Case study SNS Reaal NV

Like the case of Andelskassen in Denmark, where claims of subordinated and unsecured creditors were written down to zero, the Dutch ministry of finance expropriated shares from SNS Reaal NV. The Dutch state nationalized the holding company and bailed-in all subordinated debt. The risk associated with the real estate portfolio could not justify a takeover and EU competition law prevented the efforts for recapitalization by the Dutch state and other banks. The financial structure of the SNS group was unstable and this made it impossible to implement the bridge instrument or asset separation tool. The holding company was financed externally, while equity stakes in the SNS subsidiaries were funded by the holding company.

The resolution package for SNS Reaal combined nationalization with a bail-in and included shares, hybrid capital injections and a subordinated debt write-off. Eventually, senior bondholders received full compensation, while shareholders and holders of subordinated debt received no payments as their claim for compensation had a monetary value of zero. Secured debt was paid out but early intervention through swapping debt for equity would have limited loss participation of subordinated debt.

The Dutch administrative court, the Enterprise Chamber of the Amsterdam Court of Appeal, the Dutch Supreme Court, and the European Court of Human Rights all received complaints and cases were brought forward based on curtailing of civil rights; the treatment of subordinated debt; the immediate threat of financial stability; the zero-compensation figure and the expropriation. Most of the complaints were rejected but the Supreme Court ordered that compensation must be calculated by an independent third party and the compensation for expropriation should be based on hypothetical scenarios of a sale of the bank on the open market or alternatively the bank activities should fully resume.