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The Netherlands nationalized its fourth-largest bank on Friday, injecting €2.2 billion ($3 billion) to recapitalize SNS Reaal NV and head off any chance of a messy collapse that would threaten the country's fragile economy and financial system.
The total cost to the Dutch government will be at least €3.7 billion, Finance Minister Jeroen Dijsselbloem told a press conference. That's enough to ensure that the Netherlands' budget deficit in 2013 will be higher than the 3 percent allowed under EU rules, unless the Cabinet — which has already taken a series of unpopular tax hikes and spending cuts — comes up with further austerity measures.
"This isn't what we wanted," Dijsselbloem said. But he added that, without the nationalization, SNS "would have gone irrevocably bankrupt," with dire consequences.
Although the bank's failure had been long-coming, it carries the added embarrassment for Dijsselbloem that he has recently been chosen President of the "Eurogroup," the regular meetings of eurozone finance ministers. The Netherlands has been among the loudest in demanding that other countries adhere to the 3 percent rule.
Costs from the nationalization "must not lead to new spending cuts that will hurt the taxpayer further," said Carola Schouten of the opposition Christian Union Party. "Dijsselbloem must go directly to Brussels to ask for an exemption" to the 3 percent limit.
SNS has insurance and banking operations, including about 10 percent of Dutch retail deposits. Its total balance sheet was around €134 billion. Its decline and fall happened over a period of years, rather than as a result of any acute crisis, as falling property values in the Netherlands and Spain continually eroded its portfolio of real estate loans month after month.
SNS Depositors and senior creditors won't lose any money in the nationalization, the Finance Ministry said.
However, SNS shareholders will be wiped out, along with some junior creditors, including the state itself. SNS owed the government €800 million, including interest, left over from a 2008 bailout. Other junior creditors will lose around €1 billion, the ministry said. The three biggest Dutch banks, ING Groep NV, ABN Amro, and Rabobank will contribute a combined €1 billion to help save SNS .
The nationalization shows the damage the crisis has wrought on the oversize Dutch financial sector and means that three of the five biggest banks in the country have now come under state control since the start of the crisis: ABN Amro was merged with the former Fortis and both were nationalized back in 2008. In addition, ING received several bailouts which have still not been fully repaid. Only Rabobank, a banking cooperative, has not yet needed state aid.
In July, SNS began warning that its equity — or net worth — was sinking below legally permissible levels and it would likely need some kind of restructuring. In November it acknowledged its survival was uncertain. Efforts to find an investor willing to take over the bank continued up until Thursday afternoon but proved fruitless.
Documents released by the Dutch government showed that while SNS had made provisions of €700 million for bad loans on its €9 billion real estate loan portfolio, the bank said the portfolio was worth only €6.2 billion in a worst-case scenario. External auditors Cushman & Wakefield, hired by regulators, found the real worst-case scenario value was €4.9 billion.
SNS paid ABN Amro €840 million in 2006 to take over the loan portfolio.
SNS's own banking and insurance operations remained profitable throughout the crisis and Dijsselbloem said they will continue — under new management. Executives resigned Friday, rather than waiting to be dismissed.
Jan Sijbrand, the head of regulatory operations at the Netherlands' Central Bank, said there was no full-fledged run on the bank, but "there was a continual flow of money going out, of varying intensity" in January. That was greatly influenced by news articles in the Dutch press speculating on whether the bank would survive, he said. Depositors pulled around €1.4 billion in the second half of the month, he said.
Unlike the decisions made during the crisis of 2008, Friday's nationalization came only after the bank, regulators, and external investors considered various other scenarios.
"This is a unique situation and we have prevented worse outcomes with this solution, but it is nothing to be satisfied about," Sijbrand said.