Another Dutch bank bites the dust

October 12, 2009 | Johan | comment »

Just when the Dutch banking world had settled down after the disastrous sale and subsequent government bail-out of ABN Amro to Fortis Bank, followed by the massive bail-out to cover toxic assets of ING Bank, another Dutch bank has failed today.

Classic run on the bank
The independent DSB Bank, a relatively small bank with balance sheet of roughly 8 billion euros, has been placed under authority of the Dutch National Bank after recent bad press caused a run on the bank. Many customers started withdrawing their money, putting the liquidity of the bank under huge pressure. The website experienced such high traffic of customers trying to transfer their funds, that it was repeatedly offline over the last 10 days. The amounts of money withdrawn took such a toll on DSB that the Finance Ministry and the National Bank decided to intervene and requested a court order to freeze all assets and gain control over the bank. Apparently not deemed worthy or large enough to warrant a government bail-out, the bank is expected to be liquidated. A last-minute attempt by the National Bank to interest other banks for a take-over of DSB failed on the weekend, signifying that the potential risks in the DSB portfolio were obviously too large for any of the 5 major Dutch banks to consider.

Shady loans and bad PR
DSB Bank specialized in selling customers loans and mortgages they couldn’t really afford, topped off with very questionable insurance policies on which the banks profit margins were often in the 70-90% range. These products were wrapped up in such a way that customers often had no clue what they were signing for. DSB used a wide variety of brands and contracted many Dutch celebrities to figure in TV commercials which featured lots of happy families living in large houses with shiny cars and smiling kids. To create an air of trustworthiness, DSB attracted many top financial and political figures to serve on their board, including a longstanding former Dutch Minister of Finance, Gerrit Zalm, who will now be under investigation for his supervisory role at DSB.

Many customers, driven to despair by ever-growing debts and financial ruin, formed action groups against the bank. Despite increasing media attention  and public pressure to reach an agreement and compensate these customers, the bank initially refused to cooperate and later signed an agreement with one of the action groups, but it proved to little – too late. The way the media relations and PR were handled was amateurish at best (this would make a great case study) and a more flexible and transparent approach combined with decent PR could have probably prevented the ultimate failure of this company.

Accounts frozen and but savings guaranteed
For now all accounts at DSB have been frozen, but customers will be able to withdraw Euro 250,- a day until Wednesday at midnight from ATM machines. The moneys in the accounts are guaranteed by the Dutch National Bank up to Euro 100.000, but it could take many weeks or even months before these funds will be accessible. It is yet unclear what the consequences will be for the customers with mortgages and loans at DSB.

Plain and simple greed
Perhaps less a victim of the international financial crisis, DSB ultimately caused its own demise due to shady practices and unrelenting greed. It shows once again that a financial institution which breaks all ethical bounds for the pursuit of profit cannot be sustained in the long term. How long will it take before an economy by-the people, for-the-people will start to evolve? When will the regulatory process finally put an end to these dirty and immoral practices which have done so much damage over the last decades. It’s inevitable in the long term!

We’ve come a long way since the 80′s:
[youtube]http://www.youtube.com/watch?v=7upG01-XWbY[/youtube]