Brussels to investigate Dutch bank bail-outs

The Netherlands is not providing enough information about its takeover of Fortis and ABN Amro, says European competition commissioner Neelie Kroes.

The European Commission was already investigating Dutch state aid to ING. Now, the Dutch European commissioner for competition, Neelie Kroes, has announced she also intends to investigate whether the government bailout of Fortis Bank Netherlands in October 2008 and the purchase of ABN Amro in December 2008 complied with state aid rules.

In the past year, Kroes has approved fifty capital injections and nationalisations of banks throughout the European Union. Dozens of others are still awaiting approval. In just five cases has an investigation been launched into distortions of competition and cheap funding; two of those cases now involve the Netherlands.

Lack of collaboration

Part of the reason is a lack of collaboration from the Dutch government. Kroes says she has been asking for months for a restructuring plan for Fortis and ABN Amro. Government plans have to show how the state intends to make the banks financially sound again, and when the state intends to withdraw. The sooner the state withdraws from the banks the less danger of distortion of competition.

On Wednesday night Kroes told the Dutch tv programme Nova that she never received such a plan. "It has been months. Our patience is at an end," Kroes said. But Dutch finance minister Wouter Bos told NOS TV it was all a big misunderstanding. Bos said he was unaware of Kroes' request. "If she can just get down to specifics we will give her everything she wants," Bos said.

Kroes is in a difficult position. She has to safeguard free competition in Europe's internal market at a time when many governments are under pressure to save national companies from going under as a result of the global crisis.

Kroes is not against state aid to banks per se. "The Dutch government was right to save Fortis from bankrupcy because this would have seriously disrupted the Dutch economy," she said on Wednesday. But she is adamant that governments give full disclosure about these bail-outs so that she can assess whether they distort competition or not.

By criticising the Dutch government, Kroes could jeopardise her own second term as European commissioner. Kroes already clashed with French president Nicolas Sarkozy over French state aid to the banks and protectionist measures for its auto industry, and with the German chancellor Angela Merkel over state aid to the German Commerzbank. Now she has added the Netherlands to the list.

Thorough investigation

Last October, the Dutch government bought out Fortis Bank Netherlands (FNB) from its parent, Fortis Bank, for 16.8 billion euros. ABN Amro at the time was part of Fortis. Next the state paid off all of FBN's short-term debt with Fortis Belgium for 34 billion euros, and took over FBN's long-term loans for a total of 16 billion euros.

The Dutch finance ministry says the state aid was provided at market rates, and that FBN will eventually finance the loan in its entirety through the financial markets. But the ministry has been shy about providing further information. All EU member states are playing the banking crisis close to the vest, but Kroes says the Netherlands is the most secretive of all. Some officials suspect that Bos is counting on Kroes to be lenient to her home country.

Kroes relaxed the rules on state aid twice last year to help countries avoid bankruptcies in the financial sector. State aid to the banks was allowed, but it had to be kept to the minimum necessary and it had to be temporary. Kroes now says there is reason to believe that the Netherlands has not respected these rules.

Kroes' office has announced it will "investigate thoroughly" the 6.5 billion euros purchase of FBN’s stake in ABN Amro on December 24, which the commission suspects may have been above the market value. That would mean that state aid was used to recapitalise FBN, creating a disadvantage for other banks.

Another problem is the sale of some of ABN Amro's daughter companies, among them Hollandse Bank Unie. In 2007, Kroes approved the sale of ABN Amro to Fortis on the condition that its daughter companies would be sold to avoid creating a near monopoly in the Dutch market for financial services to small and medium-size companies.

Bos on the other hand wants this sale to Deutsche Bank scrapped. He said last fall that the Fortis situation had changed so dramatically that he needed time to consider the sale. Kroes approved at the time but now she has run out of patience. "I want a plan," she said Wednesday, "I want to know where this is going."