Bos also noted that the collapse was not related to the credit crunch, and that an independent investigation into the collapse of DSB was set up. Little is clear about DSB and its practices, as it was privately owned by Dirk Scheringa. Scheringa established the bank in 1975, originally as a financial consultancy known as Buro Frisia. The company expanded aggressively through aquisitions, gradually building up a portfolio of financial businesses. Controversially, in 1999 a planned IPO was aborted by Scheringa just hours before the start of trading due to a disagreement with the banks over the proposed share price. Scheringa chose instead to keep the company private, raising finance via subordinated loans instead. In 2005 the company was granted a banking license by the Netherlandsche Bank, which operates as the Dutch central bank. Scheringa also owns the football club AZ Alkmaar, the reigning Dutch champions, and an art museum, the Scheringa Museum for Realism, in Spanbroek, North Holland. It seems likely that Scheringa's financing of these assets, among others, came from DSB Bank funds. No doubt the inquiry into the bank will shed some light on the business model used by Scheringa to run the bank, which appears to have been controlled too closely by him. This blog will return to this story when more is known - it will be interesting to see if any interesting conclusions regarding the ownership of banks and whether it should be dispersed will be reached by the inquiry.
Tuesday 20 October 2009
DSB Bank allowed to fail
Yesterday something very unusual in banking politics happened - a bank was allowed to fail. The DSB Bank, a small savings bank was allowed to collapse by the Dutch government. The bank entered administration last week after savers co-ordinated a bank run to threaten the bank's solvency. The run was organised by DSB's mortgage customers who were disgruntled with the bank's policy of linking expensive, and often unnecessary insurance policies with its mortgages, which were forced onto customers, making a €1.6bn profit. A US company, Lone Star Funds, were interested in buying the remains of DSB but failed to reach agreement with the bank's Chief Executive Dirk Scheringa. Scheringa also approached the Dutch government for €100m's worth of aid, but finance minister Wouter Bos refused, arguing that DSB's proposed business model would lead to the loss of these funds in addition to the funds already lost. The main Dutch clearing banks are responsible for guaranteeing deposits up to €100,000 in the Netherlands, and will pay the remaining savers €3,000 each, but did not want to buy DSB as its loan losses and potential legal claims were considered too great.
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The interesting thing is the role of one guy in the crisis: Pieter Lakeman. It was this one man who called for a run on the bank on national TV. He is very unpopular and blamed for causing the unnecessary collapse of the bank by many over here in the Netherlands.
ReplyDeletePeople are also very divided about Scheringa over here. He is a Michael O'Leary figure: loud, obnoxious, bull-in-a-china-shop etc. But at the same time he is (was) self-made, successful and liked by his staff.
Another interesting thing is that the bank run (to the tune of billions) was a virtual run: the bank has very few actual branches, so most customers withdrew their funds on-line by transferring them to another bank.
Finally, it is very interesting that in the Dutch insurance scheme the other banks in the system have to stump up the cash for DSB's duped clientele and not the state.
Note that this wasn't just a savings bank. They owned various companies that did debt consolidation services etc. (like the ones that Carol Vorderman advertises in the UK).
News just in: NRC-Handelsblad says that the bank has 4.24 billion euros of claims against it (by depositors etc.), and 4.07 million euros of assets. The newspaper reckons that depositors will get 96% of their deposits back, even those who have deposited more than the 100,000 euros deposit guarantee threshold.
ReplyDeleteScheringa's art collection will go to ABN AMRO, where it was used as a guarantee for the loan to build the new Scheringa museum. The builders of that museum have now stopped, and have apparently seized the stadium of AZ Alkmaar as compensation for unpaid bills.
Thanks for the comments - it seems very surprising to me that Lakeman actually managed to get enough depositors to take their money out to cause substantial problems. When Robert Peston set off the Northern Rock run, surely depositors only managed to get about 5% of the deposits out, in a bank with both branches and a website (which soon stopped working). Is this the first time in history that such a run has been set off as a deliberate campaign?
ReplyDeleteThe parallels with Ryanair etc. here were quite striking - and somehow it doesn't surprise me that this bank did debt consolidation as well. Like Ryanair, the company's domination by a single shareholder allowed it to be run more efficiently because there was no need for disclosure, and the owner had a greater incentive. However, the company was also free to operate fairly ruthlessly - perhaps the benefits of entrepreneurial management can be overstated.
Do you mean there are 4.07 billion euros of assets? I'm sure I read in the articles cited above that it had 8bn euros of assets. Also, who will take on the controversial loan-book? Seems Scherwinga's personal empire is collapsing very quickly.