The Dutch financial scene has undergone some fundamental changes in the past few months, including four nationalisations, the reversal of the predator/victim relationship in the Fortis/ABN AMRO takeover and injections of state capital into three other financial institutions. Writer Michael Imeson.

No country has been immune from the global financial crisis. But Dutch banks and insurers have been hit harder than many. Just look at what has happened since October.

First, Fortis Bank Netherlands, the Fortis-owned parts of ABN AMRO bank, and two Fortis insurance companies were nationalised by the Dutch government in early October. The Ministry of Finance later announced that the two banking operations will be merged to “form the basis of a strong new Dutch bank” and eventually be privatised. The two insurance companies will also one day be returned to the private sector.

ING, the country’s biggest banking, insurance and asset management group, was the next to seek state aid with a €10bn injection of core capital engineered by the Ministry of Finance and the Dutch central bank, half of the €20bn made available for the recapitalisation of the financial sector. The tough terms imposed included the imposition of two external supervisory board members and the scrapping of executives’ bonuses for 2008. ING then announced a third-quarter loss of €585m, its first ever quarterly loss.

State aid

Aegon, the insurance giant, received €3bn from the government at the end of October in a similar arrangement. And in mid-November, banking and insurance group SNS Reaal received €750m of government capital. Of the country’s leading banks, only Rabobank has avoided state assistance.

The Fortis Bank Netherlands/ABN AMRO story is the most compelling. Dutch finance minister Wouter Bos has made it clear that ABN AMRO will be the leading brand of the merged entity. From being the victim of the hostile takeover by Fortis, RBS and Banco Santander in late 2007, and being slowly dismembered and partially gobbled up, ABN AMRO has been saved in the nick of time, albeit only in the Netherlands, which were the parts of the bank being devoured by Fortis. The fact that the ABN AMRO name will survive, and the Fortis name is likely to disappear, speaks volumes – in this respect the prey has turned the tables on the predator.

“We will not remain the shareholder of the bank for any longer than necessary,” says Mr Bos, although he has ruled out a sale before 2011. “In a few years, we want to leave behind a strong bank that can stand on its own feet, and which we can sell, with a profit to the taxpayer.”

Until the integration is completed, the existing management remains in place at both Fortis Bank Netherlands and ABN AMRO, although new executive and supervisory directors have been appointed and more will be appointed in the future. Jan van Rutte, the chief executive officer of Fortis Bank Netherlands since 2006, says it was a big challenge when his organisation was nationalised and separated from its former parent.

“We suddenly had to organise everything on our own,” says Mr van Rutte. “The most important change was having to raise funding totally independently, instead of from the Fortis group. We are now attracting deposits from professional parties in the money market, private clients and retail clients on the broad range of normal instruments.

“We also had to install our own risk management structure. Where we once shared risk activities with Fortis Group, suddenly we had to organise them on our own,” he adds.

Fortis Bank Netherlands was a sizeable part of the Fortis group: assets at the end of December 2007 were €272bn (compared with €871bn for the group), it employs 10,000 (62,000 in the group) and 2007’s revenue and profit were €3.6bn and €1.3bn, respectively (€120bn and €4bn for the group).

The bank’s core business is specialised finance for large international companies and financial institutions, such as trade finance, project finance, treasury management, derivatives clearing and securities services. It is also relatively strong in private banking. But it is not very big in retail or small and medium enterprise banking, which the acquisition of ABN AMRO was intended to address.

Despite having ‘Netherlands’ in its name, Fortis Bank Netherlands’ larger customers are spread throughout Europe and other parts of the world. Through the Fortis group it had offices in about 30 countries, but now the group has been split up. Although still present in 25 countries, Fortis Bank Netherlands is missing a part of its international network for its specialised finance activities.

“There has, of course, been some uncertainty for our customers,” says Mr van Rutte. “They have been asking us what the separation from Fortis will mean for them.” The answer is that there should be no change, other than the few months it will take to re-establish the missing offices for specialised finance activities. Mr van Rutte accepts that there was some reputational damage, which led to an outflow of liquidity, but after nationalisation, customer confidence and trust were restored.

A different marketing tack is now required. Under the old model, Fortis Bank Netherlands was positioned as part of a much bigger banking organisation. Now it has to explain that despite its name it is not part of the original organisation, that it is a big bank in its own right and that at some point in the near future the Fortis name will disappear and the bank will be renamed.

For now, the bank still sells Fortis insurance products to retail clients under a bancassurance model. “We are not planning to develop our own, but based on our future strategy this might have to be reconsidered,” says Mr van Rutte.

In spite of everything that has happened, he does not believe the Dutch banking sector has been badly damaged. “The amounts written off are quite low,” he says. “The industry is very big, the Netherlands has an open economy and its banks have diversified portfolios, but if the global recession is bad, yes, of course we will be affected. The Ministry of Finance did the right thing to facilitate capital injections into various institutions and improve their capital base to enable future growth and to protect against any problems that might still arise.”

ING weathers the storm

ING is the Netherlands’ biggest banking group, with €1313bn in assets at the end of 2007, a profit of €9.2bn in 2007 on a turnover of €76.6bn, and a workforce of 125,000.

Eli Leenaars, executive board member at ING responsible for retail banking, private banking, operations and information technology, believes that his organisation has weathered the market turmoil relatively well “but has not been immune to the global credit and liquidity crisis”, as evidenced by the fact that it had to ask the government for a €10bn handout and suffered a big third-quarter loss.


“The third quarter of 2008 was extremely challenging for financial institutions,” says Mr Leenaars. “Financial markets deteriorated rapidly towards the end of the quarter, with steep declines in equity markets, widening credit spreads, declining property prices and the failure of several banks, and this also had its effect on the third-quarter results of ING group.”

However, ING’s retail banking operations, despite having to contend with greater competition for savings and pressure on margins, have done well and made a profit of €420m in the third quarter. This was due to reducing costs in mature markets, strong marketing and new products.

Mr Leenaars explains why it was necessary to ask the government for additional capital. “The financial services industry is about trust, and as our customers face uncertain times it is essential that they have no reason to be concerned about the strength of ING as their financial partner. The €10bn capital injection from the Dutch state helped to reassure our customers, who entrust their savings and investments in ING. Following this transaction our capital position is stronger and we have capacity to absorb the impact of a further deterioration in financial markets.”

What else is ING doing to rebuild customer confidence as the financial and economic turmoil continues? “We simply need to continue to deliver on our promises,” says Mr Leenaars. “Trust is one of those things that is earned and not given freely. Gaining someone’s trust is something that comes with time and proven loyalty.

“To earn trust, an organisation must prove its level of honesty. Today, ING is one of the strongest financial services brands worldwide. We have worked hard to make that happen. Over the past decade, ING businesses around the world have adopted the ING name and have built their value proposition around the three brand attributes of delivering on promises, treating the customers fairly and making things easier. We will not change our strategy but need to continue to deliver on these promises,” says Mr Leenaars.

In retail banking specifically, the challenge is, as always, to collect savings and reinvest them to earn an attractive rate for customers. “Moreover, in mature markets, such as the Benelux, operational efficiency, cost control and economies of scale have become important conditions for banks to operate successfully,” he says. “For ING, this means that to maintain our strong position in the future it is of great importance to continue to invest in meeting the needs of the modern-day consumer: doing banking business directly [online or by phone] if possible, but with advice if needed.”

Reality check

SNS Reaal received €750m from the Dutch government in November to bolster its capital position. It also received €500m from Stichting Beheer SNS Reaal, the foundation that owns more than half the company’s shares.

“For the clients of SNS Reaal, the capital issuances provide additional security, evidencing our commitment to reinforcing and maintaining our moderate risk profile,” says Sjoerd van Keulen, the company’s chief executive. The company had €103bn in assets at the end of 2007, revenues of €4.5bn and profit of €465m in 2007, and it employs 6300 people.

However, in the third quarter of 2008 it made a net loss of €88m – an underlying profit of €89m was wiped out by €177m in losses from volatile financial markets and one-off items. In 2007, SNS Reaal bought the Dutch divisions of AXA and Swiss Life. Mr van Keulen says the company remains “committed” and “fully on track” to integrate the acquisitions.

Potential role model

For a model of safe, dependable, conservative banking, Dutch co-operative bank Rabobank would be hard to beat. The bank – which comprises 161 independent local Dutch Rabobanks, a central organisation (Rabobank Nederland) and a large number of international offices – has the highest credit rating (AAA) awarded by Moody’s and Standard & Poor’s (S&P).

Needless to say, Rabobank has not had to tap the state for financial aid. Chief executive Bert Heemskerk explains that although the credit crisis “is tempering growth in the business community”, it “is not necessarily a bad thing for us at Rabobank considering the excellent health of our organisation”. It means, she says, “we will once again be paid for the risks we accept” and lead to higher margins. In 2007, Rabobank produced revenues of €11.5bn and a €2.7bn net profit. By the end of 2007 it had €570bn in assets and it employed 55,000 people.

However, Mr Heemskerk accepts that the bank will have to pay more attention to its funding than in the past. “We must enter into reciprocal relationships with clients,” he says. “This means that while we have, until now, often been a primarily credit-driven organisation, we must also focus on including savings and deposits in our client relationships.”

He describes Rabobank as “rock solid... the result of 100 years of frugal banking”, and adds: “We have always ensured that we maintained extremely strong buffers. We have a Tier 1 solvency ratio of more than 10% and a well-diversified range of activities. The credit crisis does, however, demand that we realign our strategy for the Netherlands and abroad.

“In the Netherlands we must seize opportunities primarily in the business market and in the field of private banking. In the international arena we must focus even more sharply on our core business – food and agriculture and clean technology. We must move forward with the expansion of retail in other countries, including intensifying of our activities in developing countries.”

The final analysis

Claire Curtin, a credit analyst at S&P, says: “There have been some dramatic events in the Dutch financial sector, particularly the nationalisation of Fortis and its share of ABN AMRO, but I don’t think there has been the same level of distress among institutions as there has been in, say, the UK.”

She adds: “The banks would argue that the capital support provided by the state is short term in nature, and is a prudent bolstering of their capital positions rather than a bail-out.” Will the €20bn in state capital be enough? “Yes,” says Ms Curtin. “It is hard to see how the institutions that have already participated would need a top-up, and all the major institutions that we would expect to participate have. We wouldn’t expect Rabobank to receive government capital support.

“That’s not to say Rabobank hasn’t suffered moderate losses on some exposures. But it has been largely immune and a beneficiary of the nationalisation of Fortis and disruption in its home markets,” she says. This relative immunity stems from the fact that Rabobank is a mutual and therefore not reliant on making a big return for shareholders. “A large number of local Rabobanks go into the Rabobank we know in the financial markets, and they have remained focused on serving their members,” says Ms Curtin. “Any international expansion has concentrated on its core agricultural lending business.”

Rabobank’s sound business model has therefore benefited the entire Dutch financial sector. Because of this and other reasons, primarily the way in which the Dutch authorities have reacted to the crisis, Ms Curtin and other analysts are predicting that the Netherlands will not experience the same level of credit stress that many other countries will in the year ahead.


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