Subordinated bondholders in SNS Reaal plan are challenging the nationalisation of the Dutch banking and insurance group, angered – like shareholders – by a move that will wipe out their investments.
The €10-billion rescue earlier this year of The Netherlands’ fourth-largest financial services group, has infuriated taxpayers, shareholders and some bondholders who are partly footing the bill.
The government said the rescue package, which follows a much smaller bailout in 2008, was necessary to prevent SNS Reaal’s collapse under the weight of property loan losses and to shore up confidence in the financial system after a private investor-led rescue failed.
The Netherlands used a new law known as the intervention act to expropriate SNS Reaal’s shares, subordinated debt and some hybrid securities, but not the senior debt and covered bonds.
In its preliminary verdict, the Enterprise Chamber proposes to appoint three experts. It is of the opinion that the Dutch State has not given enough information to the appellants in order to defend themselves properly.
The Enterprise Chamber is of the opinion that the measure for compensation should be the full economic value (as also mentioned in the European Convention of Human Rights)
The Enterprise Chamber is of the opinion that the last price paid on the stock exchange is relevant as a measure for the economic value (but is not the only one).
The Enterprise Chamber is of the opinion that the Dutch State did not justify adequately that a compensation of €0 adequately reflects the value of the expropriated bonds. It wants to appoint experts who will have the task to determine the real value, which by definition is higher than 0.
Based on the last conclusion compensation is ‘certain’ (but the amount remains unclear so far).
But according to Frans Faas, an activist investor, the unexpected firm verdict of the Enterprise Chamber and the explicit wording might have a negative effect as well.
Despite the fact that it is only a ‘preliminary’ verdict, the Enterprise Chamber has announced that all parties have the possibility to challenge this verdict at the Supreme Court for cassation. It is obvious that the shareholders represented by Mr Faas do not have the intention to do so but the Dutch State might think of it (purely out of frustration). The content and the chances will not alter by this decision but the time horizon will definitely (and a delay of six to 12 months can be expected because of the cassation-procedure).
Mr Faas also said that his group remains convinced that – even only the announcement of – the ECHR-procedure by the shareholders’ foundation has exercised pressure on the Enterprise Chamber (and the experts to be appointed). The reason for that is simply the fact that an expropriation without compensation by definition will lead to a violation of the ECHR. To pursue this procedure is therefore important.
The foundation is currently engaged in the initiation of the procedure and has frequently spoken to (and support) its lawyer. It will now discuss this verdict with him and decide how to incorporate this verdict in its complaint against the Dutch State.
Mr Faas said: “Although the success of today gives a boost to my motivation, I hope you all will understand that the workload will increase significantly in due course. Therefore we kindly urge you again to promptly response to our request and fulfil the obligations that result from you decisions. This enables me to concentrate on the content of my task.”
