The final settlement of the derivatives scandal: Vestia splits up and the name disappears

The final settlement of the derivatives scandal: Vestia splits up and the name disappears

It must be the final settlement of one of the largest speculation scandals in the world: the fraud with derivatives (interest insurance) at housing corporation Vestia, with a total damage of approximately 2.7 billion euros.

Because Vestia is still in financial difficulties ten years later, 251 other housing associations come to the rescue, with a ‘loan exchange’ worth about 650 million euros. They take over expensive loans from Vestia with a high interest rate, in return Vestia gets cheaper loans with a lower interest rate.

The Nederlandse Waterschapsbank (NWB) makes the loan exchange “technically possible”, Vestia and the association of corporations Aedes announced on Wednesday. Twelve housing associations are also helping by taking over Vestia homes and associated loans. Some smaller corporations make a one-off donation.

“A great sign of mutual solidarity, without losing sight of business,” Feenstra calls it. If the other housing associations had not stepped in now, the final settlement could have been higher later on.

Vestia itself, ten years ago the largest social landlord in the Netherlands with 90,000 homes, will be split into three corporations by 2023, in Rotterdam, The Hague and Delft-Zoetermeer. “The name Vestia will disappear completely,” says board member Richard Feenstra. “We grant each of these corporations a new start and a new identity. Vestia may have a lot of brand awareness, but whether we always got positive news…”

Secret trade

In early 2012 came via The Financial Times to the outside world that a disaster had occurred at Vestia in Rotterdam. Cash manager Marcel de V. had bought EUR 23 billion worth of derivatives: largely risky and speculative. It was a secret trade with intermediary Arjan G., on which they had earned 20 million euros in commission in previous years. When interest rates fell due to the euro crisis, derivatives banks demanded hundreds of millions in collateral.

There was a risk that Vestia would fall over as a result and other housing associations, which act as guarantors for each other, would be dragged along. After tough negotiations with the derivatives banks, Vestia was able to surrender all four hundred interest insurance policies in 2012. The derivatives have been converted into expensive, long-term loans, which Vestia is still burdened with. Other corporations were obliged to contribute 675 million euros in emergency support from the regulator. The fraudsters were sentenced in 2018 to prison terms of up to three years.

Read this reconstruction of the derivatives scandal: Vestia: how bribes led to system failure

Permanently under restructuring

“Over the past ten years, Vestia has been undergoing permanent restructuring,” says Feenstra. To get out of financial difficulties, the corporation sold 27,500 homes. Four major reorganisations reduced the number of jobs from 1,100 to 600. Rents have continued to rise, and housing maintenance has been ‘economical’ . Feenstra: „It is almost unbelievable what has been done. But it still wasn’t enough.”

Vestia had stabilized financially, but could hardly invest in construction and renovation, and could not absorb new financial setbacks or new policy measures with additional costs. The corporation fell short of 180 million euros a year to be a decent housing provider, the board said in 2019. NRC.

A second round of compulsory emergency support from fellow corporations may have been necessary. For example, ‘the specter of Vestia’ lingered over the sector for years.

“We actually said at the time: that is too much of our honour,” says Aedes chairman Martin van Rijn, former state secretary and minister on behalf of the PvdA. Tenants have been bothered by this for ten years. As a sector, we must show that we are capable of solving this problem ourselves: voluntarily and in solidarity. In that sense, I think this solution contributes positively to the image of our sector.”

A second round of compulsory emergency aid could have turned out ‘much higher’, Van Rijn admits. “All corporations would have had to provide that contribution in the short term, all at once. The advantage of this loan exchange is that housing associations can spread the repayment over forty years.” This will make this solution financially bearable and corporations will have to “hardly or not at all” charge these extra costs through renting, thinks Van Rijn.

The so-called Vestia Advisory Committee has been exploring solutions since last year and gauged support for them. Vestia has approximately 3.6 billion euros in loans. A loan swap would reduce its annual interest charges by EUR 28 million (from EUR 66 to EUR 38 million). Enough to become “a frugal but financially healthy corporation”, which will soon be able to take out loans again for construction and renovation, according to the committee.

“It will not make Vestia rich,” Van Rijn sums it up, but the three new successors will soon have to meet minimum financial requirements again.

At an Aedes conference in February, the loan swap was presented by Aedes and Vestia as a fair proposition: can you agree to a ‘voluntary contribution’ that amounts to ‘1 euro per housing per month’ per corporation for 40 years?

A majority of more than 90 percent agreed – although that contribution eventually rose from 12 to 14 euros per home per year. Feenstra: „I have attended Aedes conferences where lower percentages were achieved. It’s usually not a North Korean thing, you know. They all have their own opinion there.”

split

The division of Vestia is the other major intervention. As of January 1, 2023, the corporation will be divided into three independent corporations in the current ‘core area’ in South Holland: Rotterdam (27,000 to 30,000 homes), The Hague (21,000 to 24,000 homes) and the Delft-Zoetermeer region (12,000 to 15,000 homes). ).

In the unlikely event that one of these three corporations should still run into problems, there will be no more ‘systemic risk’ for public housing through the mutual guarantee system, says Van Rijn. “Then the amounts are at least more manageable.”

A number of small housing associations did not want to take out a new loan and preferred to make a cash contribution. Twelve housing associations in the Rotterdam region chose to take over homes, with associated loans. This includes municipalities such as Barendrecht, Pijnacker-Nootdorp, Westland, Brielle and Zuidplas, says Van Rijn.

The final settlement of the derivatives scandal: Vestia splits up and the name disappears

Read the court report: Erik Staal went to grab after all the criticism

Also refusers

Some housing associations refused to give the voluntary support. “In the end about fifteen or sixteen,” says Van Rijn. “A few corporations in the north of the country said: we also potentially have major problems here because of Groningen, the gas subsidence. There were corporations who said: we find it dangerous to make commitments because of ongoing projects where we have insufficient insight into the financial consequences. Finally, there were also housing associations that were unable to convince their supervisory board or tenant organization.”

Feenstra from Vestia talked to one of the corporations that refused to participate. “Then you hear the consideration: what do I do with my money? Is it intended for my own tenants or for the entire sector? I completely understand that individual corporations make that decision.”

Feenstra has noticed little of the chagrin about the derivatives scandal and the mandatory emergency aid that has marked public housing for years, he says. “I have spoken to a lot of people, and really only had positive comments. Everyone feels a little proud to be able to participate in this.” There was also understanding for all the cutbacks that Vestia has already implemented, says Feenstra.

A number of corporations initially still had strong reserves. This was related, for example, to the discussion about abolishing the controversial landlord levy (currently approximately 1.8 billion). The government imposed this tax on corporations in 2013, when public outcry about the Vestia affair and other scandals involving corporations was great.

Van Rijn: “Why should we pre-empt, for example, thought the corporations. Shouldn’t we wait for the government to make decisions regarding the landlord levy, for example?”

The sector is now doing this for Vestia’s tenants and for Vestia itself, says Van Rijn. “We show what we can do as corporations. But for the major issues, such as the housing assignment, overdue maintenance and making homes more sustainable, we really need government support in the form of an adjustment of the landlord levy. I think we need to move from a crisis levy to an investment incentive.”

A version of this article also appeared in NRC on the morning of December 1, 2021

The final settlement of the derivatives scandal: Vestia splits up and the name disappears
Source link The final settlement of the derivatives scandal: Vestia splits up and the name disappears

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