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Sunday, 30 March 2014

‘Banks are closing the ranks’, according to Het Financieele Dagblad. Is that good or bad news for investors and savers?

Het Financieele Dagblad (, the financial-economical newspaper, is one of the finest newspapers in The Netherlands and a daily source of inspiration for me. They have very good journalists and generally dig deeper than the other newspapers in The Netherlands; especially when it comes to the big (and smaller) economic stories.

Yesterday, the FD published a peculiar article about the Dutch banking industry. This industry is apparently busy with an operation to ‘close the ranks’ among each other and return to their pre-crisis modus operandi, in order to enable a new golden age for themselves.

This is definitely a new development, which comes after more than five years of forced humility, passivity and obedience: deviant behaviour for this proud and even presumptuous industry. 

Nevertheless, most people in the banking industry understood that it was time to eat ‘humble pie’. There had been a series of rescue operations by the Dutch state, as a consequence of the economic crisis hitting the Dutch banks like a cannonball. And on top of that, a number of banks had received huge penalties from the international supervisors, in order to to punish them for economic blunders or even financial misdemeanors (f.i. Liborgate).

Nevertheless, according to the FD, a new dawn for the banks has seemingly started. Here are the pertinent snips from this article.

Less than one year ago, the bankers of ING and Rabobank were heavily quarreling during meetings of their own special interest association, the Dutch Banks Association (i.e. NVB).

There was open discord about the plans to recover the Dutch housing market, the annual contribution and the number of members [with respect to the NVB - EL]. And 2013 was also the year that the other banks showed uncovered ‘Schadenfreude‘ towards the Rabobank. This bank had to deal with a violent quarrel within the board of directors and on top of that the devastating Libor-gate affair, culminating in massive penalties from supervisors around the globe. 

In the eyes of the other banks, it was ‘what goes around, comes around’ for the Rabobank, as this bank had looked at the other banks with supremacy and disdain, directly after the economic crisis started.

However, lately it seems that a turnaround is underway within the banking industry. In the insiders’ circles, you can’t hear a bad word about the ‘concullega’s’ anymore [Dutch joint word for people, who are both colleagues and competition – EL]. 

The ‘mishit’ of ING with the payment data of its customers, led to little more than worries about the reputation of the banking industry as a whole; not to cynical statements from the other banks with respect to their competitor.

Also the choice for non-banker Wiebe Draijsma as new chairman of the Rabobank, triggered positive comments from the industry: both on and off the record. This was a big change, after the sarcastic remarks and Schadenfreude about the Rabobank in 2013

Question is: what triggered this ‘turnaround in thought’ within the banking industry?! 

It is definitely not introduced out of charity, but merely from a well-understood self-interest. The banks understand very well that the real enemy is ‘The Hague’ (the residence of Dutch politics). One closed front is necessary to deploy a different paradigm among the Dutch politicians and the Rabobank is definitely an indispensable part of this front. 

This seems like a coordinated counter-attack, aimed at The Hague. Bank officials are fed up with the continuous bank-bashing, coming from the residence. The plans of Dutch politicians to deploy more stringent capital requirements and a lower bonus ceiling upon the Dutch banks than ‘Brussels’ demands, is a real pain-in-the-neck. Consequently, this demands undisputed resistance from the banking lobby, which is the main task of the NVB.

After years of cutting and downsizing, the time has come to look ahead for the banks. ING almost repaid its state aid and wants to offer new horizons for its investors. The same is true for ABN Amro, which will probably return to the stock markets next year. This renaissance requires a foundation of unity.

This was for me an excellent and though-provoking article. Although I am a long-term employee at one of the biggest (Dutch) banks in Europe – albeit at a non-commercial department –, I didn’t notice this quite surprising change in attitude myself yet. At least, not to the degree that the journalists of het Financieele Dagblad did.

Yet, I am more than willing to believe that a new self-esteem and self-confidence has come across the Dutch banks, as well as a revived sense of urgency for cooperation against the 'mutual enemy in The Hague'. Nevertheless, I have my doubts whether this is a good or a bad development; for investors, as well as savers AND the Dutch government.

Many of the problems that caused the economic crisis in 2008, have only been partially solved or even not at all. Giving the banks ‘too much leash’ would mean that they could return to their old, in hindsight counterproductive activities of the years before the crisis: in favor of short-term gains, but at the expense of long-term viability and profitability. People, who follow this blog regularly, have read about some of the things that ABN Amro, SNS Reaal and the Rabobank did in recent years; well after the credit crisis started.

At this very moment, the banking industry still has to deal with some difficult problems. For the banks the following topics are a mutual pain in the neck, most of which have already been recognized in the aforementioned, excellent article:
  • The most important financial mill-stones for the Dutch banks are:
    • The more than 1 million underwater mortgages held by the Dutch population; 
    • The (often) overvalued residential real estate on the banks’ balance sheets, which forms the pledge against these and other mortgage loans; 
    • The bank’s vast portfolios of overvalued and seemingly unvendable commercial real estate, often at unfavourable locations;
    • The dire financial situation among numerous Small and Medium Enterprise companies – especially in the retail industry and the dangerous consequences of this situation, when it comes to the repayment of the outstanding bank loans;
    • The total lack of highly-profitable investments, which bring excellent yields against a reduced amount of risk;
  • Besides that, the banks have currently a bad reputation among the Dutch population and especially among some prominent Dutch politicians, like Finance Minister (!) Jeroen Dijsselbloem;
    • As a consequence of the often populistic approach towards the banks in The Hague, ‘Henk and Ingrid’ (i.e. the average Dutch citizens) feel a lot of envy and resentment against these banks. This led to various cases of political and public bankbashing;
  • There is the political downward pressure on the salaries and (especially) bonuses for the banking industry, which led to ‘stricter-than-Europe’ limitations for bonuses in The Netherlands;
  • There is also the desire among prominent politicians and economists for a higher unweighed capital ratio for the Dutch banks;
  • Both these developments can’t be separated from the general desire of (sometimes other) prominent politicians and economists for a smaller Dutch banking industry, in which the Dutch banks are local heroes, instead of global players;
    • This desire would definitely lead to reduced profitability and (thus) reduced attractiveness for shareholders. 

To start with the second bullet: the time of mindless bank-bashing should be over indeed.

The vast majority of people who work at banks are really honourable people, that do a decent job against a decent salary. The fact that the salaries for the executives and the top dealmakers and traders have gone totally out of hand, has really nothing to do with the average bank salary: this is absolutely not excessive. The same is true for the bonuses: the normal bank employee now has to suffer for the formerly massive bonuses of his executives. Jeroen Dijsselbloem often makes the impression that he doesn't see this or understands this properly.

Good and decently led banks operate as the lubricants in modern societies, as they transform the money borrowed from savers into:
  • Lending money for other people’s housing; 
  • Funding for small and medium enterprise (SME) companies;
  • Investment money for large companies. 
On top of that, most banks have gained a lot of financial and business knowledge that can be used for the benefit of the private people and companies, which are their clients. This makes banks an indispensable part of society.

Banks lend money to companies and private citizens, in exchange for a decent remuneration, expense coverage and risk fee. This means inevitably that there must be a solid margin between the money which is lended to companies and private citizens and the money which is borrowed from private and corporate savers. 

Banking is a labour intensive, as well as extremely capital intensive business. Banks are all about trust; maintaining this trust comes at the price of vast investments in people, technical infrastructure and ICT.

When banks lend money to small or large companies and private customers, they need pledges as collateral for their activities. Banks must do so, in order to keep their risk of losing money as limited as possible. Still, the higher the risk is that the borrowing party poses, the higher the risk fee is and shouldbe which must be paid by the private or corporate customer.

Nowadays, most banks in The Netherlands have understood more or less that this transformation of money and business knowledge belongs to the core activities of banks. And also that opaque trades in over-the-counter derivatives, collaterized debt obligations, sovereign bonds from unstable countries and companies or mortgage backed securities simply don't.

Of course, it would have a strong downward effect on the financial risks for the Dutch state, when the Dutch banking industry would consist out of smaller banks. Hence, although the chance for defaulting is somewhat higher among smaller banks, these banks pose much less financial risk when they do topple over.

On the other hand: one should not forget that The Netherlands is an extremely export-driven country. The vast amounts of imports and (re-) exports require financially strong banks, in order to finance the massive movements of goods and services. More exports and smaller banks: you simply can’t have both at the same time, in my humble opinion. So the Dutch government should make a fair choice, as far as this is concerned.

Still, under the influence of the ‘shareholder’s value hype’ of the first seven years of this century, the Dutch banks had forgotten what they were and what their role in society should be. Most banks – especially savings & loans banks and normal trade banks – simply cannot be very profitable. If banks become too profitable initially, they obviously take too much risk. And one day, that risk will come around to haunt them.

The margins of banks should be enough to cover all their expenses and to make a decent profit of approximately 5% to 6%, but not the 15% - 20% margins that shareholders required in the ‘good ole days’. In order to be able to deliver such margins anyway, in the years before the crisis, banks have:
  • Expanded their balance sheets to the extreme, thus reducing their equity to the bare minimum;
  • Invested with huge leverages, caused by massive amounts of borrowed money and very little investment money of their own;
  • Invested billions of euro’s in either overpriced and (even) excess commercial and residential real estate or in excess mortgages for totally risk-unaware people;
  • Purchased f.i. very risky collaterized debt obligations, vast amounts of sovereign bonds from (then) shaky countries, like Greece, Spain and Portugal and mortgage backed securities of suspect quality. 

Initially, the Dutch banks successfully spreaded the myth that the Dutch economic crisis was caused by the actions of the American banks alone, with their ‘subprime’ mortgages and other opaque and shaky investments. The Dutch banks were apparently innocent ‘victims’ of these American banks and they were strongly disappointed in their trust. 

In my opinion, this myth has been totally busted: one Dutch bank had about the highest leverage in the whole (Western) world and also the other Dutch banks were very much leveraged at the time. The Dutch banking crisis in 2008/2009 was mostly a Dutch problem; not a consequence of an American one. Lehman acted as the trigger for the Dutch banking crisis, but it was not the single cause.

In spite of the fact that most banks now officially promise to operate customer-centered, risk-aware and cost-efficient, they still look for the extra margin to keep the shareholders happy (f.i. ING;  see the red and bold text) or to enable a successful return to the stockmarkets (ABN Amro and SNS Reaal). Even the Rabobank is tapping alternative sources of investment money: their formerly exclusive member certificates are now for sale at the Dutch stock exchange!

On the other hand, the people that would benefit most from a healthy banking industry  the SME-companies and especially the retailers – are treated like damaged goods these days. If they get any money in the first place, they get it after meticulous scrutiny and after offering a whole series of physical and personal pledges. Apart from the question whether this is justified or not (It is, IMHO), it still puts a brake on the development of the Dutch economy.

And the elephant in the room is, that the Dutch banks still put too little effort in deleveraging their balance sheets. 

As far as I know, the Dutch banks still have massive exposure towards:
  • Overpriced and/or vacant commercial and residential real estate; 
  • Very vulnerable small and medium enterprises and retailers 
  • And last, but not least, excess mortgages on (often) underwater dwellings. 

Banks still fail to do something about the risks that these investments pose for their survival in the coming years. 

They still fail to write off sufficiently on the overvalued investments on their balance sheets. There is yet too much hope among bankers, that time will rejuvenate the bad investments and that it will bring the marked-to-market value of their investments in synch with the bookvalue on their balance sheets.

To put it even stronger: most balance sheets of Dutch banks have actually grown again during the last two years, instead of having shrunk. This is definitely not the necessary change that the Dutch banking industry needs so desperately, to regain the trust of the Dutch population and politicians. 

Summarizing, it is good for the banks themselves and for the Dutch Banks Association (NVB) that the large Dutch banks are cooperating much better than one year ago. 

However, if the banks use this improved cooperation to further postpone the inevitable changes within their industry, then it is not particularly good news for the Dutch savers and tax-payers.

Thursday, 27 March 2014

No doubt that 2014 will be a decisive year for Imtech, after the disastrous year 2013. Will the company be able to rise like a phoenix from the ashes or will it go through a split up process?!

One word is enough to describe the year 2013 for Imtech (Royal Imtech N.V (IM)): cataclysmic!

Until November, 2012, everything seemed fine for the Dutch technical service supplier Imtech in the eyes of the outside world.

The fund was the `golden boy` of the rated stockfunds; although it was still quoted on the index for medium capitalized funds ‘Midkap’ in Amsterdam, a promotion to the main AEX seemed neigh.

The company offered a host of differentiated services in (electrical) engineering, building and design, maintenance and even ICT services. The order portfolio seemed filled to the brim and on top of that, the company turned more and more into a multinational, with large assignments in Germany and Poland. From the surface, the future looked bright for Imtech.

However, that was going to change soon. Already during the first nine months of 2012 some scratches emerged on the spotless image of Imtech. A thorough, investigative analyst of ABN Amro, Teun Teeuwisse, had on a few occasions expressed his concerns about the working capital position of Imtech; to be more precisely, about the development of the financial assets on Imtech´s balance and especially the rising numbers of the debtor and creditor positions in its German operation.

It seemed that debtors only paid their dues to Imtech Germany ‘ages’ after the due dates on their invoices. The company compensated for this bad payment behaviour of its debtors, by paying its creditors later and later itself. 

This culminated in Imtech paying its dues 300 days after the invoice date, at some time: a disgraceful average. Consequently, both the debtor and creditor positions skyrocketed, turning the company almost in a bank, instead of a technical service supplier.

Initially, this didn’t withhold the ABN Amro from rewarding the company with a ‘buy’ advice during the first ten months of 2012. However, after analyst Teun Teeuwisse had taken sufficient time to really dig into the matter and thoroughly analyzed all available financial and non-financial data from Imtech, his worries about the financial position of this company grew by the day.

Roughly at the same time (around November 2012), Teeuwisse and others learned from the freshly introduced Short Selling list – published by the Dutch Authority Financial Markets (AFM) – that a few hedge funds had built up substantial short positions in Imtech.

After Teeuwisse summarized all available financial and non-financial information, he came with a sell advice for Imtech, which struck the company and the Dutch financial markets like a bolt from the blue.

Instead of putting their cards on the table, the executive management at the time of Imtech – consisting of CEO René van der Bruggen and CFO Boudewijn Gerner – opened a full frontal, seemingly personal attack on Teun Teeuwisse. 

This attack can be best described as ‘an attempt to make a character assassination’ against the ABN Amro analyst (see the previous link in this article for detailed information), using disinformation, illegitimate pressure and (seemingly) blatant lies, in order to debunk his (first) analysis report.

Under this substantial pressure, Teeuwisse felt obliged to create a new and 'improved' version of this analyst report, with updated financial data from Imtech itself. Nevertheless, except for a few minor changes, the conclusions of the initial report remained intact and they were fully backed by the bank. However, this was not the end of the battle-below-the-belt between Imtech and (the analyst of) ABN Amro.

And then, in February 2013, things started to come in a different gear for Imtech. It started with the news that Imtech had to write off €100 million on a project-gone-awry in Poland, where Imtech had been involved in the creation of amusement park `Adventure World´ in Warsaw. And, at the same time, there was the news that the executive management of Imtech Germany had resigned “voluntarily”.

While Imtech had officially carried out activities to the tune of at least €100 million for the Polish adventure park, a picture of a desolate piece of unprepared building ground with a lonely arch on it (see this article in Het Financieele Dagblad) showed that there was no way that so much money had been spent there. 

My words in those days:

After reading this opaque story, I can imagine that the shareholders and investors were not exactly happy about the ´adventures´ of Imtech in Poland.

Especially the stories concerning the bounced bill of exchange and the blocked accounts with €200 mln in advanced payments by Adventure World that do or do not exist, leave ample room for speculation. As a consequence, there had been the designated write-off of €100 mln on work-in-progress, that had been disputed by Adventure World director Peter Mulder as being exaggerated.

On top of that, there has been the message from CEO Van der Bruggen that Imtech´s Polish projects could have been subject to´irregularities´ during the execution. The expression ´irregularities´ could point at a wide array of disturbing causes.

There is one other disturbing fact: when I look at a photo-series of World Adventure amusement park [the pictures in the aforementioned FD article - EL], I wonder where the €100 mln in activities, carried out by Imtech, did go? 
I don't see this park being finished (no way!) within two years and I don't see how millions of Euro's could be spent on this park, unless in drawings, computer-designs and blueprints.

The fact that – apart from the Polish officials – also the German management of Imtech have resigned, gives much food for thought. I suspect that these Polish adventures of Imtech could have an unpleasant follow-up in the very near future.

And then soon the news followed that Imtech had to write off €300 million on its German and Polish operations and could not stick to their bank covenants anymore. The company had to make a secondary stock offering of €500 million in stock, to get on top of the situation again.

In those days I suspected that a company could not ‘just’ lose €300 million on bad debtors and bad management alone and that there was probably something more going on in the German and Polish operation:

A more realistic reason, in my humble opinion, is therefore that Imtech became the victim of wide-spread fraud, embezzlement, forgery and / or bribery with company money (strike where not applicable). In my opinion, this is the only realistic reason for losses to this gargantuous amount of €300 million.

How else could a large subsidiary lose 20% (!) of its normal annual revenues, without anybody noticing it at the head-office in The Netherlands?!

What becomes clear from the interview with [new] CEO Gerard van de Aast is that he:
  • Either didn’t want to say what went wrong within the German and Polish Imtech organizations. This would be an offence against 'stock regulation on full disclosure' in The Netherlands;
  • Or that he still is totally clueless himself about what caused this mega-loss;

I still don’t know whether Gerard van de Aast was indeed clueless at the time, or that he didn’t want to mention what later indeed became the root cause of this giant loss: fraud on a massive scale.

To cut a long story short: with every quarterly data presentation, Imtech presented new and bigger losses, as there always seemed to be more loose ends in the case than the executive management had anticipated to. 

At those presentations, the company promised ‘that it had taken decisive measures to prevent from these kinds of fraud in the future, that the worst would now be over and the company could look forward again’… until the next quarterly data.

The result of these events was that this month – March 2014 – Imtech lost its AEX quotation, which it had only received one year ago, making the placement of new shares much more difficult. And a few weeks ago, Imtech presented the annual data for 2013, which included a staggering loss of €697 million. 
Here are the pertinent snips from Het Financieele Dagblad:

Technical service supplier Imtech has written dark red notes for 2013. The Gouda-based company came in deep trouble last year, as a consequence of fraud in the Polish and German subsidiaries. The net loss became €697 mln, compared with €235 mln in 2012. For that year, the annual data had to be reviewed, due to the fraud.

The net loss in 2013 soared, due to write-offs on projects and debtors and reorganization expenses, as well as extra expenses for financing and assessments. This accounted for an extra burden of €400-odd million, according to Imtech.

In 2013, sales dropped to €4.9 billion, from €5.3 billion in 2012, due to market developments in the Benelux (i.e. Belgium/ Netherlands / Luxemburg) and Germany. The fraud earlier blurred the financial picture of Imtech’s real achievements.  

Imtech also announced that it received a credit facility from its financiers of €1.3 billion and guarantees to the tune of €843 million. Already at the end of last year, Imtech had announced that it received one half year of postponement from the banks for meeting its bank covenants. The first testing date for the bank convenants had been pushed forward to 30 September 2014 from 31 March initially.

Imtech is very busy with reducing its net debt. At the end of Q4, this debt amounted to €745 mln. This year the company wants to reduce this debt by another €400 million. All options – including the sales of company parts – is currently under investigation, where the latter had been excluded earlier.

In another FD article, it became clear that the new €1.3 billion credit facility didn’t exactly come for free:

To get grip on its debt, Imtech must bring down its working capital. When this is not sufficient, the company is obliged to remunerate its lenders, through a.o. the deployment of warrants. When everything fails, then ‘all options are open’, including a total or partial "fire sale" of the company or yet another secondary stock offering.

With these new terms, the ‘bruised and battered’ technical service supplier has bought time to clean things up. At the same time, there is scepticism about the viability of the new plans. Many analysts reckon with a sales of company parts; especially the Marine branch, which deploys wiring in ships.

The European banks and American money suppliers (so-called USPP’s or US private placements) now commit to a total loan sum of €1.2 billion, on top of the old facility, which is prolonged until 2017. In exchange for that, Imtech pays 7.5% interest, on top of the EURIBOR rate. This is 300 basis points in excess of the old rate of 4.75%.

If we use today’s EURIBOR rate of 0.6% for 12 month loans as our benchmark, this means that Imtech pays 8.1% in interest per year on its loans (see second red and bold text). As a long-term engineer at the Dutch Business Lending department of a world-leading bank, I can assure you that most (much smaller) SME companies in The Netherlands don’t pay such an outrageous interest rate.

Let’s make a calculation: according to Imtech’s annual report of 2013, Imtech has €313 million in equity and about €1 billion in bank loans.

Imtech's Consolidated balance sheet for 2013
Data courtesy of Imtech
Click to enlarge
Together with the new credit facility of €1.2 billion, mentioned in the last article, this makes a €2.2 billion credit line, for which presumably 8.1% interest must be paid (I presume here that this 8.1% interest rate is for the whole loan sum and not only for the additional loans).

If the company has to pay this 8.1% percentage of interest on its total bank loans and the shareholders would demand a gross return on equity of 12% (which is not very unusual), the gross earnings of the company should already be €215 million in 2014. 

Necessary earnings for interest payments and Return-On-Equity
Data collected from the Imtech
Annual Report and the FD Article
Click to enlarge
If the company then also wants to reduce its debt by €400 million in 2014, it becomes clear that it is a ‘mission impossible’ to accomplish this without selling important parts of the company (see first red and bold text).

Nevertheless, the situation would still not be hopeless when the banks and investors would be absolutely certain that the whole ‘cancer’, in the shape of the German / Polish fraud, had been removed from Imtech completely. In that case, the company still could have a bright future ahead when it could make it through the first three difficult years.

But that is exactly the point: nobody is absolutely certain about that and this is exactly the reason that this outrageous interest rate of 8.1% is demanded by the banks and private investors. In other words: Imtech can almost be considered as a ‘junk bond’ investment and everybody realises it.

In my humble opinion, the fear that yet more problems could emerge at Imtech, turns the company into a dog.

And there is more: the loan / equity ratio of Imtech is already 7, when only the  €2.2 billion in bank loans are taken into the equasion (see the consolidated balance sheet). 

However, when the new credit facility of €1.2 billion is added to the total liabilities of €2.9 billion, the loan / equity ratio (i.e. leverage) changes to 13 (based on €313 million in equity), which is not bad… for a bank.

I am afraid that the chances for survival of Imtech-as-a-whole are dim, if we take these notions into consideration. When the company is not split up (presumably through asset stripping), a default as a consequence of negative equity seems hard to avoid. Especially, if you take the €1 billion in goodwill (an intangible asset) on the balance sheet into consideration. Goodwill can’t be sold at an auction and its worth lasts as long as the good reputation of the company.

Besides that, Imtech’s degradation to the Midkap index makes it only harder to place new share capital in the financial markets, on the premises that someone wants to buy it after all.

Therefore I am afraid that Imtech will not rise from its ashes as the legendary phoenix, but instead it will probably be torn apart by its investors, in order to gain some of their money back.

 I must emphasize here that these notions are my personal opinion and that I’m not an official analyst. I do not take any responsibility for the effects of this analysis.


Dear readers,

Today, I read some reactions on the Dutch economic news site with respect to this article.

It can very well be that some of my assumptions with regard to the height of the bank loans for Imtech (and thus the height of the interest payments) are wrong. This in spite of the fact that I always try to quote correct data and draw sound conclusions, based upon these data.  

I used the Imtech balance sheet and the quoted articles in the FD as the basis for my assumptions. 

Nevertheless, I am still convinced that my final conclusions with respect to the hopelessness of the situation for Imtech and the impossibility for the company to meet its financial obligations, are correct.

Please feel free to comment on this article through the comment box in the bottom of it.


Sunday, 23 March 2014

Are you still the owner of your own life and, as a consequence, your electronic trail? Or is in the end all your personal data subject to sales to the highest bidder?!

The more often a certain resistance is hit
The weaker it gets…
Todd Harrison – Founder of Minyanville

Last week, something relatively extraordinary happened in The Netherlands: there was commotion about the privacy of Dutch citizens. In this case, it were customers of the largest bank in The Netherlands, ING Bank.

The commotion emerged, after ING announced that the bank was planning to start a so-called ‘big data’ pilot soon. During this pilot, the full payment transaction data of a small group of selected customers –approximately 1000 – would get an in-depth analysis through data mining techniques, to deliver ‘big data’ on their savings and payment behaviour. One of the senior officials of the bank had announced some details of this plan to Het Financieele Dagblad, during an interview.

This big data, coming out of the payment transactions of these customers, would be used to enable targeted advertising for certain banking and insurance products and other special offers. Not only by the bank itself, but also by commercial partners of the bank – of course, after the explicit consent of the account holders.

By doing so, the bank hoped to achieve a win-win situation: at a fair price, the bank could offer populations of (potentially) interested customers to its commercial partners. The bank’s customers, on the other hand, could get tailored advertisements for products in which they would be interested and at an interesting discount. When the pilot would be a success, the bank would enable the same services for much larger groups of customers, in due course. “Everybody happy”, ING reckoned.

Things went…  a slightly different.

After the bank branches opened their doors and telephone lines last Monday, 17 March, the counter clerks and the call-centre employees were ‘flooded’ with furious customers,  who demanded an explanation about the subject that ING “would sell their personal payment transaction data ‘to the highest bidder’”.

At first, the bank tried to sweet-talk itself out of the situation, by emphasizing that their customers’ transaction data would never leave the bank: the bank would only be a “postillon d’amour” (i.e. an intermediary messenger) between the commercial party and the customer, but the commercial party would never receive the payment transaction data itself. Later, during last week, ING published a statement that this plan would be postponed until “a much, much later date”. Subsequently, the bank licked its wounds.

It was the second time in less than a year that a similar, bold plan was torpedoed by angry consumers in The Netherlands.  

In May, 2013, the Dutch clearing and settlement organization for the Dutch bank industry, Equens, had been planning to sell its database of 2.2 billion payment transactions to interested companies for marketing purposes. However, this plan had been quickly withdrawn, as a consequence of infuriated Dutch citizens.

The main difference between the Equens plan and that of the ING, was that ING would NOT sell the physical payment transaction data itself, while Equens did plan to do so.

Nevertheless and in spite of the fact that Equens and ING had encountered such angry reactions by the general public, only days after the ING plan was withdrawn, the Rabobank presented its plan to make usage of the big data that the vast amount of payment transactions would offer. Here is a snippet from

The Rabobank sees opportunities in the usage of in-depth analyses upon the  payment data of customers. Through these analyses, the bank could offer better service to their customers. ‘This is about deepening the relation between the bank and its customers. There are few boundaries in this. I would take the risk of running into these boundaries’, according to executive Rien Nagel.

Nagel emphasizes that the Rabobank is not planning to couple this data with third parties. “To that idea, I say categorically ‘no’. This is an area to stay far away from”, according to Nagel.

Within the banks, there are generally two groups of people:
  • the people who invent and/or endorse such plans and see the enormous commercial advantages of those plans for the bank, as well as its customers and its commercial partners;
  • the people, who receive the angry customers on their telephones and counters, and really don’t understand a. how the bank could invent such weird plans and b. that they were not informed in advance;

The first group consists generally out of higher ranked officers and ICT engineers without much genuine business knowledge, while the second group of people consists of people with ‘their feet firmly in the mud’ of day-to-day  business. These groups within the same bank (!) are almost living in two separate worlds and don’t understand each other… at all!

And even more worrisome, the first group doesn’t have the slightest of clues what all the fuzz was about?! They feel angry and misunderstood by their ‘clueless’ customers, while they were genuinely trying to help them in the first place(and themselves in the process).

Everybody and their sister knows that companies like f.i. Facebook, Microsoft, Google, LinkedIn and Twitter use their gargantuous amounts of detailed customer transaction data and additional information for targeted adverts and also for in-depth analyses. In many cases these analyses are sold to partners and business relations, in return for (eventually) large amounts of money. This is, as a matter of fact, their main business model and that is where they make most of their money with.  

Many people also know that these particular companies skim (and at occasions get across) the edges of worldwide privacy and data manipulation regulations. If people would thoroughly read the ‘agreement terms for software usage’ of such companies, when they install their software and use their smartphone apps, the intensive care rooms of city hospitals would be flooded with shocked users. Luckily, few people actually read those statements.

Particularly these (and other) social media companies act sometimes like naughty children: they try and try to do forbidden things, until their mommy warns them or smacks them on the fingers. Then a few moments later, they try to do the same forbidden things again… These companies only respond to billions of dollars and euro’s in fines and other harsh penalties. Still, many citizens simply accept this and use their software anyway.

However, with the aforementioned banks, the people responded differently.  Here is – perhaps – the explanation:

Although it would make your computer life much harder, people can ultimately say ‘no’ to LinkedIn, Facebook, Twitter and even Google. There are sufficient alternatives around, which offer almost the same service, but don’t play ‘Jedi mind tricks’ with you, when it comes to your personal privacy.

However, in The Netherlands, it is impossible to live without a bank account.

People without a bank account simply can’t have a job, as no company pays them in cash or checks anymore. Besides that, the Dutch Internal Revenue Service would see people without bank accounts as probable ‘tax evaders’ and frauds. Even the ‘tramps and hobo’s’ in The Netherlands need a bank account in order to receive their welfare payments. You just can’t live without a bank in The Netherlands. Really, you can’t…

And when such a bank, as your ‘partner of ultimate trust’ is threatening to ‘throw your data on the street’, people finally do respond, where they remained silent in case of privacy breaches by f.i. Facebook or Google.

In this case, ING could justifiably state that they were understood falsely by the general public and that it was never their intention to sell the payment transaction data itself. Nevertheless, the damage was done anyway. What people do accept from Facebook and Google, they don’t accept from their bank.

Still, Todd Harrison, the very wise and savvy founder of Minyanville, states occasionally that ‘the more times a certain resistance level is tested, the weaker it gets’. Although Toddo uses this wisdom on support and resistance levels for stock and index rates, it is also true for other kinds of resistance.

Like in the case of the public’s resistance against the usage of big customer data within the banks: 
  • Equens tried it and got bitten…
  • ING tried it again, in a slightly different manner, and got bitten too.
  • However, Rabobank tried it also, again in a slightly different manner, and seems to get away with it. 

And in one or two years, the Dutch people will have become so familiar with the idea that their 'big data' might be used for commercial purposes, that the banks can refurbish their original ideas and use the real payment transaction data for targeted marketing anyway.

This brings me to the more urgent question behind all this: are people still the owners of their own life and of the electronic trail that they leave behind? Or should people just get used to the thought, that they are like birds in a cage, which are watched all day long by anonymous people?!

From the moment that they are awake, until the moment that they fall asleep, people are leaving an electronic trail of:
  • Identification data and social security data from their passports and ID-cards;
  • Telephone, GPS and Bluetooth signals from their smartphones;
  • License plate data from their cars, which are automatically registered by smart camera’s on the road, in parking garages and (even) on parking meters, where people should mandatorily enter their license numbers;
  • Camera data from the ubiquitous surveillance camera’s, which are almost on any corner of the street and in any building;
  • Payment data from their debit and credit cards and telebanking programs;
  • Live images from their webcams: not only for their friends, but also for anonymous civil servants, who are candidly watching these images in order to find 'terrorists';
  • Log in data from their computers, iPads and smartphones, which are registered on every wifispot, whether people want this or not;

People simply can’t switch off their electronic trail anymore and cannot withdraw from; it is always there to follow them, whether they want it or not. 

And when their trusted banks then finally ‘threaten’ to sell their most intimate data – which is their payment data – to other parties, even the most credulous Joe Sixpack suddenly feels a sense that ‘enough is enough’. 

Which – of course – will not be enough to stop these plans in the end…

Wednesday, 19 March 2014

Dutch large Retailer HEMA has had a bad year in The Netherlands in 2013… and wants its suppliers to suffer for it!

It is a open secret that the retail market in The Netherlands is currently not doing very well, to say the least.

The deadly combination of the ubiquitous consumer strike, as a consequence of years and years of wage restraint and (even) wage reduction in The Netherlands, and the excess amount of shopping space here, causes that many retailers are clinging on to life by the skin of their teeth.

The HEMA – one of the largest retail chains in The Netherlands and involved in a steady, domestic expansion strategy – always seemed a party that was relatively doing fine, in spite of a slightly dropping sales in The Netherlands in 2012.

Nevertheless, a few months ago their CEO, Ronald van Zetten, had already issued a warning with respect to the excess shopping space, as you can read in the following snippet from a January 13, 2014 article:

The Netherlands has excess square meters of shopping space. This excess shopping space has emerged, due to the fact that a great number of stores has been built in the years before the crisis, while the population density has decreased at the same time. This is the opinion of HEMA CEO, Ronald van Zetten.

Van Zetten dislikes very much the notion that municipalities are still developing new shopping malls currently.

As an example he calls Doemere in Almere-Buiten [my domicile – EL] “That is a bad idea, to put a new shopping mall outside the centre, as there is already much store vacancy in the city centre itself. Besides that, not every neighbourhood needs a shopping centre. It is already hard enough for the other shopowners without this competition”.  

Ronald van Zetten - CEO HEMA retail group
Picture copyright of: Ernst Labruyère
Click to enlarge
In spite of the fact, that the real annual data for HEMA will only be published in April, there had already been various signals that the retail chain didn’t do well at all in The Netherlands in 2013.

The following snippets come from  a February, 17 article in Het Financieele Dagblad:

As a consequence of dropping numbers of visitors in the inner cities and a very low consumer confidence, the company [HEMA - EL] saw the retail sales drop to €1.53 bln in 2013, from €1.6 bln in 2012.

Exact profit data will only be published after the annual audit, but yesterday the company stated that the ebitda profit (i.e. earnings before interest, taxes, depreciation and amortization) will be more than 10% lower than in 2012.
In the same article, the HEMA already announced that 65 jobs would be lost at the head office, the distribution centres and the bakery division. And a few days ago, there was the news that a HEMA franchise store in Geleen (Limburg) had defaulted.

This was not all; today the HEMA presented another bombshell, especially for its suppliers. The following information comes from RetailDetail, a communication portal for the retail industry:

HEMA asked – in retro-action – a 4% refund on last year’s sales [from its suppliers – EL]. To achieve this, the company has unilaterally changed the contract conditions with its fifty largest suppliers. Also this year, the company will pay less money for purchased products.

At a ‘supplier’s day’, at which all HEMA suppliers meet, the audience was informed that HEMA wants to abolish the contracts with 20% of its suppliers.The company is also planning to pay its bills after 120 days. The new conditions would come into action at 1 April 2014.

HEMA itself stated: “These are not unilateral activities at all. In every business relation, there are discussions and parties are not always in synch. Sometimes, we change conditions in favour of our suppliers and sometimes not in favor of them. This is something between us and our suppliers. We don’t further comment upon that”.

Whoever reads between the lines, understands that suppliers of HEMA either get a choice to agree with the new conditions or to abolish their contract with HEMA. HEMA demands between 3% and 5% discount from its suppliers. Suppliers which do not agree, see their contracts canceled.

HEMA has come with the new agreements, due to the fact that their sales in The Netherlands have diminished. It is not the first time that such a thing happened: six years ago, HEMA demanded a 5% “marketing contribution”, which was withdrawn from their payments to their suppliers. This 5% discount will now be withdrawn on a monthly basis, instead of per quarter, like before.

HEMA’s message for its suppliers is: we have had a bad year in 2013 and you must suffer for this. Like a representative from the retailer’s association Vivo stated in a different snippet of the aforementioned article: “Suppliers, which made for instance €2 million in sales to HEMA in 2013, are now asked to make a refund of €80,000. This is disgraceful”.

Yes, it is indeed…

And on top of that, it has been the strategy of HEMA itself, to open a store at almost every new shopping mall that has been built in The Netherlands during the last decade.

Although HEMA itself is not responsible for the excess shopping space in The Netherlands, it is a fact that by opening all these new stores, HEMA has cannibalized on its existing branches in other shopping malls.

What HEMA is doing currently is immoral and unfair, but they get away with it, because their suppliers will probably need the HEMA sales very badly. Nevertheless, it seems another variety of “beggar thy neighbour”; not only must suppliers pay back the 4% extra discount on sales over last year and the first months of this year, but on top of that they must pay four months of supplier’s credit to HEMA (the prolonged invoice payment period of 120 days). This will probably cost most suppliers about 0.5-1% in additional interest on their creditlines annually (I presume the current payment term to be 90 days; if it is less, than it will cost the suppliers more interest).

I presume that the reason for this rude and erratic behaviour by HEMA is, that the owner of HEMA – British private equity firm Lion Capital – has held a rather nasty conversation with HEMA CEO Ronald van Zetten: “Your revenues over 2013 must be up in retro-action, or you will be out!”. Or something like that… 

The fact that such actions by large retail chains are possible these days, is in my humble opinion clearly an undesired consequence of the stringent anti-cartel regulations from the European Union. These regulations make it unfortunately impossible for HEMA’s suppliers to form one block against these rude actions by this retail chain. 

Sunday, 16 March 2014

How both the EU and Vladimir Putin’s Russia managed to get themselves in a dangerous stalemate, Pt II: ‘The enemy of my enemy is my friend’ is a fatally flawed concept of international diplomacy!

This is the second and last article in a short series that started yesterday…

In the first quarter of 2014, I watched the events unfold on Maidan square in Kyiv and in other Ukrainian cities, with a mixture of flabbergastedness and hope, but also with sheer disgust at moments. The events raised a lot of questions with me. 

To name a few:

  • Was this the country where less than 2 years ago the European Championship Football have been held?!
  • Where did the sudden outburst of public outrage, hatred and chaos come from?
    • Was it a spontaneous outburst, or was it orchestrated by people, in whose interest it was to create chaos and a governmental vacuum, in order to regain power?
  • Were the protesters, indeed mainly normal citizens who were sick-and-tired of the corruption in their country?
  • Were the snipers, who shot numerous people on Maidan Square, indeed arranged by the Yanukovich clan – which was the ‘communis opinio’ – with Vladimir Vladimirovich Putin as main steering force in the background?
    • Or was there something smelly about those snipers?!
  • Are the new leaders of the Ukraine, who gained power after their ‘coup d’etat’, indeed the friends of the European Union and the United States?
  • And what was the hidden agenda of Vladimir Putin and Russia in the background, when the events unfolded in the Ukraine?

Well, to start with answering bullet 3; I am convinced that the large majority of the protesters were indeed genuinely shocked people, who protested against the widespread corruption,  poverty and economic backwardedness of the Ukraine and hoped that the association agreement with the EU would change their country for the better. However, probably not all protestors had these noble intensions.

Besides that, I am not so convinced about the good intentions of the current, new leaders of the Ukraine. There are just too many signals from different, unsuspected sources, that one bunch of corrupted leaders – the Yanukovich clan – has just been exchanged for the next bunch of corrupted leaders: the clans around Arseniy Yatsenyuk, Oleksandr Turchynov and Yulia Tymoshenko.

Read for instance this series of articles (here, here and here (video)) in Komsomolskaya Pravda, one of the more independent newspapers in Russia; you can use Google Translate for a rough translation.

For that matter, I was amazed how quickly the EU and the United States have welcomed the new Ukrainian government, as the true representatives of this country.  And this, in spite of the fact that the Yatsenyuk clan gained power through – what seems – a genuine coup d’etat.

This coup d’etat violated the earlier made agreements with a.o. Russia – of which the ink was hardly dry – with respect to the formation of an interim government, chaired by Viktor Yanukovich for the time being. This interim government would originally stay in power until the next presidential elections, which were scheduled in December 2014. 

This, of course, never happened, which brings me to the current conundrum…

Initially, I just thought that the European Union (and the NATO, as interested party in the background) had been playing with fire out of naivety, when they offered the Ukraine an association agreement with the European Union. That all shocking events, which happened at Maidan square, were just a question of unintended side effects: ‘collateral damage’.

Of course, it is my deepest desire that countries like the Ukraine and other ex-Soviet states – and of course Russia itself (!) – could profit from the reasonably fair and uncorrupted leadership and economic growth opportunities, that the European Union would offer. In my opinion, every European citizen (and elsewhere) has the right for a life in freedom and prosperity, without corruption and without interference by tyrannical and meddlesome governments.

Nevertheless, during the last fifteen years, we already had the temporary political frost period between Russia and the NATO-partners, caused by the plan for the deployment of the Polish / Czechian rocket-shield against “Iran”. This plan understandably offended  Russia, as it would only be THEIR rockets that would be stopped by the shield. The rocket-shield would therefore have partially taken away the mutual deterrance strategy for Russia and it would have left the country in a more awkward position, from a defence point-of-view.

And we also had the events in Georgia (Abchazia / South Ossetia), where temporary outbursts of violence between Georgia and the ethnic-Russian region South-Ossetia, initially led to Russian boycotts (Georgian wine and other products) and later (in 2008) to Russian aggression. This aggression culminated in a short-lived, but nevertheless deadly war between Georgia and Russia.

That is why I thought that it was quite reckless of the EU to offer the association agreement to Ukraine, without reaching an agreement with Russia first. 

Even though you can justifiably argue that Vladimir Putin is more and more acting like a ‘cornered cat’, one should not forget that such cornered cats can be extremely dangerous, when they feel themselves under attack. 

You could say: ‘Even if you box with Mike Tyson for a just cause, you should still not forget that it is Mike Tyson, who you are fighting with”. Unfortunately, this lesson has fallen on deaf ears within the European Union initially.

And one should also not forget that not all intentions of the EU and the US are automatically saluted everywhere, without questions. Europe – with its centuries-long history of regional conflicts and violent wars – should have understood this lesson in the first place.

There have indeed been some signals that the protests on Maidan square had been (slightly) orchestrated by the United States and Europe. This has made the quick, almost overnight acceptance of the new Ukrainian government a crystalclear, political statement in the direction of Putin’s Russia. And such an orchestrated action should not be ruled out automatically... Especially the US has a history with respect to such orchestrated actions in South- and Middle-America and (of course) Afghanistan; please think about the early years of Osama bin Laden as a Mujahedeen fighter against the Russian army in Afghanistan.

At least, it is a signal that Vladimir Putin has very well understood… 

And consequently, as a reaction upon the events in Ukraine and only days after the slightly disappointing Olympic Games in Sochi, Putin has mobilized and exploited the nationalist feelings in his country for his own purposes. These nationalist feelings screamed after the events in Kyiv: “We want Crimea back!!!”

And so, in a desperate attempt to change the political “deck of cards” to his benefit, Putin entered the Crimean region with a number of unidentified soldiers and prepared the minds there for a return of this area to ‘Mother Russia’. For these actions, Putin was hailed by the Russian population. This was not strange, as Crimea ‘had been Soviet-Russian territory until 1954 and had been given away only at a moment that Nikita Krushchov was allegedly drunk’, as the myth states.

In this way it could happen, that an action which was officially meant to protect the Russian population in Crimea against the nationalist feelings of the ethnical Ukrainians and Crimean Tatars, evolved quickly in vulgar land-robbery on a large scale. It was akin to what happened in Abchazia and South-Ossetia. 

Today, Sunday, 16 March 2014, the referendum on the future of Crimea has been held and – as expected – it turned into a landslide victory (95%) for the people, who want to bring Crimea back to Russia. And now the world is watching how the events unfold in Crimea and the whole Ukraine, wondering how we entered into this pile of political manure in the first place?! 

And, to ask the question that is even more important: how to get out of it without a full-blown civil war in Ukraine (and perhaps even worse)?! This will not be easy and it requires diplomatic and political ‘Fingerspitzengefühl’ (i.e. instinctive prowess) of the highest level. 

This is normally miles apart from the fairly common gungho attitude of American diplomacy. Therefore I am very pleased that political and diplomatic heavyweight John Kerry is foreign minister of the United States and not an intellectual lightweight, like Sarah Palin. She simply stated at a press conference that Russia should be nuked. As if…

What personally bothered me during the last month, was with how much disdain Dutch politicians and some journalists talked about one of the most powerful leaders in the world. According to for instance Dutch Christian-Democrat leader Sybrand van Haersma Buma, ‘Putin should be put back in his kennel’. And also people, like VVD celebrity and MEP Hans van Baalen talked with hardly hidden contempt about Vladimir Putin.

Personally, I don’t like Vladimir Putin very much as a leader (an understatement) and I totally disapprove of his envious and aggressive actions in Georgia (earlier) and now Crimea and East-Ukraine. Nevertheless, I think that the western world would be stupid to underestimate him and treat him as if he is just a naughty child: he isn’t! 

And if you want to solve the situation in Ukraine, you can’t do so without having him involved. The western world can kick Putin out of the G7 and it can target Russia with harsh sanctions, which would make the life for the common Russians much harder. However, if you want to solve the situation in Ukraine and Crimea, you simply can’t do it without the Russians.

And please remember the lessons that the west learned through blood, sweat and tears in Afghanistan, Iraq, Syria, Libya and a dozen other countries:
‘the enemy of my enemy is my friend’ is a fatally flawed concept of international diplomacy.

We might again find this out the hard way with the current leaders in Ukraine, who are probably not so nice, friendly and Europe-loving as we all think today!