The Dutch government said today it would have to inject another €3 billion into nationalised bank ABN Amro, raising the national debt with no immediate return for the state.
The finance ministry also said that a long-negotiated ABN asset sale to Deutsche Bank was worth €700 million, but could collapse unless parliament approves it by December 31st. Deutsche Bank declined to comment.
The government has now committed more than €23 billion in the last 13 months to ABN Amro and the nationalisation process, making it one of the world's costliest bailouts since the financial crisis began.
The state took control of the local operations of Fortis, including ABN Amro, for €16.8 billion in October 2008, a year after a consortium including Fortis and Royal Bank of Scotland bought ABN.
"I doubt that this is the last capital injection," said Arnoud Boot, professor of corporate finance and financial markets at the University of Amsterdam. "Undoubtedly there will be a few billion more along the way."
But finance minister Wouter Bos made clear that he meant for today's infusion to be the last.
"It is our intention that this is the last time money goes to ABN. If, under normal circumstances, there will be a situation that capital is needed, they have to find a solution on their own and not come back to us again," Bos told reporters.
In addition to the €3 billion cash, the government said €1.4 billion in long-term bonds would be converted to equity for ABN Amro, making the total infusion €4.4 billion.
The government had already pumped another €2.5 billion into ABN Amro this summer to help fund the split of the state-owned assets from assets legally owned by RBS. That separation is expected in the first half of 2010.
The finance ministry said the new capital injection plus the one from summer would collectively raise the national debt by 0.5 percent of GDP and would require changes to the budget. The ministry said Statistics Netherlands, however, may estimate the infusion would raise the debt by as much as 0.9 per cent of GDP.
The goverment, which will sell new bonds to finance the infusion, had previously forecast in September that public debt would be 65.8 per cent of GDP next year.
Bos's ultimate plan is to merge ABN AMro and Fortis Bank Nederland, which is expected to generate synergies of about €1.1 billion a year. The merger process is expected to start sometime in 2010, after the ABN/RBS separation.
While the market had been expecting the government to launch an IPO for the combined group in 2011, the finance ministry said today it was too soon to establish exactly how the group would be sold - an IPO, a trade sale or some other path.
But it did say the combined group could be privatised in "several years".
The deal with Deutsche Bank, agreed on October 20th, involves the sale of assets in the small and medium-sized enterprise market.
The European Commission ordered Fortis to sell those assets in 2007, an obligation the state inherited.
Under the revised terms, ABN Amro will cover 75 per cent of the net losses from the portfolio of commercial bank HBU, which is included in the sale. Deutsche Bank will cover the rest.
ABN, which was originally meant to cover all the losses, said in a statement it will recognize the losses this quarter.
That so-called "credit umbrella" will last until the last loan in the portfolio matures, in roughly 30 years. The majority of the portfolio expires in less than five years, though.
For Deutsche it marks yet another opportunistic acquisition to diversify its revenues away from investment banking, following the purchase of a stake in Deutsche Postbank AG and an agreement to buy wealth managemer Sal. Oppenheim.
Deutsche Bank chief executive Josef Ackermann has recently urged his board to look for targets but cautioned them to be selective.