VZCZCXRO9977
RR RUEHIK
DE RUEHTC #0642/01 2991334
ZNR UUUUU ZZH
R 261334Z OCT 09
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC 3410
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUEHAT/AMCONSUL AMSTERDAM 4273
RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 02 THE HAGUE 000642 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR IMI - VATUKORALA 
STATE PASS FEDERAL RESERVE BOARD - INTERNATIONAL DIVISION 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV NL
SUBJECT: NETHERLANDS: COMMISSION MAINTAINS PRESSURE ON ABN 
AMRO-FORTIS AND ING DEALS, NO RESCUE FOR DSB 
 
REF: (A) 08 THE HAGUE 840, (B) THE HAGUE 60 
 
THE HAGUE 00000642  001.3 OF 002 
 
 
¶1. (SBU) Summary:  Under pressure from the European Commission, the 
Government of the Netherlands (GONL) announced a deal October 20 in 
which ABN Amro will sell several business units to Deutsche Bank in 
order to allow its merger with Fortis to go through.  However, the 
GONL and Commission remain at odds over the GONL's decision in 
January to guarantee 80 percent of ING's 27.7 billion euro (USD 40.9 
billion) portfolio of U.S. mortgage-backed securities.  Despite 
these protracted disputes with the Commission, the GONL's refusal 
this month to rescue the failed Dutch bank DSB shows its commitment 
to avoid using taxpayer money to rescue banks that do not present 
systemic risk.  End summary. 
 
------------------------------------------ 
ONE LESS HURDLE FOR ABN AMRO-FORTIS MERGER 
------------------------------------------ 
 
¶2. (U) Under pressure from European Competition Commissioner Neelie 
Kroes, Dutch Finance Minister Wouter Bos announced October 20 that 
Deutsche Bank would buy several business units of Dutch bank ABN 
Amro, including Hollandsche Bank Unie and 15 local ABN Amro 
branches.  Kroes had insisted on the sale as a pre-condition to the 
GONL's planned merger of ABN Amro and Fortis Bank NV.  In October 
2008, the GONL bought all Dutch operations of troubled Belgian 
banking conglomerate Fortis for 16.8 billion euro (USD 24.8 
billion), including ABN Amro which Fortis had purchased the previous 
year (ref A).  The GONL has been working to merge Fortis and ABN 
Amro; it plans to privatize the conglomerate in 2011 or later when 
market conditions allow.  Kroes argued that the sale of some of ABN 
Amro's business units was essential to protect competition in the 
Dutch banking sector, particularly given plans to merge two of the 
country's largest banks.  After extending the deadline for a fifth 
time, Kroes was reportedly growing increasingly impatient with the 
GONL's inability to broker a deal. 
 
¶3. (SBU) Our contacts in the Ministry of Finance's Foreign Financial 
Relations Directorate flatly denied rumors that the ministry had 
frustrated earlier attempts by Deutsche Bank to buy ABN Amro's 
business units to prevent more competition in the Dutch market.  To 
the contrary, they asserted that Minister Bos had been pushing hard 
for the deal in order to clear the way for the ABN Amro-Fortis 
merger and, more importantly, the ultimate re-privatization of the 
conglomerate; the delay, they said, had simply been due to the 
parties' inability to agree on a price for the ABN Amro units. 
Although the details of the sale are not public, some financial 
experts have expressed concern that the units were sold at a 
depressed price and could therefore necessitate another capital 
injection by the GONL into ABN Amro. 
 
-------------------------------- 
EU QUESTIONS GONL SUPPORT TO ING 
-------------------------------- 
 
¶4. (SBU) Despite positive momentum in the ABN Amro case, the GONL 
and EU Competition Commissioner Kroes remain at odds over the case 
of Dutch banking and insurance giant ING Group NV.  In January 2009, 
the GONL agreed to provide ING with an "Illiquid Assets Back-up 
Facility" in which the GONL guaranteed 80 percent of ING's 27.7 
billion euro (USD 40.9 billion) portfolio of U.S. "Alt-A" 
medium-quality, mortgage-backed securities, whose illiquidity was 
weighing on ING's balance sheet (ref B).  The Commission launched an 
Qweighing on ING's balance sheet (ref B).  The Commission launched an 
antitrust investigation in mid-2009, asserting that the GONL may 
have provided ING with an unfair competitive advantage by 
overvaluing its Alt-A securities and providing an exorbitant 
guarantee.  The GONL has responded to the Commission's various 
requests for information, and despite reports of friction and 
Commission accusations of Dutch arrogance in the case, Finance 
Minister Bos maintains that he and Commissioner Kroes have a 
"constructive dialogue" on the matter.  Kroes told the Dutch 
Parliament's Finance Committee October 13 that she is "optimistic" 
about finding a solution before her Commissioner term ends in 
December. 
 
----------------- 
BANKRUPTCY OF DSB 
----------------- 
 
¶5. (U) DSB Bank NV, the Netherlands' twelfth largest bank, declared 
bankruptcy on October 19, after a run by depositors following calls 
to pull money out of the institution.  DSB was a privately-owned 
institution with 1.3 million (mostly Dutch) clients and reported 
assets of 8 billion euro (USD 11.8 billion).  The Dutch Central Bank 
won an emergency court order October 12 that put DSB into the hands 
of administrators, after talks between the government and the 
Netherlands' five main banks failed to save it.  AFM, the Dutch 
 
THE HAGUE 00000642  002.3 OF 002 
 
 
financial regulator, began an investigation earlier this year into 
claims that DSB allegedly pushed mortgage customers to buy expensive 
up-front insurance policies; AFM fined DSB 120,000 euro (USD 
177,000) in August for those sales.  In early October, a bank 
customer association called Mortgage Suffering urged clients to 
withdraw their deposits from DSB, resulting in a run on the bank of 
664 million euro (USD 979 million), or about 17 percent of DSB's 
total deposits.  The GONL's deposit guarantee scheme (in which 
healthy banks cover the deposits of failed banks) will reimburse DSB 
customers up to 100,000 euro (USD 147,500) for each savings account. 
 (Note:  The largest Dutch savings banks, e.g. Rabobank, are highly 
critical of this scheme, arguing that it punishes them at the 
expense of poorly managed failing banks.  End note.) 
 
¶6. (U) Finance Minister Bos described the DSB bankruptcy as a 
one-off situation unconnected with other events in the 2008 Dutch 
financial crisis, including the nationalization of Fortis and the 13 
billion euro (USD 19.2 billion) state bailouts of ING Group NV and 
insurer Aegon NV.  Bos added that there would be an independent 
investigation of the way the bank was managed and the role played by 
the bank regulator. 
 
------- 
Comment 
------- 
 
¶7. (SBU) Comment: Ranked by the Financial Times as the fifth best 
European Finance Minister in 2008, Bos' protracted disputes this 
year with Commissioner Kroes about the ABN Amro-Fortis merger and 
ING bailout have scuffed his golden image as the savior of the Dutch 
financial sector.  On the plus side, however, Bos' refusal to rescue 
DSB shows that the GONL has drawn a line in the sand and will not 
use taxpayer money to bail out banks that do not present systemic 
risk.  End comment. 
 
 
LEVIN