Will 2012 indeed be the year of mass lay-offs in The Netherlands? According to sixteen large, Dutch municipalities and the PostNL post group, it might!

During the first year of my blog, I have written quite some articles on mass lay-offs. Articles like:

• Three recent trends in The Netherlands
• Companies have worries on the economy and their excess workforce
• Mass lay-offs in the banking world… and at other companies

Also in my 2012 Outlook for The Netherlands, I warned that The Netherlands should reckon with more mass lay-offs in 2012:

Many companies, like the one that I work for, wrote red figures over the last three years since 2008. And although some companies still managed to make a decent profit during this period, I don’t expect the Dutch companies to maintain their excess personnel when the current recession proves to be a nasty one. The period of mass lay-offs that I noticed during this year has only just started, is my conviction.

Was I right with my forecast? According to some of the largest municipalities in The Netherlands and to the former TNT Post Group, now called PostNL, it might be a positive ‘yes’.

The Dutch newspaper NRC (www.nrc.nl) writes on the plans of sixteen large municipalities to lay-off more than 6000 civil servants in the coming years, in order to meet the draconic austerity measures of the Dutch government. Here are the pertinent snips:

More than six-thousand jobs vanish in sixteen large municipalities

In sixteen large, Dutch municipalities more than 6,100 jobs will vanish in the coming years. The municipalities have to substantially reduce spending, due to the deteriorating financial circumstances and cannot avoid laying off civil servants. They want to cut down €586.3 mln on their budgets.

The city council of Rotterdam, for instance, announced this week that it wants to scrap 2,450 jobs. Rotterdam wants to cut down €200 mln at the own organization.

There won’t be many compulsory redundancies, according to most municipalities. They expect that they can diminish the number of civil servants by using natural labor turnover: civil servants that are retiring in the coming years.

I’m not that optimistic. The Dutch government has to deploy an additional €12-€16 bln in austerity measures, in order to meet the demands for a maximum 3% budget deficit, that are set in the European Stability and Growth Pact (SGP). This amount comes on top of the €18 bln that the cabinet of PM Mark Rutte already wanted to cut down on the state budget. If the cabinet means business with reducing the numbers of civil servants in The Netherlands, this cannot come without mass lay-offs among the officials of local and central government.

At the other hand: also the cabinet of PM Rutte, just like many right-wing cabinets before it, is in an uneasy split between wanting less civil servants and demanding better service and more legislation, surveillance and repression from their civil workforce. You can’t have both at the same time and therefore in the end something has got to give. In the past, it have always been the plans to reduce the numbers of civil servants.

However, what makes this crisis different from previous crises is its persistence and the way it has been developing during the last five years. Besides that, the Rutte government has to deliver its 3% budget deficit in 2013 to the EU; the Dutch stance, concerning austerity measures for the PIIGS, had been very rigid and left no room for negotiation. The PIIGS and the other European countries will remember that, when push comes to shove. That might be bad news for the civil society in The Netherlands after all.

The former state company-turned-commercial PostNL (formerly known as TNT Post Group) is planning to lay-off thousands of official postmen, in favor of less trained and less well-paid post deliverers. The old postmen and women received a fixed salary with increments, wherein the contributions for social security, vacation money, health insurance and a pension were paid.

The new post deliverers receive a price per delivered postal item and are further on their own. If they can’t deliver the post for any reason (like sickness or holidays), it is not PostNL’s problem. Besides that, the combined fees for all delivered postal items are much lower than the fixed salary that the postmen received. The full-time postman will disappear and turn into a part-time job, that is hardly enough to earn a decent income. People that are dependent on this income will probably be forced to find another job, next to their post delivery job.

Here are some snips of an FD article that was published on this topic today:

From the beginning of 2012 until mid-2013, PostNL will deploy in stages the new delivery system, wherein the postman disappears and will be replaced by a post deliverer that only works part-time.

Part of the reorganisation is the close-down of 300 regional post delivery centers. In this process 2,800 employees will be fired.

I understand that the declining numbers of postal items are worrisome for the non-state-owned, commercial postal companies. Email, mobile computing and social media are the growth markets that will largely swallow up conventional post delivery. This declining market forms a strong contrast to package delivery, that is an absolute growth market with the soaring usage of online shopping.

PostNL is a commercial player in a diminishing domestic market and has fierce competition from Sandd and Selektmail in The Netherlands. Expansion abroad is still difficult, with the current government protection for their foreign competitors. That is why the intended personnel reductions of PostNL might be inevitable this year.

Unfortunately, the PostNL executive management lost all goodwill of their employees by handing out large bonuses and severance payments to themselves over 2011, while simultaneously presenting their plans to fire 2,800 employees. 

Sadly, this kind of tactlessness is still very common among executive management in The Netherlands, that already lost connection to their workers some years ago.

Friesland bank sold to Rabobank, after nearly fatal loss. Will it be the first domino in a row to drop, due to Basel III and the locked-up capital market?

For most people it was quite shocking news yesterday: the small, independent Dutch-Frisian bank Friesland bank was about to be taken over by the mighty cooperative Rabobank, one of the ‘four sisters’ in The Netherlands that claim 80% of the Dutch banking market: ING Group, ABN AMRO, Rabobank and SNS Bank.

Although you could see in hindsight that the writing had already been on the wall for quite some time, I also was shocked by the suddenness of this friendly take-over.

The Friesland bank had been very busy with advertising on TV and radio during 2011 and Q1 of 2012, using Dutch celebrity Jort Kelder in its commercials: the former ‘golden boy’ editor of Quote, a Dutch magazine that strongly resembles Fortune. Besides that, it offered an interest well-above average for its savers. From a distance everything looked hunky-dory with this small bank.

However, in this kind of situation the question always should be: why does this bank offer such a good interest rate to its savers. The four sisters offer interest rates that reside between ‘insulting’ and ‘pathetic’ as the availability of nearly free money from the ECB is ubiquitous.

The reason was that the bank lacked access to the international capital markets; the bank was too small and had too little financial fire-power. Therefore it had to pay interest rates well above Euribor to attract enough savings money for its investments. Moody’s placed the bank with its A3-rating in the group, due for a possible downgrade, while S&P even didn't bother to give the bank a rating.

Although the balance sheet of Friesland Bank mid-2011 looked healthier than that of many other banks, with a balance sheet total of €11 bln, an equity of €837 mln and thus a leverage rate of only 14 (14 borrowed Euro’s against 1 Euro of equity), the return on equity was a poor 1.3% mid-2011 and even -5.2% at the end of 2010.

And although the bank was rather known for solidity than for financial wizardry, it had to be taken over as it was too small and too financially unhealthy to survive on its own. While the annual data of the bank on 2011 has not been published yet, the bank is said to have suffered a (nearly) fatal loss during this year. This was the last push that the bank needed to start looking for a healthier partner.

The bank itself presented the following press release of which I print the following translated, pertinent snips:

Friesland Bank chooses for merging with Rabobank

Friesland Bank and Rabobank reached an agreement on a merger of Friesland Bank with Rabobank. To enable this merger, Friesland Bank will initially become a 100% subsidiary of Rabobank The Netherlands.

The depth, nature and lenght of the current economic crisis hit Friesland Bank itself, as well as its customers. Besides that, Friesland Bank, in order to meet the demands of the crisis, keeps substantially larger amounts of expensive liquidity than in normal market circumstances.

These developments put heavy pressure on the results of Friesland Bank. This makes realizing the short-term goal of reinforcing the equity of the bank to a Basel III-level very uncertain. It is true that Friesland Bank built up much symphaty in the consumer-market lately and it operated very succesfully in it during the last years, but that doesn’t outweigh the combination of earlier mentioned effects.

The executive board determined, after an in-depth strategic analysis, that it had become irresponsible towards its customers and employees to strive for a continued independent existence.

After exploratory talks with various potential partners, the merger with the Rabobank seemed the most viable solution.

This development cannot be seen loose from a recent change: the Dutch Authority Financial Markets being on the warpath against the (small) banks in order to protect the  interests of Dutch consumers of the financial industry. The Dutch financial newspaper Het Financieele Dagblad (www.fd.nl) writes on the AFM:

AFM: small banks will not be excused

The downfall of Friesland Bank is not a reason to plead for more softened supervision towards smaller banks. This is the opinion of Ronald Gerritse, chairman of the board of the Dutch Authority Financial Markets (AFM). Besides that, he does not exclude the possibility that the stricter demands towards banks will lead to a further consolidation in the banking industry. Gerritse made his statement after the presentation of his first annual report as chairman of the AFM.

The nearly hundred year old Friesland Bank was taken over by the Rabobank on Monday April 2, as it threatened to get into trouble, due to the stricter capital and liquidity demands (Basel III). After the news on Friesland Bank, immediately questions were raised on two other smaller banks, namely SNS Reaal and Van Lanschot. Gerritse will not discuss individual cases, but he can imagine that ‘further consolidation is neccessary’.

  

How dire the situation of the Friesland Bank had become, was disclosed in another article of Het Financieele Dagblad (unfortunately only available for subscribing readers of the offline newspaper; the snips here emerged from a PDF-version of this article on another site).

Independence irresponsible

Friesland Bank (FB) waived its independence after it became clear that the bank encountered a massive loss over 2011. The bank that fought for its independence for a long time, is immediately taken over by the Rabobank.

At special request of the local bank, supervisor Nma (Dutch supervisor for competition ) followed a very unusual emergency procedure to approve of the take-over. Otherwise FB would have been forced to publish its annual data without a safety net in place. The disastrous data, with a loss of possibly around €100 mln [on a balance sheet total of €11 bln – EL] would make the bank with its large numbers of internet savers very vulnerable for a bankrun.

This article is a must-read for everybody that reads Dutch and contains more interesting facts. English and American readers can use Google Translate, which supplies a poor, but readable translation.

I think that CEO Kees Beuving of Friesland Bank took the only possible decision by negotiating with Rabobank on a take-over, even knowing that it would cost him his job eventually. I praise him for his courage and lack of ostrich-like behaviour.

The sad fact, however, is that the downfall of Friesland Bank makes the oligopoly of the four sisters in The Netherlands even stronger. And if Ronald Gerritse of the AFM is correct, the four sisters might soon become three sisters, if SNS Bank drops from the train. The aforementioned bank Van Lanschot and a number of other small banks are only accessible to very wealthy people with at least €100K - €500K in investible income and are therefore not an option to the Dutch Joe-the-Plummer.

It reminds me of this hilarious scene in the movie Demolition Man: “Taco Bell won the franchise wars and now all restaurants are Taco Bell”. Translated to the Dutch situation: Rabobank won the Basel III-wars and now all banks are Rabobank”.

It has not come this far yet, but…

The Dutch economy seems in a tail-spin. Diminished disposable income and rising numbers of debt restructurings aggravate dropping domestic demand

Last Thursday, I already wrote that the Dutch consumers currently keep their hands tightly in their pockets and that the policy of zero wage increase, desired by both the employer’s associations and the current right-wing government, will only make things worse, instead of better.

Today the NEVI, the Dutch association of Purchase Managers (www.nevi.nl), reported its monthly Purchase Managers Index. This index is a tell-tale signal for the consequences of stalling consumption; a consumption that will only become worse when the zero wage increase-policy is maintained. Here are the pertinent snips:

Considerable drop in new orders: NEVI Purchase Managers Index (PMI) is 49.6

The NEVI PMI was 49.6 in March, compared to 50.3 in February. This points towards a further deterioration of circumstances for companies.

The number of received new orders dropped. The domestic demand was limited, but the orders from abroad increased. The production volume remained unchanged. The arrears in production dropped considerably and the supply of finished products in March increased for the first time since August 2011. The workforce increased for the first time in six months. The purchase cost inflation was the largest since June 2011. The sales prices increased considerably, but not sufficiently to compensate increase purchase costs. Purchase activities dropped. In spite of that the time of delivery increased for the third month in a row.

After a slight increase in February, there was a substantial drop in the number of received new orders. The market demand was very low, especially for domestic orders. Many domestic customers postponed or even cancelled their orders. According to the latest data, it is the eighth time during the last ten months that the number of newly received orders dropped at the Dutch production companies.

In spite of the smaller number of received orders in March, the Dutch production companies contracted more personnel. This points to a certain confidence in the outlook for the number of orders. The employment in this industry increased substantially. This was the first expansion of the workforce in six months, due to an expected increased of sales and enduring efforts to reduce arrears.

There you have it, in the red and bold text: the consequences of dropping consumer confidence and consumer demand. At this moment wage restraint or even a zero wage policy is not yet official policy; can you imagine what this brainless policy will do for domestic demand? I can!

Although US demand increased, it is not at all enough to compensate the dropping domestic demand and the weak demand from the South-European countries that have been very important customers during the last ten years.

The companies in the aforementioned investigation seem to have trust in improving circumstances, as they contracted more personnel, in order to meet increased future demand and to reduce their arrears.

However, I truly doubt that these companies are right. I don’t see much signals for improvement in 2012, just like I didn’t in 2011. And as most companies are not stupid, I seriously doubt if any of these newly contracted workers received a fixed contract. It is of course quite easy to get rid of excess personnel when everybody involved has a temporary contract.

There is hardly any real improvement; not much in Europe and not at all in The Netherlands, where the Dutch consumer sits on his hands. In my opinion, the success at the European stock exchanges in 2011 can only be owed to the Greek debt deal, perhaps to an oversold stock market at the end of 2011 and especially to the more than generous lending program of the ECB, where the banks could borrow ‘money virtually for free’. It was like investing millions of dollars in order to catch two hundred grant.

In this case, the hard-learnt lesson of many investors is that of the game of musical chairs: dance while the music plays, but be prepared to grab an empty chair immediately after it stops. I would not be surprised if the music had already stopped for 2012 in The Netherlands.

There was also news from the Dutch Central Bureau of Statistics (www.cbs.nl) about the Dutch consumers. One message was already published last Friday:

Disposable household income further down

The disposable household income has dropped for the fourth year in a row. Adjusted for inflation, the disposable household income dropped 0.4% in 2011, the same as in 2010 and this was largely caused by the fact that the wage increase of 1.8% was below the level of inflation (2.3%). Higher contributions to health care insurance schemes and pension schemes also had a negative effect on the disposable household income. As household incomes declined, consumer expenditure dropped by 1.1%.

The total financial capital of households rose by 52 billion euro last year and for the first time in history the 1 trillion euro barrier was broken. This includes the capital owned by pension funds and life insurance companies. The value of shares owned by Dutch households was reduced by 27 billion euro due to purchases and falling share prices. The investment portfolios held by pension funds and life insurance companies, on the other hand, increased by 77 billion euro. At the same time, the total mortgage debt increased by 13 billion euro to a total of 665 billion euro, which is the lowest increase since 1995. This is due to stagnation on the housing market.

The conclusion of this article is: Dutch people might actually have become richer in 2011, but they have definitely less money to spend. Their money is stored in (in)voluntary savings, like the pension funds, amortization of mortgages and private savings accounts and in rising healthcare costs. Imagine again what a zero percent wage increase-policy might do for disposable income with an inflation of 2-3%.

A second article of the CBS concerned the soaring number of debt restructurings in The Netherlands:

Number of debt restructurings keeps increasing

In 2011 almost 15,000 debt restructurings have been verdicted. This is almost 30% more than in 2010. Herewith the increase, that started halfway 2009, continues firmly. After a few years of reduced numbers of debt restructurings these are back at the level of 2005-2007. Judges verdicted almost 15,000 debt restructurings in 2011, which were 3,300 more than in 2010. These were mainly private citizens, in contrary to the second half of 2010 when these were mainly ex-entrepreneurs.

Debt restructurings in The Netherlands 2005-2011
Source of data: www.cbs.nl
Chart made by ernstseconomyforyou.blogspot.com
Click to enlarge

The increase of the number of debt restructurings comes together with a less favorable economic climate. More companies default and more people lose their jobs. Also a long-lasting situation of double housing costs and less courtesy at creditors are possible explanations for the increasing number of debt restructurings.

I guess that I was right when I predicted that 2011 would be a very hard year for The Netherlands. In my opinion the economic situation will become worse and worse, especially with the current lackluster and indecisive Dutch government, locking itself up for almost one month to postpone the inevitable decisions on additional austerity measures and measures to spur economic growth. 

The CDA-VVD government, with, as its silent partner, the PVV of Geert Wilders  has taken a refuge in the Catshuis, the official residence of the Prime-Minister. The parties involved discuss the direction of the €16 bln in additional austerity measures that are necessary in order to meet the 3% deficit-ceiling on the state budget that is required by the European Stability and Growth Pact.

While it is especially clear where the current government doesn’t want to take measures (namely at the totally messed up Dutch housing market and in the retirement age of 65; both issues where interferance is needed most), it is not clear at all where the government does want to take measures.

As a matter of fact, it might take until the end of April before some light has been shed at the additional austerity measures that this government will take. Decisiveness is a concept of which the Mark Rutte-government is seldomly accused.