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Cushman & Wakefield’s valuation of SNS Property Finance ultimately determined the way parent bank SNS was rescued.

The nationalisation of the Netherlands’ fourth-largest bank SNS in early February following heavy losses on its property financing arm was preceded by a valuation squabble involving Cushman & Wakefield - which advised the Dutch state - and SNS' adviser Ernst & Young.

At the heart of the row were different valuation methods which led to a gap in the value put on SNS’ property loan portfolio. Based on market value, Ernst & Young estimated the writedowns on the €8 bn SNS PF portfolio at €1.4 bn to €2.1 bn.

Using the real economic value (REV) method prescribed by the European Union since the start of the economic crisis for governments seeking to rescue ailing banks, Cushman & Wakefield estimated the writedowns to be far higher, at between €2.4 bn and €3.2 bn.

The REV method calculates the underlying economic value of the assets in the long term, giving their real value in economic trading terms. The market value, on the other hand, is an indication of the price at which the portfolio would trade in the current market. It was the REV valuation which ultimately triggered the intervention by the state and subsequent nationalisation of SNS.

Other rescue options which had been under consideration included two public-private scenarios. The first involved a partnership between the Dutch state and ‘big three’ Dutch banks (Rabobank, ABN Amro, ING) whereby the state would have guaranteed the risks on the property loan portfolio which would possibly have been transferred to a separate unit.

The second scenario involved a plan by private equity firm CVC Capital Partners to pump up to €1.8 bn into the bank with the Dutch state providing a capital injection and bringing in state-owned insurer ASR. Under this scenario, SNS PF would have been transferred to a separate vehicle owned by the state and big three Dutch banks, with the state guaranteeing the property loans. CVC had insisted on SNS PF being moved to a ‘bad bank’, suggesting the extent of the problems at the unit.

The public-private bailout options ultimately proved unviable because the forecast losses on the unit - as estimated by C&W - were too big. Despite an outcry among duped investors who appealed the decision to nationalise the bank, the court ruled that state intervention was both warranted and lawful.

It asserted that, unlike SNS and its adviser Ernst & Young, Dutch finance minister Jeroen Dijsselbloem had no choice in the method used to value the bank’s property finance business. State involvement in solving the problems at the bank boiled down to state support which had to reported to the European Commission.

The Commission, the court contended, would subsequently judge the bailout on the basis of its prescribed valuation methodology - the REV method - which has been applied to numerous bank rescues in the past, including Royal Bank of Scotland, Hypo Real Estate and WestLB.

The court ruling quashed earlier protests from SNS’ management that the valuation procedure and methodology used by Cushman & Wakefield was ‘seriously flawed’. For their part, the Dutch finance ministry and the Dutch Central Bank slammed what they described as the ‘rosy picture’ painted by SNS’ management of the value of the bank’s property loan portfolio.

A recent analysis of the portfolio by Dutch financial daily Het Financieele Dagblad found that the proportion of non-performing loans to property companies has increased steadily. At end-2012, more than 40% of clients, mainly project developers, were unable to meet their debt payments.

And the problems keep mounting: interim manager Buck Groenhof has been arrested on charges of money laundering and corruption, some 14 development projects are under investigation for alleged fraud, and the number of claims against the bank are increasing.

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