Expropriation of SNS Reaal: First application of the Dutch Intervention Act
March 2013
This article considers challenges to the recent nationalisation of SNS REAAL NV (SNS REAAL) and its subsidiaries including SNS Bank NV (SNS Bank). The nationalisation was the first ever use of the Ducth 2012 Intervention Act. On 1 February 2013, the Dutch Minister of Finance nationalised the bank on the basis that its condition had deteoriated to such an extent that it posed an immediate and serious danger to the stability of the Dutch financial system.
Since 2006 SNS has been struggling to deal with the effects of the financial crisis, and its own exposure to a weak real estate portfolio. Various initiatives were considered to try and save the ailing bank, but in late 2012 an independent valuation of the real estate portfolio, ordered by the Ministry of Finance, made clear that the problems were even larger than previously estimated. In addition, in January 2013 the European Commission announced that it had serious doubts about a proposed solution for SNS in which two state-supported banks planned to participate, as these banks were subject to a ban on acquisitions.
In January 2013, the Dutch Central Bank (DNB) required SNS to present a final workable solution to shore up its core capital before the end of the month. DNB informed SNS that if the deadline was not met, DNB would have to resort to emergency measures under the Financial Supervision Act unless the Minister of Finance used its expropriation powers under the Intervention Act. Although efforts continued to reach a public-private solution, these efforts ultimately failed. The Minister accordingly nationalised SNS REAAL and SNS Bank on 1 February at 8:30am. The expropriation was the first application of the so-called Intervention Act, that entered into force on 1 July 2012. Under the Intervention Act, DNB and the Minister of Finance are provided with wide sweeping powers to intervene in the financial sector, including expropriation, with an aim to shore up failing financial institutions and to avoid systemic danger to the financial sector in the Netherlands.
Expropriated assets and liabilities
The following assets and/or liabilities were expropriated:
- all outstanding shares in SNS REAAL, the quoted holding company. This included a block of shares held by Stichting Beheer SNS REAAL;
- all subordinated (hybrid) bonds issued by SNS REAAL and SNS Bank;
- subordinated loans taken up by SNS REAAL and SNS Bank; and
- any claims that investors, both current and former, in shares and/or other securities issued by the SNS group, might have against SNS REAAL or SNS Bank in connection with their holdings.
Senior debt (non-subordinated bonds, etc) was not expropriated. The main reason for excluding this kind of debt is that this might have a severely negative effect generally on the abilities of the Dutch financial institutions to obtain funding in the international capital markets.
Appeal against expropriation
Under the Intervention Act, an interested party has ten days to file an objection against the expropriation decree with the Administrative Law Section of the Council of State (Raad van State), the highest administrative court in the Netherlands.
Several hundred parties, including Investors Association VEB and Trade Union Federation FNV, lodged an appeal against the expropriation. The objections were diverse in nature, including:
- the expropriation being a violation of Article 1 of the First Protocol to the European Convention on Human Rights (ECHR);
- the expropriation procedure being in violation of Article 6 ECHR (the right to a fair trial); and
- the decree being in conflict with the EC Merger Regulation, as the Dutch State already owns ABN AMRO.
Most objections were, however, raised against the extent of the expropriation; the argument being that the expropriation of the subordinated debt of SNS Bank was deemed unnecessary and therefore a violation of the so-called proportionality principle. Many objections were also raised to the Minister’s order in respect of any claims that former shareholders and bondholders might institute.
The Council of State fully upheld the expropriation of the shares, the subordinated securities and the subordinated loans of SNS Bank and SNS REAAL, but quashed the Minister’s order in respect of any future claims that former shareholders and bondholders might make.
All other objections were dismissed. There is no appeal against the judgment.
Compensation claims
The Intervention Act provides that the Minister of Finance must make an offer of compensation to expropriated parties, such offer to be evaluated as to its reasonableness by the Enterprise Chamber, a division of the Amsterdam Court of Appeal. This separate court procedure commenced at the beginning of March 2013. Expropriated parties may participate in this procedure. There are no further formal timelines, and it may take months if not years before final court decisions on the compensation are issued. In the Expropriation Decree of 1 February 2013, the Minister of Finance already intimated that his compensation offer would amount to zero, on the basis that in an insolvency scenario none of the subordinated debt would have been paid anyway.
The future of SNS REAAL
SNS is now a Dutch state owned financial conglomerate comprising banking and insurance activities. The Minister of Finance has said that the state ownership is temporary. He has ordered the new management to return parts of the company into private hands as soon as possible after the company has been stabilised and the market allows it, eg through divestment.
A total recapitalisation of SNS REAAL has been announced by the Minister of Finance. A capital injection of EUR 2.2 billion is envisaged. In addition, DNB has calculated that the costs to the State will further include a write-down of EUR 0.8 billion of the earlier state-support to SNS REAAL and EUR 0.7 billion to isolate the problematic real estate portfolio. The State will also provide EUR 1.1 billion for a bridging loan and EUR 5 billion for guarantees.
