The Entire Dutch Banking System is on a Government Lifeline

You thought Hollande and more generally speaking Nordic countries had a better fiscal state? and no real estate bubble? And their banking system was safe? And they would save the Euro? Think again.

Apparently, there has been a proper depositor run on this bank, and investors didn't want to put more capital in the institution. That says quite a lot on the dire state of this bank.

The good news is, this time, shareholders and subordinate bond holders have been wiped out.

Still, overoptimism in state interventionism and denial of reality persist as experts said SNS Reaal's near-collapse didn't signal a crisis for the wider Dutch banking sector.

The WSJ reports (via GoogleNews):

AMSTERDAM—The Dutch state Friday nationalized troubled banking and insurance company SNS Reaal NV, following unsuccessful talks with private investors on a capital boost after heavy outflows of deposits had pushed the lender close to collapse in recent days.

The Dutch state will inject €2.2 billion ($2.99 billion) into the company, write off €800 million from an earlier bailout and €700 million on the value of SNS Reaal's toxic property loans. It will also provide an additional €6.1 billion in loans and guarantees to put the firm on a sound footing. The burden to taxpayers will be eased somewhat through a €1 billion contribution from the other Dutch banks through a special levy.

The government rescue was inevitable after SNS Reaal suffered a run on deposits and failed to raise capital on its own, Finance Minister Jeroen Dijsselbloem said. "Without a solution, SNS Reaal would have gone bankrupt, and put the financial system in severe and immediate danger."

The truth is that the bankruptcy would have made the financial system stronger. This action from the government made the country's balance sheet much weaker, the economy as well, and kept an insolvent company which should have disappeared in business, to compete against sounder institutions. 

The nationalization deals a fresh blow to public finances at a time when the Netherlands, considered a "core economy" in the euro zone, is battling to meet European Union budget targets. [...]

The Dutch government now owns two of the largest banks in the Netherlands, following the rescue of ABN Amro Bank NV in 2008. The biggest bank by assets, ING Groep NV has yet to repay a government bailout.

"It is worrisome. Nearly the entire Dutch banking system is now on a government lifeline," said Arnoud Boot, a professor of corporate finance at the University of Amsterdam.

SNS Reaal has more than €30 billion in deposits and regulators have put it in the "too-big-to-fail" category. The company, based in the city of Utrecht, was groaning under steep loan losses on real-estate projects in the U.S., Spain and the Netherlands. The losses have eroded its capital base and ability to repay a government bailout received in 2008.

The company last summer entered talks with private investors to raise capital and avoid nationalization. But most parties—including a consortium of Dutch banks—were wary of getting involved because of the distressed property loans.[...]

The government said it used a new bank-intervention law, aimed at giving the state more powers to intervene in troubled banks and protect depositors. By wiping out shareholders as well as subordinated-debt investors, it took a drastic step, analysts said. "It certainly [is] the harshest treatment to bondholders for any large European bank," BNP Paribas said.

[...] Still, experts said SNS Reaal's near-collapse didn't signal a crisis for the wider Dutch banking sector. "The problems at SNS Reaal weren't new. They have been simmering for years, but they were never dealt with," said Harald Benink, professor of banking and finance at Tilburg University.