“Theoretically, even more creditors of SNS REAAL and SNS Bank might have been expropriated, that is, creditors on an equal footing with depositors: the ordinary creditors,” he said in a letter to parliament explaining the move. In fact Jeroen Dijsselbloem, Minister of Finance, considered including senior bondholders in the expropriation, but blanched at how such a move would be received by financial markets. The Dutch Intervention Act, passed in 2012, was an attempt to rectify that, giving the government more wide-reaching powers and options for dealing with ailing banks. The bank bailouts at the height of the crisis spiked widespread, and justified, revulsion among taxpayers, who resented shelling out while investors who took foolish risks emerged largely unscathed. This has already started to ramp up what banks in the euro zone must pay to borrow money. The farthest-reaching implications of the nationalization may come from the Netherlands’ decision to put subordinated bondholders on the hook for what will almost certainly be a complete wipeout of their investment. That could have been higher, but for a $1.35 billion levy to be extracted from other Dutch banks in 2014 to help meet the cost of the bailout, as well as the forced contribution of investors. The Dutch government’s share of the bailout is nearly $5 billion, poking a sizable hole in the country’s budget plans. Secondly, SNS shows that taxpayers are going to continue to foot a hefty bill. Though optimists might argue that the bad loans SNS was on the hook for were already well known, the fact remains that the banking system across the euro zone and beyond is still struggling under the weight of bad lending decisions made before the crisis hit. SNS, which had already received one state bailout, was struggling under the weight of a large book of bad real estate loans and was suffering strong outflows of deposits thanks to worried savers.įirst off, the news demonstrates that Europe’s banking problems are far from over. While senior bondholders and depositors were sheltered, the stakes of equity holders and subordinated bondholders were effectively expropriated.
The Netherlands last week seized control of SNS, its fourth-largest financial services firm, in a $14 billion rescue, employing powers granted it under a new law passed last year. In wiping out SNS shareholders and some bond holders the Dutch government is trying to do the right thing, can’t quite bring itself to go that far, and may end up paying the price anyway.
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