Run on DSB bank makes Dutch central bank take control
The Dutch government has intervened in another bank. Not because of the credit crisis this time, but because of a run on DSB, a bank notorious for the way it sold loans to customers.
The Dutch central bank took control of the consumer bank DSB on Monday after an attempted sell-off of the bank fell through over the weekend. DSB, named for its founder Dirk Scheringa, is famous in the Netherlands for its sponsorship of football champions AZ, but mostly for its cutting-edge loans, mortgages and connected insurance policies.
The bank did not fall victim to the credit crisis, but got into trouble after a foundation standing up for DSB customers who felt duped by the bank encouraged all savers to withdraw their money. Pieter Lakeman of the foundation HypotheekLeed (Mortgage Suffering) said on October 1 he hoped the company would collapse because bankruptcy was the best prospect for the people who took out excessive mortgages with the bank in recent years.
DSB told critics at the start of October it had 1.5 billion euros in cash – enough of a buffer to withstand a run on its 4.3 billion euros in deposits. At a press conference on Monday central bank president Nout Wellink said around a sixth of the bank's total deposits had been withdrawn since the beginning of this month.
According to owner Dirk Scheringa civil servants at the finance ministry
worsened the run on DSB by leaking information about the impending
curatorship to Dutch daily De Volkskrant over the weekend. Savers
subsequently withdrew their funds en masse, leaving the bank unable to meet
its payment requirements. On Monday morning the Amsterdam court imposed
emergency control on the company. "A large outflow of liquidity has put
the survival of DSB at risk," the court agreed with the central bank.
Central bankers and people from the ministry tried to prevent bankruptcy by selling DSB to a consortium of other Dutch banks over the weekend. Negotiations with ABN Amro, ING, Fortis Bank Nederland, SNS and Rabobank failed, mostly because the banks feared claims from customers who felt deceived by DSB.
For years DSB has been criticised for the way it sold loans, sometimes to customers unable to carry the interest burden. The catch with loans and mortgages taken at DSB was they came with expensive single-premium insurance policies. DSB received high provisions for the policies, while its customers were forced to loan more money than their homes were worth in order to pay for them.
Despite the criticism and pending claims from customers, owner Dirk Scheringa became an accepted force in Dutch banking in recent years. He was invited to a hearing in parliament about the credit crisis last November, and DSB's annual report in July showed numbers far less alarming than some of its competitors. The net profit was down 17 percent to 45 billion euros, but it met solvency criteria without help from the government. The Dutch finance ministry bailed out ABN Amro and Fortis Netherlands last year and has guaranteed many 'toxic' loans to keep ING afloat.
In the case of DSB, the Dutch government decided against nationalising the failing bank. A statement from finance minister Bos on Monday said: "This is an individual, relatively small bank that got into trouble because of its management, alarm amongst customers, unclear communication and the uncertainty thus created." The minister last week called DSB's sale of single-premium insurance policies "idiotic" and said he did not consider DSB too big to fail.
The emergency regulation now imposed does not mean the bank is bankrupt. All funds are frozen and customers' mortgage and savings accounts will be placed with other banks.
Most savers who still have money with the bank need not fear the loss of their money. Following the collapse of the Icelandic internet bank Icesave last year, the Netherlands raised the guarantee on bank savings to 100,000 euros per person.
What will happen to the pending claims by dissatisfied customers and to the AZ football club, which is owned by Scheringa, remains to be seen.