SNS tries to get a position at the mortgage market, but might fight a losing battle against the ‘apparatchiks’ from Brussels

The bank-insurer and smallest of the Dutch big banks, SNS Reaal, was yet again in the news last week after a few months of relative peace and quiet.

Since the beginning of February, when SNS was nationalized, the bank had been working on its self-confidence again by slowly picking up the fight against the big three: ING Groep NV, (the nationalized) ABN Amro and the Rabobank group.

As the core bank and the insurance companies of SNS Reaal have always been quite healthy by themselves and the only real problem of the group had been SNS Property Finance, the bank could still act as the smaller and friendlier alternative for the big banks, after the rescue action by the state.

Nevertheless, the verdict of the European Commision hangs above SNS Reaal’s head, like Damocles’ sword. It can be expected that SNS Reaal will be severely punished by the EC, due to the fact that it a. received massive state support from the Dutch state during the nationalization process at the beginning of this year and b. that it had been the second time that the bank-insurer had received state aid, since the credit crisis started at the end of 2008.

Next to a foreseeable split up of the SNS Reaal group, wherein the bank and the insurance companies will be separated and large chunks of the bank or the insurance companies must be sold to external parties, there will probably be other measures as well.

ING and ABN Amro, for instance, were not allowed by the European Commission to:

• Acquire new financial companies and gain market share through this
• Promote price leadership:
• Being price fighters, who offer their services at the best prices
• Being interest stunters, who offer the lowest lending rates or highest savings’ rates
• Refer in advertisements to the fact that it was a stateowned bank (ABN Amro) 

It can be expected that similar punishments will also be effectuated upon SNS Reaal. The EC must do so, in order to not treat this relatively small bank-insurer more friendly than its two bigger competitors.

Still, SNS Reaal is not going to wait for the verdict of the European Commission, while sitting on its hands. Instead, the bank tries to make itself an indispensable, small party in the near-oligopoly that the Dutch banking industry is, which might not be a bad strategy.

Their strategy: convincing the European Commission that ‘splitting us up would ruin the competitiveness of the Dutch banking and insurance industry’. Their market of choice: the Dutch mortgage market.

Het Financieele Dagblad has written upon this story:

SNS tries to butter up Brussels

SNS Reaal is attacking the Dutch mortgage market. It is going to ‘mark down’ its mortgages, in order to rapidly expand its current, minimal market share, at the expense of its competition. In the fall of 2013, the company will reduce the prices of its mortgages.

According to insiders in the matter, SNS is taking this step in order to show to the European Commissioner of Competition, that the bank-insurer can play an important role as a booster for competition in the Dutch banking industry. Consequently, it hopes to receive a milder ‘punishment’ for the received state support than for instance ING.

SNS aims at expanding its position at the Dutch mortgage market towards a market share of 6% in mortgages for newly-built houses. This became clear at the presentation of the half year data. During the last years, the fourth bank in The Netherlands saw its market share shrink from 9.4% towards the current 1.2%.

According to CFO Maurice Oostendorp of SNS Reaal, the profits margins that banks currently make on mortgages do allow SNS to reduce its prices. ‘The acceptance conditions for consumers have been enhanced and our margins allow that we offer sharper prices on mortgages. Thus we can add a small contribution to the revival of the Dutch housing market’.

These plans of SNS cannot be seen separately from the restructuring plan that the bank must hand over to Brussels next week. It is expected that the company must abolish a large part of its assets, as it received state support twice. By making itself ‘bigger’ at the Dutch mortgage market, SNS can show that ‘the Dutch number four is able to fight the competition of the Big Three’.

Insiders doubt whether SNS is able to shake up the Dutch mortgage market. As the bank is still not welcome at the international capital markets, it has very little leeway for lowering its prices.

The observation by the insiders (red and bold text) is probably right. When the bank has no access to the capital markets yet, their funding capital is definitely (much) more expensive than the funding amounts that ING Groep and ABN Amro need for their mortgages.  

Asking lower interest rates for mortgages that you sell, while you pay higher funding costs for the needed capital, is a certain way to cannibalize on your profits and increase your risk profile.

On top of that, I don’t believe for one micro-second that these actions by SNS will really help to shake up the Dutch mortgage market.

People that really want to buy a house will not be stopped by a few euro’s more at their interest rates.

And people that doubt whether they will buy a house or not, will certainly not stop doubting in exchange for a few pennies less. Especially not, as the price of their favorite new house is still considered to be too high for many potential buyers. On top of that, a great many potential house buyers have currently their job on the line, as The Netherlands is still firmly in recession.

Of course, some potential buyers might get the final push by the cheaper mortgages offered by SNS, but this will only be a few dozen buyers per month, I presume.

I must admit, that I am symphatetic against SNS as the brave David, trying to fight its three Goliaths. And it is true that the Dutch banking industry desperately needs some extra competition.

Nevertheless, it would not be fair when this happened as a consequence of the state support and state-ownership that the bank received in February of this year.

The fact that SNS wants to become a price-fighter at the Dutch mortgage market is exactly the kind of thing that ‘the apparatchiks’ in Brussels want to prevent from happening. SNS could and would become a price-fighter at the Dutch mortgage market, due to the fact that the Dutch state saved SNS’ bacon. That is an undeniable fact.

Another fact is that SNS would profit after all from the circumstance that it is a state-owned bank, as this dramatically reduces the funding prices of its mortgages. Even without access to the capital markets, it remains an undeniable fact that borrowing money is less expensive for a small stateowned bank than for a small private bank.

This is exactly why Brussels doesn’t allow pricefightership and interest stuntership for banks that received state aid. If the EC would allow SNS to do so on Monday, then ING and ABN Amro would visit them on Tuesday, in order to claim a damage restitution for different treatment under similar circumstances.

Therefore I’m certain that SNS Reaal’s mortgage plan will be immediately tossed in the trashcan of the European Commissioner for Competition. 

The CPB outlook and the CBS economic data turned 14 August into ‘Worrisome Wednesday” for the cabinet of PM Mark Rutte

I got it bad. You don’t know how bad I got it.

You got it easy, you don’t know when you’ve got it good

It's getting harder Just keeping life and soul together

I'm sick of fighting Even though I know I should…

Nik Kershaw – Wouldn’t it be good

You could safely state that Dutch PM Mark Rutte didn’t have the best week of his Prime Minister-ship in The Netherlands this week. In the first week after the summer recess of Dutch parliament ended, there were some events that probably even would have caused the great Winston Churchill a migraine headache.

On Monday morning, 12 August 2013, prince Johan Friso of Orange passed away, after being in a deep coma for 1,5 years, caused by a fatal skiing accident.

It became clear that this Friday’s ‘semi-royal’ funeral (officially, Friso was not a member of the House of Orange anymore and therefore not a possible successor for the Dutch throne) would be very private: so private indeed that neither Mark Rutte, nor any other representative of his cabinet had been invited to it.

However, the double whammy came last Wednesday: first, the Dutch Central Bureau of Statistics presented some really disappointing macro-economic data and afterwards the Central Planning Bureau presented its notorious outlook for the remainder of 2013 and 2014.

In my article upon the CPB outlook, I promised already to get back to the CBS economic data. Here are the pertinent snips from Wednesday’s three press releases by the CBS, combined with my comments:

Economic contraction 0.2%

According to the first estimate conducted by Statistics Netherlands, the Dutch economy shrank 0.2% in the second quarter of 2013 compared to the first quarter. This is the fourth quarter in a row showing economic decline, although with each quarter the decline became less severe. The economy contracted 1.8% relative to the second quarter of 2012. The second quarter of this year had the same amount of working days as the second quarter of 2012.

In the second quarter, household consumption on goods and services was 2.4% below the level of one year previously. Household consumption has been in a downward spiral for more than two years now. Dutch consumers spend less money on durable goods like cars, clothes and furniture, but also cut down on food, drinks and tobacco. Consumers spent more on natural gas than last year due to the relatively cold weather conditions in spring.

Government consumption fell by 0.5% as a result of a spending cut on public administration Government spending on care was higher than last year

Fixed capital formation in the second quarter was 9.4% below the level of one year previously. This is the sixth consecutive quarter showing a downward trend, although the decline is smaller than in the first quarter. In the construction sector, investments were still declining, but less rapidly. The same applies to investments in machinery and computers. Car sales were dramatically down, partly because last year more cars were sold as companies anticipated the introduction of the higher tax rate on passenger cars and motorcycles (BPM), effective from 1 July 2012.

Exports of goods and services decreased by 0.3% in the second quarter relative to twelve months previously. Exports of petroleum derivatives dropped dramatically, whereas last year the foreign demand for these products was exceptionally high. Imports were 1.7% below the level of one year previously.

Exports of goods manufactured in the Netherlands fell significantly in the second quarter compared to the first quarter; the growth of re-exports was smaller than in the preceding quarter.

Output slumps in sectors construction and manufacturing industry

Although most sectors still faced output decline, the decline was less substantial in many sectors. Just as in the first quarter, the sectors care and mineral extraction realised growth.

Output generated by the construction sector was 5.9% down from one year previously. Manufacturing output was 1.7% down, but with 8.6 and 4.5% respectively,  the corresponding figures for the preceding quarter were more unfavourable. Output realised by the sector commercial services also declined less rapidly than in the first quarter. Output by the sector mineral extraction grew 7.5% due to higher domestic and foreign natural gas consumption. The growth was smaller than in the first quarter.

Number of vacancies further down

Adjusted for seasonal variation, there were 91,000 unfilled vacancies at the end of June, a reduction by 6,000 relative to the first quarter, which means that the downward trend continues. According to the most recent figures released by Statistics Netherlands, the number of vacancies has reached the lowest level of the past decade.

The private sector entirely accounts for the decrease in the number of vacancies. In the public sector, the number of vacancies has in fact grown. The most dramatic decline occurred in the sector commercial services; the number of vacancies fell by 3,000 to 56,000.

Unemployment continues to grow

According to the most recent figures released by Statistics Netherlands, unemployment adjusted for seasonal variation grew by 19,000 in July to reach 694,000.

Figures published by the Institute for Implementation of Employees’ Insurances (UWV) show that the number of unemployment (WW) benefits has grown by 13,000 to 395,000.

The number of unemployed increased by 19,000 in July. The increase is more substantial than in the preceding three months. The unemployment rate in July was 8.7%. Youth unemployment was 17% and the unemployment rates among 25 to 44-year-olds and over-45s were 7.9 and 7.5 % respectively.

Unemployment has risen on a monthly basis since July 2011. The average monthly increase over the past twenty-four months was 12,000. Men in the age category 25-64 accounted for nearly half of the increase. In particular over the past twelve months, unemployment has soared: by more than 180,000 versus nearly 100,000 in the previous twelve months. The main reason is that more people than before became unemployed because they lost their jobs. According to the ILO (International Labour Organisation) definition, 7.0% in the Dutch labour force were unemployed in July versus 6.8% in June.

What you could state about these economic data are the following remarks:

• The Dutch unemployment situation is getting from bad to worse. The Part-time Unemployment Benefit (see for an explanation this article) in 2009 and 2010, which had been meant as a means to stop unemployment growth as a consequence of the crisis, indeed only postponed the inevitable.
  
• Since the start of 2013 unemployment is really skyrocketing, just like the number of small and large companies and private persons that have defaulted.
  
• Slowly, but surely the economic data seems to improve slightly, when compared to the previous quarter. However, when compared y-o-y, the economic data is still very bad.
  
• With these economic data, The Netherlands is among the weakest countries in Europe, when it comes to economic growth and returning prosperity; it resides in the company of Greece and Ireland. The EU as a whole is slowly getting out of the recession, with France and Germany as the current heroes of growth. The Netherlands is still firmly IN recession.
  
• However, there is a positive aspect to these data. I see the current crisis as a cleansing process: a process, which had to be carried out in order to get rid of overcrediting, overproduction, excess private debt and excess consumption in The Netherlands. From that point of view, you could say that The Netherlands since 2011 is well on its way to be cleansed indeed.
  
• The first three years of the crisis had been merely used by the successive Dutch cabinets to kick the can down the road and postpone all the difficult decisions, concerning: 
• unemployment; 
• industries with a troubled future (a.o. agriculture, building and construction, healthcare, financial services and business services); 
• and last, but not least, the Dutch housing market.
  
• Now the cleansing process is underway anyway, in spite of the weak and indecisive cabinets that led The Netherlands during these years. Eventually, The Netherlands will become a stronger country from it.

Nevertheless, I don’t expect something good to come out of this hopelessly weak Cabinet Rutte II in the coming months or years.

The cabinet sticks to mindless austerity measures and tax increases for the middle class, which ‘annihilate’ consumption and put the economy further in decline. At the same time, the cabinet expects ‘the market’ to have a magic wand, which magically solves all financial and economic problems in The Netherlands. Of course the market … does not!

There is no ‘grand vision’ in this Cabinet:

• No industrial policy for the manufacturing industry, which should aim at bringing back The Netherlands among the leading industrial nations in Europe and the world;
  
• No grand scheme for children’s education or for lower and higher professional education and scientific education. In the vision of the cabinet schools should do more with less money, but they end up doing much less with less money. At the same time too little has been done about the excess salaries for executive managers in the large school conglomerates;
  
• There is no real debate upon healthcare and the aging process in The Netherlands. The only formulas of this cabinet are: sobering up the conditions and granted treatments within the mandatory health insurance  policy and again trying to do more with less money, which fails hopelessly;
  
• No strategy for the future to clean up the excess capacity in the building and construction industry or rejuvenate the Dutch housing market by taking the hard decisions (abolishing the Mortgage Interest Deductability for instance) and the pain right now;
  
• No thorough ideas and strategies concerning the globalization and the effects of this towards employment and employability in The Netherlands;
  
• No new concepts towards renewable energy and ways to stop global heating. Concerning renewable and environmentally-friendly energy, The Netherlands is again among the weakest countries in Europe.
  
• The renewable energy targets for The Netherlands in 2020 will be missed by a lightyear;
  
• There is a deafening silence on almost any aspect of the big energy questions for the future, in spite of the fact that one of the architects of this Cabinet, Diederik Samsom, has been a prominent member of Greenpeace. 

These are no ideas and concepts that could immediately solve the economic depression in The Netherlands. Unfortunately, we have to sit that one out.

Nevertheless, the aforementioned issues and concepts could be like seeds, that would bring prosperity and rejuvenation to The Netherlands in the long run. 

As there is a future after the depression: a future for which this cabinet is not ready by far…

CPB forecast for 2014 emphasizes the total policy failure of Cabinet Rutte and its predecessors, although it seems still overly optimistic in some cases

Today, the Dutch Central Planning Bureau (www.cpb.nl) presented the long-awaited update of its economic and budget forecast for 2014 to the conservative-liberal/social-democat cabinet of PM Mark Rutte (VVD) and vice-PM Lodewijk Asscher (PvdA). This forecast had been long-awaited indeed, as it presents (increasingly reliable) predictions on the Dutch budget deficit for the current year and coming year 2014.

During 2012 and 2013, this Dutch budget deficit has been closely watched by economists and policy makers, due to its relation with the European Union Stability and Growth Pact (SGP), with its desired budget deficit threshold of 3.0% for the member states of the European Union.

In recent years, The Netherlands came under heavy scrutiny of the European Union and some of its member states.

During the beginning of the Euro-crisis (2009-2010), The Netherlands fiercely and aggressively criticized the PIIGS-countries (Portugal, Ireland, Italy, Greece and Spain), when these countries failed to meet the demands from the SGP. Harsh words fell on the ‘irresponsible behavior’ of especially Greece, spoken by Finance Minister Jan Kees de Jager and the subsequent PM’s Jan Peter Balkenende and Mark Rutte.

However, The Netherlands also failed to meet the exact demands from the SGP itself for a number of years in a row (2011-2012), as it had to deal with budget deficits considerably higher than the 3% threshold. This must definitately have led to some scornful laughter from the earlier criticized PIIGS countries and to watchful eyes from the European Commission.

Nevertheless, the small financial crisis in The Netherlands could hardly be compared to the financial/economic drama’s in the PIIGS-countries (large state debts, enormous budget deficits and large unemployment). Besides that, the budget and financial situation in The Netherlands had always been considered to be quite healthy fundamentally, in spite of the huge private debt and the firmly locked up Dutch Commercial and Residential Real Estate markets. The Netherlands is still one of the richest countries in Europe and an economic powerhouse.

This was the reason for the European Commissioner for the Budget Olli Rehn to declare recently that he would ‘generously’ allow The Netherlands to miss the 3% SGP budget deficit threshold by a few tenths of a percent, under the condition that the Dutch Cabinet Rutte would book in for €6 billion in additional austerity measures for 2014, on top of the €16 billion in existing austerity.

However, while the CPB data in June already showed a deteriorating financial situation, today’s CPB data were even worse. Here are the pertinent snips from the press release by the CPB:

Updated CPB Projections, 2013-2014

Today, CPB Netherlands Bureau for Economic Policy Analysis presents the Dutch Cabinet with its updated macroeconomic projections for 2013 and 2014, for the finalisation of the decision-making process around the 2014 national budget.

These projections not yet include possible additional spending cuts by the Cabinet. Without implementation of these possible additional spending cuts, CPB projects gross domestic product (GDP) to decrease in 2013 by 1,25% and to increase by 0.75% in 2014. Unemployment in 2013 is expected to rise by 150,000 people to 620,000, and in 2014 this will be up to 670,000. The budget deficit in 2013 is 3.0 %, and in 2014 this will be 3.9%.

According to these intermediate projections, the development of the Dutch economy is less favourable than in last June’s projections. With a 1,25% decrease, GDP volume will shrink in 2013 by a quarter percent more than projected earlier. Economic growth (GDP growth) for 2014 has been adjusted downward by 0,25% to 0,75%.

Unemployment for 2014, is projected to increase by 35,000, which is mainly due to the Central Bureau of Statistic's  downward adjustment of GDP growth in the first quarter of 2013 and the projected, slower growth in world trade for 2013 and 2014. A weaker development in real wages will contribute to less growth in private consumption in 2014. These CPB projections include the National Accounts 2012 and the preliminary GDP data by CBS on the second quarter of 2013.

The current projections present a budget deficit for 2013 of 3.0% against 3.5% in those of last June. For 2014, this is 3.9 against 3.7 in June’s projections.

Combined with this press release, the CPB sent the following economic data:

Economic  forecast data for The Netherlands for 2013 and 2014
Data courtesy of: Central Planning Bureau (www.cpb.nl)
Click to enlarge

Although I consider the CPB data in this table to be more realistic than on earlier occasions, I still challenge some of the data.

Why would the world trade volume rise to 3.75% in 2014? Especially the BRIC’s and Japan are already showing signs of economic fatigue and the growth in the US will only go on as long as ‘Uncle Ben’ Bernanke pays the tab. Hints from Bernanke on stopping QEIII at the end of this year were enough to bring sheer panic in the international financial markets.

Why would the exports of Dutch products and produce and especially the imports grow, when more and more people in The Netherlands are earning less salary or even get unemployed at the moment? Also the largest exporter in the world, China, is showing some real economic fatigue, if you read between the lines of the overly optimistic ‘official’ economic reports. The Netherlands is an important transit country for Dutch exports and will suffer from this Chinese economic cooldown.

And is the growth in the rest of the European Union so stable that it could really spur Dutch exports?! I doubt it seriously.

How could the average income in The Netherlands rise next year, while we read last Monday that the average income has declined over the last five years and the number of unemployed people is still soaring?! That doesn’t figure.

And will labour productivity really rise with 1.75%, while it only dropped over the last two years and there is still too little innovation in The Netherlands to spur this productivity?

Besides that, I consider the forecast that The Netherlands will meet the 3% budget deficit threshold in 2013 to be too optimistic. The 3.9% (or more) budget deficit for 2014 does sound quite realistic to me, albeit that this data seems to be based on too optimistic presumptions.

I can imagine that Euro-commissioner Olli Rehn has not been exactly ‘pleased’ when he learned about the latest CPB data from The Hague. A budget deficit of 3.9% for 2014 is considerably more than the exceeding of the SGP threshold ‘by a whisker’, which he had allowed earlier.

Nevertheless, the reaction of Cabinet Rutte II to these disastrous CPB data spoke volumes. The Dutch Volkskrant printed the reaction of Finance Minister Jeroen Dijsselbloem to the CPB data today:

Cabinet will not cut more than €6 billion

The Cabinet accepts that The Netherlands won’t meet the 3% SGP budget deficit threshold next year. There will be no additional austerity measures on top of the €6 billion in additional austerity measures that already had been decided upon earlier. This was stated by Finance Minister Jeroen Dijsselbloem in a reaction upon the latest forecasts by the CPB.

Also PvdA-MP Henk Nijboer and VVD-MP Helma Neppérus decided that extra austerity measures were undesirable. ‘We stick to €6 billion in additional austerity measures. Brussels said: this is what you have to do and we’ll stand by that’, according to MP Neppérus.

‘The CPB and CBS data [ I will come to that at a later stage - EL ] were not surprising, but nevertheless disappointing, as you hope that the economy recovers earlier’. This was stated by Finance Minister Dijsselbloem. ’The most important problems can be found at the Dutch housing market. These problems compromise economic recovery and they are devastating for consumer confidence’.

According to Dijsselbloem, the Cabinet will come with a stimulus package on Prinsjesdag (i.e. Dutch ‘State of the Union’on third Tuesday of September) and with additional measures to set the Dutch housing market free.

I give a translation of what Jeroen Dijsselbloem stated in the aforementioned lines and in the remainder of the article (not printed here):

[My translation of Jeroen Dijsselbloem’s words]: “We will add €6 billion in additional austerity measures. That is what the doctor ordered. Not a penny more. Not a penny less…

At the same time we are totally clueless about how we should set the Dutch economy in motion. We will try another stimulus package, although we know that it doesn’t help much. We take additional measures to set the Dutch housing market free, although earlier measures failed blatantly.

We understand that the additional austerity might kill any economic growth at the spot, but we do it anyway, otherwise the boss will be angry. We don’t have any idea why we do this really, but if Rehn wants it, he can get it.

Earlier this year, we tried to fool the social partners (i.e. employers and labour unions) with a fake social agreement, in which we promised to take away the €6 billion in additional austerity, if the economy would grow sufficiently. We really can’t understand why they bought it, but they did. Now these guys are angry, but they were so dumb they believed our fake promise. Stupid fools… Of course the economy didn’t grow as we did really nothing to make it grow.

Therefore we (i.e. political PvdA leader and chief whip Diederik Samsom) figured out a plan yesterday to take €8 billion instead of €6 billion in austerity measures, but immediately bring €2 billion back into the economy as a kind of stimulus. That will help the economy. Or won’t it?! Oooh, this is hard.

Every day we come up with a new plan to rob Dutch citizens from their life savings, pension savings and annuity policies, as it is a shame to let this money just hang around. We rather squander this money on any stupid plan right now than leave it at the people who might need it in the future”.

Dijsselbloem's reaction and the whole five years since the crisis started in 2008 contain clear signs of the failed Dutch policy throughout these years.

Even Belgium, which suffered from a huge political crisis for a record period of time, does considerably better financially and economically than the country that is slowly turning into the ‘Dopey’ of the European Union: The Netherlands. And that is something to be really ashamed about.