Netherlands: SNS Reaal Capital Injection, 2013

The DNB identified SNS Reaal as one of four systemically important financial institutions in the Netherlands in 2011. SNS Bank, the banking division of SNS Reaal, was significantly exposed to the losses suffered in its property finance division. In addition to issues in SNS Property Finance, the conglomerate was also troubled by an issue of double leverage. Double leverage is a situation wherein a holding company lends money to a subsidiary. This being the relationship between SNS Reaal and its subsidiaries, the insurance and banking arms of the company were closely intertwined. If parts were sold off, a portion of the resulting funds would need to be used to redeem loans taken out by the overall holding company, rather than the full amount going toward solving the issues in the real estate portfolio (Minister of Finance 2013a).

A run on the bank, lack of access to capital markets, and a share price collapse forced the government to pursue intervention options. In January 2013, the DNB concluded a regular Supervisory Review and Evaluation Process (SREP), which reviewed the firm’s capital adequacy. It found that in order to absorb the losses from the property finance division, the firm would need to double its capital. On January 18, 2013, the DNB notified SNS Reaal of the SREP results, and on January 27, it gave the firm one more chance to develop a plan to fix the capital deficit, with a January 31 deadline. A solution in which the three other systemically important banks participated in the bank or holding company proved impossible without an official guarantee. The individual sale of the insurance subsidiary would not provide enough relief on its own, and a private solution did not materialize for SNS Bank. The final hope was a private equity solution, which proved unviable on January 31, 2013 (EC 2013a; FSB 2014; Minister of Finance 2013a; van Tartwijk 2013; World Bank 2016).  

On February 1, 2013, the Minister of Finance nationalized SNS Reaal after talks broke down regarding the private equity proposal. The Minister of Finance reasoned, “Without intervention, SNS Bank would irrevocably go bankrupt . . . I had no other option but to nationalize SNS Reaal” (Netherlands 2013, 1). The activation of the deposit guarantee scheme “would have meant an enormous cost burden for the other banks” (Minister of Finance 2013a, 1). The nationalization announcement outlined the other intervention measures, which included a full recapitalization (Minister of Finance 2013a; Netherlands 2013; van Tartwijk 2013).

The Dutch state made the decision to inject capital separately into the conglomerate in order to address the issue of double leverage. Specifically, the EUR 300 million injected into the holding company was intended to bring the double leverage ratio below 115%, to help pay for disentanglement costs, and to provide for costs related to other intangible assets and liabilities, such as pension liabilities (EC 2013a).

The Dutch credit crisis of 2008 forced SNS Reaal to request emergency aid from the government. In response, the Ministry of Finance invested EUR 750 million in SNS Reaal in a form of hybrid capital, similar to preferred shares, that it considered eligible for treatment as Core Tier 1 capital under Basel capital rules. But the bank continued to struggle as non-performing loans accumulated in its real estate portfolio. At the time of nationalization, SNS Reaal had paid back EUR 185 million, but a penalty charge of 50% on the remaining EUR 565 million resulted in a total outstanding balance of EUR 848 million. Authorities wrote off this balance as part of the February 2013 intervention (EC 2013a; Minister of Finance 2013a).

The February 2013 capital injection supported the nationalization of the company. Alongside the new capital, the Dutch state also provided a EUR 1.1 billion bridge loan to help secure the short-term funding needs of SNS Reaal. The bridge loan helped the firm fulfill obligations related to medium-term notes and intercompany funding related to the insurance division. The bridge loan instruments had a maturity of less than a year, and SNS Reaal paid a credit spread of 110 bps above either the Euro Interbank Offered Rate (EURIBOR) or the funding rate of the Dutch state, depending on which was higher (EC 2013a; EC 2013b).

The capital injection also precluded a substantial restructuring of SNS Reaal, with the goal of isolating the property finance division from the rest of the firm. Upon approving the capital injection on February 22, 2013, the European Commission granted the Dutch state six months to submit a restructuring plan. The Dutch state submitted a final restructuring plan on August 19, 2013 (EC 2013b; Minister of Finance 2013a). The details of the restructuring of SNS Reaal are discussed in greater detail in Key Design Decision 11, Restructuring.

The public intervention measures taken for SNS Reaal were the first use of the Special Measures Financial Enterprises Act (Intervention Act). The Intervention Act, which was passed on February 14, 2012, with a retroactive effective date of January 20, 2012, granted the Minister of Finance broad powers of nationalization and expropriation in the interest of financial stability (IR Global 2013; Netherlands 2012). A full account of the terms of this act and its significance can be found in Appendix A.

The Dutch government also required approval of all measures from the European Commission (EC). The EC approved the nationalization and rescue aid measures on February 22, 2013, and gave Dutch authorities six months to submit a restructuring plan. The Minister of Finance submitted the restructuring plan on August 19, 2013, and the EC approved the plan on December 19, 2013.

Section 6 of the Intervention Act outlined the right of expropriated parties to appeal their expropriation to the Council of State. A large number of parties submitted formal appeals, which the council heard on February 15, 2013. Many appeals objected to the use of Cushman & Wakefield’s valuation of Property Finance as the basis for the decision by the Minister of Finance. On February 25, 2013, the council decided in favor of the Minister of Finance, stating that the expropriation was called for given the circumstances (Council of State 2013b; EC 2013a; EC 2013b; Netherlands 2012).

The Minister of Finance oversaw the administration of the capital injection. The letter sent to parliament concerning the nationalization outlined the state’s intention to transfer the shareholding responsibilities to NL Financial Investments (NLFI). NLFI was an independent entity created by parliament to ensure nonpolitical governance over public stakes in financial institutions. NLFI was led by a board consisting of three members appointed by the Minister of Finance. Board members served four-year terms and could be reappointed by the Minister. Individuals associated with the Dutch government or Dutch financial institutions were not permitted to serve, as per the NLFI’s articles of association. NLFI handled the day-to-day shareholder responsibilities associated with ordinary SNS Reaal shares starting on December 31, 2013 (Minister of Finance 2013a; Netherlands 2012; NLFI 2014; NLFI n.d.).

The Minister of Finance supplied information to the European Commission to inform the body’s opinion regarding the intervention measures and restructuring. After becoming responsible for shareholder duties on December 31, 2013, NLFI reported regularly to the Minister of Finance and Parliament (Minister of Finance 2013a; NLFI 2014).

On February 1, 2013, the Minister of Finance sent a letter to parliament and made a statement regarding the nationalization, recapitalization, and further intervention measures given the “unacceptable” alternatives (Minister of Finance 2013a, 1). On the same day, he issued a statement informing the public of the intervention measures. Dutch authorities communicated closely with EC authorities, resulting in EC approval of the Dutch measures on February 22, 2013 (EC 2013a; Minister of Finance 2013a; Netherlands 2013).

NLFI published annual reports detailing each year’s share management activities (NLFI 2014).

In the announcement of intervention measures, the Minister of Finance stated that “private parties that have knowingly chosen to finance SNS Reaal and SNS Bank will contribute to the maximum extent that the DNB considers safe with a view to financial stability” (Minister of Finance 2013a, 2). To that end, the Minister of Finance announced the expropriation of shareholders and subordinated debt holders of SNS Reaal on February 1, 2013. Authorities left senior bondholders unaffected because of the risks of negative impacts on the cost and stability of funding for the rest of the Dutch banking sector. This action was reflected in the decision by Fitch to confirm that the Dutch triple-A credit rating remained unaffected (Dow Jones Global Equities News 2013; FSB 2014; Minister of Finance 2013a).

A large number of parties appealed the expropriation to the Dutch Council of State. The Council of State heard the appeals on February 15, 2013, and ruled in favor of the Minister of Finance’s actions on February 25. On March 4, 2013, Dutch authorities confirmed that expropriated parties would not receive any compensation (Council of State 2013a; Council of State 2013b; EC 2014; Minister of Finance 2013b). The Minister of Finance stated:

the expropriation of the shares in the holding company has served to prevent such an adverse effect on financial stability. However, the expropriation of the shares issued by SNS REAAL automatically implies that the State is also acquiring 100% ownership of all subsidiaries of SNS REAAL, not only of SNS Bank, but also of the entire insurance arm, REAAL (Minister of Finance 2013a, 7).

The Minister of Finance expropriated the shareholders and subordinated creditors of SNS Reaal N.V and SNS Bank. As a result, these private parties lost their total investment, estimated at the time to be EUR 1 billion. The Minister of Finance had the power to do this because of the Intervention Act. The aggregate value of the expropriated securities exceeded the Minister of Finance’s January estimate, totaling EUR 1.84 billion in June 2014. A June 2014 EC recording of transactions stated that the total loss assigned to the capital injection from expropriated securities was 1.13 billion. The remaining 1.07 billion was recorded as an acquisition of equity by the government, with no impact on the government deficit (EC 2014; Minister of Finance 2013b; Netherlands 2012; Netherlands 2013).

Included in the expropriated securities were third series participation certificates with SNS Bank totaling EUR 57 million. The Minister of Finance requested an investigation into potential irregularities related to the sale of the certificates to retail clients. Following this investigation, SNS Bank made a proposal to the clients in question on July 11, 2013, which 97% accepted, resulting in payouts over the course of the year totaling EUR 51.3 million (EC 2013a; SNS Bank 2014). 

On February 11, 2021, a Dutch court ruled that the Dutch state needed to provide compensation to certain subordinated creditors whose claims were expropriated. This group expanded eligible candidates from the original holders of participation certificates who received compensation in 2013, based on the rationale that these claims had a value higher than zero. The Dutch Supreme Court ratified the decision on April 21, 2023, and the Dutch state commenced a compensation scheme. The state was required to pay an overall sum of EUR 805 million; the compensation breakdown is detailed in Appendix C (Netherlands n.d.a; Netherlands n.d.b).

The capital injection came in the form of ordinary shares, with NLFI exercising all shareholder duties from December 31, 2013, onward. This differed from the hybrid Core Tier 1 capital securities injected into SNS Reaal in 2008, which the government wrote off as part of the restructuring. In the original letter to parliament, the Minister of Finance indicated the possibility that the state may not receive a dividend on the injected capital. He stated that any dividend payouts would be dependent on the performance of the firm. NLFI has not reported the payment of any dividends (EC 2013a; EC 2013b; Minister of Finance 2013a; NLFI 2014; NLFI 2015a).

At the time of the nationalization, the DNB developed measures to stabilize SNS Bank at a total cost of EUR 3.7 billion. Of this total, the Dutch government used EUR 2.2 billion towards the capital injection. The capital injection broke down into EUR 1.9 billion for SNS Bank and EUR 300 million for the overarching holding company SNS Reaal. The government also used 0.8 billion to write off the previous capital aid provided to SNS Reaal in 2008. The remaining 0.7 billion went toward the isolation of the real estate portfolio in a separate entity known as Propertize. The government used EUR 0.5 billion to further capitalize Propertize and spent EUR 2.7 billion to acquire SNS Bank from SNS Reaal in 2015. The total capitalization cost of the bailout amounted to roughly EUR 5 billion (EC 2013b; Minister of Finance 2013a; NLFI 2016b).

The Dutch state funded the capital injection, estimating that the effect to the 2013 EMU balance was 0.6% of GDP. The Minister of Finance offset the costs by levying a onetime resolution tax on the Dutch banking sector, totaling EUR 1 billion. The Minister of Finance also implemented bail-in measures to offset the costs, expropriating shareholders and subordinated debt holders (EC 2014; Minister of Finance 2013a; NLFI 2016b). These measures are further detailed in Key Design Decision 7, Treatment of Creditors and Equity Holders.

SNS Bank experienced negative press reports throughout January 2013, resulting in deposit withdrawals and share price decreases. The DNB notified the Minister of Finance of the precarious capital position of SNS Reaal on January 24, 2013. On January 27, the DNB established a January 31 deadline for SNS Reaal to come up with a solution to remedy their capital deficit. The Minister of Finance rejected proposals from the bank and a private equity firm, and nationalized and recapitalized the firm on February 1, 2013 (Minister of Finance 2013a; Netherlands 2013; World Bank 2016).

On February 22, 2013, the EC formally approved the rescue aid package, granting Dutch authorities six months to submit a restructuring plan for the firm (EC 2013a).

The capital injection preceded a restructuring plan that called for the isolation of the property finance division and divestment of the insurance division of SNS Reaal. As part of this plan, the government purchased SNS Bank from SNS Reaal in 2015, resulting in a further capital expense of EUR 2.7 billion to purchase the shares. The EC approved the restructuring plan on December 19, 2013 (EC 2013b; NLFI 2016b).

On December 31, 2013, SNS Reaal isolated the real estate portfolio from SNS Bank by transferring the shares of SNS Property Finance to the state for EUR 1. The state then immediately transferred the 50,003 shares, each with a nominal value of EUR 50, to NL Financial Investments (NLFI 2014; SeeNews Netherlands 2013; SNS Bank 2014).

Upon isolating SNS Property Finance from SNS Reaal, SNS Bank realized a EUR 725 million loss, which corresponded to the amount of Property Finance’s shareholders’ equity. At the time of the transfer, SNS Property Finance also owed EUR 4.5 billion to SNS Bank. The state provided EUR 500 million of capital to Property Finance, of which EUR 400 million was used to lower the outstanding debt to EUR 4.1 billion. The isolated Property Finance shares, constituting a “bad bank,” became known as Propertize on January 1, 2014 (NLFI 2014; SeeNews Netherlands 2013; SNS Bank 2014).

In pursuit of the second goal of divesting Reaal insurance, the Minister of Finance instructed NLFI to execute the sale of the insurance subsidiary on June 6, 2014. NLFI finalized the sale of the insurance division (renamed VIVAT Verzekeringen) on February 16, 2015 (NLFI 2015b; SNS Reaal 2015).

A detailed account of SNS Reaal’s restructuring can be found in the Resolution & Restructuring case study (George 2024).

Alongside the nationalization of SNS Reaal, the Minister of Finance ordered the resignations of several members of the firm’s leadership. The chief executive officer (CEO) and chief financial risk officer (CFRO) tendered their resignations, with their replacements announced in the Minister of Finance’s letter to parliament. The Minister announced their replacements on the same day. Gerard van Olphen became the new CEO, leaving the CFRO position at Achmea, the largest insurer in the Netherlands. Maurice Oostendorp became the CFO, leaving a CFO position at VGZ^FCareer information found through LinkedIn.. The chair of the supervisory board also resigned, with the role being taken over by the deputy chair on an interim basis (EuropaWire 2013; Minister of Finance 2013a; Netherlands 2013).

Upon becoming the sole shareholder of SNS Reaal, the Dutch state made several commitments to the EC on behalf of the firm. SNS Reaal committed to not taking a stake in any acquisitions, refraining from making payments on hybrid debt instruments, and refraining from advertising its state ownership. The Dutch state agreed to comply with EU remuneration rules to ensure a suitably high rate of interest on the bridge loan, such that SNS Reaal had a strong incentive to pay back the loan as soon as market circumstances allowed (see Key Design Decision 2, Part of a Package). They also agreed to notify the EC of any additional intervention measures and the intended restructuring plan for the firm (EC 2013a; EC 2013b).

As a condition of their approval, the EC stated that SNS Reaal had to “refrain from employing any aggressive commercial strategies which would not take place without the State support” (SNS Bank 2014). The government also held NLFI responsible for preventing any anti-competitive practices in their management of different companies. Pursuant to this aim, NLFI board members were barred from being members of management or supervisory boards at financial institutions or subsidiaries (NLFI 2014; SNS Bank 2014).

Research did not reveal any regulatory relief associated with the capital injection. During the restructuring period, authorities estimated that the core Tier 1 ratio of SNS Bank would remain above the minimum requirements according to the Basel III regulatory regime (EC 2013b).

In the February 1, 2013, letter to parliament, the Minister of Finance stated the Dutch intentions to reprivatize the firm when it became possible. The first step involved the transfer of shareholding administration to NLFI on December 31, 2013. The restructuring process resulted in the isolation of the property finance division and the divestment of the insurance division. The Dutch state sold the insurance division to a Chinese insurance group on February 16, 2015. On June 29, 2016, the state announced that a consortium led by US bank JP Morgan Chase and private equity firm Lone Star agreed to purchase the property finance division. NLFI announced the finalization of the sale on September 27, 2016.

NLFI took over all of the shares of SNS Bank from SNS Reaal on September 30, 2015 (NLFI 2015a). NLFI rebranded SNS Reaal as SRH N.V. and announced that it would be wound down (EC 2013b; Minister of Finance 2013a; NLFI 2015a; NLFI 2016a; NL Times 2016; SNS Bank 2014).

On January 1, 2017, the banking services encompassed by SNS Holding and SNS Bank became known as De Volksbank N.V. Since it commenced operations, the bank and the state have made clear their intentions to privatize the bank. NLFI publishes regular progress reports, which discuss steps and conditions for privatization, and the Minister of Finance informs parliament on a regular basis. That being said, the Dutch state remains the sole shareholder in De Volksbank (De Volksbank n.d.).