It's debatable if the fiduciary standard is 'higher' than suitability. But the better question might be, who's holding the bar?
AMSTERDAM -- SNS Reaal NV, the troubled Dutch banking and insurance group, is looking to strengthen its capital buffers through strategies including a possible share issue.
The company, which has about 10 percent of the Dutch retail bank market and had total assets of (EURO)134 billion ($180 billion) on its balance sheet as of the end of June 2012, has been struggling after being hit by (EURO)2.3 billion in losses on its foreign property investments and an increasingly the flaccid Dutch commercial real estate market. SNS Reaal's capital reserves, designed to protect the group from economic and financial shocks, are below levels allowed under international banking law _ and it still owes the Dutch state (EURO)750 million from a bailout it received in 2008.
Analysts reckon that SNS needs roughly (EURO)2 billion in capital to regain solvency. The company has been warning since July that it needed to restructure its capital, and that shareholders and bond investors could be involved. The group's stock lost about a third of its value last week on rumors that it would have to be nationalized outright.
On Monday SNS gave more insight into what it sees as likely options.
"SNS Reaal is pushing for a scenario in which private investors play a role," it said.
The company added that this could involve "a major share issue" and forcing the holders of the company's subordinated debt _ bonds that are ranked below other debt in terms of claims on assets _ to accept shares in the company rather than being repaid, a so-called "bail-in."
SNS added that it wasn't clear that plan is feasible.
Dutch media had speculated that senior bondholders might be asked to take losses _ a plan that is appealing to many who feel bank investors, rather than taxpayers, should be forced to take losses as part of a bank rescue. However, U.S. rating agency Fitch warned last week that if the Dutch government were to impose losses on senior SNS bondholders _ even though it is a tiny player in the European market _ the move would affect its view of the safety of bonds of all European banks across the board.
That would lead to higher borrowing rates for banks, higher interest rates for other borrowers, and potentially spark a new financial and banking crisis _ not an outcome that European policymakers are looking for at the moment.
On Monday shares in SNS recovered 2.3 percent to (EURO)0.798 on hopes shareholders won't be totally wiped out, giving it a market capitalization of (EURO)229 million. That's against a book value of (EURO)4.8 billion in September.
The company has been trying to sell off assets, but so far that has proved difficult. The European Union Commission has explicitly barred the two biggest Dutch retail banks _ ABN and ING Groep NV _ from buying parts of SNS, because they themselves are nationalized and bailed-out, respectively.
Dutch media have reported foreign investors have shown interest in parts of SNS, but either they weren't willing to pay a price that would help SNS's solvency, or they were not investors the Dutch state believed were interested in SNS's long-term viability.
The nationalization option feared by shareholders also carries some political difficulties for the Dutch government, which is trying to insure it remains within the 3 percent budget deficit limit mandated by European rules.
"We're looking for the maximum possible "bail-in," because we feel that the risks should rest" with investors, Finance Minister Jeroen Dijsselbloem told a parliamentary panel in a debate on Thursday. "That makes the contribution of the taxpayer minimal."
He emphasized he was speaking about the Dutch stance toward European bank bailouts in general, and declined to answer specific questions about SNS, since he is involved in the negotiations. But he confirmed current Dutch law could be applied to SNS bondholders.