SNS REAAL will publish its 2H12 and FY12 earnings on 14 February, beforemarket. Prior to that date, SNS REAAL needs to find a solution for its financial position and for its run-off Property Finance unit. So far, management has always said that any such solution would require some burden-sharing from the shareholders.
The Dutch Government and SNS REAAL seemed to have been exploring the possibility to create a bad bank, for which the capital would be provided by ING, ABN AMRO, Rabobank and the Dutch Government. This would have allowed keeping the healthy operating parts of the group intact and would have been supportive to our investment case and target price. The refusal by the European Commission to let ING and ABN AMRO participate (because they received state aid) therefore came as a major set-back.
Failure to find a quick solution or make the EC change its stance, puts the “Interventiewet” back in the spotlight. The Dutch National Bank could shift larger part (or all) of the burden sharing towards the current shareholders and invalidate our investment case.
So far, we had two scenarios: 1) break-up with latest valuation (1H12 Flash) of € 0.45 per share and 2) a going concern valuation of € 1.75 per share (with some volatility given movements in equity linked to interest rates). Last week’s events have shifted the odds towards scenario 1.
Given zero visibility, the very short time frame that is left to find a solution and the increasing likelihood that an alternative solution may be detrimental to shareholders, we are downgrading SNS REAAL from Accumulate to Hold while setting a new target price of € 1.0 (vs. € 2.0 previously).