Earlier today we got one hint that not all is well in the European banking system, as far less than the expected €200 billion was tendered back to the ECB in the second LTRO repayment operation, when just 27 banks paid back some €3.5 billion. Another, perhaps far bigger one, comes courtesy of AAA-rated Netherlands, which just experienced its first bank failure since 2008 following the nationalization of SNS Reall NV, as the previously announced bad loan writedown finally claimed the bank. As a reminder, half a month ago we got news that "SNS Reaal NV (SR), a Dutch bank and insurer struggling to wind down a money-losing real estate lending unit, fell the most in more than two months after a report said it may have to post a 1.8 billion-euro ($2.4 billion) writedown on property-finance loans." Today we got the inevitable conclusion: nationalization, one which will cost taxpayers about $5 billion to avoid contagion to what many see as Europe's "strongest" banking system.
The move, aimed “at stabilizing the SNS Reaal group,” will cost taxpayers 3.7 billion euros ($5 billion), the Dutch Finance Ministry said in a statement today. SNS’s property- finance unit will be separated from the company.
“I scrutinized all alternative solutions involving market parties,” Finance Minister Jeroen Dijsselbloem said. “Yesterday night I found myself compelled to conclude no acceptable total solution was offered. I therefore had to use the instrument of last resort, which is nationalization.”
The lender, which acquired ABN Amro Holding NV’s property- finance unit in 2006, has been hurt by losses on real estate loans that have left it struggling to repay a government bailout before next year’s deadline and bolster capital buffers. The nationalization includes all issued shares, core tier 1 capital securities and subordinated bonds, the ministry said.
SNS shares were suspended in Amsterdam. They last traded yesterday at 84 cents, valuing the company at 242 million euros, and have declined 57 percent in the past year.
The state will inject 2.2 billion euros of capital into SNS Reaal, write down 800 million euros on its earlier aid package and use 700 million euros to put the real estate portfolio at arm’s length.
“Nationalization would safeguard financial stability and prevent serious damage to the economy,” Dijsselbloem said. “I want the private sector to contribute as much as possible.”
SNS Reaal is the smallest of four Dutch banks designated as “systemically important,” or too big to fail, by the Dutch central bank. It had 32.5 billion euros in savings at the end of the third quarter, according to a Nov. 15 presentation. ING, Rabobank Groep and ABN Amro are its three largest competitors.
So if one of the most stable banking systems in Europe is not quite as stable as expected, one can only imagine what is going on in Spain and Italy, and how many hundreds of billions more in taxpayer aid will have to be shelved out once the soaring bad loans in these two countries can no longer be swept under the rug.