By Alexander Schild
Good times, bad times, all times are interesting times for lawyers. These days, the crises of SNS Reaal seems to near its Endspiel. The interesting new fact therein is importance of the Intervention Act (Interventiewet), which became law in June last year.
Although limited information is available as to the possibilities which are considered to rescue SNS, the options seem limited. It is clear that due to the heavy losses in the property division, either some billions of extra capital are needed to shore up the balance sheet of SNS or the property division has to be separated form SNS.
There seems to be no real prospect that a sufficient amount of capital can be raised in the private sector in order for SNS to get within the required ratios. In any case, it cannot be raised by the issuance of new shares, in view of the penny-stock status.
The government will also be highly reluctant to provide the additional funds itself. It has already nationalized ABN Amro. For mr. Dijsselbloem, the prospect of having another bank on its books must be daunting.
Another option would be to separate the property part of SNS to a ‘bad bank’. That solution will probably however not fly without the participation of the other major Dutch banks, so the risk can be spread. However, due to the fact that ING and ABN Amro have received government aid, they are forbidden to participate in the creation of a bad bank, leaving only Rabobank as a possible participant. It is unlikely, however, that Rabobank will be willing to take a stake in a bad bank on its own.
One of the options is that the government shall use its powers under the Intervention Act to force a solution. The Intervention Act was recently hurried through both chambers of parliament in about a year. The Intervention Act grants the government the authority to take a variety of measures when a financial institution shows ‘signs of a dangerous development’ in order to safeguard the stability of the financial system.
There are two marching routes under the Intervention Act. The first is that the Dutch Central Bank steps in and will solve the problem. The second is that the Minster of Finance will nationalize SNS.
It is safe to bet that the Dutch government is currently trying hard to have the Dutch Central Bank solve the problem. The Intervention Act is written against the background of the government having spent billions of public money in order to rescue several Dutch banks during the financial crises. In order to prevent that the momentarily not so deep pockets of the government will be dented further, the Intervention Act has been written with the aim to have the private sector (i.e. other financial institutions) to provide the first line of rescue.
To make that work, the Dutch Central Bank has been granted broad powers to transfer shares and assets to third parties for a price negotiated by the Dutch Central Bank. For instance, the Dutch Central Bank may sell all the shares of SNS listed on the stock exchange to another bank, willing to incorporate SNS, going concern, for a price to be negotiated between the Dutch Central Bank and the buyer. The Dutch Central Bank, however, is not authorized to nationalize SNS. Under de Intervention Act, a nationalization is the – to be avoided – option available to the Mininster of Finance only.
It is questionable however, if in the case of SNS, a nationalization by the Minister of Finance can be avoided. There is a large elephant standing in the room, blocking the other possible exits. The elephant being the fact that, the market for commercial property seems to have collapsed in The Netherlands. With all the buyers on holiday, it is next to impossible to value the property and the collateral for loans on the books of SNS.
Given these uncertainties, it will prove very difficult to make private parties take a stake in a bad bank, for a decent price. Subsequently it is not very likely the Dutch Central Bank will be able to lift the property division with the help of private parties out of SNS and to provide SNS with the required capital in return. That leaves the nationalisation of SNS by the Minister of Finance as a serious option on the table.
If the Minister of Finance will use its authority to nationalize SNS, the shareholders will receive little, if anything, in return. The legal remedies for the shareholders to complain, are limited. They are entitled to file a request at the Ondernemingskamer in Amsterdam, in order to have their shares valued by an independent tribunal. The Ondernemingskamer is then obliged to value the shares, taking into account what the value of the shares would have been, if the government would not have stepped in.
This brings to mind the claim brought by the former shareholders of Nothern Rock, who were left empty handed by the U.K. government. Their legal actions have yielded no result. A complaint filed by the former shareholders of Nothern Rock that their property rights were breached by the expropriation of their shares without compensation, was declared inadmissible by the ECtHR (10 July 2012, appl. no. 34940/10, Grainger v. U.K.).
In case of a nationalization, only the hedgefunds currently in short positions have something to celebrate.