DSB Bank declared bankrupt after rescue bids fail

A Dutch court has declared DSB Bank bankrupt after attempts to sell or rescue it failed, leaving other Dutch banks liable for up to €3.25 billion (Dh17.77bn, $4.84bn) in deposit guarantees.

But the bank's founder struck a defiant tone, saying in a nationally televised news conference "we did not go bankrupt, we were simply ruined".

The court appointed administrators last Monday at the request of the central bank after a run on privately held DSB drained €600 million in deposits in just 12 days. Founder Dirk Scheringa said on Friday he was in talks with a potential US buyer after talks with major Dutch banks failed.

He asked for the weekend to try to close a deal, which the court granted with a limited window.

The court later identified the US buyer as Dallas-based Lone Star Funds.

Those talks fell apart, as did a plan proposed at the weekend to have the government inject €100m into the bank, along with the conversion of €100m in customer deposits into shares.

The Finance Ministry said yesterday it rejected the proposal because it was based on assumptions that no further deposits would be withdrawn if the emergency regulations were lifted, and that deposits taken out during the run would return.

A spokesman for the court-appointed curators was not immediately available to comment. "The court has come to the conclusion that the utmost has been done to continue DSB as whole and that there is no visibility to that any more," the court said in a statement.

Other Dutch banks will now be on the hook to guarantee DSB's deposits. The central bank said yesterday it had activated the national deposit guarantee system to deal with the bankruptcy, and that it expects eligible depositors to be reimbursed by Christmas.

The banks will have to pay into the guarantee system in proportion to their market share. That would imply that market leader Rabobank would face a maximum payment of about €1.3bn, while ING would face a hit of about €975m.

The final guarantee figure is expected to be much lower, though, as asset sales and other offsets lower the burden. Some lenders have speculated that the recovery rate could be as high as 70 per cent.

DSB's problems began this summer, when the market regulator fined it for lending people more than they could afford to borrow. Multiple foundations popped up to organise DSB borrowers and seek compensation from the bank.

On October 1, the head of one of those foundations went on a national morning TV show and said DSB customers should withdraw their money from the bank - a call he acknowledged at the time could lead to the company's bankruptcy.

The government has now launched investigations into the actions of DSB's board and into the regulation of the company.

Those investigations have snared Gerrit Zalm, the former Dutch Finance Minister and CFO of DSB, who is now Chief Executive of nationalised bank ABN Amro. He has said he will cooperate with a probe into his role at DSB.

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