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

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

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

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


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

Read for more info on the Vestia affair:

• Building cooperative Vestia, based in Rotterdam, The Netherlands plays ‘hedgefund’ with the banks
• ABN AMRO and Deutsche Bank are the largest parties involved in the Vestia Interest Rate Swap deal gone awry
• Loose cannons at Vestia multiplied Interest Rate Swap problems in 2011

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

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

Here are the pertinent snips from an article in Het Financieele Dagblad (www.fd.nl)

Company from region Het Gooi is suspect in Vestia case

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

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

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

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

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

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

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

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

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

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

Vestia hot shot received a VIP-treatment (payed link)

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

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

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

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

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

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

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

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

Thank you?! You’re welcome!