to postpone the inevitable actions at some of their customers in dire straits:
    • Restructuring the credit lines for their illiquid customers, while they still can;
    • Recovering the credit lines when they ultimately have to. 

The fact that no less than 20% of their customers reside at the EM departments of the large banks, proves the ‘raison d’etre’ for such departments, whether you like it or not.

Of course, there might be some cases in which the banks abused their power over the customer and perhaps some SME companies even have vanished, due to such abuse. That is terrible for the entrepreneurs in question; I fully admit that.

Therefore this investigation might be a very good thing for both the SME entrepreneurs and the banks under suspicion, as well as the Dutch MP’s, to emphasize the national rules for lending and show all parties their rights and their obligations.

However, the suspicion that Exceptional Management departments unnecessarily and structurally pinch off SME companies in a draconian way, which ultimately causes the demise of most of these SME companies, is something that I don’t buy…. And that these departments consequently hamper the growth in the Dutch economy sounds also very far-fetched. 

These departments are a very necessary evil in a time, in which the consumers keep their wallets firmly closed and the Dutch economy is yet far from healthy.

Saturday, 30 August 2014

“The European Union gets the leadership that it deserves… uuhm … wants”.

During one of the worst political crises in years – the Ukrainian-Russian war by proxy – the European Union has selected new leaders for the highest European positions. Whoever thought that – in these extremely trying times – the European Union would choose for the best and strongest leadership possible, would be in for a rude awakening today...  

With the nomination of Jean Claude Juncker as chairman of the European Commission, Donald Tusk as president of the European Council and Federica Mogherini as High Representative for Foreign Affairs, the scramble for the highest positions in Europe has finished.

What is now remaining for the coming weeks, are the nominations for the other European Commissions: very important for all the countries involved, but not a very big deal for the world as a whole.

With one look at the newly elected leaders, we can conclude that the desire of the European Council to nominate European leaders, who are not threatening towards the national leadership, has been fulfilled.

François Hollande, Angela Merkel and David Cameron can rest assured: the European Council as a whole managed to find leaders that are even more unknown, invisible and undistinctive than they are themselves, as a matter of fact:

Donald Tusk, the new Polish president of the European Council does have a Wikipedia page in the Dutch and English language and he seems to be a genuine European Unionist and a bridge-builder for East-West integration (as I read on this very page), but did you HEAR from him?! Was he more familiar to you than Herman van Rompuy, the last President of the European Council?

And did the name of the Italian representative Federica Mogherini ring a bell with you, before you had read that she would become the next High Representative for Foreign Affairs? After Lady Catherine Ashton, who has been so bleak during the last five years that even her husband hardly recognized her, when she was on television during one of those rare occasions?!

And ‘good ole’ Jean Claude Juncker is perhaps the most exuberant of the new European leaders, as most European might have heard his name once or twice and might have a vague impression of what he looks like. And they might even know that he likes alcohol and tobacco, thanks to current chairman of the Euro-group Jeroen Dijsselbloem.

As a matter of fact: I might even like the nomination of Juncker, as he is an experienced apparatchik who knows his way around in the European Union and therefore is able to fulfil this mainly executive and administrative background job.

Perhaps Donald Tusk is also able to fulfil the job of being the ‘mortar’ between the bricks formed by the 28 European countries.

When I’m honest, I really think that Van Rompuy has done the impossible at multiple occasions, during the last five years; only due to the fact that he could put his ego so far aside that he could cope with all resistance against his plans and (even) the humiliations from the European leaders, without being frustrated or angry in public.

And perhaps this Donald Tusk is also such a man with the ego of a flee, the perseverance of a woodworm and the patience of an angel. Someone who could do good deeds in silence and leave the honour for another man or woman.

Still, I can’t help but having this vision of Donald Tusk and Federica Mogherini, combinedly visiting the Kremlin to talk with Putin and Medvedev. How long would they wait in the reception room of the Kremlin? Half an hour?! Over one hour?! And would they accept it that Putin first has to finish his laps of swimming? Or his icehockey match?!

And would they accept being televised on Russian state television with their mouths shut, while President Putin is talking to them like they are naughty children in a classroom at school? Because that is what it takes when an ‘official nobody’ visits Russia.

Still, I have to swallow after learning that yet again the European Union and the European countries will continue their role as laughing stock of the western world. Taken for granted by the Americans, ridiculized by the Russians, pressurized by the Chinese and mainly ignored by Israel and the other countries in the Middle East. But taken seriously by none of the above.

During the most dangerous political crises with Russia and during the most violent disorder within the Middle East since the 1980’s – crises which put the sheer existence of the European Union and Europe on the line, like rarely before – the European Union chose yet again for virtually the weakest and most invisible leaders possible.

The 28 frogs in a wheelbarrow, which we lovingly call ‘The European Union‘, have decided that a strong and decisive European leadership is still too threatening for the national leaders. And that, as a consequence, weak and colourless European leaders are yet to be prefered above strong and visible people with charisma, attitude and the power to unite the continent and create history.

But the European population? The people who inhabit the European Union and who are dependent on the leadership of this very union for their jobs, their income, their life and wellbeing and their future and that of their children?  

These people have been hoaxed by their coward leaders. By François, Angela, David, Mariano, Mark and Matteo. And by the 22 other leaders of the European Union, who think that a weak union will make their countries and their leadership stronger.

As David Ogilvy, the worldfamous advertising man and founder of Ogilvy & Mather once stated: “If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But if each of us hires people who are bigger than we are, we shall become a company of giants”. 

Europe  has definitely chosen to become ‘a company of dwarfs’. A sad conclusion…

Chairman of the Euro Group Jeroen Dijsselbloem to German chancellor Angela Merkel, after his own ‘Caesaric Moment’: “Et tu, Brute?”

Due to German chancellor Merkel, Dutch Finance Minister Jeroen Dijsselbloem now knows that he has come in the extra time of his first and only stint as chairman of the Euro-Group. Chairman of the European Commission Jean-Claude Juncker, who was disdainfully degraded as a heavy smoker and boozer by Dijsselbloem, has the last laugh.

To these eyes in particular, the Dutch Finance Minister and current chairman of the Eurogroup Jeroen Dijsselbloem (PvdA; i.e. labour party) is a slightly controversial person. Personally, I still don’t know whether he has been ‘a prince turning into a frog’ or exactly the other way around.

I have followed Dijsselbloem since the Dutch ‘Parliamentary Investigation Committee into Education’ of 2007, in which he was the chairman. He made an impression as a serious, razor-sharp and intelligent investigator and an excellent chairman, who was asking the right questions.

At the time of the last parliamentary elections in The Netherlands in 2012, I was pleased to learn that he had been put high on the ballot list for the Dutch labour party PvdA – where I gave my vote to him – and I was even more pleased to hear that he would fulfil the role of Finance Minister in the current cabinet Rutte II.

However, since then “our” relation turned a bit sour: mostly, because Dijsselbloem kept on following the lead of “austerity, before everything”, which has seemingly been the ‘raison d’être’ of all Dutch cabinets  since the crisis started in 2008 – and as a matter of fact of many cabinets before them.

Dutch politicians are often akin to medieval chirurgeons: these chirurgeons leeched their sick and feverish ‘patients’ until their fever dropped and they became healthy again.

However, when this did not happen in time, the chirurgeons saw it as sign that they had not leeched enough blood yet. When the patient died due to urgent blood loss, it was an ‘accident’ and not a fatal flaw in their treatment of the illness.

About a week ago, I have written about the European Stability and Growth Pact, or as I  called it: the Stagnation and Gloom Pact. I am sorry to state that one of the strongest advocates of this pact – since the crisis started - has been The Netherlands, represented by the Prime Ministers Jan Peter Balkenende and Mark Rutte and its Finance Ministers Jan Kees de Jager and Jeroen Dijsselbloem.

Dutch politicians seemed deaf and blind for the needs of the South European countries since the crisis started and kept on banging the drum that ‘it had been their own fault, due to irresponsible fiscal behaviour and they – the peripheral countries – should be punished for their misbehaving in the past”.

In my personal opinion, next to the rigid German leadership of Angela Merkel and the undeniably negative influence of the German Constitutional Court in Karlsruhe, it have especially been the Dutch who can be blamed for the fact that the Euro-crisis could smoulder on for years and years, like a unextinguished forest fire.

Therefore I was initially pleased that Jeroen Dijsselbloem had been appointed as chairman of the Euro-group. I hoped that the responsibility for the whole Euro-group and not solely the Dutch interests in it, would lead to a more cooperative behaviour on his behalf and to an end of the North-European resentment against the South-European, peripheral countries, as “spongers” and “financial mess-up’s”.  This did not happen so much as I hoped, unfortunately.

Looking back at the one-and-a-half years that Dutch Finance Minister Jeroen Dijsselbloem has been chairman of the Euro-group until now, I must praise him that he did not scare away from some very tough decisions.

Early after his nomination as Chairman of the Euro-group, Dijsselbloem had got two very tough cases on his desk:
  • The imminent bankruptcy of SNS Reaal in The Netherlands, due to the inevitable implosion of SNS Property Finance.
  • The looming liquidity shock within the Cypriot banking system, which could lead to a new, devastating leg of the Euro-Crisis. 

I must admit that Dijsselbloem handled both cases quite well.

Instead of choosing for the obvious u-turn through the wallets of the Dutch and European tax-payers to save the day for SNS Reaal and the Cypriot banks, he chose respectively for:

One thing that I didn’t like at the time of the Cypriot bail-in, however, was the resentment against especially the Russian savers on Cyprus with their large deposits of black and gray money:

I can’t take away the notion in my head, that the savers needed to be punished, because some of them were RUSSIANS with probably lots of BLACK MONEY. While everybody knows that black money is a global problem, with global offenders, it seems that the word ‘Russian’ is enough to restore some of those Cold War feelings and rethorics. “Those darn Russians need to be punished”;

Or, like Dutch MP Mark Rutte said in an interview to Dutch newspaper Het Financieele Dagblad:

“We support this financial aid program with considerable reluctancy and annoyance. Especially the presence of Russian money gives me a very bad taste in my mouth. We would like very much to drop Cyprus, because of the Russian money and practices of money laundering. Still, we can’t, due to the intertwinedness of Cyprus with the other countries in the Euro-zone”.

And until this day, I can’t stop thinking that the case of the Cypriot banks would have been handled differently, when many of the large savers would not have been Russians, but rich Germans and Dutch people instead.

Still, Jeroen Dijsselbloem’s most fatal flaws – in my humble opinion - have been his open resentment against his predecessor Jean Claude Juncker and the general atmosphere of rancour and allergicness for criticism that he often spreaded in his communication and relations with people.

Things between Jeroen Dijsselbloem and former chairman of the Euro-group Jean Claude Juncker soured very quickly after Dijsselbloem’s nomination, when the latter publicly expressed his opinion that thefreshman’  Euro-group chairman had not handled the Cypriot situation decently, with his bail-in of the depositholders.

While this was not exactly a graceful thing to do of Jean Claude Juncker, the response of Dijsselbloem about a year later was not either:

And the very last political blunder of Dijsselbloem – not yet mentioned in these lines – has been that he identified his predecessor Jean-Claude Juncker as a ‘boozer’ and heavy smoker in a Dutch television program. The following snippets come from the Luxemburg (online) newspaper Wort:

(CS/vb) Eurogroup president Jeroen Dijssebloem appears to be holding something of a grudge against his predecessor Jean-Claude Juncker, calling the former Luxembourg PM a “heavy smoker and drinker” on a Dutch talkshow.

On the programme “Knevel & Van den Brink” – broadcast on Monday evening – Dijsselbloem initially avoided talking about Juncker. However, when asked if smoking and drinking are allowed at Eurogroup meetings, Dijsselbloem commented that while this has always been forbidden “the former chairman” did not stick to the rules. Dijsselbloem went on to say that Juncker is a “heavy smoker and drinker.”

During his brief, 18 months stint as chairman of the Euro-group-with-a-double-mandate, the growing irritation within the European Union about both Dijsselbloem as a person, as well as his repudiating at key moments [for instance, when he missed the annual IMF assembly, due to domestic political quarrels | see the last hyperlink - EL ], have caused that he probably will not finish the whole 2.5 years of his (first and definitely last) stint: 
  • Less than a year after Dijsselbloem’s nomination, the French forced – with some help from other countries – that ‘chairman of the Euro-group’ will become a full-time, single job, as soon as the next chairman will be elected, and not a job for a national (finance / economic affairs) minister with a double mandate anymore.
  • Very quickly too it became all too clear that Dijsselbloem is not in the running for this permanent position; undoubtedly due to his slips in the last 18 months. 
Everybody, who had serious illusions that Dijsselbloem could become the first permanent chairman of the Euro-group after all, will have been woken up rudely by the unconditional support of ‘Bundeskanzlerin’ Angela Merkel for Spanish candidate Luis de Guindos. The following snippets come from De Volkskrant:

The German Chancellor supports the candidacy of Spanish Finance Minister Luis de Guindos as chairman of the Euro-group. The Dutch finance minister Dijsselbloem now fulfils this role and his stint will finish in the summer of next year. De Guindos is Minister of Economic Affairs in the Spanish Government.

Merkel stated that De Guindos is an ‘excellent’ minister in these ‘trying times’. She supported him openly during a press conference in Santiago de Compostela.

This is what you could call a ‘caesaric moment’ for Dijsselbloem: his supposed strongest supporter Angela ‘Brutus’ Merkel decided to openly support his successor more than one year before his official period ended. In other words: Dijsselbloem has become yesterday’s newspaper.

Dijsselbloem himself reacted to this news like being stung by a bee, according to BNR:

Jeroen Dijsselbloem is certain: he will yet be chairman of the Euro-group for at least one year. His job will not be vacant, in spite of the fact that yesterday, German chancellor Merkel openly supported Luis de Guindos as next chairman.

According to Dijsselbloem ‘it is impossible to hand out a job, which is not vacant yet'. “The rumours were going around longer, so once again, I take the news for granted. I am nominated for 2.5 years by the other Finance Ministers. This period ends only in the Summer of 2015, so we will see that in a year. Not now”.

I am afraid that I have discomforting news for Dijsselbloem: his days as chairman of the Euro-group are counted and the wheels for his succession have already been set in motion. Besides that, due to his enduring feud with the new Chairman of the European Commission Jean Claude Juncker (yes, it’s him again…), Dijsselbloem will not even become “European Commissioner for Sanitary Affairs and Micro-Credits”. There is no way that Dijsselbloem will get a high position within the leadership of the European Union now, as far as I'm concerned.

To put it even stronger: when The Netherlands tries to push Dijsselbloem hard anyway, the whole country might lose the important European Commission portfolio that it so desperately wants. Dijsselbloem has become damaged goods in Europe.

This brings me back to the question whether ‘prince’ Dijsselbloem has turned into a frog during the last 18 months?! I am afraid that the answer is ‘yes’.

His good and strong deeds as Finance Minister in The Netherlands and chairman of the Euro-group abroad, have been overshadowed by some of his thoughtless and resentful actions during the past two years. 

However, there is hope. When Finance Minister Dijsselbloem sticks to his national portfolio and stimulates Cabinet Rutte to truly invest in financial, social and true economic reforms, as well as education and innovation, then this bright and intelligent minister could finally fulfil his promise and still become a great Finance Minister. 

And as he is still relatively young, there might be a beautiful European position in the future after all, just around the corner…