In the recent past,
I did my share of writing on the rise and fall of SNS Reaal NV ($SR), the
bank / insurer and fourth biggest bank in The Netherlands.
SNS Reaal had
always been a down-to-earth bank-insurer with many small savers and small, but mostly
financially sound borrowers within the Small and Medium Enterprise (SME) range.
Historically, the bank had a healthy cash position and good investments within
its comfort zone, while the insurance division consisted of two viable
insurance companies (Reaal – a general insurer – and Zwitserleven, the former Dutch
branch of SwissLife).
Sadly, the bank
became an unresisting victim of the ‘we must grow and increase our yields and
profits in order to keep the shareholders happy’-virus, among its executive officers.
With the takeover
of Bouwfonds Property Finance (continued by SNS under the name SNS Property
Finance) from ABN Amro, SNS Reaal
took clearly a much bigger bite than it could chew. Bouwfonds PF, a Commercial
Real Estate (CRE) company which had been stuffed by ABN Amro with most of
its dubious customers, became a poison pill, that slowly, but surely
killed this small bank-insurer.
At the beginning of
the credit crisis, the bank already needed financial aid by the Dutch state, in
order to remain upright, during the first difficult months of the crisis. The
bank survived the crisis by a whisker, but was never able to uprise again, due
to its millstone, called SNS Property Finance.
In January of this
year (click here,
here
and here
for my 2013 articles on this bank), the bank finally went down, under the enduring
pressure of its CRE portfolio gone awry and needed to be rescued by the Dutch
Finance Minister Jeroen Dijsselbloem through the means of a nationalization.
Current
Eurogroup-chairman Dijsselbloem had a prime with his decision to not only let
the shareholders fully share the burden, but also the holders of subordinated
bonds. In Europe, this had been unprecedented during the crisis for banks
receiving state-aid.
Every insider had already
been afraid that the European Commission would punish the bank fiercely for the
nationalization and for the fact that the bank needed state aid for an
unprecedented, second time in only five years. And so the European Commission is
supposedly planning to…
The following snips
come from an article in Het Financieele Dagblad (FD) of last Friday:
The
rescue of SNS Reaal by the Dutch state gets nasty consequences. Brussels only
wants to approve of the state support, when the bank-insurer abolishes 25%-50%
of its activities.
This
means – in almost every scenario – that at least the insurance labels Reaal and
Zwitserleven, owned by SNS, have to be sold. In the most far-fetching scenario
even bank subsidiaries, like ASN, must look for a new owner.
Yesterday,
this news became clear at the postponed presentation of the annual data for
2012. ‘Currently, we are in fierce negotiations with Brussels’, according to new
CEO Gerard van Olphen, who has been appointed by Finance Minister Jeroen
Dijsselbloem as a successor for dismissed CEO Ronald Latenstein. ‘We have to be
real; we received firm state support earlier this year. We also did in 2008. In
such a case, you will be subject to the heaviest category of penalizing. We
should seriously reckon with a balance reduction of 25% to 60%.’
SNS
Reaal already planned to abolish the real estate branch SNS PF, the source of
all problems. However, as this branch only counts for 5% of the bank’s balance,
this will not be sufficient at all to satisfy the European Commission. All
insurers combined count for 38% of the balance.
First, let me be clear. It would be more than
justifiable when the European Commission punished SNS Reaal for the erratic and
unresponsible behaviour of its former executive management, who brought the
bank to the brink of defaulting during the last six years.
These people with NO HANDS-ON EXPERIENCE AT ALL in the
field of Commercial Real Estate bought a company – Bouwfonds Property Finance –
with already a doubtful reputation at the time and an even more doubtful CRE
portfolio.
This CRE portfolio had some serious bleeders aboard: domestic
and foreign real estate projects, developed by sometimes ill-reputed project
developers, with almost blank checks from Bouwfonds PF and with virtually
non-existant controls from the mother company.
In other words, Bouwfonds PF was a car-crash waiting to
happen. SNS Reaal did buy the company, after banks like Rabobank and ING Groep NV
($INGA) gladly refused the honour of buying Bouwfonds PF.
On top of that, these SNS executives allowed ABN Amro
to fill up the company with former ABN Amro customers, some of whom spread a
serious odour of (organized) crime, fraud and dishonestly collected CRE.
Where was the due dilligence investigation? Where was
the self-control of these SNS executives to not mess around in a line of business
that they didn’t know at all?
However, that is not the point!
The point is that The Netherlands has a near-oligopoly
of banks: ING, Rabobank and ABN Amro
almost divide the whole consumer and Small and Medium Enterprise (SME) banking
market among themselves. Other banks are just too small, too exclusively aimed
at the rich and famous or they have a too narrow business services portfolio to
be true competitors for the ‘three sisters’.
SME customers would have virtually nowhere else to go for
loans and credit facilities and consumers / savers would be receiving their
insulting interest rates with some serious toothgrinding, knowing they couldn’t
go nowhere else, when there would not have been… SNS Reaal.
SNS Reaal was still enough bank to offer some
competition to the three sisters. Although the bank was small, it attracted
enough business from customers, who were dissatisfied by the other three banks
and wanted a more personal and small approach. This became especially important
after the demise and take-over of Friesland Bank by the Rabobank group.
Even today, the consumer and SME banking core is still
healthy and sufficiently profitable. According to the same, earlier mentioned
article in the FD, the banking part of SNS Reaal made an autonomous profit of €99
million in 2013Q1.
When, as a penalty for the received state aid, the
European Commission would dismantle this banking part of SNS Reaal and force it
to be sold to other Dutch or foreign banks, this would be bad loss for banking competition
in The Netherlands. Then, the banking oligopoly of the three sisters would be a
fact.
Of course, I know that something has to be done about
SNS Reaal, to prevend from false competition. On the other hand: ING Groep
received state aid, ABN Amro received state aid and is still a state-owned bank;
this makes the Rabobank the only large Dutch bank to not receive state aid.
On top of that, the Rabobank owns considerable
Commercial and Residential Real Estate portfolios, among others through its
subsidiary FGHBank. These portfolios are still booked in the balance sheets at (presumably)
overly optimistic prices. Nobody bothered yet to ask the Rabobank for a serious
readjustment of its CRE and RRE portfolios, while many insiders state that
there is a lot of vapour in these portfolios (Check out Kees de Kort in this
article).
Officials putting their head in the sand, when it comes to
balance readjustments among the large banks, could also be called a kind of
state support.
From a European point of view, SNS Reaal is a fly on
the wall, virtually without any financial meaning for the European banking
industry. The Dutch government, calling SNS Reaal a Dutch system bank was ridiculous, when you looked at the
financial data and sheer size of the bank alone.
However, for the Dutch consumers and SME entrepreneurs,
the bank is an inadmissable part of the financial industry in The Netherlands.
Losing it, would seriously diminish free choice for the Dutch consumers and
entrepreneurs.
So please, EC: give SNS Reaal a multi-million Euro penalty
and force it to sell SNS PF and both insurance branches Reaal and ZwitserLeven
to other insurance companies.
Although ‘revenge’ is not my cup-of-tea usually, I
would even applaude it when past executive managers were personally penalized for
their role in the demise of SNS Reaal: with fines of millions of Euro’s. And
perhaps, even with imprisonment for a considerable period.
These people have
ruined this bank-insurer and they have wasted billions in Dutch tax money. They
did so either out of stupidity or out of a misplaced feeling of superiority and
lack of self-reflection and objection from their peers.
Either way, this proved
to be fatal for this bank.
But please don’t kill the only bank in The Netherlands
that prevends the country from becoming a banking oligopoly.
You just can’t maintain competitiveness by killing the
competition!
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