VZCZCXRO1950
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHTC #0442/01 1441400
ZNR UUUUU ZZH
P 231400Z MAY 08
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC PRIORITY 1504
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAT/AMCONSUL AMSTERDAM 3973
RUEHFT/AMCONSUL FRANKFURT 3879

UNCLAS SECTION 01 OF 02 THE HAGUE 000442 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/WE (TSMITH), EEB/IFD 
USDOC FOR 4212/USFCS/MAC/EURA/OWE/DCALVERT 
TREASURY FOR IMI/OASIA/VATUKORALA 
PARIS ALSO FOR OECD 
USEU FOR BARBARA MATTHEWS 
 
E.O. 12356: N/A 
TAGS: ECON EFIN EINV NL
SUBJECT: NETHERLANDS: FINANCIAL INSTITUTIONS LOSE BILLIONS BUT WILL 
SURVIVE 
 
THE HAGUE 00000442  001.2 OF 002 
 
 
REFTEL: A) 07 THE HAGUE 1967 
  B) 07 THE HAGUE 1836 
  C) 07 THE HAGUE 2053 
 
SENSITIVE BUT UNCLASSIFIED.  PLEASE HANDLE ACCORDINGLY. 
 
¶1. (SBU) SUMMARY.  Dutch financial institutions have posted EUR 9 
billion ($14 billion) in losses to date as a result of the subprime 
mortgage/credit crisis.  The recent takeover of ABN Amro and 
liquidity issues at medium-sized bank NIB Capital have also rattled 
the Dutch financial sector.  Despite these wobbles, Dutch officials 
and financial supervisors are confident that Dutch banks are not 
vulnerable and the economy is strong enough to absorb a shock.  The 
GONL's Treasurer-General told Charge d'Affaires that the Dutch are 
carefully monitoring the financial turmoil's possible trickle-down 
effects on the real economy, which he anticipates might hit in the 
latter half of 2008.  END SUMMARY. 
 
THE "BIG FOUR" BANKS CHASTENED BUT STABLE 
----------------------------------------- 
 
¶2. (U) ING, the Netherlands' largest bank, has written off EUR 194 
million ($305 million) on subprime and related issues, and another 
EUR 751 million ($1.2 billion) for "negative revaluations on 
subprime."  (Note: ING's total assets were EUR 1.3 trillion ($2.0 
trillion) at year-end 2007. End note.)  As analysts had expected 
losses as high as EUR 2 billion ($3.1 billion), the bank was 
"relatively unharmed."  ING maintained that it operated "without 
distraction from the market turmoil," although disposing of stakes 
in acquired companies (including ABN Amro) boosted profits.  Despite 
disappointing first quarter results, ING still has a healthy 8.3 
percent Tier I capital ratio and is pursuing bolt-on acquisitions 
(e.g., ING announced May 19 that it would buy German mortgage lender 
InterHyp). 
 
¶3. (U) Rabobank, a large unlisted cooperative bank, said it had "no 
direct exposure to subprime mortgages," except indirectly through 
its international subsidiary.  Rabobank has reported two 
revaluations totaling EUR 1.4 billion ($2.2 billion) but still 
managed to exceed expectations by increasing profits 14 percent. 
(Note: Rabobank's total assets were EUR 570 billion ($897 billion) 
at year-end 2007. End note.)  Rabobank's chairman called 2007 "a 
good year, although a tumultuous one." 
 
¶4. (U) ABN Amro, acquired in 2007 by a consortium of Royal Bank of 
Scotland, Banco Santander, and Fortis (ref A), wrote down EUR 1.6 
billion ($2.5 billion) due to American subprime mortgages and other 
market related losses. 
 
¶5. (U) Fortis, the Dutch-Belgian bank and insurance company, has 
suffered the most from the market turmoil among the "big four" banks 
in the Netherlands (now the big three after ABN Amro's takeover). 
Fortis' total subprime related impairments amounted to EUR 2.7 
billion ($4.2 billion) in 2007.  (Note: Fortis' total assets were 
EUR 871 billion euros ($1.4 trillion) at year-end 2007.  End note.) 
Fortis has admitted the ABN Amro takeover stretched its balance 
sheet and is looking for additional financing.  For example, Fortis 
announced on March 19 that it will sell 50 percent of its global 
asset management arm, Fortis Investments, to Chinese financial 
services conglomerate Ping An for EUR 2.1 billion ($3.3 billion). 
Fortis announced poor first quarter results on May 13, including an 
additional EUR 380 million ($598 million) write-down. 
 
NIB CAPITAL HIT THE HARDEST 
--------------------------- 
 
¶6. (U) The liquidity issues at medium-sized Netherlands Investment 
Bank Capital (NIB Capital) has aroused the greatest alarm in the 
Dutch financial sector.  Besides reporting a series of write-downs 
totaling EUR 437 million ($688 million)(ref C), NIB Capital's 
announced acquisition by Iceland's Kaupthing Bank was cancelled in 
January due to "instability in the financial markets."  In April, 
NIB Capital disclosed that it might have to borrow EUR 4 billion 
($6.3 billion) from the European Central Bank in order to "fulfill 
its payments." 
 
SHOULD WE BE WORRIED? 
--------------------- 
 
¶7. (U) Although the headline losses posted by Dutch banks are 
smaller than at many other European and American banks, the losses 
 
THE HAGUE 00000442  002.2 OF 002 
 
 
amount to around 40 percent of their total 2006 profits.  The large 
Dutch banks have taken a considerable hit.  However, the Dutch 
central bank's (DNB) recent Overview of Financial Stability stated 
that "Dutch financial firms' direct exposure to, and losses on, 
subprime products are relatively contained." 
 
¶8. (U) More troubling than the Dutch banks' own financial health is 
the potential for their big losses to affect the real economy in the 
Netherlands.  According to DNB statistics, six unnamed Dutch banks 
are now applying stricter conditions on mortgage and consumer 
lending.  For example, Fortis announced that it will limit the 
growth of its credit portfolio to 10 percent this year.  DNB has 
also reported that small- and medium-sized companies are 
particularly susceptible to the stricter loan criteria. 
 
¶9. (U) The IMF's World Economic Outlook, released in April, warned 
that "the effects of the U.S. subprime mortgage and credit crisis 
are casting its shadow on economic growth in the Netherlands."  The 
IMF forecasts Dutch GDP growth at 2.1 percent this year, weakening 
to 1.6 percent in 2009 (compared to 3.5 percent GDP growth in 2007). 
 In addition, the IMF stated that the Netherlands will face a big 
correction on the housing market, with consequences for consumer 
spending and investments.  This scenario holds plenty of risk for 
Dutch banks.  Dutch officials have roundly criticized the IMF report 
-- particularly the assertion that Dutch house prices are 30 percent 
overvalued.  Finance Minister Wouter Bos described the IMF's 
predictions as too pessimistic: "The picture of a stagnating economy 
has not been confirmed by the figures I have." 
 
COMMENT 
------- 
¶10. (SBU) As Ronald Gerritse, the Finance Ministry's new 
Treasurer-General, told Charge d'Affaires during their May 16 
meeting, Dutch banks have withstood "substantial but not excessive 
losses," and the Dutch financial markets have "held up well so far." 
 He also commented that "the average Dutch taxi driver hasn't 
noticed the credit crisis."  Attention now turns to the second half 
of 2008 and 2009.  The Dutch economy benefited from a strong 
tailwind of growth and rising natural gas prices in 2007.  (Note: 
The Netherlands is one of the world's top ten natural gas producers. 
 End note.)  Gerritse added that the GONL is carefully tracking 
possible trickle-down effects of the financial turmoil.  The Dutch 
realize their economy is not out of the woods yet.  END COMMENT.