Search This Blog

Friday, 4 February 2011

De Nederlandsche Bank (DNB) gets two chairmen; how Dutch politics solves the right problem in the wrong way

"He's got the right ta-ta,
but the wrong ho-ho."

The reputation of the formerly majestic Dutch National Bank “De Nederlandsche Bank” has taken a number of serious blows over the last years:

First there was the debacle with the take-over of the ABN AMRO Bank by the trio RBS, Banco Santander and Fortis Bank. This led to the collapse of both ABN AMRO and Fortis Bank and got both other banks in serious financial trouble. The DNB did nothing to stop this merger, although Nout Wellink, chairman of DNB 

"had some serious reservations in advance of this merger".
He did nothing and warned nobody...

Second blooper was the Icesave drama: Icesave was an Icelandic savings bank that wanted to attract Dutch and British savers in order to invest money in its mother-bank Landsbankki. In a period of months billions of Euro's were collected and disappeared in a black hole until Icesave went suddenly bankrupt.  It became clear after Icesave defaulted that it had been a total scam from the beginning and Landsbankki was already technically bankrupt before Icesave even started in The Netherlands and Great Britain.

This drama ruined people that had put more than 100,000 EUR in their Icesave Savings account. This amount of 100,000 EUR (was 30,000 EUR) was the limiting value for the Dutch contingency fund which repaid Dutch savers in case of bankruptcy of a bank. It also ruined Dutch taxpayers for the guaranteed amount of 100,000 EUR.

Nout Wellink responded in his distinctive way: “ We had serious reservations when Icesave entered the Dutch banking market, but we couldn’t do anything?! Our hands were tied to our back”.
Also towards ING Bank, the largest bank in The Netherlands and current 12th largest bank in the world, DNB showed very poor control.  In its heyday in 2008 this bank had a leverage of 70:1 for the debt: equity ratio and it had a substantial amount of subprime and Alt-A mortgages, among other inexpedient investments. This financial situation almost destroyed the bank in 2008.

Icing on the cake, as far as the DNB bloopers concerned, was the bankruptcy of DSB Bank (Dirk Scheringa Beheer) in 2009.

DSB, a middle-large, privately owned bank in The Netherlands was founded by Dirk Scheringa, a former policeman. The bank started 35 years ago as a small bureau in credit facilities, Frisia Financing. It developed throughout the years into a full-service bank with:
-         a balance total of 7.8 billion EUR;
-         250,000 savers (value 3.1 billion EUR);
-         150,000 loans and mortgages to customers (7,1 billion EUR)
at the moment of its demise in 2009.

During its lifetime the bank had a reputation of loansharking, conditional sales and bleeding their customers dry with unnecessary insurances (paid in the form of a lump sum) and hidden costs. These hidden costs were so enormous that people in some cases ended with a total mortgage amount that was twice the value of their home. Commissions on insurance products were f.i. up to 80% of the lump sum that had to be paid.

At the moment that it became illegal to force people into buying unnecessary insurance products, the earnings model of the bank vanished into thin air. From that time the bank started to bleed money: all kinds of people filed charges against DSB Bank and contacted national television with their complaints. This scared away savers, as the bank became more and more of ill repute.

The final blow for DSB Bank came when a well-known whistleblower, Pieter Lakeman, instructed all savers of DSB to collect asap their savings, as the bank would be technically bankrupt. Like with every self fullfilling prophecy, this was exactly what happened to DSB Bank. Pieter Lakeman was the person who got the blame from government officials and the DNB, but the only thing he did in fact was showing that the emperor didn’t have any clothes.

All this time – from the time of establishment of DSB Bank in 1998 on the foundation of Frisia Financing, until its demise in 2009 - Nout Wellink did what he used to do: nothing, except for yapping afterwards that “his hands were tied and he couldn’t do anything, as banking rules prohibited this”.  And all these 11 years the writings were on the wall for those who wanted to see and listen.

In 2010 even Dutch politicians in their infinite wisdom discovered that Nout Wellink was not the right person for leading the DNB a third term. That sounded promising…

But instead of looking for a stronger figure to lead the national bank through these trying times and instead of directing this person to be more proactive towards the Dutch banks in general and in particular to focus on liquidity and solvency, they decided that DNB needed a two-person leadership.

The president of DNB would focus only on supranational monetary issues and the vice-president and chairman of the Executive Supervision Counsel would execute all daily supervision on the Dutch banks. In case of a dispute the President of DNB would have the final word.

Although this approach is not officially rule-of-law, the Dutch 2nd chamber will today probably confirm this legislature.

This is a clear display of “ The right ta-ta, but the wrong ho-ho” : if the President and the Vice-President remain extremely weak persons that let themselves easily be taken in by the CEO’s of the large Dutch banks like ING, ABN AMRO and Rabobank, every change in the governance structure will be in vain. And believe me: those CEO’s will be there and they will fight for their banks’ interests, which not necessarily are the interests of Dutch consumers.

It is always the same with politics concerning these kinds of banking issues: they always try to lock the stable door after the horse has bolted. And to make matters worse: they take the wrong decisions.


No comments:

Post a Comment