Abandoned alternatives
As I described in section 1, my predecessor and DNB at the end of 2011 went in search of various alternatives to address the problems at SNS in order to avert a bankruptcy. In the first place, it is of course a private issue of SNS REAAL to have its financial affairs in order and guarantee the continuation of the firm. When the regular supervision shows that this is insufficiently the case and the situation does not improve, the supervisor will use the instruments at its disposal to ensure that the situation stabilises. Only if this also proves inadequate, it is my turn to take action. In December 2011, when it became likely that the problems would possibly not be solved in a fully private manner, DNB and the Ministry of Finance set up a joint working group to analyse various scenarios for SNS REAAL.
The options considered ranged from fully private to public-private and fully public ones. None of the alternatives for the public option of nationalisation seemed to be viable. The option of bankruptcy and its aftermath has also been explored, but in view of the drawbacks mentioned in section 2, this option was abandoned.
Private options
In the area of private options, a share issue or the sale of parts of the bank can thought of. Fully private options, however, proved to be infeasible, especially when the situation deteriorated. This is partly attributable to two problems: a) the double leverage and b) unit-linked insurance policies. Due to these two problems, the separate parts of SNS REAAL would not yield sufficient proceeds to strengthen SNS Bank's or REAAL's financial position. As a consequence of the double leverage, a part of the proceeds of the sale would have to be used to pay off loans entered into by the Holding. In addition, the insurance activities were being faced with problems surrounding unit-linked insurance policies, which affected the sales price negatively. When the situation at Property Finance deteriorated, a private share issue was also off the cards: SNS REAAL's share price, and with it its market value, was under such pressure that a share issue would not have been realistic.18
Following fully private options, public-private options were considered, two of which at greater length.
Two public-private options
As said, two public-private options were considered in detail. The potential advantages of options of this kind are that risks can be shared with the private sector, its expertise can be used to the full, and the institution would not be completely withdrawn from the market, as would be the case in a nationalisation, which would probably make exit from public support easier.
18 For more information, I refer you to the enclosed Expropriation Decree in Annex 3.
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The first public-private option that was considered was one where SNS REAAL would be stabilised with the help of the three large banks. This option was looked from many different angles. The core of this option is that SNS REAAL would be split up into a healthy company and a real estate management organisation. The three largest Dutch banks together would contribute a total sum of €1 billion. This would make them co-owners of parts of the real estate organisation and the healthy company. And the Dutch State would cover the remaining deficit. In addition to this, the banks wanted the State to guarantee funding/additional losses at the real estate management organisation.
The banks were very cooperative in thinking though this option. My predecessor and I have been in consultation with them since mid-2012, in order to think about a possible option where the banks would play a role. Together with its consultants and the big banks, a number of structures were worked out; however, these turned out to be infeasible, in particular because of the related implementation risks. Additionally, Cushman & Wakefield's assessment of the expected losses (see section 3.3) led to an increase in the capital deficit to be bridged, which presented an obstacle for reaching agreement about a transaction. The European Commission was also unable to provide sufficient certainty that this option would be in conformity with the earlier agreements made about State support. The European Commission's objections were primarily made out of competition considerations: i.e. the emergence of cross shareholdings in the financial sector. In addition, the acquisition ban to which two banks are subject posed an obstacle to a public-private option with active participation by the banks. And finally, participation of the three banks could prevent a future exit as this could harm their strategic interests. In this scenario only a limited degree of burden sharing was possible.
In October 2012, a second public-private option presented itself. A private equity fund was prepared to invest capital in SNS REAAL, provided that certain conditions were met. Key elements in the proposal were the inclusion of ASR in the deal by the State and a guarantee from the State on bearing any losses in the real estate loans portfolio beyond a certain amount. The three largest Dutch banks also were to contribute in this proposal. The private equity party intended a merger between SNS REAAL and ASR, which could lead to additional value creation. In return for its contribution, the State would acquire a minority interest in the merged entity. Given my desire to reach a private solution, I negotiated with this party intensively right up to the end. In the negotiations I was guided by various principles. For instance, the write-downs on the loans portfolio had to be sufficient to split off the real estate assets against fair value and the subsequent capital injection large enough to set up a sufficiently capitalised whole. It was essential that the injection would offer a sustainable and sound solution for the whole of the holding, bank, insurer and new real estate vehicle. In addition, approval from the European Commission for the transaction was essential. Naturally, my considerations also took into account whether there was a pro rata spread of the risks and burdens between the State and the private equity fund.
In the course of the negotiations, the private equity party adjusted its proposal, partly based on the input from the European Commission and estimates about the scope of the losses to be expected. Partly as a result of the higher than expected
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necessary write-downs on the real estate loans portfolio, it turned out that the private equity party was not capable of supplying sufficient capital. The State would have to help out with considerable contributions. At the same time, the private equity party would be rewarded with a disproportionally large interest in the bank for its contribution, while the State would receive a disproportionally small interest. The State was also asked to contribute capital and issue a loan guarantee to the real estate management organisation. The State ultimately had to give additional guarantees. I finally concluded that this would not be a true public-private solution, as the State was to provide a disproportionately large contribution. The contribution and the majority interest that the private equity party stood to gain, was in no relation to the contribution and guarantees that the State was supposed to provide in return for just a minority interest. Last but not least, this was a complex transaction, for which feasibility and funding on several important elements could not be guaranteed. Based in part on my advisor's analyses, it was therefore not possible to reach a responsible agreement with the private equity party. Nonetheless, I would not exclude that, following nationalisation, a transaction with a private equity party with respect to SNS REAAL or parts of the company may take place.
Qui dice che le trattative partono ad ottobre(e noi lo sappiamo a fine gennaio)
Detto questo i bilanci sono reali,altrimenti i private sarebbero scappati ben prima ..
