The Netherlands has nationalised bank and insurance group SNS Reaal in a $14 billion (8.84 billion pounds) rescue that highlights the fragility of European banks and the continued exposure of taxpayers five years after the financial crisis erupted.
The Dutch government said on Friday it had put together the 10-billion-euro package to prevent SNS Reaal's collapse under the weight of property loan losses and to shore up confidence in the financial system after a private investor-led rescue failed.
The move shows how, despite billions of euros of bailouts and regulators' attempts to clean up the industry, some European banks are struggling to recover from the 2008 financial crisis amid a weak economy, and how the region's debt-laden governments - and in turn taxpayers - remain on the hook.
That is likely to prompt an outcry from a Dutch public which has already suffered years of austerity.
"The bankers get more and more money, and the people at the bottom foot the bill," said Jan-Erik Lubbers, a pensioner, as he sheltered from the rain under a shop awning in The Hague.
The rescue will lead to a worsening in the Dutch budget deficit in 2013, already forecast to exceed European Union targets. That is particularly embarrassing for Finance Minister Jeroen Dijsselbloem, who only last month took over as head of the Eurogroup of euro zone countries, which are trying to put a sovereign debt crisis behind them.
Several other European banks are also struggling to free themselves from underperforming assets. French bank Credit Agricole announced over $5 billion of charges on Friday, a day after Deutsche Bank also unveiled big writedowns.
The Dutch government paid out nearly 40 billion euros to rescue the domestic financial sector in 2008 when it provided capital injections for ING, Aegon and SNS Reaal, as well as nationalising ABN AMRO.
Despite its bailout, SNS Reaal, the fourth-biggest financial group in the Netherlands, has struggled to turn around its property finance business, hit by plunging real estate prices at home and at some overseas projects, including in Spain.
The group, with 2.6 million account holders and 36.4 billion euros of deposits, has tried to sell assets and raise funds for months, but was unable to meet a January 31 deadline to come up with a rescue, Dijsselbloem told a press conference.
Its collapse "would have unacceptably large and undesirable consequences for financial stability, the Dutch economy and the Dutch tax payer," he said in a letter to parliament.
"I have studied all the alternative solutions in detail. But last night I found there was no acceptable solution. Therefore we have to nationalise," he added in a statement.
Dijsselbloem put the initial cost of nationalisation at 3.7 billion euros, saying SNS Reaal will receive a capital injection of 2.2 billion euros, and a further 1.5 billion euros to write down state aid and property assets. The state is providing 1.1 billion euros in loans, and 5 billion euros in guarantees.
However, in an effort to share the burden with the private sector, Dijsselbloem said Dutch banks will have to contribute 1 billion euros to the rescue in 2014.
"I can understand the reluctance that many will feel again because a large amount of public money is required. Therefore I want the private sector to contribute as much as possible to help pay for the rescue of SNS Reaal," he said.
ING said it expected its contribution to be in the range of 300 to 350 million euros, ABN Amro estimated its contribution at 200 to 250 million euros, and Rabobank at about 300 million euros.
The Dutch budget deficit is forecast to reach 3.3 percent of gross domestic output in 2013, above the 3 percent limit set by the European Commission, according to government agency CPB which is due to publish revised forecasts in the next few weeks.
The finance minister said the 3.7-billion-euro of initial aid will lead to a further deterioration of the deficit of 0.6 percentage points, but declined to say whether this would necessitate further austerity measures.
SNS Reaal, which received 750 million euros of state aid in 2008, said its top executives - chairman Rob Zwartendijk, chief executive Ronald Latenstein and finance chief Ference Lamp - had resigned, as they had wanted to find a private sector solution.
The Dutch property market is one of the worst performing in Europe, having fallen by more than 16 percent since 2008. Prices are expected to continue declining this year, wiping as much as a quarter off prices since the peak.
SNS Reaal's property finance unit had total real estate exposure of nearly 14 billion euros at the end of 2009, according to its annual report. By June 2012, the book value of the property portfolio stood at 8.55 billion euros, the finance ministry said, with roughly 77 percent in the Netherlands.
The value of bad loans has almost doubled since 2010 to about 2 billion euros. Under the terms of the rescue, real estate assets will be split off into a separate entity and written down by an additional 2.8 billion euros.
($1 = 0.7367 euros)
(Writing by Sara Webb; Editing by Hans-Juergen Peters and Mark Potter)