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Monday, 23 April 2012

The Dutch cabinet of PM Rutte, with its silent partner Geert Wilders, has imploded, due to a mixture of lacking stability and credibility and rude politics at many occasions. Will the rating agencies pull the trigger on the AAA-rating of The Netherlands?

Sometimes my wishes are fulfilled more quickly than I dared to hope myself. Last week I wrote in the article The Netherlands: Closed for the holidays… until further notice  the following snips:

In spite of pictures with exuberant displays of friendliness and cosiness between especially the PVV and VVD and the obligatory chitchat of the ever-laughing and smiling PM Rutte, there is a hardfought battle going on between three parties that cannot afford to blow up the cabinet, but don’t want to give eachother another inch of leeway.

The PVV understands that the current silent partnership is as close to having government power as it will ever get, but doesn’t want to lose votes from its ever dissatisfied grassroots.

The CDA is already very sorry that it ever stepped in the current government with PVV, but understands that it will be blown away if the cabinet stumbles and falls.

The VVD suffers from a lack of longterm goals and ideology, but is extremely proud to deliver the first PM since the beginning of last century.

My take: the current lame duck-government with its impossible conformation has wasted two valuable years without really fighting the credit crisis at home and abroad, while alienating everybody and their sister. The sooner it resigns, the better.

And resigning the cabinet did. After another session in Het Catshuis, Geert Wilders of the PVV (Party for Freedom) decided on Saturday, April 21st to pack his bags and leave the rest behind. Although his exact reasons are still unclear, it could have had to do with the fact that he didn’t want to lose votes from his grassroots. Sticking around with the cabinet would force him eventually to accept nasty austerity measures, targeting his most loyal voters: elderly Dutch citizens with small pensions and lower-educated people in awkward positions at the labor market, whose jobs are under fire of workers from South and East-Europe.

Another reason that is mentioned in the newspapers, is that Wilders wants to opt for a position at an American conservative thinktank, like the American Enterprise Institute. There he could live and work in relative comfort, peace and quiet, away from the necessary 24h protection by bodyguards that is surrounding him every day in The Netherlands. His battle might be fought now after eight difficult years as a maverick leader in the Second Chamber

Whatever his reasons were, Wilders couldn’t have picked a worse time for his fellow-parties in the cabinet:

The Christian-Democrat CDA is still in a period of rebuilding and finding back its confidence, after the enormous blows that the party received during the last series of elections in The Netherlands. To make things worse, the current polls are even more devastating than the outcome of the last elections for the Dutch senate: 12 seats vs 22 seats (number converted to Second Chamber seats) in March, 2011.

In comparison: in the past the party in the center of the Dutch political landscape won easily more than 45 seats during parliamentary elections.

However, there is one glimmer of hope: currently, the CDA seems to change slowly from a spineless wherever I lay my hat, that’s my home’-party without any visible principles whatsoever, into a party that says ‘yes’ where it can, but ‘no’ where it must do so to remain credible. That is a big relief.

The VVD, blinded by the success of the unexpected victory of their leader Mark Rutte at the last parliamentory elections, is currently still the biggest party. However, during the 1.5 years of its reign with the CDA (and PVV), the party introduced a new policy, best described with the sentence ‘the unbearable lightness of being’. Main feats of arms: increasing the maximum speed at highways to 130 km/h and trying to make life for illegal aliens and asylum seekers as miserable as possible, in order to drivel with the electorate of the PVV.

Concerning the indispensable reforms that should be applied to the labor market, the housing market and the pensions, the policy of the VVD/CDA/PVV cabinet during the last one-and-a-half year could be easily summarized as: ‘kicking every can as far down the road as possible’. The result of this cabinet was an enduring political and economical stalemate in The Netherlands, turning the country from a leader in Europe into a trailer.

Icing on the cake of this cabinet was the bunch of political bunglers that were collected as ministers:

  • Jan Kees de Jager, the bigmouthed Finance Minister who was constantly bullying the PIIGS-countries and who was urging the EU to maintain the European Stability and Growth (SGP) Pact “To a T”, until the moment that The Netherlands itself couldn’t follow the SGP anymore. Since then, he is hoping and praying that the EU will give him absolution for missing the SGP targets, which it won’t;
  • Hans Hillen, the clumsy defense minister, who was haunted by scandals during his short period and who planned a small invasion on Somalian turf;
  • Foreign Affairs Minister Uri Rosenthal, who lost a helicopter in Libya and alienated all his fellow EU Foreign Affairs ministers with his torpedoing of a united European policy towards the Middle-East, because it was too harsh on Israel;
  • Gerd Leers, the Minister for Immigration and Asylum policy, whose policy as a minister was 180 degrees different from his stance as mayor from Maastricht, under influence of the PVV. Seldom a minister has been more incredible than Gerd Leers during his period;
Except for perhaps Henk Kamp, the relatively honest and straightforward Minister of Social Affairs, this cabinet has been a total failure.

Even the sworn friends of Mark Rutte and his cabinet, the Dutch entrepreneurs and employers, rewarded his cabinet Mark Rutte I with a poor 5.4 (out of 10) last Friday.

Although you can’t blame all ministerial blunders, weak policy and rude rethoric of the PVV on Mark Rutte, he IS the person who was responsible during the last 1.5 years. As a sign on the desk of the American President says: ‘the buck stops here’.

Concerning the PVV, PM Mark Rutte has too often assumed the ostrich position and that will be held against him now. Just like the often rude Dutch policy of Rutte and De Jager towards other Eurozone members, especially the ones from the peripheral countries.

It was no surprise that even in The Netherlands you could hear the scornful laughter last weekend, coming from Madrid, Lisbon, Rome, Athens AND Brussels, if you listened well. ‘Now it’s our turn’, was probably the thought most common among the European peripheral leaders and EU representatives.

What happens next?

Mark Rutte has resigned at Queen Beatrix today. This means that his cabinet is demissionary and new elections will be held later this year. The One Million Dollar-question is now: when will these elections be held?

A qualified majority of the Second Chamber is in favor of elections in the middle of June, 2012, but the CDA and some very small parties are very much opposed against this plan as it leaves them too little time to reorganize themselves. A later possible date is Mid-October, 2012.

The former date leaves the parties very little time to prepare for the elections, while the latter means that the current unstable political situation will last for another nine months at least. In this time of economic hardship, this is an undesirable situation.

One thing is for certain: Mark Rutte has an EU deadline ending at April 30, for producing a new budget that reduces the initial 4.6% budget deficit in 2013, as forecasted by the Dutch Central Planning Bureau, to a 3.0% deficit.

Today, in ‘the corridors’ the EU tried to apply all possible pressure on The Netherlands, stating that there would be no exception for the country, as it was above all the cabinet of Mark Rutte that advocated the tough preservation of the SGP budget deficit threshold of 3%.

Also the financial markets showed very little patience with The Netherlands today: the spreads between Dutch 10y sovereigns and German Bunds rose to 82 basis points, the highest level since 2009, according to Het Financieel Dagblad. This spread might even increase further tomorrow, when 2y and 25y bonds to the amount of €2.5 bln are auctioned. The success of this auction might decide the immediate financial future of The Netherlands

Finally, there are the rating agencies Fitch, Moody’s and Standard and Poor’s, who had The Netherlands already in their crosshairs during the last months. S&P put The Netherlands on a negative outlook in January 2012, while Fitch fired a warning shot last Friday, through their expert on The Netherlands, Chris Pryce.

Whatever will happen in the coming months, the Cabinet of PM Mark Rutte caused The Netherlands much harm with their mixture of lacking stability and credibility and  rude politics at many occasions. It will be a helluva job for the next government to repair the damage done.

When proven in the court of law, the Vestia case would show the moral bankruptcy of some business banks. ‘Should we pull the plugs the next time when such a bank needs government money?’

It was clear from the beginning that the Vestia case would be baffling from a Dutch point of view, due to the enormous amount of money that was involved in it (€2.5 bln and probably more) and the fact that one of the counterparts of Vestia was the stateowned Dutch bank ABN Amro. However, the latest sequence of events, since last week, is even shocking me.

With the arrest of Marcel de Vries of Vestia and Arjan Greeven of FiFa finance a cesspit of iniquity has opened that should send shockwaves through the banking world and European politics.

Last week, I was still assuming that the commission fees of ten times the normal amount that were paid on the interest rate swap transactions between Vestia and a number of business banks were like a one off-incident. Reprehensible, but a relative exception.

The fact that De Vries had been treated like a VIP in London on a number of occasions was also disturbing, but seemingly not uncommon as the anonymous witness of Deutsche Bank in the following snip was treated accordingly:

“Marcel was sitting at the table next to us in the exclusive Japanese restaurant Nobu in the London City, together with a few employees of Deutsche Bank and about ten callgirls. He was having a wonderful time’. This was told by a customer of Deutsche Bank, who was also present at the time.

However, a story in yesterday’s Volkskrant ( seems to point out that the ‘process of putrefaction’ had been much longer present in the relation between Vestia and its business banks. Here are the pertinent snips of the newsitem:

Legal battle around possibly objectionable bankers

For years, Deutsche Bank and other international business banks have paid secret commissions on behalf of Vestia concerning the very hazardous transactions, involving billions of Euro’s.

In the derivative contracts that Vestia entered into with bankers from the London City, the banks remitted commission fees between tens of thousands and hundreds of thousands of Euro’s to broker Arjan Greeven in Laren. These payments were invisible for the supervisors at Vestia and were also not stated in the official contracts that were signed by top executive Erik Staal of Vestia.

Broker Greeven declared to the public prosecution that he let through many millions of Euro’s of these secret commissions to the meanwhile arrested treasurer of Vestia, Marcel de Vries.

This is disclosed from conversations with sources from circles surrounding the investigation into massive fraud and bribery at Vestia. The largest building cooperative in The Netherlands (90,000 tenants) was on the brink of defaulting, as a consequence of its enormous derivative portfolio, built up by Marcel de Vries.

The 42 year old Arjan Greeven, that worked for a company called FiFa Finance, received more than €10 mln between 2005 and 2010 for bringing together Vestia and the banks. The Vestia deals were arranged between sales agents of a.o. Deutsche Bank and Marcel de Vries.

The suspected flows of commission fees are investigated by the public prosecution and Vestia itself. Possible objectionable actions of the banks are crucially important for the question where the final bill for the disaster will land: at the tenants of Vestia banks or at the London Bankers.

This is exactly why I called this a process of putrefaction: banks that bribe executives of wealthy companies at key positions to deliberately risk their company through extremely hazardous and large trades. It’s truly disgusting.

In the continuing story on Vestia, the names of four banks have been mentioned: 
  • Deutsche Bank
  • ABN Amro bank
  • Barclays
  • BNP Paribas 

Of these four banks, the ABN Amro is a stateowned bank, while Barclays and BNP Paribas received many billions of Euro’s in state aid. Deutsche Bank is the only bank that did not receive state aid yet, but when its exposure to PIIGS sovereigns goes awry, it might also need state aid.

These are the same banks that seemed to have:
  • bribed people with money and other favors;
  • made fraudulent commission payments;
  • laundered money;
  • forged contracts by leaving crucial parts concerning these excess commission payments out; 

This presumed behavior of these state-supported or even stateowned banks triggers some very disturbing questions on the building cooperatives and the banking industry as a whole.

Questions that rise after the Vestia affair are:
  • Is this the tip of the iceberg or is Vestia the only building cooperative with whom this happened
  • What about other parties with extremely large sums of money to spend?
  • Is the problem that is disclosed by the Vestia affair a structural problem?
  • What should be the consequences for the banks involved? 

My take on the first question is: I am absolutely convinced that the Vestia affair is the proverbial tip of the iceberg. Why shouldn’t banks have tried this before?! Building cooperatives are parties with huge amounts of money to spend that range from tens of millions to billions of Euro’s. These are geese with golden eggs that are too juicy to let them go unharmed.

The banks that are involved have seemingly paid petty cash (a few million Euro’s) in order to reel in serious money: litterally to the amount of billions of Euro’s.

Besides that, if there is something that could have been learned from the Dutch CRE fraud affair that has been shortly described in the 2nd episode of Getting rich with real estate, it is that the amount of money involved in the real estate business is just too large to keep everybody honest.

Towards the second question, I would say that I would not bet a Euro-cent on the general honesty of all people involved in organizations with billions of Euro’s in cash to spend or invest.

I want to state: most people are definitely honest and the majority of the people working for these companies and establishments can definitely be trusted! 

However, I’m sure that many of these companies or establishments host people that are not so honest and when they are in the position to arrange these kinds of fraud, they might. So I expect that the worst has yet to come.

Third question: this is definitely a structural problem in my opinion. In theory, it should be harder to perpetrate this kind of fraud in the computer age, as the automated controls in the computer systems of banks, building cooperatives and pension funds should earlier disclose anomalies with fees and arrangements.

However, especially with these large amounts, these are always actions of humans and if the humans are flawed, so is the system eventually.

What makes this case even more worrisome is that most banks have four-eye or even six-eye controls for transactions of more than €250,000. This means that the Vestia case cannot be a case of just the proverbial ‘rogue trader’ at a further honorable bank.

If the case of Vestia can be proved towards (at least one of) these four banks, this would mean that the process of putrefaction has entered into the core of these banks.

Fourth question: When proved beyond reasonable doubt (!), these actions of these banks are a cancer in the financial system. If it is not treated, it might kill the whole financial industry.

Therefore I see only one possibility:
  • Investigate if this is a running practice within the suspected banks;
  • Remove the cancer: the people that did this within these banks.Put them in jail, just like what happened in the Enron case;
  • If there are too many people that did so within these banks, subscribe a kind of chemotherapy by putting the bank under legal restraint and subsequently fire and prosecute everybody that is involved. Don’t let the managers and executives escape.
  • If all else fails, withdraw the banking license of the business parts of these banks.
If the authorities fail to do so, the next Vestia case might be a matter of years or even months.

Concerning the final question, the one from the title, I would say: “if such a fraudulent bank needs government money to survive, it doesn’t deserve to exist. Pull the plugs…”

Thursday, 19 April 2012

The Netherlands: Closed for the holidays… until further notice.

Last year I wrote an article on the seemingly hopeless political situation in Belgium: Why is Belgium a failed state, without really being a failed state.

At the time, it seemed that the political deadlock between the Flemish and Wallonic parties in Belgium was hopeless, while The Netherlands had an irregular, but functional government.  

The Christian-Democrat / liberal-conservative minority coalition, supported by its silent partner PVV (Party for Freedom) of right-wing populist and professional insulter Geert Wilders, seemed surprisingly stable. At least, as long as PM Mark Rutte (VVD) and vice-PM Maxime Verhagen (CDA) were willing to look the other way and whistle a merry tune, when Geert Wilders and his henchmen started one of their infamous rants against the islam, left-wing politicians, the muslim population or the Polish, Rumanian and Bulgarian workers in The Netherlands.

Now, less than one year later there has been an enormous reversal of fortune.

Belgium finally has a stable government, since December 6, 2011. PM Elio di Rupo of the French-speaking Parti Socialiste (Socialist Party), a Wallonic son of Italian immigrants and renowned for fancying bow-ties, won the hearts and minds of many Belgian citizens, in spite of his mediocre knowledge of the Dutch language.

The Belgian PM managed to do so with his sensitive and emphatic public appearances:
  • after the lone wolf-attack at the St-Lambert Square in Liege that claimed five lives;
  • after the Sierre, Switzerland schoolbus disaster that claimed the lives of 28 people, of which 22 children; 
Although not all political and financial problems are solved yet, it seems that Belgium has a relatively bright future ahead after its return to political stability.

How different is the situation in The Netherlands nowadays:

Seven weeks ago, the Dutch Central Planning Bureau (CPB) reported that The Netherlands was going to hit a 4.5% budget deficit in 2013, if nothing changed. This figure was later even revised to 4.6%.

Under pressure of the EU Stability and Growth Pact (SGP) and the circumstance that The Netherlands had not been able to meet the budget deficit threshold since 2009, The Netherlands is now forced by the EU to reduce its budget deficit to the maximum 3% limit that the SGP prescribes.
This would be a reduction amounting to €9 bln. 

However, the CPB calculated that The Netherlands needs in reality €12-€16 bln in additional austerity measures to meet this €9 bln threshold. This is caused by the so-called ‘yield-reducing spendings-effect’: extra expenses as a consequence of deployed austerity measures, reducing the effect of these measures.

An aggravating circumstance is that PM Mark Rutte and Finance Minister Jan Kees de Jager behaved themselves like the school-bullies of the EU. During the sovereign debt crisis in the PIIGS-countries, this dynamic duo used very big words against Greece, Spain, Portugal and Italy, as a public display of their gung ho-mentality.

The effect was reinforced by the PVV, that had been steering the relations with several countries in the Euro-zone to the edge of the cliff, with an endless mudflow of platitudes and preconceived opinions on the South- and East-European countries of the EU.

So when Jan-Kees de Jager meekly went to the EU with the painful message that The Netherlands perhaps was not going to make the 3% budget deficit in 2013, he was encountered by scornful laughter and embittered faces of all countries that De Jager himself didn’t want to give a break earlier. “Three percent and not a penny more”, was the message of the EU that De Jager took home to The Hague.

PM Rutte decided to call his own party the VVD, the CDA and PVV together at the official residence of the PM, Het Catshuis, for private and secret talks on mitigating the 1.5% excess budget deficit with additional austerity measures. Since then, The Netherlands is closed for the holidays... until further notice.

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It is understandable and even honourable that Mark Rutte wants the talks to take place in absolute secrecy. These talks are exactly the kind of wheeling and dealing that could give politics a bad name when it was executed in openness, but which is indispensable for getting to real results. Like the former PM Jan Peter Balkenende said once: “you better not disturb a brooding chicken”. At least he was right about that.

However, the process is now in its seventh week and all these weeks the country is in fact without a government and with a parliament that is deaf, dumb and blind as it is hardly informed by the insiders in Het Catshuis.

The situation is very difficult indeed, as all three parties have their pet topics and taboos:
  • The PVV is strongly in favor of diminishing development aid, reducing immigration, being harsher against petty crime, especially when coming from foreigners and non-native Dutch people.
  • At the same time the party is very much opposed against raising the retirement age, reforming the labor market, reducing social security programs and abolishing the Mortgage Interest Deduction (MID).
  • The CDA is strongly in favor of slowly diminishing the MID, reforming the labor market, increasing the retirement age and reducing social security programs
  • The party is strongly opposed against diminishing development aid and it is in general getting more and more annoyed by the blunt and ultra-conservative PVV
  • The VVD promised to keep the MID unchanged, but wants to strongly reduce the length of Unemployment Benefit, to make it easier to lay off workers and to moderate social security,
  • At the same time it makes the entrepreneurs and high-ranked managers the heroes of Dutch society, while largely ignoring the desires of the other 14 million Dutch citizens, by raising their taxes (VAT f.i.) and lowering their subsidies. 

In spite of pictures with exuberant displays of friendliness and cosiness between especially the PVV and VVD and the obligatory chitchat of the ever-laughing and smiling PM Rutte, there is a hardfought battle going on between three parties that cannot afford to blow up the cabinet, but don’t want to give eachother another inch of leeway.

The PVV understands that the current silent partnership is as close to having government power as it will ever get, but doesn’t want to lose votes from its ever dissatisfied grassroots.

The CDA is already very sorry that it ever stepped in the current government with PVV, but understands that it will be blown away if the cabinet stumbles and falls.

The VVD suffers from a lack of longterm goals and ideology, but is extremely proud to deliver the first PM since the beginning of last century.

Here is the perfect recipe for an enduring stalemate and that is exactly what The Netherlands got.

On occasions, there are rumours that a general agreement is very close, but one look at the obligatory smiling faces of the participants of these talks tells a different story.

The stalemate is not only starting to bore and annoy the opposition parties, but also the labor unions, the entrepreneurs and representatives of the employers’ associations. Besides that, there is a deadline: before the end of April, PM Mark Rutte has to report his countermeasures against the budget deficit to the EU. Not meeting this deadline would be an enormous loss-of-face for The Netherlands, as well as not meeting the SGP 3% deficity threshold.

Even Fitch has been firing a warning shot today at ‘The Netherlands and its AAA-ratings”. In this case, Chris Pryce of Fitch was the messenger of bad news in an interview with Ambrose Evans-Pritchard of the Daily Telegraph ( Here are the pertinent snips of this interview:

Fitch Ratings has issued the clearest warning to date that Holland faces losing its AAA rating if it fails to deliver austerity cuts or lets political conflict intrude on economic management.

"The Dutch are on the edge of a negative rating action," said Chris Pryce, Fitch’s expert on the Netherlands. The first move is likely to be a switch from stable to negative outlook rather than a full downgrade.

"We will hold a rating committee meeting in June. They run risks if they keep letting debt rise: a cautious approach would be advisable," he told the Telegraph.

The warning comes as Dutch property tips into deeper slump, with the inventory of unsold homes nearing South European levels. Household debt is the eurozone’s highest at 249% of income, compared with 202% in Ireland, 149% in the UK, 124% in Spain, 90% in Germany, 78% in France and 66% in Italy - according to Eurostat data from 2010.

The Netherlands is caught in a "negative feedback-loop" as recession and house price falls feed on each other. Building permits have dropped 9% from a year ago, the lowest since 1953. "The housing market is in a coma," said the Volkskrant newspaper.
Maarten van der Molen from Rabobank said home prices have fallen 11% from their peak in August 2008, or 15% in real terms, leaving up to 500,000 people in negative equity.

The economic woes are infecting state debt dynamics. Public debt will climb to 76% of GDP by 2015, according to the official Bureau for Economic Policy Analysis (CPB). A €32bn bail-out of ABN Amro Bank has not helped but the chief cause is back-to-back recessions.

The Netherlands has been a vocal critic of fiscal excess in Greece but is now in breach of EU rules itself, an unexpected casualty of the eurozone’s contractionary policy mix.

The last sentence of the article tells it all. PM Rutte is stuck between a rock and a hard place, after having a big mouth to other countries. And the odds that the cabinet might implode after all, are becoming bigger and bigger, as the negotiations go as smooth as an engine without lubricant.

While the opposition parties are very much in favor of new elections, the employers’ associations, the Dutch entrepreneurs and various pundits are very much opposed to this plan.

Main complaint: it would take at least nine months to put together a new, elected cabinet and to make it govern. 

Rather these people want to have a so-called business cabinet, existing of the current parties (of course without PVV), with additional representatives of trade and industry and perhaps some special interest groups, like labor unions and employers' associations. Such a government could start without new elections, 'in order to take care of the shop'.

My take: the current lame duck-government with its impossible conformation has wasted two valuable years without really fighting the credit crisis at home and abroad, while alienating everybody and their sister. The sooner it resigns, the better.

The CFO, the broker and the bank: Vestia derivative disaster seems suddenly more than ‘just a case of megalomanic trading’

The affair surrounding the Rotterdam-based building cooperative Vestia at the beginning of February, 2012, seemed like a simple bread and butter case:

“The largest building cooperative in The Netherlands, Vestia, that has a slightly megalomaniac chairman and a ‘masterplan’ for the future, wants to hedge its interest risks by using interest rate swaps.

Instead of just hedging the invested amounts at risk, the cooperative decides to speculate at the interest market, expecting that the official Euribor rates would soon go up again. The cooperative buys interest rate swaps covering an amount of €20 bln, while the intended investment for which the swaps were bought is not higher than €5bln.

Unfortunately, the interest rate in reality drops further, confronting the cooperative with the immediate need to make a deposit of €2.5 bln, while threatening it with exposure to a possible €5+ bln loss on the interest rates”. Simple, right?!

Read for more info on the Vestia affair:

So, after a blazing start the Vestia case started to smoulder like a heath fire: the newspapers did their job, the politicians made their standard blah-blah of disapprovement and ‘need for new legislation and supervision’ and everything took its normal cause. Until a few days ago…

The Public Prosecution in The Netherlands orders two arrests: Marcel de Vries (the former treasurer of Vestia) and Arjan Greeven, owner/director at Greeven Holding and Greeven Invest aka Fifa Finance, a brokerage firm. The duo is suspected of fraud, using the unusually high commission fees of the interest swap trade as kickbacks for themselves. And the banks involved with this supposed fraud case? Well, these will have a darn hard time to wash their hands clean of this.

Here are the pertinent snips from an article in Het Financieele Dagblad (

Arjan G[reeven – EL] of Laren, Het Gooi-based firm Fifa Finance is suspected of bribing Marcel de V[ries] from Vestia.

The second suspect of the Public Prosecution in the Vestia case turns out to be broker Arjan G. This is confirmed by his sollicitor Willem Koops of law firm Spigthof on Monday April 16. The prosecution refused to comment.

G. intermediated at the purchase of derivative contracts by the large building cooperative Vestia. According to Koops, the broker himself brought this corruption in at the public prosecution. On account of his call, the prosecution started an investigation into non-public bribery. Last week, the word was spread that also Marcel de V, the former treasurer of Vestia, was targeted as a suspect of fraud by the prosecution.  De V. as well as G. are suspected of non-public bribery, money laundering and tax fraud. According to a reliable source, G. received unusually high commissions for his services rendered. G. received his commission from the bank, who charged these amounts to Vestia. Supposedly, De V. received kickbacks out of these unusual commissions, that – so it is told – were ten times higher than usually.

‘G. went to the prosecution with information some time ago’, according to his lawyer Koops. Koops stated that G. had the conviction that this information could bring Vestia in a better financial position and could add to the final settlement of its derivative portfolio.

This could mean that the facts, that are currently under investigation of the Public Prosecution, could be of substance for the assessment of the role of the banks in this case. Koops doesn’t want to confirm this, however. Possibly these facts give Vestia the opportunity to partially rescind the derivative contracts. This possibility is offered by the Dutch law when agreements are made under fraudulent circumstances.

As inquiring minds already know from reading the aforementioned older articles, the most important banks involved in Vestia’s case are ABN Amro and Deutsche Bank, with a minority share for Barclays and BNP Paribas. ABN Amro has been a big shot in OTC (over-the-counter) derivatives trade for a long time; long before the bank was taken over by the troika Santander, Fortis and Barclays.

Deutsche Bank is the owner of a former subsidiary of ABN Amro, Hollandsche Bank Unie (HBU) and currently occupies the former office building of ABN Amro in Amsterdam Zuidoost (i.e. south-east). These banks are ‘more than just friends’.

What lends a certain piquancy to this case is the fact that ABN Amro is a stateowned bank and the circumstance that this possible fraud presumably took place during the time that the Dutch state was already a 100% owner of the bank. The circumstances that the bank and its partners offered derivative contracts ‘beyond reasonable amounts’ and supposedly paid commission fees that were ten times higher than usual, make this a very sticky, nasty case for the state-bank.

Talking of moral hazard: in this suspected fraud case, the taxpayer is probably financial victim number one. Either the taxpayer pays to mitigate the financial risks at Vestia, half a dozen other building cooperatives and the WSW (Guarantee Fund Social Housing) that shared a large part of Vestia’s financial burden, or he pays to mitigate the financial risks at the ABN Amro. Suffice it to say that BNP Paribas and Barclays also received state-support and are considered – together with Deutsche Bank – to be ‘too big to fail’.

And the story gets better and better. Today, the Telegraaf published a news story that ABN Amro and Deutsche Bank gave treasurer Marcel de Vries of Vestia a VIP-treatment in London at many occasions:

Marcel de V[ries], the financial top executive of Vestia and suspected of fraud to the tune of  several millions of Euro’s, was a monthly guest in the London jet set nightlife. These trips were at the expense of the banks where he spent for €10 bln in useless interest rate swaps.

During this monthly trip to London, De V. enjoyed the finest hotels and restaurants, accompanied by beautiful and willing escort ladies, all at the expense of the banks.

According to the Telegraaf, this was stated by several involved people, that have been witnesses of the many excesses of Vestia executive De V., who got arrested last week.

“Marcel was sitting at the table next to us in the exclusive Japanese restaurant Nobu in the London City, together with a few employees of Deutsche Bank and about ten callgirls. He was having a wonderful time’. This was told by a customer of Deutsche Bank, who was also present at the time.

De V. is told to be flown in regularly into the British capital, by a.o. Deutsche Bank and ABN Amro, to receive his regular and diverse VIP-treatment.

As these witness stories are always of the anonymous kind, there is no hard evidence in this story yet. We have to consider this a rumour, until this story is proven valid by the public prosecution. Therefore I am not the person to judge either ABN Amro or Deutsche Bank.

However, think of it this way. Why would a sane representative of a sane company / semi-public body buy more than four times as much derivative contracts as his company needs, while paying ten times the normal commission fee, thus risking the financial future of his employer and hundreds of thousands of tenants all over the country?

The only logical reason, if someone is not a megalomaniac fool that has lost some vital threads in his mind, is that the person receives kickbacks for it. Sometimes these kickbacks come as greenbacks (or bridge-backs as far as the Euro’s concerned). And sometimes these kickbacks wear skirts and look pretty. And the bill? That is for the Dutch and European taxpayers, eventually.

Thank you?! You’re welcome!

Monday, 16 April 2012

Getting rich with Commercial Real Estate Pt VI: Get rich or die trying!

In our continuing saga upon the Dutch real estate market, there are even more dark clouds up ahead than before.

I wrote in the latest episode Getting rich with real estate Pt V: Game Over? on the unfortunate adventures of Hanzevast Capital in the land of Dutch Commercial Real Estate (CRE). At this time, it was already hardly possible to put away the misfortunes of companies like Hanzevast and Uni-Invest as isolated cases. However, the ranks of the other Dutch real estate companies, pension funds and the large banks, like Rabobank, ABN Amro and ING Bank, still remained closed.

This might change very soon. While the Dutch stakeholders in the CRE business show ‘the eternal sunshine of the spotless mind’, their foreign competition seems ready to throw the towel, according to an article in the Dutch financial newspaper Het Financieele Dagblad (

The latest plan of foreign companies, owning large portfolios of second-rate Dutch Commercial Real Estate, is to organize large auctions in order to sell their portfolios and cut the losses.

While probably being a sensible move for the companies to whom it concerns, it is like the absolute nightmare scenario for the Dutch companies ‘keeping up appearances’. ‘Blast, now the people discover that the emperor doesn’t have any clothes on’.

Here are the pertinent snips of this FD article:

Foreign institutional investors are planning to auction for billions in Dutch second-rate office buildings.

The pressure to sell comes from a tidal wave of maturing real estate loans, while the possibilities for rolling over credit lines are extremely limited. Many loans are under water, as the value of the office buildings is much lower than the amount of money being borrowed for it. This puts further pressure on a market that is haunted by structural vacancy. There is hardly any outlook on market improvement, according to an expert, which forces more and more investors to take their losses.

Until now, especially the CRE portfolio of CRE management company Uni-Invest was notorious. An outstanding, matured loan of €600 mln was the reason for an auction of 200 office buildings at a discount of 40%. The auction failed totally as no buyer showed up. Tomorrow, the bondholders of Uni-Invest are voting on a solution.

However, data of credit rating agency Fitch disclosed that Uni-Invest is just a prelude: until 2017 almost €6 bln in credit lines on second-rate office buildings must be rolled over. A quarter of this stock has been financed with loans that have already matured, without being paid off. To this €1.5 bln amount, there is only €90 mln in loans that have been paid off in time. ‘This is a very bad omen’, according to Hans Vrensen of real estate advisor DTZ, based in London.
ABN Amro estimates that investors have a total of €50 bln in outstanding loans on Dutch CRE.

Can the problem not be rolled over? ‘That is not the style of foreign bondholders’, according to Nard Schuddebeurs of real estate specialist Jones Lang LaSalle. The €6 bln in maturing loans are so-called commercial mortgage backed securities (CMBS’s). These are loans with CRE as collateral, that have been packed, split up and resold to foreign investors. Schuddebeurs:’Foreign investors and banks are less willing to do what the Dutch banks do: rolling over the problem until one day the sun starts shining again on the Dutch CRE market. They take their losses and care less about the stability in The Netherlands.

Other specialists speak also of ‘the majority of loans on office buildings outside the A-locations, being underwater, where the pain should still be taken’.

Two snips from Pt V of this saga from March 15, just to remind you:

‘Uni-Invest owns real estate of the wrong kinds and vintages in exactly the wrong places. That’s a shame, but never mind! We [all other investment companies – EL] own prime-cut Commercial Real Estate at Triple-AAA locations. Every speculation on write-offs is strongly exaggerated. Trust us, we know we are worth it!’

I wonder if a 50% depreciation would not be more justified than even this 21% depreciation. However, such a depreciation would certainly be the end of Hanzevast Capital and its investors. And the worst has yet to come…

I think I might state that I was right when I predicted that the worst has yet to come.

Still, companies could defend themselves by stating that the office buildings coming on auction are second-rate investments, while they own CRE at A-locations. I will return: 
  • Did municipalities, project developers and the central government stop building new CRE? No, they didn’t. 
  • Is there (structural) vacancy on A-locations? Yes, there is! Even on the Zuidas in Amsterdam and on the Weena in Rotterdam; two of the best locations in The Netherlands. 
  • Is there an improvement in the Dutch economy that might soon spur demand for office space? No, there isn’t! 
  • Is there an increasing need for office buildings in The Netherlands? No, to the contrary, there is an ongoing trend called ‘new labour’ (i.e. Het nieuwe werken) that stimulates working from home for a few days per week. This might further diminish the need for office space. 
  • Even if demand improves in the coming years, will that mean that the vacant office buildings might become popular again? No, it won’t: with every day of vacancy, the office buildings become less interesting for new tenants or buyers: not energy-efficient enough, not having the right style anymore, needing too much rework to become usable etc. 
My take is: the auctions will lead to a financial disaster where discounts of 50+% must be accepted. This will finally force large Dutch owners of CRE-portfolios to cut their losses too, as assuming the ostrich position will not be sufficient anymore. This might lead to dropping bank-shares and deteriorating coverage ratios at insurers and pension funds.

To conclude with an explanation of the title of this article: It will not be so much ‘getting rich’ as it will be ‘dying while trying’. That is a pessimistic outlook, but I’m certain it will be the right one!

What a deficit on the trade balance looks like; WTO data from the GPS countries.

Last Thursday I had a chance to plug in at the database of the World Trade Organization ( .

I collected the import and export data of the GPS countries (Greece, Portugal and Spain) and I want to show these in order to demonstrate how much these countries have to do to become more competitive again. All data is of course courtesy of the World Trade Organization.

Greek exports and imports from 1990-2011
Data courtesy of :
Click to enlarge
If you look at the situation in Greece, it is clear that the Euro spurred imports to unbelievable levels in Greece, while the single currency didn’t do anything for Greek exports or competitiveness (rather the opposite). My comments in the chart are not meant to be negative about the Greeks, but rather to show how especially the North-West European countries (Germany, Belgium, Ireland and The Netherlands) profited from the fact that the Greeks could borrow money at much lower prices than before, while losing the competitive edge that having their own currency meant. Greece’s sorrow was Germany’s and Holland’s profits. Don’t forget that, as that is a true shame.

The main question over the last ten years has been: should Greece have entered the Euro or shouldn’t it. Looking at this chart, the answer is as obvious, as it is irrelevant now: it probably shouldn’t have done so. However, things are not black and white and I want to ask you not to look at it from a black and white point of view. Better think of the implications of a Europe of two speeds, where the richest countries did have and the poorer countries didn’t have a single currency. I still approve of the political choice to invite Greece, Spain and Portugal, in spite of the economic disadvantages it might now seem to have.

The most important question is now: what can Greece and the other EU countries do to make Greece competitive again. I hope that 2012 is the year that this question is finally answered, but I don’t have much confidence in it yet.

Spanish exports and imports from 1990-2011
Data courtesy of :
Click to enlarge
The same is true to a slightly lesser degree for Spain. Although Spanish exports also seemed to profit from the single currency, it were the imports that showed the real growth. In my opinion this is also a question of lacking economic competitiveness that needs to be solved by both Spain and the other EU-countries.

Last Thursday I spent so much time figuring out why the situation in Portugal deteriorated so much after 2006, that I didn’t have the time to publish a blog upon this data.

Portuguese exports and imports from 1990-2011
Data courtesy of :
Click to enlarge

To be frank, I still don’t know why this happened, but I do know that it happened and I invite my readers to share their knowledge with me about the Portuguese situation.
Tweet me a line or send a mail to the address that you can find in my profile page.

All in all, the situation of the GPS-countries during the last decade has been, that they clearly have been losing track to the North-Western Euro-countries, after the deployment of the single currency (no pun intended). Their lesser competitiveness and their difficult past until quite recently (the Seventies of the last century) made that these countries were not ready yet for the changes that the single currency brought.

Now it is time to help these countries finding their track again, instead of bashing them. This will be a helluva job for the whole EU, but it is not a job that the European citizens can run away from, if they want a stable future for the EU and all countries in it.

Sunday, 15 April 2012

Ernst's confessions: Letter to an anonymous reader

This post is a reaction to the two comments that have been put by an anonymous reader at last Friday's post of April 12, 2012. 

I will print these comments integrally here:

Hi Ernie:

How do you think the following factors might relate to the housing prices in NL?

1)The budget cuts that are being made virtually all over Europe ( less money coming into the dutch economy, internally and also due to expected decreasing exports )

2)The competition from emerging countries, causing many companies to take jobs somewhere else, not many new "vast contracts", specially among the young people who are the "fuel" of the housing market. (also the demography plays a role here)

3)The fact that until now ( except some recent changes in the aflossing vrij mortgages ) everything has been aimed to increase leverage more and more. I dont think there is much more they can do to sustain this level of prices, Just check and you will see that the drop in price is quite big, and still, the only part of the market where there are some sales are the cheapest houses, mostly. Basicly everyone went in the market during the boom, now there is nobody left to buy.

4)People will have to assume losses, it can be now, or it can be later after 30 years, when they are not entitled anymore to MID and pay the rest of their loan with no deductions and using whatever pension they have left for it.

The only sector which profits from this system is the banking sector, which simply is able to take more money out of the taxes we all pay. Or the people who sell their houses and go rent some place/leave the country.

Besides, the more amount of resources you invest in your own house, the less money that is left to go out and have a drink ( less jobs for the local businesses ), or to invest in some idea you have to create your own business as well (Since you are already deep in debt).

This last paragraph results in more and more negotiating power for international companies which do business in this country, which are actually the biggest contributors to the exporting capacity of this economy and already have a very friendly tax treatment ( Hecen the tax burden falls mainly on the average citizen ).

I honestly believe prices will not stop falling for a long time, and that the only "attractive" way of buying would be going for the cheap houses, so the loss you might have is compensated for the rent you do not have to pay. Even though buying has disadvantages like losing your negotiation power against your employer ( if they offer you a nice job 200km away, it is not easy to accept it... )

High prices are socially not good, in my opinion.

One more thing: If prices and interest rates are strongly correlated ( in a negative way )... And prices keep falling when the interest rate is quite low... what can we expect whenever they start rising ( maybe tomorrow, maybe next year, maybe in 5 years)

Hello again!

I am the anonymous from comment 1 again:

One thing I forgot, What happens if finally the EU needs to bail more countries out? The situation in countries like Spain, Portugal, Greece, etc is deteriorating really fast, and I believe it is very unlikely they are able to repay their debt. In that scenario, I think that the credit restrictions in the whole Europe would be quite bigger than now. And at the end of the day, the price of houses is made up for whatever the bank is willing to lend, since there will always be someone willing to accept their conditions.

In my humble opinion, there are many uncertainties, so in my case I will keep renting and with my suitcase packed just in case things get very wrong here. I will not be rich, but at least I will sleep nicely!

Thanks for reading and keep up the good work with your blog!

Hi Anonymous,

Thanks for your extensive comments. People like you make blogging such a nice job to do. Although I not agree with everything that you write, it is good for some mental gymnastics.

I will do my best to answer your questions with this comment. I will put this in a separate post, as your comments are very interesting for all my readers.

I had the strong gutfeeling that since 2008 we had been creating a bubble of epic proportions in The Netherlands. The average housing prices had risen from 100% in 1995 to 270% in 2007. Since then these prices had only been dropping mildly (about 10%). I reckoned that we still had about 20% to go.

Last Friday, I wanted to figure out exactly how much houses were overpriced in The Netherlands. To my huge surprise, the housing prices didn’t seem overpriced anymore, when I took the inflation and the still extremely low interest into the equasion. Compared to 1975, it was just as easy or hard to buy a house in 2011.

For me, my research was like a slap in the face. How could this be? What I also noticed from the data, however, was that in times of crisis it took a long time for housing prices to get back to the ‘realistic level’ again.

Therefore my opinion is that, although houses are not technically overpriced, in practice the prices will drop by about 10-15% in the coming 5-10 years, as it takes much time for people (and for banks and authorities in this case (!)) to get the crisis out of their system. The reduced lending possibilities will make the housing prices drop, but not by the landslide 20-30% that I expected before.

Concerning your first comment.

1)    The budget cuts will definitely have a deflatory effect on Dutch society and thus on the housing prices in The Netherlands. Domestic consumption will be down, export within Europe (the PIIGS) will be down too and unemployment will be up; in my opinion by 3% at the end of this year. The zero wage increase policy that has been advocated by the employer’s associations and by the cabinet will do its destructive work, further reducing consumption. So 2012 will be a bad year for the housing market, just like I said before. Friday’s investigation will not change much about that.

2)    Ditto; in the coming two or three years, the sometimes dire situation of youngsters will have a further deteriorating effect on the housing market. However, there is a 'but'. The aging proces in The Netherlands will make labor more scarce in the longer run (5 – 10 years), as not everything can be outsourced to the low wage-countries.

Today’s youngsters, when they will manage to stay afloat during the current difficult years, will definitely receive fixed contracts again in 5 – 10 years. Temporary contracts, as you know, work in two directions; in bad times it works for companies to get rid of their excess workers easily, but in good times, it makes it much easier for people to return to job-hopping. Companies that want to prevent that from happening with their valuable personnel, offer their people fixed contracts again.

3)    I agree with you on the leverage part. There has indeed been quite some leverage during the last years; especially among the banks that delivered excess mortgages to people, only on the idea that it was a riskfree operation with the ever rising housing prices in The Netherlands. These bankers have been morons, as far as I’m concerned, bringing people and their own banks in all kinds of trouble.

The Aflossingsvrije Hypotheek (redemption-free mortgage) is a possible weapon of financial mass destruction, especially in times when the interest goes up, as it prevents people from paying their mortgage back like they should. When mortgages of people need to be rolled over and the interest rose in the meantime, those people can be in a bad financial situation as they have to pay much higher interest amounts than before.

Therefore I do expect the housing prices to drop in the coming years ( to the earlier mentioned 10-15%).

However, you should not forget that there are still enough people left that want to buy a new house and can afford it too. People like me, that bought their house some time ago for a decent price, lived quite economically in it and didn’t use the mortgage as a slot machine to buy all kinds of unnecessary luxury stuff. People that saved money for a rainy day and don’t have any financial problems whatsoever.

For these people it is a quite good time to buy a house. Houses have become cheaper and with some firm negotiating, the price can still drop substantially before the contract is signed. If you are patient and not in a hurry to buy a house, these are wonderful times.

4)    People that sold their house in 2003-2007 and want to sell it now, will definitely have to accept some losses. However, I’m not so sure anymore about people that can wait a little longer, even if they paid a ridiculous price. If The Netherlands (Europe) follows the Japan scenario with low interests for a long time and the inflation does its job, the prices will go up again in due course, especially when the economy returns to some form of growth. Please remember, bubbles are a temporary phenomena, but even economic slumps will blow over one day. If you are not in a hurry and you can pay your mortgage, everything will be fine in the end.

I disagree with you that the banking sector profits from the current situation. The banks have a Damocles’ sword hanging above them, when large groups of people get in arrears and need to sell their house in a foreclosure. The banks would have to write off on their assets and that is the last thing they want currently (Basel III).

The real people that profit are the municipalities, as they receive real estate taxes on an excess taxable capacity (i.e. the overrated value of the house).

It is definitely true that you can’t spend money on the good things in life, if you have to pay much of your disposable income on your mortgage. This is indeed bad for consumption from both a micro and macro point of view. However, some people start their own business just to get out of financial trouble. 

If they have special skills and have the will-power to succeed in starting their business upon these skills, their financial trouble can just be the last push they need. I think that more successful companies have been founded in bad times, than in good times.

I agree that the international companies have very much (too much?) power already and receive extremely favorable corporate taxes in The Netherlands. I don’t like at all that my country has turned into a tax haven for large corporations.

Nevertheless, this will not change with the current rightwing government and even when the next government will be a truly leftwing government (CDA/PvdA/Groen Links), I seriously doubt if they will change this tax policy. It is like sponging off other countries in Europe, while making some good money in the process. I dislike it, but it is lucrative business for The Netherlands.

One more thing, if you buy a house you should buy it to live in it. Me and my wife are already living for 12 years in our house and this time passed by in a jiffy. A house is not an investment, but it is a means of living. You buy or rent one that you can afford and if you want and can afford a bigger one in the future, you can buy or rent that then. Please don’t buy a house to make money on it.

When you buy a house for a sensible price and your work moves 200 km’s away from you, you can always sell your house for the same reasonable price. However, if you ask too much money, you won’t sell it. Period!

My research convinced me that there is a strong negative correlation between prices and interest rates; the basic income of people didn’t change much over the last 35 years when you deduct the inflation rate.

Therefore, if the interest rate goes up, the price of housing will go down one or two years later. But at this moment, the housing prices might stay low too for at least the coming five years, in spite of the very low interest rates. This is caused by the heavy credit crisis that we are in, currently. 

However, if the interest rate stays about equal (and according to the plausible Japan scenario it might), then the housing prices will not drop for more than 10-15% in the coming five - ten years, I presume.

Concerning your second comment

The situation in the PIIGS gives me a migraine headache, as you might have noticed reading my other blogs. As long as the rest of the EU does not do anything to change their economic situation and remains treating those countries are pariah states, the EU might implode eventually.

However, if especially Germany and The Netherlands realize that their excess exports, their ‘beggar thy neighbour’ policies and their banks have been at least half of the problem and stop nagging about these countries, but instead start helping them, Europe might be fine eventually.

The combined economic power of the EU is still the biggest power in the world by a landslide, by GDP. If we use this enormous power to help each other, the EU will only become stronger. Look at West- and East-Germany 20 years ago and look where the country is now; on top of the world.

So there is no reason to be too pessimistic about Europe or The Netherlands, but please remain renting if this makes you sleep better at night.

And thanks for your wonderful comments.