Dutch central bank takes control of DSB Bank (Roundup)

Oct 12, 2009, 14:58 GMT

Amsterdam - The Dutch central bank DNB announced Monday that it has taken control of DSB Bank NV in a bid to prevent the ailing bank from going into bankruptcy.

A court in Amsterdam has appointed two administrators to enable a 'balanced representation of all account holders and creditors,' the central bank said in its statement released at 1000 GMT.

Administrators for the insurance division were yet to be appointed.

A guarantee of 100,000 euros (147,500 dollars) per account holder has been placed on savings accounts. The central bank DNB confirmed that customers could not access their money on Monday.

Speaking at a press conference in Amsterdam, DNB president Nout Wellink said the DSB Bank's downfall started on October 1.

On that day, Pieter Lakeman, who represents a group of DSB customers who claim to have been wronged by bank practices, publicly called upon all DSB account holders to retrieve their money as soon as possible so that the bank would go bankrupt.

Lakeman represents one of two foundations recently established by DSB customers who claim to be duped by the bank's subprime mortgages and risky financial products.

In the days that followed, Wellink said, DSB customers took out 'one sixth of the total amount of money deposited on the bank's savings accounts.'

Earlier on the day, DNB had released a statement that also spoke about a 'major flight of liquidity that would endanger the existence of DSB bank' and said DSB's solvency had come 'under severe pressure' by Sunday.

After weekend attempts by a consortium of five of the country's biggest banks and the Finance Ministry to secure a takeover deal failed, DNB decided to ask the court for control over the bank.

The court rejected Sunday evening's bid for control over DSB, but said that if 'circumstances' would change, DNB could return to court immediately.

In the hours that followed, information about DSB's possible bankruptcy was leaked to the media.

Media reports Monday morning caused a renewed run on the bank, with customers taking out 'several tens of millions of euros' from savings accounts.

By midday Monday, the court granted the DNB's second bid for control over DSB.

In a first response, DSB founder and owner Dick Scheringa accused 'either DNB or the Finance Ministry' of deliberately leaking information about his bank's alleged insolvency to the media to ensure DNB could eventually take control over DSB.

Wellink said Scheringa's allegations were 'unfounded.' He added he 'regretted the fact someone had leaked information to the media' but emphasized, 'it might not have happened with bad intentions.'

Finance minister Wouter Bos meanwhile announced he would commission an independent inquiry into the state of affairs with DSB.

The study would also look into the role of its present and former managers, including Gerrit Zalm, the top DBS manager in 2007-2008 and current chairman of the managing board of ABN Amro/Fortis bank, which was nationalized last year.

Zalm was one of the Netherlands' most reputable former finance ministers when he was took up office at DSB, one of the country's smaller banks, with a balance of some 8 billion euros (11.9 billion dollars).

Under Zalm's leadership, DSB developed extremely aggressive marketing that resulted in the bank's rapid expansion.

The bank offered high interest on savings and subprime mortgages, usually combined with complicated and risky financial products.

DSB has been the subject of an investigation by the financial markets watchdog AFM for several months.