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Advisory report on the future direction of SNS Bank
June 2016
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Content
Summary & conclusions 4
1 Introduction 7
2 SNS Bank strategy and profile 102.1 Introduction 10
2.2 SNS Bank’s current position 10
2.3 Strategicfundamentalsandprofile 15
2.4 SNSBank’sviewsofitsfutureprofile 18
2.5 OtherviewsonSNSBank’sfutureprofile 19
2.6 Conclusion 20
3 Transition to future profile 233.1 Starting points 23
3.2 Transition and improvement plan objectives and monitoring 23
3.3 Anticipatedreturnconsiderations 25
4 Exit preconditions 284.1 Introduction 28
4.2 IsSNSBankreadyforsale? 28
4.3 Isthefinancialsectorstable,inparticularformortgageandsavingsbanks? 29
4.4 IstheresufficientmarketinterestinasaleofSNSBank? 31
4.5 Willcapitalexpendituresberecouped? 32
5 Future ownership structure considerations 35
Appendix 38ResponseManagementandSupervisoryBoardofSNSBank’sopinion 39
ReactionWorksofSNSBank’sadvice 42
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Summary & conclusions
Inhisletterof22May2015totheHouseofRepresentatives(‘SaleofABNAMRO’),
theMinisterofFinancestatedhisintentiontorequesttheTrustOfficeFoundationfor
theManagementofFinancialInstitutions(Stichting administratiekantoor beheer
financiële instellingen,hereinafter:NLFI),toissueanadvisoryreportonthefutureof
SNSBankbymid-2016.Bysubmittingthisletter,NLFIcomplieswiththisrequest.
NLFIhasprepareditsadviceinlinewithNLFI’slegalpurposeaslaiddowninthe
TrustOfficeFoundationfortheManagementofFinancialInstitutionsAct(Wet stichting
administratiekantoor beheer financiële instellingen,hereinafter:NLFIAct).Indrawing
upthisadvisoryreport,NLFIhasbeenguidedbythestatutorydescriptionofNLFI’s
goals.
Initsinvestigation(basedon,inter alia,apublicconsultationofstakeholdersand
opinionmakersfromacademia,thefinancialsector,regulatorybodies,interestgroups
andcivicorganisations),NLFIfoundthatthereisawidespreadinterestinthefuture
strategicpositionofSNSBankbeingthatofasaferetailbankofferingsimple,
transparentandfairlypricedfinancialproducts,operatingonthebasisofanopera-
tionallyexcellentbusinessmodelanddeliveringacompetitivedividendyield.NLFI
hasassessedSNSBank’sstrategicplan-named‘SpotOn’-anddeterminedthatthe
abovementionedstrategicprinciplescanbemet,shouldtheplanbesuccessfully
executed.Theexecutionofthestrategicplanalsomeetsthepreconditionssetbythe
EuropeanCommissioninthecontextoftherestructuringplan.
NLFIisoftheopinionthatSNSBankneedsmoretimetoacquireastrongposition
withintheDutchbankingsectorandiscurrentlynotyetreadyforanexit.Whilethe
financialandoperationalresultshaveimprovedeversinceSNSREAALwasnation-
alised,thebankisstillconfrontedwithanumberofoperationalandstructural
challenges.Theprimaryreasonsfortheexistenceofthesechallengesare:the
currentlyextremelylowinterestrates,whichresultinpressureonmarginsand
volumes;theupwardpressureoncostsincurredbySNSBankduetohigherregulatory
costsandthesplit-offoftheformerparentcompany;anduncertaintyaboutthecapital
structureduetotheuncertaineffectsof,inter alia,thenew‘BaselIV’regulations.
NLFIbelievesthateffectingoptimumlong-termvaluecreationrequiresthatSpotOn
beexecutedoveraperiodoftwotothreeyears,duringwhichtimethebankwillat
anyratehavetheopportunitytobuildupasolidtrackrecordintermsofreducing
costsandachievingsufficientdividendyieldonthebasisofabalancesheetcomprising
safeassetsandasolidliquidityandcapitalstructure.
ThemarketatpresentisinsufficientlyinterestedinasaleofSNSBankonconditions
acceptabletotheState,partlyinconnectionwiththecurrentuncertaintiesarising
from‘BaselIV’regulations.SuccessfulexecutionofSpotOnwill,intheopinionof
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NLFI,resultinarevenuemodelfeaturingalowriskprofileandadividendyieldthat
maybeattractivetoawidegroupoflong-terminvestors.Hence,theexecutionof
thedesiredimprovementplandoesnot,fortheyearstocome,resultinirreversible
measuresbeingtakenoroptionsbeingprecludedinrespectoffutureownership
structures.
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1 Introduction
Inthisletter,theTrustOfficeFoundationfortheManagementofFinancialInstitutions
(Stichting administratiekantoor beheer financiële instellingen),operatingunderthe
nameofNLFI,providestheMinisterofFinancewithitsadviceontheoptionsopento
SNSBankinrespectofitsfuturedirection.Itsubmitsthisletterinresponsetoyour
request,madeinyourletterof22May2015totheHouseofRepresentatives(‘ABN
AMROsale’).1Whenmakingtherequest,youemphasisedtheimportanceofSNS
Bankacquiringastrong,independentpositionwithintheDutchbankingsectorbefore
adecisioncanbemadeonthefutureofSNSBank.
Inthisadvisoryreport,NLFIprovidesanoverviewofthecurrentpositionofSNSBank,
basedonitscurrentviewsonthepossibilitiesofmeetingthefourpreconditionsfor
allowingSNSBanktoreturntotheprivatesector,assetbyyourpredecessor.2 In so
doing,whereverpossible,NLFIreferstothevan Hijum/Nijboer motion on safeguarding
theutilitybankcharacter(nutsbank karakter)ofSNSBank3andtheMerkies/Nijboer
motiononconductinganinvestigationintohavingSNSBankremaininStatehands.4
Atthesametime,thisadvisoryreportprovidesanoverviewofthefundamental
startingpointsthatafutureSNSBankstrategymaybebuilton,withoutexcluding
any sale options.
Indrawingupthisadvisoryreport,NLFIhasbeenguidedbythestatutorydescription
ofNLFI’sgoals.Indischargingitsstatutorytaskandinexercisingtherightsassociated
withthesharesheldbyNLFI,NLFIhasfocusedprimarilyonthefinancialandeconomic
interestsoftheState,whiletakingintoconsiderationtheinterestsofthecompany,
itsassociatedbusinessesandtheemployeesinvolved.
NLFIseekstoalignitsadvicewiththefundamentaltenetsoftheGovernmentPolicy
onGovernmentHoldingsMemorandum2013.5Itsadviceisalsoinkeepingwiththe
decision-makingframeworkphrasedbythePrivatisation/EmpowermentofGovernment
ServicesParliamentaryInquiryCommittee.6Thisdecision-makingframeworkdefines
fivedifferentphases.Yourministryhasindicatedthattheprocessiscurrentlyinthe
phasewhereadecisionistobetakenontheprivatisationdesign,i.e.phasetwo.As
ofyet,noirreversiblestepstowardsprivatisationarebeingtaken.
1 ParliamentaryDocumentsII,sessionyear2014-2015,31789,no642 ParliamentaryDocumentsII,sessionyear2010-2011,28165,no1173 ParliamentaryDocumentsII,sessionyear2015-2016,343464 ParliamentaryDocumentsII,sessionyear2013-2014,32013,no455 GovernmentPolicyonHoldingsMemorandum,18October2013,annexeto:ParliamentaryDocuments
II,sessionyear2013-2014,28165,no1656 Privatisation/EmpowermentofGovernmentServicesParliamentaryInquiryCommittee(2012),
“Verbinding Verbroken?”Inquiryintotheparliamentarydecision-makingprocessontheprivatisationandempowermentofgovernmentservices,Senate,sessionyear2012-2013,C,A
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Inordertosubstantiateitsadvice,NLFIreliedonapublicconsultationonthedesired
roletobeplayedbySNSBankintheDutchbankingsectorandanexplorationofthe
strategicoptionsavailabletoSNSBankconductedbytheBostonConsultingGroup
ontheinstructionsofNLFI.Thisadvisoryreportwaspartlybasedonintensivecontact
betweenNLFIandSNSBank.WealsooweourthankstotheMinistryofFinanceand
De Nederlandsche Bankforprovidingtheiropiniononearlierversionsofthisreport.
Inaddition,discussionswereheldwithanumberofmarketexperts,legaladvisers
andotherexpertswhosharedtheirviewswithus.Weareverygratefultoallthose
whohelpedusproducethisdocument.
This is a translation of the original text in Dutch. In case of divergences between the
texts, the text of the Dutch version shall prevail.
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2 SNS Bank strategy and profile
2.1 Introduction
ThisChapterprovidesanoverviewofSNSBank’scurrentpositionandprofile.Based
ontheparliamentarydebateofNLFI’spreviousrecommendations,BCG,onthe
instructionsofNLFI,conductedapublicconsultationonthedesiredroleofSNSBank
intheDutchbankingsector.NLFIhascomparedtheresultswithSNSBank’sstrategic
plan.ThisChapterprovidesanoverviewofhowSNSBank’selaborationofthestrategy
anditsfutureprofileisinlinewiththeviewsheldbyothersonthefutureprofileof
SNS Bank.
2.2 SNS Bank’s current position
SNSBankwassplitofffromSNSREAALon30September2015.Thiswasprompted
bythebooklossresultingfromthesaleofVivat(REAALN.V.)bySNSREAAL,which
wasaccountedforontheconsolidatedlevel,butcarriedoverintothecalculationof
theprudentialcapitalheldbySNSBankattheconsolidatedlevel.TheStateacquired
thebankfromSNSREAALandtransferredcontrolofthesharesinthebanktoNLFI.
Forthepurposesofexercisingthiscontrol,aholdingcompany(SNSHoldingB.V.)
wasfounded,whichownsallsharesinSNSBank.NLFImanages100%oftheshare
capitalandexercisesfullvotingrightsinSNSHolding.TheArticlesofAssociationof
SNSHoldingprovidethatpriorpermissionbyNLFIisrequiredformajordecisionsby
SNS Bank.
Profile SNSBank’shistorydatesbackto1817,whenthe‘Maatschappij tot Nut van ‘t Algemeen’
-‘t Nutforshort-wasfounded:thefirsttrueutilitysavingsbank.Utilitysavings
banksgenerallypursuedsocialovercommercialgoals,aiming,forinstance,working
tohelppeoplebecomemoreself-reliant.Theywerecharacterisedbyconverting
depositsintosafeassets.Inthesecondhalfofthe20thcentury,thesavingsbanks
expandedtheirportfolioofassets,whichnowalsoincluded,forexample,residential
mortgagesandconsumercredit.Thisperiodwasalsocharacterisedbymergersof
savingsbanks,manyofwhichmergedintoSNS,whichstandsfor‘Samenwerkende
Nederlandse Spaarbanken’,orAssociationofDutchSavingsBanks.
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Presently,SNSBankistheNetherlands’fourthlargestbankintermsofassetsand
marketposition.ThebankispredominantlyactiveintheDutchretailmarket.7 Its
rangeofproductsonofferconsistsofthecoreproductgroupsofpaymentproducts,
mortgagesandsavingsproducts,towhichcanbeaddedconsumercredit.Inaddition,
SNS Bank serves as a distributor of insurance and investment products. SNS Bank
hasarelativelyhighnumberof‘secondary’customers-thatis,customerswithonly
oneproduct-whencomparedtoABNAMRO,INGBankandRabobank,allofwhich
attractmore‘primary’customers,thusrealisinghighercross-sellingrates.
SNSBankpursuesamulti-brandstrategy.ThebrandsSNS,Regiobank,ASNBank
and BLG Wonenallfeaturetheirownpositioningandassociatedtargetaudience.
Regiobank,profiledasthe‘bankclosetoyou’,andASNBank,profiledas‘the
sustainablebank’,bothhaveaclearanddistinctivepositionwithinthemarket.The
SNSbrandisprofiledasthe‘normalbank’.ThevariousbrandssharethesameIT
platform for every product group.
SNSBank’smissionisdetailedinamanifesto,whichstatesthatthebankfocuseson
bankingwithahumantouch’inofferingitsservices.8Initsmanifesto,SNSBank
statesthatitsfinancialservicesarefocusedonutilityforthecustomer(insteadofon
yield),financialstrengthandsustainability.SNSBanktranslatesthemanifestointo
servicesforitscustomerssuchasamortgagetermservice,aninterest-freetemporary
overdraftandpurchaseprotectioninsuranceforpurchasesmadeviapayment
accounts.
Competitive positionApproximately90%ofSNSBank’srevenueisderivedfrominterestincomefrom
mortgages.Retaildepositsinsavingsaccountsmakeupabout60%oftotalassets.
Theloan/depositratiois105%.Thebank’smarketshareshaveincreasedsinceitwas
nationalised.Bytheendof2015,SNSBankhada4.1%marketshareinnew
mortgageproduction.Itssavingsmarketshareamountedto10.9%.SNSBank’s
mortgageportfoliomarketsharedroppedfrom7.4%in2013to6.9%in2015.
7 Inthisconnection,SNSBanksoldSNSSecurities,whichisactiveinthefieldofsecuritiesbroking,capitalmarkettransactionsandassetmanagement,lastyear.
8 Thetextofthismanifestoisavailableat:https://www.snsbanknv.nl/over-ons/missie-strategie/ons-manifest
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Figure 1: SNS Bank market shares.
Becauseofthepersistentlylowinterestrates,thebank’snetinterestincomemay
comeunderpressure.Thisisdue,inthefirstinstance,tothepossibilitiesoffurther
reducinginterestonsavingsbecomingmorelimited,whilemortgageloaninterest
ratesaregoingdown.Second,thepersistentlylowinterestratesresultinfurther
shiftsinbothcustomerbehaviourandthecompetition.Ifinterestratesarelow,
customersaremoreinclinedtopayofftheirmortgageearlyandtakeoutanew
mortgageloanatalowerinterestrate,despitethecustomarypenaltyfeestobepaid
whenpayingoffearly.Inaddition,customersmoreoftenoptforalonger-term
mortgage,amarketsegmentthathasbecomeincreasinglydominatedbyinsurers
andpensionfundsoverthepastfewyears.Thesepartiesareparticularlyactivein
thissegmentduetothepreferredmatchingoftheirlong-termliabilitiesandassets.
Thesemortgagesareoftenofferedby‘regiepartijen,whicharecompaniesfinanced
by pension funds and asset managers.
Figure 2: Dutch mortgage market share by type of mortgage lender. Source: IG&H, Mortgage
Update Q4 2015
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ForSNSBank,theincreasingcompetitionbynon-bankstranslatesintorisingpressure
onbothinterestmarginsandmortgageportfolio.In2015,thetotalprivatemortgage
portfoliodecreasedby3%(EUR1.5billion)toEUR45billion,astotal(early)repayment
outpacedtheproductionofnewmortgages.SNSBankaimstoincreasetheretention
ratebyintensifyingcontactwithmortgageesandexpandingitsmortgageportfolio.
Cost structureComparedtothethreemajorDutchbanks,SNSBank’sorganisationisrelatively
simplystructured.Consequently,itisabletoserviceitsbrandsinacost-effective
manner.AsforbothSNSandRegiobank,distributionismostlybywayoffranchising,
thecostsincurredbySNSBankarenotablylowerthanisthecaseforsimilarbanks.9
However,thispositionhasworsenedsomewhatinrecenttimes.SNSBank’soperational
costsareatastructurallyhigherlevelthantheyusedtobe,partlybecauseofthe
increaseinmortgage-relatedactivitiesandthesplit-offfromitsformerparent
company.Inaddition,thecostsarisingfromstricterregulationhaverisensharply.
Thescalingupofthemiddleoffice,necessarytohandletheincreasedlevelof
mortgage-relatedactivitiesandtoimproveoperationaleffectivenessandthecontrol
framework,ledtohighercostsbeingincurredin2015.
Figure 3: SNS Bank operational expenses (including statutory levies, in millions of EUR).
Capital structureThebank’sregulatorycapitalisdifferentiatedtoalimiteddegreeonly.Tier1capital
isfullymadeupofcommonequity.Onthebasisofcurrentregulations,SNSBank
hasaCommonEquityTier1(CET1)targetof14%inplace.However,atpresent,the
CET1ratioissignificantlyhigher(endof2015:25.3%).Thissignificantdeviationfrom
9 Duetotheuseofafranchisingsystem,apartoftheincome,too,accruetothefranchisees.However,asthesereductionsincostsandbenefitsarenotproportionallyrelated,SNSBankoperatesatalowercostlevel(costs/totalassets)thantheDutchmajorbanks.
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thetargetfigurewasnecessary,untilrecently,inordertomaintainthe(unweighted)
leverageratio.Bytheendof2015,theleverageratiowas4.7%,whichwashigher
thanthe2018minimumratioestimateof4%.
Inaddition,theCET1ratioofSNSBankisrelativelyhighduetouncertaintyabout
thenewcapitalrulesandtheirpossibleimpact.TheBaselCommitteeonBanking
Supervisionhasrecentlymadeanumberofproposalsaimedatlimitingtheinfluence
ofinternalriskmodelsusedtodeterminerisk-weightedassets(internalratingsbased
approach)inanumberoffields(includingcertaincounterparty-relatedrisks,
mortgagesandoperationalrisks).Theseproposalsformpartofamoreexpansiveset
ofproposalsrelatedtothebanks’capitalmanagement,madeinconnectionwiththe
so-called‘BaselIV’regulations.Theseproposalsmayyetbeamended,alsoonthe
basisofaQuantitativeImpactStudyperformedontheinstructionsoftheBasel
Committee.ExpectationsarethattheBaselCommitteeonBankingSupervisionwill
issueadefinitivesetofrulesbytheendofthisyear.10
GiventherelativelylowriskweightsDutchbanksattachtotheirmortgageportfolio
onthebasisofhistoricallylowcreditlosses,thetighteningofcapitalrequirements
willspecificallyaffecttheDutchmortgagemarket.ThisalsoappliestoSNSBank.
SNSBankcurrentlymakesuseofitsownriskmodelstocalculatetherisk-weighted
assets(RWA)ofresidentialmortgages.Thiscurrently(endof2015)resultsinan
averageRWAdensityof16%.WhiletheexactimpactoftheBaselCommittee’s
proposalsisasyetunknown,managementexpectsthatimplementationofthe
proposedadjustmentswillresultinasignificantincreaseoftheriskweightingofthe
SNSBankresidentialmortgages.ThetotalimpactonSNSBank’srequiredcapital
levelcouldwellbesignificant,consideringthehighproportionofresidentialmortgages
onitsbalancesheet.ShouldtheBaselCommittee’scurrentproposalsbeadopted
andimplemented,managementbelievesthatthecapitalrequiredtomeetthe
leverageratiowillbelowerthanthecapitalrequiredtomeettherisk-weighted
targets.
Inadditiontofocusingontheinfluenceoftheharmonisationofmortgageriskweights,
theregulatorshavealsobecomemoreawareofthevulnerabilitiesofso-called
monolinebanks-i.e.,specialisedbankswhoseassetsderivefromaspecificsetof
products.Thismonolinenatureincreasesthebank’sconcentrationrisk.Becauseof
itsownmonolinenature,SNSBank’sstatutorySREPratio11of11.75%isrelatively
high.WhenincludingtheSifibuffer12of0.25%SNSBankisrequiredtohold,SNS
Bank’scurrentminimumCET1ratiois12%.SNSBank’smonolinebusinessmodel
alsotranslatesintoasignificantcontractualtermmismatchbetweenassets(which
arelongterm)andliabilities(mostlyshortterm,directlywithdrawablesavings),
resultingindistinctliquidityriskinthebusinessoperations.
10 RegulationsintroducedbytheBaselCommitteecanbeconsideredtoanticipateonEuropeanregulations.Itasyetunclearwhen-andtowhatextent-theBaselCommittee’sproposalswillbeadopted.Expectationsarethatthiswilltakeacoupleofyears.
11 ThisistheminimumcapitalratiorequiredbythesupervisorundertheSupervisoryReviewandEvaluationProcess.
12 TheSifibufferisanadditionalcapitalbufferforbanksdeemedtobesystemicallyimportant.
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ConclusionTheprofitabilityofSNSBankisheavilydependentonthedevelopmentsintheDutch
savingsandmortgagemarketandthemaximumobtainablelevelofcustomerservice
efficiency.SNSBankiscurrentlyconfrontedwithanumberofoperationalandstructural
challenges.Theprimaryreasonsfortheexistenceofthesechallengesarethecurrently
extremelylowinterestrates,whichresultinpressureonthemarginsandvolumes,
theupwardpressureonthecostsincurredbySNSBank-partlyduetohigher
regulatorycostsandthesplit-offoftheformerparentcompany-anduncertainty
aboutthecapitalstructureduetotheuncertaineffectsof,inter alia,thenew‘BaselIV’
regulations.NLFIbelievesthatSNSBankbeingabletoaddressthesechallengesis
crucialtothebankhavingalastingfuture.
2.3 Strategic fundamentals and profile
OntheinstructionsofNLFI,strategicadvisoryfirmBCGhasexploredthepossible
strategicalternativesopentoSNSBank,assumingthebank’sstartingpositionas
detailedintheprevioussection.Thisexplorationispartlybasedonapublic
consultationonthedesiredroleofSNSBankintheDutchbankingsectorconducted
byBCG(refer to Section 2.5).ThestrategicalternativesexploredbyBCGare:
• RetainingSNSBank’scurrentprofileandcurrentbusinessmodel;
• Retainingthebankasitisnow,butaddingnewservicessuchasmakingits
paymentplatformavailabletothirdparties,includingsmallerbanksand‘fintech’
companies,and/orfocusingonaspecifictargetclientsegmentliketheself-
employed;
• Becominga‘simpleretailbank’withafocusonofferingthreecoreproducts-
mortgages,paymentproductsandsavingsproducts-andcompetitivepricing,
basedonanefficientbusinessmodel;
• Becominganichebankwithafocusonasingleproduct,like‘green’mortgages,
orasingletargetclientsegment,suchastheself-employed;
• BecomingamortgageproviderbasedontheDanishmodel,featuringanexact
contractualtermmatchbetweenoutstandingmortgagesonthebank’sbalance
sheetandthebondsissuedtofinancethem;
• Becomingaone-stopshopofferingawiderangeoffinancialservices,forinstance
by becoming a bancassurance group or by becoming part of a consortium;
• Becomingafourthmajorbank,offeringprivatebankingandcorporatebanking
activitiesbyenteringintoajointventureormergingwithother,domesticor
foreign,banks;
• Splittingupthebankintoitsvariousbrandsordismantlingitbywayofassets/
liability transactions.
BCGdevelopedanassessmentframework,basedalsooninputfromNLFI,toscore
thealternativesbasedonvariouscriteriarelevanttothestakeholders:recoupingthe
investmentbytheState,stabilityforexistingcustomers,contributingtoadiverse
bankingsector,alignmentwiththecurrentstrategy,alignmentwiththebank’scurrent
capabilities,preservationofjobs,feasibilityofthechangeprocessesandbeing
relatedtoSNSBank’scurrentactivitiesandbusinessmodel.Givingequalweightto
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thevariousassessmentcriteria,BCGfindsthefollowingfourstrategicalternatives
mostsuitable:
1. CurrentSNSBankprofileandbusinessmodel
2. Current SNS Bank but adding new services
3. CurrentSNSBankwithafocusonaspecifictargetclientsegment
4. The‘simpleretailbank’offeringalimitedrangeofproducts
NLFIhasbaseditsownassessmentofthevariousprofilingoptionsopentothebank
ontheabovealternatives,alsotakingaccountofthebank’scurrentspecificbusiness
model,itspositionwithintheDutchbankingsector,thedevelopmentsinthesector
andthebank’scompanyculture.Moreover,forthetimebeing,itisimportantthat
thefuturestrategyandprofileofSNSBankdoesnotprecludeanyexitoptionsor
futureownershipstructures.
European Commission preconditionsByvirtueoftheEuropeanCommission’sdecisionof19December2013,duetothe
Statesupportprovidedandtheimpactthereofonthecompetitiveconditions,a
numberofrestrictionsapplytoSNSBank.Someoftherestrictionsrelevanttothe
SNSBankstrategyfortheperiodupuntiltheendof2017include:
• Aprohibitionagainstacquiringcompaniesorassetportfolioswhichcanbe
deemed to form a company;13
• Aprohibitionagainstpursuingaggressivecommercialstrategiesthatwouldnotbe
possiblewithouttheStatesupport;
• Aprohibitionagainstenteringthepropertyfinancemarket.
Basic principlesGivenitshistoricprofile,SNSBankisabankfocusedonretailactivities,whereby
offeringmortgageandsavingsproductstotheDutchmarketconstitutesakeypartof
itsbusinessmodel.Historically,thebankhashadalowriskprofileandis‘closetothe
customer’.ThissetsSNSBankapartfromthethreemajorDutchbanks,whichoffer
variousproductsandservices,includingto(large)enterprises,andareactiveabroad.
AsconcernsSNSBank’sprofile,NLFIbelievesthefollowingstartingpointsapply:
• Low risk profile; no diversification
Beingaretailbank,itiscrucialthatSNSBankmaintainsalowriskprofile.This,in
viewoftheuniquerisksassociatedwiththebank’smonolinenature,whichmakes
itvulnerabletoliquidityandsolvencyrisksshouldinternalorexternalcircumstances
change.Thisrequireshigh-levelcreditriskcontrolandbalancesheetmanagement.
Lowriskprofilebanksprimarilyturntheirliabilitiesintolowriskassets-whichcan
beconvertedintocashresourcesifnecessary-andmaintainacautiouscapital
management attitude.
SNSBank’slowriskprofileisatoddswithstrivingforbusinessdiversification,
bothgeographicallyandasconcernstheproductsonoffer.Thebank’sfocus
shouldremainontheDutchretailmarket(payment,savings,mortgages)andit
13 Thisrestrictionappliesuntil19December2016.
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shouldnotsignificantlyexpandintorelatedactivitieslikeextendingcredittoSMEs
orgrantinghigherriskconsumerloans.ThelimitedsizeofSNSBank,ascompared
tothemajorthreeDutchbanks,meansthatSNSBankislesswellsuitedto
independentlyofferotherproductsatequalpricesandconditions.SNSBank
could,however,takeontheroleofdistributorofsuchproducts.
Maintainingalowriskprofilealsomeansthatthebankforgoesacceptinghigher
riskswithinproductcategories.Thebankshouldnot‘chaseyield’andinsodoing
acceptmoreriskthanisdesirabletomaintainsustainablebusinessoperations.
Asearchforyieldwillincreasetheriskofmakingthewrongriskacceptance
choicesandmainlyattractingcustomerswithahighriskprofile(adverseselection).
Byofferingsimplemortgagestoretailcustomersonthebasisofcautiouscredit
management,alowriskprofilecanbemaintained.Whenassessingwhetherto
offernewproducts,theproductalsoneedstofirstbecheckedagainsttheprinciple
ofmaintainingalowriskprofile.Themortgageloansonthebalancesheetneedto
bestandardised,soastoenabletheiruseinsecuritisationandattractECBfunding.
Thetrendtowardslonger-termmortgagesisincreasingthepressureonmaturity
transformationservices,whichinturnincreasestheimportanceofbeingableto
convertlong-termassetsintoshort-termcashresourcesintheformofECB
collateral.
• Cost management; efficiency
ThecombinationofSNSBank’sspecialisedrangeofproductsanditsmorelimited
sizeascomparedtothethreemajorDutchbanksrequiresthebanktohave
excellentcostmanagementsystemsinplacetoremaincompetitiveintheDutch
savingsandmortgagemarket.DespiteSNSBank’shistoricallystrongcostbasis,
recentyearshaveseenanincreaseinoperationalcosts.Inpart,thisisduetoits
smallcostbasisactuallyincreasingasaresultofnewregulatoryrequirements,
whileINGBank,ABNAMROandRabobankwereactuallyabletoimplementcost
savingsprogrammes.Asaconsequence,whenSNSBank’sefficiencyiscompared
tothatofthethreemajorDutchbanks,asmeasuredbycost/incomeratio,its
positionhasworsened.14NLFIbelievesthatSNSBankneedstoshowsignificant
improvement in its operational cost development if it is to remain competitive in
themediumandlongterm.Exclusivelyofferingasimplerangeofproductsmight
helpreducecosts,asmightmoreefficientinternalprocessesoperations.
Inaddition,savingscanberealisedbystaffrationalisationperformedincombination
withfurtheroptimisationofthemulti-labelsingleplatformandreductionofthe
administrativeandsalarycosts,whichhaveincreasedsincethesplitofffromthe
former parent company.
TheaforementionedstartingpointsprovideampleroomtoprojectSNSBankasa
lowcostproducercautiousinacceptingrisk,whichfitsnicelywiththeprofileofa
simpleretailbankaspresentedbyBCG.Inaddition,SNSBankshouldbeableto
capturesufficientmarketshareintheDutchsavingsandmortgagemarket,inline
14 TheSNSBank’s2015cost/incomeratiowas53%,comparedtoABNAMRORetailBank’s55%,INGBank’s56%andRabobankDomesticRetail’s70%.
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withmarketconditions.Itthereforeneedstosetcompetitivetargetsthataretailored
tothebank’slowriskprofile.
2.4 SNS Bank’s views of its future profile
Eversincelate2015,whenitwasde-mergedfromSNSREAAL,SNSBankhasbeen
workingonastrategicplan-namedSpotOn-andoncreatingafutureprofilefor
thebank.Thebankconsideredvariousoptions:
• Beingacommercialbankofferingretailactivities,intheveinofthethreemajor
Dutchbanks;
• Beinga‘socialbank’providingservicestothecustomerandmakingapositive
contributiontosocietyasawhole;
• Beingautilitybank/statebankfocusedonlyonmanagingsavingsdepositsand
providing payment services.
SNSBankpreferstheprofileofbeinga‘socialbank’.Thisprofileischaracterisedby
anumberoffeatures:
• Onthebasisofitssocialrolewithintherealeconomy(warehousing,risktrans-
formation,moneycreation),SNSBankofferssimplecoreproductsinsuchaway
astobebothofservicetoitscustomersandprofitable,yetwithoutrunning
unnecessary risks;
• Thebankdistinguishesitselffromotherbanksbydirectlytranslatingitsvision
andmanifestointoitsproducts,processesandbusinessmodel;
• Efficiencyistobeachievedbykeepingitsbusinessoperationssimpleandefficient,
ensuring an absolute reduction in operational costs;
• Improvingriskmanagementallowsforstructurallyreducingmortgageriskcosts,
dependingonthestateoftheDutcheconomy;
Thebankstrivestooptimiseitscompoundreturnbywayoftheso-called‘Shared
Value’strategy,whichtakestheinterestsofcustomers,employees,shareholdersand
societyasawhole,intoaccount.SNSBankbelievesthisprofiletobeanimportant
additiontotheDutchbankingsectorandexpectstobeabletoattractmore
customersandstrengthenitsrelationswithexistingcustomers,byadoptingit.The
bank’sboardhasstatedthatthisgrowthpotentialformsabasisforasuccessful
long-term strategy.
NLFIhasassessedSNSBank’sstrategicplananddeterminedthatthebank,by
successfullyimplementingit,willmeettheprinciplesoflowriskprofileandhigh
efficiency.ThevisionasprovidedbySNSBankisalsoinlinewiththe‘simpleretail
bank’profileaspresentedbyBCG,bywhichthebankwouldhaveafocusonoffering
threecoreproducts-mortgages,paymentproductsandsavingsproducts-and
competitivepricing,basedonanefficientbusinessmodel.Thebankwillfocuson
producing simple and transparent products based on low production costs and
effectingahealthybalancebetweenthecoreelementsofthe Shared Value strategy,
ensuringthatshareholderfinancialreturnsarenotsubordinatedtotheotherelements.
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2.5 Other views on SNS Bank’s future profile
OntheinstructionsofNLFI,BCGinvestigatedtheopinionscurrentinsocietyonthe
desiredroletobeplayedbybanksintheDutchbankingsectorandSNSBank’splace
init.ThisroundofconsultationchartedwhichpossiblepositionstobetakenbySNS
Bankreceivewidesupport,alsoinviewofthevanHijum/Nijboermotion15 on
safeguardingtheutilitycharacterofSNSBank.
BCG consultationBCGconductedapublicconsultationonthedesiredroleofSNSBankintheDutch
bankingsector.BCGhadvariousmeetingswithselectedstakeholdersandopinion
makersfromacademia,thefinancialsector,regulatorybodies,interestgroupsand
civicorganisations.BCGfoundthatthepersonsconsultedbroadlyagreethatthe
Dutchbankingsectorrequiresincreaseddiversityandcompetitiontowidenthe
rangeofoptionsopentotheconsumerandtoensurethattheexistingfinancial
institutionsbeattentiveto,forinstance,theirpricesandproductconditions.In
addition,theviewthatabankshouldnotbeautilitycompany-inthesenseof
providingutilityservicesaccessibletoeveryone-butshouldormayhaveasocial
function,wasfoundtobewidelysupported.ToSNSBank,thismeansthatitssocial
functionshouldbenefitthewholeofDutchsociety,notjustexistingorfutureSNS
customers.Therespondentsalsostatedthatreturnslowerthanusualinthemarket
shouldnotbetheresultofinefficientbusinessoperations.Suchlowerreturnsshould
bedemonstrablycompensatedbythecreationofsocialvalue.
The‘simpleretailbank’profilewasfoundtobewidelysupportedduringthe
consultations.Intheviewoftherespondents,thisprofileischaracterisedbythe
bankhavingtobesociallyinvolvedandfocusedonthe‘massretailsegment’,
offeringtransparentproductsbasedonefficientbusinessoperations.Mostofthe
intervieweesbelieveapossibleexpansionbySNSBankofitsrangeofproductsinto
othersegments-forexample,offeringcredittoSMEs,etc.-wouldcomplicate
matters,notbeinlinewiththebank’scurrentcapabilitiesandculture,andberisky.
Creatingafourthmajorbankisverywidelyheldnotbearealisticorusefuloptionby
therespondents.NLFIendorsesthisconclusion.NLFIhasincludedtheinputprovided
duringtheroundofconsultationswhendeterminingthepointsofdepartureatthe
baseofSNSBank’sstrategyandfutureprofile.
Van Hijum/Nijboer motion on safeguarding the utility character of SNS BankTheHouseofRepresentativeson12December2014adoptedthevanHijum/Nijboer
motiononsafeguardingtheutilitycharacterofSNSBank.Thismotionconstitutesa
requesttothegovernmenttoinvestigatehowbesttosafeguardSNSBank’sutility
characterinlightofthebank’s“Peopleforpeople”manifesto,whichincludesthe
ambitiontoturnSNSBankintoasimplesavingsbank,puttingsocialbenefitover
financialreturns.
15 ParliamentaryDocumentsII,sessionyear2015-2016,34346
20 van 42
OntheinstructionsofNLFI,BCGinvestigatedhowSNSBankcouldbestfulfilautility
bankfunctioninlinewiththefindingsfromtheconsultationround.Initsinvestigation,
BCGdistinguishesbetweenhighutilityandlowutilitybanks.BCGusedthefollowing
definitionofahighutilitybank:
• Products:thebankonlyoffersbasicproductsunderclearproductconditions
• Segments:thebankoffersfinancialretailservicestothe‘massretailsegment’
• Riskprofile:thebankmaintainsaconservativeriskprofile
• Returns:thebankstrivestowardsacquiringmaximumreturns,unlessdeviating
fromthisdrivebenefitsbroadsocialobjectives
• Ownershipform:theutilitynaturecanbeensuredinthelongtermbywayofthe
ownershipstructureused,irrespectiveofthebankbeinginpublicorprivate
ownership.
BCGindicatesthateachofSNSBank’sfutureprofileoptionsallowsforthebank
havingeitherahighoralowutilitynature.Ahighutilitynaturemayalsobe
connectedtoexpectedreturns.Ahighutilitybankcould,forinstance,befocusedon
compositereturninsteadofonaneconomicrateofreturn.WhileSNSBank’s
manifestodoesnotexplicitlystatehowstakeholderinterestsshouldbebalanced,it
does,inviewofthebank’ssocialorigin,attachalotofweighttocustomerinterests.
Themanifestocanbetranslatedintoconditionsthatareattractivetocustomers,like
offeringamortgagetermservice(includinginterestrateaveraging),aninterest-free
temporaryoverdraft,interestonbalancesinpaymentaccountsandpurchase
protectioninsuranceforpurchasesmadeviapaymentaccounts.
Competitivereturnsarerequiredtobeabletogrowandtoattractinvestors.Toa
bank,thisisofgreatimportanceinconnectionwithcontrollingthecostofcapital.
BCGnotesthatabandoningthepursuitofeconomicratesofreturnisnotanecessary
preconditionforhavingahighutilitynatureaspartofthecompanyprofile.Thedrive
torealisestableandpredictablereturnswithreducedupwardpotential,butalso
reducedriskformspartofthebank’sfinancialpolicy.Inordertoensurethebank’s
highutilitynature,alternativemeasures,includingembeddingSNSBank’ssocialrole
initsArticlesofAssociationandprotectingitselfagainstundesiredshareholder
activism by implementing customary market measures like issuing depositary
receiptsforsharesandfoundingafoundationtoprotectthebank’sidentity,maybe
considered.Inaddition,thebank’sutilityfunctioncouldbesafeguardedby
subscribingtothecooperativemodel.SNSBankcould,inthatconnection,issue
depositaryreceiptsforsharesorvariousclassesofsharestopartiesaffiliatedtothe
bank.ThiscanbeworkedoutmorefullywhenSNSBankisexit-ready.
2.6 Conclusion
TheresultsoftheHouseofRepresentatives’debateonthefutureofSNSBankandof
theroundofconsultationheldbyBCGshowthatthereisawidelysupportedneedfor
thefuturestrategicpositionofSNSBanktobethatofasaferetailbankoffering
simple,transparentandfairlypricedfinancialproducts,operatingonthebasisofan
operationallyexcellentbusinessmodelandresultinginacompetitivedividendyield.
21 van 42
Optingforafutureprofileofbeinga‘socialbank’isinlinewiththisneedandisalso
inkeepingwiththe‘simpleretailbank’profilepresentedbyBCG.
NLFIhasassessedSNSBank’sstrategicplananddeterminedthatthestrategic
principlesfollowingfromtheviewsonthebankcurrentinsocietywillhavebeenmet,
shouldtheplanbesuccessfullyexecuted.Thestrategicplanalsomeetsthepre-
conditionssetbytheEuropeanCommissioninthecontextoftherestructuringplan.
ThenextChapterwillelaborateontherequiredtransitiontowardsanewSNSBank
profile.NLFIbelievesthatvariousownershipstructuresarepossibleforabankwith
thisstrategyandprofile.Thisfocusthereforedoesnota priori preclude any sale or
ownershipstructures.
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3 Transition to future profile
3.1 Starting points
InthepreviousChapter,wenotedthatSNSBankiscurrentlyconfrontedwitha
numberofoperationalandstructuralchallenges.Addressingthesechallengesis
crucialtothebankhavingalastingfuture.ForSNSBanktobecomeasimpleretail
bank,itmustundergoatransition.SNSBankhasaccountedforthistransitionin
SpotOn,itsstrategicplan.Thetransitionwillatanyrateincludethefollowing
elements:
• Loweringthecoststructure.Thecostsofproductioncanbereducedtoalevel
allowing SNS Bank to become competitive on a long-lasting basis.
• Improvingriskmanagement.Thesuccessesalreadyachievedinimprovingrisk
managementneedtobefollowedupon.Theprovisionsmadetocovercredit
losseswheninvestinginDutchmortgageshavetobeatanequal,orevenlower,
levelthanaremadebythethreemajorbanksthroughthecycle.
• Furthershiftoftherangeofproductstowardsstandardisedproducts.Thebank
shouldnotperformactivitiesthatfalloutsidethescopeofnormalbusiness
operations.
• Becominga‘smartadopter’offintechdevelopments,therebystructurally
improvingcustomercontact,productinnovationandservicelevel.
• Possibleadjustmentandstreamliningofthebank’scapitalstructureonthebasis
ofthedeterminationoffuturemortgageinvestmentriskweightsandthe
definitionofMRELduties.
BasedonSNSBank’scurrentstartingposition,theimprovementplandraftedbythe
bankandthefinancialsubstantiationofacquiringtheprofileofa‘socialbank’,NLFI
believesthatSNSBankrequiresatleast2,possiblyupto3,yearstoaddressthe
variouschallengesitfacesandrealiseatleastthemajorityofthedesired
improvements.Duringthistime,thebankshouldatanyratebuildupasolidtrack
recordintermsofreducingcostsandachievingsufficientdividendyieldonthebasis
ofasolidliquidityandcapitalstructure.
3.2 Transition and improvement plan objectives and monitoring
TheelementsallowingSNSBanktotakeupthepositionofasimpleretailbankneed
toberealisedinthemediumterm.NLFIandSNSBankdefinedanumberofobjectives
tothispurpose.
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Cost reductionTheoperationalcosts,excludingstatutorylevies,needtobereducedinabsolute
termsfromtherealised2015figureofEUR575milliontoachieveastructurallylower
costofproduction.However,inordertorealisethesecostreductions,initial
investmentsinandadditionstotherestructuringprovisionarerequired.Achieving
suchabsolute reduction of costformsanimportantindicatortothebank.
Duetothepressureonthebank’sincomeanditsalternativedistributionmodel,which
ispartlybasedonfranchising,thecost/income ratio is not fully suitable to serve as
thesolegaugeformeasuringthecostreductiontobeachievedbySNSBank.Asa
significantshareoftheassetsonthebalancesheet(72%)arecomposedofresidential
mortgages,themortgageproductioncostsarealsomainlyexpressedintheoperational
costs/average assets,thusformingabettergaugeofthedegreetowhichthebank
hasimproveditsefficiency,tobeusedalongsidethetraditionalcost/incomeratio.
Improving risk managementSNSBankhassubstantiallycutbackonitscreditlossprovisionsinthepastfewyears.
ThegroundforeffectingthisreductionwastherecoveryoftheDutcheconomyand,
inparticular,ofthepropertymarket.Inaddition,SNSBankinvestedinimprovingits
processestopreventorlimitmortgagearrears.Thesemeasures,too,contributedto
reducing credit loss provisions to a competitive level. Loan impairment charges as a
percentage of the total mortgage portfoliowas0.07%(7basispoints)in2015.
SNS Bank aims to maintain a low level.
Mortgage standardisationStandardisationofthemortgageproductsonoffermayresultinoperationalefficiency
gains and makes securitising mortgages and creating collateral eligible to receive
ECBfundingeasier.Thetransitiontowardsaproductportfoliofeaturingstandardised
simpleandtransparentproductswilltakesometime,giventhematuritytermof
mortgages.However,currentlowinterestrateshaveresultedinhighrefinancingand
redemption rates. SNS Bank also actively offers interest rate averaging services to
itsmortgagecustomerssoastoincreasetheretentionrate.Interestrateaveraging
meansthatthepenaltyinterestpayableonearlyrefinancingisincludedintherevised
interestrateasasurchargeforthedurationofthenewfixed-interestterm.Thenewly
issuedmortgagewillthenbeastandardisedone.Inthisway,standardisation of the
mortgage portfoliomaybeachievedwithinacoupleofyears.Theaimistohavea
greater share of the mortgage portfolio be securitisable so as to serve as collateral
forpossibleECBfundingwithoutanappreciable‘haircut’beingapplied.
TheEuropeanCommissioninthecontextoftheSNSBankrestructuringplanrequires
anannualassessmentofmarketconditionstodeterminewhetherthebankcouldbe
privatised.IntheopinionofNLFI,theabovegaugesandobjectives,setupbySNS
Bankinthecontextofitstransitiontowardsbeingasimpleretailbank,couldforma
partofthisannualmarketconditionstestrequiredbytheEuropeanCommission.
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3.3 Anticipated return considerations
ThecostreductiondriveatSNSBankandthelowercreditlossprovisionsareexpected
toleadtothebank’sprofitabilityremainingatthesamelevelforthecomingyears
andslightlyimprovingaround2020,evenwhentakingintoaccounttheexpected
decreaseinthenetinterestmarginasaconsequenceoftheshrinkingcreditportfolio
andthepersistentlylowinterestrates.NLFIbelievesthatthisimprovementwillbe
reflectedinthereturnstotheStateovertheperioduptoprivatisation.European
regulationsrequirethatmarketconsistent,competitivereturnsarerealised.Whether
thereturnisinlinewithmarketconditionsistestedonthebasisofthemarketeconomy
investorprinciple.Underthistest,theMemberStatehastoconsideracompanyjust
like it would be considered by a private investor in similar circumstances. If a Member
Statesystematicallywaivesareturnonthecapitalithasinvestedinthecompany,
irrespectiveofthecompany’sresults,orifitwouldsystematicallyacceptnon-
competitivereturns,thismightconstituteillegalstateaid.
InChapter2,wenotedthatSNSBankatpresentholdsarelativelyhighamountof
capitalinordertomeetthe-expected-leverageratioand‘BaselIV’requirements.
ThedefinitiveimpactofthecurrentproposalsbytheBaselCommitteeonBanking
SupervisionisimportanttodeterminingthetotalamountofcapitalSNSBankisto
hold.Thismeansthat,forthemoment,thebankwillcontinuetoholdarelatively
highamountofcapitalsoastoallowittomeetfutureprudentialrequirements.
Becauseofthisdenominatoreffect,thereturnonequity(RoE)isnotverywell
suitedtoserveasagaugeformeasuringthebank’soverallreturn.
WithrespecttotheholdingsmanagedbytheState,theStateappliesaspecific
standardreturntoeachseparategovernmentholding.16Thisstandardreturnisalso
usedtoencourageacompany’sboardtooperatemoreefficiently.Duetothe
temporarynatureoftheinvestmentsrelatedtothefinancialcrisis,SNSBankdoes
notqualifyasacompanyunderpermanentStatemanagement.Adividendyield
structurecouldbeappliedtofollowthebasicprincipleofensuringacompetitivelevel
ofreturntotheStateduringthetransitionphase.Takingtheaveragedividendyield
ofsimilarbanksintheNetherlandsandEuropeasacalculationbasisandadjusting
thisfigureforSNSBank’slowriskprofile,aminimumannualdividendyieldof5%on
theState’scapitalinvestmentinSNSBankata2015sellingpriceofEUR2.7billion
appearstobeadequate.ThiswouldhavetheannualdividendyieldontheState’s
investmentinSNSBankamounttoatleastEUR135millionforthenextcoupleof
years,or40%ofthebank’s2015realisedprofits.Onthebasisofparametersagreed
inadvance,thisyieldmayalsobehigherthan5%from2017onward.Thiscouldbe
thecaseforinstanceiftheyieldwastogrowinlinewithgrowthintheDutchGDP,
insofarasthebank’scapitalpositionallows.
16 GovernmentPolicyonGovernmentHoldingsMemorandum2013,p.41
26 van 42
ThestartingpointsforthetransitionfromSNSBank’scurrentprofiletothatofbeing
asimpleretailbank-reducingthecostsofproduction,improvingriskmanagement,
standardisingtheproductrangeandstreamliningthecapitalstructure-intheopinion
ofNLFI,provideabasisforanacceptablelong-termreturn.Intheyearstocome,
themanagementhastheopportunitytobuildupasolidtrackrecordinreducing
costsandrealisingsufficientreturnwhilemaintaininganefficientcapitalstructure.
Duringthisperiod,thetransitionhastoberegularlyassessedand,ifnecessary,
adjustedtocreateabankfeaturingalowriskprofileandsufficientdividendyieldin
linewiththatriskprofile,suchthatSNSBankcanbecomeattractivetoawiderange
of investors.
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4 Exit preconditions
4.1 Introduction
SNSREAAL,theformerparentcompanyofSNSBank,wasnationalisedon1February
2013toprotectthefinancialstability.17Youandyourpredecessorshaveemphasised
thetemporarynatureoftheinvestmentsmadetoprotectthestabilityofthefinancial
sector.Thegovernmentdesiresaswiftreturnofallnationalisedcompaniestothe
privatesector,ifandtotheextentthatthreepreconditionsaremet:18
i. Thecompanyisreadyforprivatisation;
ii. Thefinancialsectorisstable;and
iii. Thereissufficientmarketinterestintherelevanttransaction
Inadditiontothesepreconditions,theStatewishestorecoupasmuchofthetotal
investmentmadeintothecompanytobeprivatised,plustheState’scapitalcosts.
Overthepastperiod,NLFIhascarefullymonitoredwhetherthesaleofSNSBankcan
beconsidered,keepinginmindtheabovepreconditions,andalsowhethertryingto
sellthebankwouldbefeasibleandappropriateatthismoment.NLFI’scurrent
perspectiveonwhetherSNSBankhasmetthesepreconditionsisfurtherdetailed
below.Theparticularfocusisondeterminingwhetherthebankisreadyforsale.
Onlyoncewehaveestablishedthatthebankisreadydoweneedtomorefully
considerwhetherthesectorisstableandwhetherthereissufficientmarketinterest.
4.2 Is SNS Bank ready for sale?
WhendiscussingthepresentstateofSNSBankinChapter2,wenotedthatthebank
iscurrentlyconfrontedwithanumberofoperationalandstructuralchallenges.
Thelowinterestrateresultsinpressureonmarginsandvolumes.Thistrendis
increasedbythegrowingcompetitionontheDutchmortgagemarket.Inaddition,
SNSBank’soperationalexpenseshaveincreasedoverthepastperiodduetoitssplit-
offfromSNSREAALgroupandtheassociateddis-synergies,investmentsintoits
middleofficecapacityandthecostsincurredtoimproveoperationalefficiencyand
thecontrolframework.Tothisneedtobeaddedthepresentuncertaintyaboutthe
capitalstructureduetotheuncertaineffectsofupcomingchangesinapplicable
regulations.Determiningthefuturemortgageinvestmentriskweightsinfuture
regulationsonthebasisoftheBaselCommitteeonBankingSupervision’sproposals
17 ParliamentarydocumentsII,sessionyear2012-2013,33532,no118 ParliamentaryDocumentsII,sessionyear2010-2011,28165,no117
29van 42
ontheharmonisationofrisk-weightedassetsandfurtherdefiningtheMREL
requirementsmayallowforstreamliningthebank’scapitalstructure.
ConclusionNLFIfindsthatSNSBankiscurrentlyconfrontedwithanumberofoperationaland
structuralchallengesanduncertainties.Thesechallenges,atpresent,standinthe
wayofaclearequitystory.AsstatedinSection2.3,NLFIbelievesittobeimperative
thatSNSBankimplementsitsstrategyandmoreclearlydefinesitselfasasimple
retailbank-i.e.,abankfeaturingcompetitivepricing,lowcostofproductionanda
lowriskprofile-inthecomingtime.Thebankisatanyratetoworktowardsthe
objectives referred to in Section 3.2tobecomereadyforprivatisation.NLFIbelieves
SNSBankis,atpresent,notyetreadyforanIPO(initialpublicoffering).NLFIalso
believesthat,atpresent,nooptimumresultcanberealisedfromanyothersale
options.ConsideringthecurrentpositionofSNSBankandthefinancialsubstantiation
ofSpotOnasdrawnupbythebank,theimplementationofthestrategicplanwill
requiretwotothreeyearstorealiseoptimumlong-termvaluecreation.
4.3 Is the financial sector stable, in particular for mortgage and savings banks?
Themacro-economicconditionsintheNetherlandshaveclearlyimprovedinthepast
fewyearsandeconomicrecoverycontinuesinboththeUSandEurope.However,the
rateofgrowthinanumberofimportantemergingeconomiesisdecreasing,playing
animportantpartinanupsurgeofvolatilityinthefinancialmarket.Thesurgefollows
ontheheelsofaperiodwithexceptionallylowvolatilityandmaythereforepartlybe
explainedasacorrectiveeffect.Atthesametime,however,concernamonginvestors
aboutlaggingglobaleconomicgrowthhasincreasedsharply.19
Inresponsetotheuncertaineconomiccircumstancesandinflationratesthathave
beenbelowinternaltargetsforalongtimenow,theECBhasfurthereasedits
monetarypolicyoverthepastfewmonths,alsotakinganumberofunconventional
measures.TheECB’sbaseinterestratehasbynowbeenloweredto0%andtheECB
depositfacilityinterestrateiscurrentlyevennegative,havingbeenloweredto-0.4%
inMarch2016.Inaddition,monthlypurchasesunderthequantitativeeasingpolicy
havebeenfurtherincreasedwhilethelistofassetsthatmayserveascollateralfor
ECBfundinghasbeenexpandedtocoverhigh-qualitycorporatebonds.These
interventionshaveledtoafurtherlevelling-offoftheyieldcurve.
Thislowinterestenvironmentnegativelyimpactsthebanks’interestmargin,especially
sincetherenowislessroomtoreduceinterestratesondeposits.Inaddition,the
persistentlylowinterestratesresultinfurthershiftsinbothcustomerbehaviourand
thecompetition.Whileaslightincreaseintheproductionofmortgageshasbeen
19 Alsoreferto:DeNederlandscheBank,AnnualReport2015,p.11ff.
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visibleforthemarketasawholesince2013(refertofigure4),theshareheldby
bankshasdecreased.Onbalance,thealteredcompetitiveconditionshaveresultedin
lowernewmortgageproductionvolumesforthebankingsectorasawhole.
Figure 4: Mortgage turnover and number of mortgages sold in the Netherlands. Source:
IG&H, Mortgage Update Q4 2014 and Q4 2015.
Maintainingtheinterestmargin,themostimportantsourceofincomeforbanks,
dependsontheextenttowhichbanksareabletomaintainthemortgagemarginand
reducefinancingcosts,butisalsorelatedtouncertaininterestincomefactorslike
thelevelofcompetition,thedemandfornewloansandtheweighingofkeeping
marketshareagainstprofitability.20Generallyspeaking,theprofitabilityofbanks
seems to be under pressure.
Concernsaboutprofitabilityheldbyfinancialinstitutionsinthepastyearledto
financialmarketvolatility.Thestartoftheyearwitnessedaparticularsurgeinvolatility
inthecontingentconvertibleobligations(CoCos)marketastherewasadistinct
possibilitythatEuropeanbankswouldnotbeabletomeetdividendandCoCocoupon
paymentsduetofallingprofitabilitylevels.21TheBankforInternationalSettlements
notedthatthelimitedimpactonthebanks’seniorobligationpricesoverthisperiod
suggestedthatprimaryinvestorconcernisnotaboutthesizeorqualityofthebanks’
capital buffers.22Stronginterventionbygovernmentsandcentralbankshascontributed
significantlytothisstateofaffairs.Crucialstepshavebeentakeninthereformprocess
atnationalandEuropeanleveloverthelastyearsinordertostrengthenthestability
ofthefinancialsector.Thishasledto,forexample,regulationsrequiringbanksto
20 DNB,pressrelease:Lage rente uitdaging voor gehele financiële sector; integriteit blijft zorgpunt (LowInterestchallengeforentirefinancialsector;integrityisofconcern),19May2016,http://www.dnb.nl/nieuws/nieuwsoverzicht-en-archief/persberichten-2016/dnb341434.jsp
21 DNB,OverviewofFinancialStability,Spring2016,p.1322 BankforInternationalSettlements,BISQuarterlyReview,December2015
31 van 42
holdhighercapitalbuffers,theintroductionofanunweightedminimumleverage
ratioandthecomingintoforceofabail-inregimethatistoensurethatbanksissue
sufficientnumbersofloss-absorbinginstruments.
Forbankswithafocusonrelativelylow-riskactivities,likeresidentialmortgages,the
downsideoftheintroductionoftheunweightedminimumleverageratio23isthat
thesebanksarerequiredtoholdarelativelyhighamountofcapital.Inaddition,
banksarealsoconfrontedwiththeuncertainresultsof,inter alia,‘BaselIV’regulations.
Tomortgagebanks,thisinparticularconcernsuncertaintyaboutfuturerulesonthe
harmonisationofrisk-weightedassetsincaseof,inter alia,mortgageinvestments
andtheamountofloss-absorbingcapitaltobeheld(MRELandTLACrequirements24).
Theharmonisationofrisk-weightedassetsinconnectionwithmortgageinvestments
formsanespeciallybigchallengetoDutchretailbanksduetotheirlowmortgage
riskweights,resultingfromhistoricallylowcreditlosses.Thecombinationofchanging
marketconditionsandthetighteningofcapitalrequirementshaspromptedanumber
ofDutchbankstolimittheirmortgageproduction.
ConclusionMacroeconomicconditionshavenoticeablyimprovedoverthepastfewyearsandthe
stabilityofthefinancialsectorasawholehasbeenstrengthenedduetotighter
legislation.However,circumstancesinthesavingsandmortgagemarketsareless
clear,inparticularduetothelowinterestrateandtheuncertaintiesinconnection
withthefuturemortgagecapitalrequirements.Thesecircumstanceshavean
especiallylargeimpactonDutchmortgageandsavingsbanksand,atthemoment,
hamperthespeedyreturnofSNSBanktotheprivatesector.
4.4 Is there sufficient market interest in a sale of SNS Bank?
Proactivelycontactingpartiesinordertoascertaintheirinterestinapossible
acquisitionofSNSBankwasnotpartoftheprocesswithinthecontextofthis
advisoryreport.NLFIdoesregularlyconsultwithinvestmentbanksonmarket
developmentsandpossibleinvestorinterestinbankslikeSNSBank.Thishasallowed
NLFItoformanopiniononpossiblemarketinterest.Inviewofthemarketconditions
referredtointheabove,theexistinguncertaintiesaboutupcomingregulation,the
currentexpectedreturnsandthesystematicchallengesSNSBankisfacing,thereis
atthemomentverylittletonopotentialbuyerinterestinSNSBankatconditions
acceptabletotheState.Thisappliestobothstrategicbuyersandprivateinvestors.
TheseStateconditionsconcernnotonlytheprice,butalsotheacquisitionstructure,
23 UndertheCRD4directive,aminimumleverageof3%currentlyapplies.ThefutureratioexpectedtoapplytotheNetherlands,is4%.
24 TheMREL(minimumownfundsandeligibleliabilities)andTLAC(totallossabsorbingcapacity)requirementsrelatetoimprovingtheresolvabilityofbanksincaseofabankrequiringrescue.Theliabilitiessideofthebalancesheetofasystematicallyimportantbank,inthisconnection,istobecomprised,toadegreeasdeterminedadvance,ofequityandfinancialinstrumentsofsufficientloss-absorbingcapacitytoallowfortherequiredrecapitalisationofthebankinaresolutionscenario.
32 van 42
theeffectsonemploymentandaspectsofthecompanyculture.Thelackofsufficient
investorinterestappliestobothaprivatesaleofthebankand,especiallyas
concernsanacceptableprice,toapossiblestockmarketflotation.
ConclusionAlsoinviewofNLFI’sanalysiswithrespecttothefirsttwopreconditionsforanSNS
Bankexit,NLFIfindsthat,atpresent,thereisinsufficientmarketinterestforasale
atconditionsacceptabletotheState.NLFIexpectsinterestatconditionsacceptable
totheStatetobecreatedoncethebankhasbuiltupatrackrecord-includingon
theoperationalfront-asastand-alonebank,independentofitsformerparent
company,andoncemorecertaintyexistsasconcernstheimpactofthenew
regulationsinconnectionwithmortgageinvestmentriskweights.
4.5 Will capital expenditures be recouped?
StatecapitalexpenditurestoSNSREAAL,includingSNSBank,arecalculatedtoamount
toEUR4.458billion.25Thisisreflectedintable1.Theamountlisteddoesnotinclude
thecapitalcosts-includinginterestcharges-oftheState.
Inthespringof2015,NLFIhadperformedavaluationofSNSBankasastand-alone
bankinconnectionwithSNSBankbeingsplitfromtheSNSREAALgroup.Thevaluation
wasperformedbyMacquarieCapitalonthebasisofSNSBank’s2015Operational
Planandpubliclyaccessibleinformation.Macquarieproducedavaluationrangeof
EUR2.5to2.9billion,whichwaslessthanSNSBank’slate2014carryingamountof
EUR3billion.InconsultationwithSNSREAALandtheEuropeanCommission,the
purchasepricewassetatEUR2.7billion.26ThebridgingloanofEUR1.1billiongranted
bytheState,plusinterestpaid,wereoffsetagainstthepurchasepriceoftheshares
in SNS Bank.
SNSREAAL’sinsurancesubsidiary,REAALN.V.,currentlyoperatingasVivat,wassold
bySNSREAALforEUR85millionlastyear.Followingsettlementofcertaintaxclaims,
thenetsellingpriceamountedtoapproximatelyEUR1.
25 Inpreviousadvisoryreports,NLFIstatedthatEUR2.865billioninStatecapitalexpendituresareallocatedtoSNSREAAL.However,sinceSNSBankwassplitfromSNSREAAL,thesaleoftheSNSBanksharesbySNSREAAL,offsetagainstthebridgeloanandtheassociatedinterest,arecountedascapitalexpensesforthebenefitofSNSREAALandSNSBank.Inaddition,theproceedsoftheresolutionlevyareEUR5millioninexcessoftheestimatesusedinpreviousadvisoryreports.
26 ParliamentaryDocumentsII,sessionyear2014-2015,33532,B no 47
33 van 42
Table 1: Overview of capital expenditures of and dividend received by the Dutch State
ConclusionAtthemoment,itisuncertainwhetherthecapitalexpendituresincurredforthe
benefitofSNSREAALcanberecoupedbywayofthesaleofSNSBankandthe
dismantlingofSRH.HavingSNSBankimplementthedesiredimprovementsoverthe
comingperiodmaypositivelyaffectthebank’syieldandvalue.
35van 42
5 Future ownership structure considerations
YourlettertotheHouseofRepresentativesof23August2013(‘Plansforthefuture
ofthefinancialinstitutionsABNAMRO,ASRandSNSREAAL’)27statesthattheState,
aspartofthestateaidprocedurewiththeEuropeanCommission,proposedthatSNS
Bankcontinuetoexistindependently,therebyensuringthatenoughpartiesareactive
ontheDutchmarket.Inthiscontext,theStateinformedtheEuropeanCommission
ontheexistingproblemswithreducedcompetitionontheDutchmarketasa
consequenceofthepriceleadershipban.Inyour22May2015lettertotheHouseof
Representatives(‘ABNAMROsale’)28youalsoemphasisedtheimportanceofSNS
Bankacquiringastrong,independentpositionwithintheDutchbankingsectorbefore
adecisioncanbemadeonthefutureofSNSBank.
Youandyourpredecessorshaveemphasisedthetemporarynatureoftheinvestments
madetoprotectthestabilityofthefinancialsector.29The19December2013decision
oftheEuropeanCommission30ontherestructuringplanofSNSBank,too,states
thattheState,aspartoftheStateaidprocedure,committeditselftoprivatisingSNS
Bankinduecourse.Inaddition,theStatehastoinvestigatewhethermarketconditions
permitprivatisationofSNSBankatleastonceayear.TheStatedidnotcommittoa
certaindatebywhichSNSBankhastobeprivatised.Nevertheless,keepingSNSBank
inthehandsoftheStateseemstobeatoddswiththeEuropeanCommission’sdecision.
NLFIbelievesthatSNSBankisnotyetreadytobeprivatised.Itmayalteritsopinion
ifSNSBankenergeticallyworkstowardseffectingthedesiredoperationaland
structuralimprovements.NLFIexpectsSNSBanktorequireatleast2andpossibly
upto3yearstorealisetheimprovements.NLFIisauthorisedtokeepmanagingthe
sharesinSNSHoldingandSNSBankundertheTrustOfficeFoundationforthe
ManagementofFinancialInstitutionsActanditsArticlesofAssociation(commercial,
non-politicalgovernance),allowingforthepreservationofthetemporarynatureof
theState’sinvestmentinSNSBank.Aninvestigationintotheexistenceofaneedto
havingSNSBankremaininStatehands,inconformitywiththeMerkies/Nijboer
motion,canbeconductedatalaterstageofthebank’stransition.31Theresultsof
thisinvestigationmaythenbecomparedtoalternativeswhich,atpresent,arenot
availableorexpedient,includingasaleand/orstockmarketflotationinoneof
multiple ways.
27 ParliamentaryDocumentsII,sessionyear2012-2013,32013,no3628 ParliamentaryDocumentsII,sessionyear2014-2015,31789,no6429 ParliamentaryDocumentsII,sessionyear2010-2011,28165,no11730 EuropeanCommission,TheNetherlands-RestructuringPlanSNSREAAL2013,C(2013)9592,19
February2013;availableat:http://ec.europa.eu/competition/state_aid/cases/249726/249726_1544400_217_2.pdf
31 ParliamentaryDocumentsII,sessionyear2015-2016,34346
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Thesuccessfulexecutionofthestrategicplanwill,intheopinionofNLFI,resultina
revenuemodelfeaturingariskprofileandadividendyieldthatmaybeattractiveto
awidegroupoflong-terminvestors.Optionsincludeasaletopartiessuchas
provinces,pensionfundsandforeignbanks,placementofshares/depositaryreceipt
ofshareswithcustomersorafullorpartialstockmarketflotation.
NLFIbelievesthatitisasyettooearlytochartthevariousexitpossibilitiesopento
SNSBankintermsoffutureownershipstructures,asitiscurrentlynotknownto
whatextentthecapitalstructurehastobeadjustedtothebank’sfuturecapital
requirements,whileastartdoeshavetobemadetoeffectingthedesiredimprovement
ofoperationalefficiency.Theexecutionofthedesiredimprovementplandoesnot,
fortheyearstocome,resultinirreversiblemeasuresbeingtakenoroptionsbeing
precludedasconcernsfutureownershipstructures.
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Appendix
Thefollowingappendicesareincluded:
• ResponseManagementandSupervisoryBoardofSNSBank’sopinion,
June27,2016
• ReactionWorksofSNSBank’sadvice,June10,2016
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NLFI Mr M. Enthoven P.O. Box 45650 2504 BB The Hague
Ondernemingsraad SNS Bank N.V. Croeselaan 1 Postbus 8444 3503 RK Utrecht
Classification Confidential Our reference OR 2016-26 Date 10 juni 2016
Subject Point of view Works Council SNS Bank NV on advice on future options for SNS Bank NV
Dear Mr Enthoven,
Over the past few months, a great deal of work has been done to examine the options for the future privatisation of SNS Bank NV.
The Works Council of SNS Bank NV (hereinafter OR) is very grateful that the Board of Directors has closely involved us in the examination of the options and has allowed us express our views.
From the OR’s point of view, we would like to present the following points of attention to you in connection with your advice to the Minister of Finance on the future of SNS Bank NV.
The OR subscribes the strategic plan (named Spot On) drawn up by the bank to position SNS Bank NV as a ‘social bank’. We understand that cost reductions are necessary to achieve acceptable returns in the long run and to provide adequate dividend yields in order to interest a wide range of investors. We frequently and constructively consult with the Board. In this process, we have to make balanced assessments of the necessity to work more efficiently and reduce costs on the one hand, and to serve short and long term employee interests on the other.
Both now and in the future (in the post exit period too), we find it important that the principles of the Manifesto of SNS Bank N.V. remain intact and are protected. As far as the OR is concerned, the aforementioned starting points also apply to the assessment of any future exit options, in respect of which we are pleased to note that NLFI, apart from the price, has also taken into consideration the effects on employment and cultural aspects of the organisation. The ultimate exit option may give us reason to go into greater depth/expand on our starting points. Kind regards,
Susan Dassen-Luhrman Chair Works Council SNS Bank NV
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