Minister of Finance Reynders mocks parliament

KBC, Dexia and Fortis were staring into a deep abyss of credits, frozen capital markets and other financial disasters. To prevent the whole country from being pulled into the depth, government decided to throw buoys to save them, buoys worth 2,000 Euros per Belgian. Three system banks (Fortis, KBC and Dexia) and the insurance company Ethias initially received 20 billion Euros in state support. 15 billions went to Fortis, 3.5 billion to KBC, Dexia received 1 billion and Ethias 500 million. On top of that, the regions also gave 5 billion Euros to KBC, Dexia and Ethias.
In exchange for these massive capital injections, federal government received two management mandates in each of the saved financial institutions. Until today only one from the two seats has been taken at Dexia and KBC. The regions also have representatives at the institutions which they have helped. Is the federal government using these capital participations and management mandates to ensure more social responsibility and sustainable investments in the financial world? That very simple question led to a thorough investigation, where we more often encountered a brick wall of silence than transparency and clear choices.

New culture for rescued banks?  

Government money reached the jeopardized banks through the Federal Participation and Investment Society (FPIS) (Federale Participatie- en Investeringsmaatschappij (FPIM)). Society controls the money’s good management. Koen Van Loo, delegated manager of this state investment monster, stated in a rare interview with De Tijd that government representatives ‘should inspire the banks with a new culture’ by ‘upgrading risk management and communicating more transparently’. He was talking about guidelines that would be implemented for all government leaders ‘to fill in the shareholder period as useful as possible’.
They are, however, looking in vain for a document that defines the government shareholder mandate’s role more clearly. Also parliament members hardly receive any information about the position government takes in the Board of Directors teams of the financial institutions. ‘Minister Reynders beats around the bush when he is asked a question about this’, complains Groen! parliament member Meyrem Almaci. ‘We still have not seen any agreement whatsoever between the rescued banks and the government. We have to find out through the media who chairs in the Board. And we have not heard anything about a strategy, therefore we say it does not exist.’
Government representatives at BNP Paribas, KBC and Dexia also let us know that they cannot explain the guidelines they received or the new culture they represent in Mo*. They all refer us to Van Loo, who in turn says that ‘the Federal Participation and Investment Society does not communicate about these things’ and works commissioned by the government.

State supported banks turn dark blue

In spite of repeated insisting, Secretary of Treasury Didier Reynders (MR) did not want to give an explanation. Although he is the main person and controls everything in this dossier. ‘It is an open secret that Reynders’ network, the so-called Reynders boys, are orchestrating the bank crisis approach’, states socialist party sp.a parliamentarian Dirk Van der Maelen. Not only the Federal Participation and Investment Society (FPIS) is controlled by the Reynders administration, but also Koen Van Loo, the delegated manager, is a former administration chief of Reynders.
The second most important person at the FPIS is Olivier Henin, who also is the manager of the policy cell of the Secretary of Treasury. After all Reynders appointed his state director at each of the three banks. Yearly they earn between 50,000 and 125,000 Euros, depending on the bank and the number of attended meetings. It concerns Koen Van Loo himself at Dexia, Pierre Wunch (Reynders’ administration chief) at KBC and Michel Tilmant (former ING CEO) at BNP Paribas Fortis. Tilmant chairs together with the other government representative, Emiel Van Broeckhoven, from the political party Open VLD. The government representatives represent the largest part of enfranchised shares in the French bank giant. Belgium received the participation in exchange for state support to Fortis.

Odd couple at bnp Paribas

Emiel van Broeckhoven, professor emeritus Accounting, already considers green investments as bad investments. Van Broeckhoven even doubts global warming publically. He ended his weekly column in De Standaard of October 26^th 2009 with the words: “Enjoy global warming as long as you can! And if the climate conference fails, know you do not have to worry too much.”
Michel Tilmant was head of ING for five years. He had to leave during the crisis because of his risky policy. Investigative journalist Jos Van Dongen made the Zembla documentary Finish with ING for the Dutch television. He drafts his profile: ‘Tilmant is a man with a lot of experience in banking. But in the kind of banking that made the financial system stagger all over the world.  ING could not only become a world player. If ING would fall, the Netherlands would become a second Iceland.’
Van Dongen refers to ING’s balance total, the extent of all their activities. ING’s balance total grew to a dazzling 1,300 billion Euros thanks to Tilmant, more than the Dutch BNP’s double. But the bank could hardly increase their own capital’s shock-absorber during the same period. This risky strategy focussed on reaching high benefits for the stakeholders. When ING could no longer bear its own risky investments, they had to ask the Dutch government for state support worth a total of 43 billion Euros. Tilmant was sent home by the Dutch.

State directors behave as regular bank managers

‘The choice for the state directors depended on expertise and availability. But off course also political considerations played a role’, clarified Rudi Vander Vennet, professor financial economy at the Ghent University. Vander Vennet, who also chaired the FPIS, explains their role: ‘The state directors chair temporarily in the banks.
It is their task to implement a new strategy and to guard the financial institutions’ stability. At the same time they have to prepare a profitable exit strategy for the government. For example by making sure that the benefits of the banks do not disappear because of excessive dividends or bonuses.’ Vander Vennet has no idea of specific instructions the managers received to play their part. Furthermore, he does not know how they operate concretely in the rescued banks.
Dexia president Jean-Luc Dehaene does want to say something about this. Dehaene became president of the Belgian-French bank in 2008 on demand of prime minister Leterme. Koen Van Loo also chairs in the Board of Directors. ‘The state director co-determines the direction in which the bank could evolve. But in reality he does not set other demands than the other directors’, says the ex prime minister during an interview in the European Parliament.
‘As far as I know government has not transferred the recommendations of the special commission for the bank crisis into a regulatory framework. Nor has the state as a shareholder gave us clear guidelines as state directors’, adds Dehaene. Secretary Reynders answered nonetheless to a written question of Geert Lambert (Groen!, former SLP) that government representatives in the banks take into account the report of the parliamentarian commission on the financial crisis. Those recommendations were very clear.

Banks with state support hibernate on the Cayman Islands

‘Tax paradises are undoubtedly a factor for financial instability’, concludes the commission in her final report from April 2009. ‘It is crucial that tax havens are dismantled completely and that they put an end to the absolute bank secret that is used to cover up tax evasion or illegal activities.’
The Tax Justice Network (TJN), an international NGO that advocates global just taxation, recently carried out a black list from regimes which attract large capitals with secrecy or very low taxes. The American state of Delaware, Luxemburg and Swiss are the top three. But also three offshore regions receive top positions in the financial secrecy ranking: the Cayman Islands (5), Bermuda (7) and Jersey (11).
Presence in those centres suggest the kind of activities that the Belgian parliamentarian members are investigating: shadow banking and tax deviation. Result: more than a year after billions of the taxpayer were invested in Fortis, KBC and Dexia, they still have tens of subsidiaries, funds and trusts in these three known fiscal paradises.  
There is for example the RBC Dexia investor services Cayman Limited, hardly known in Belgium but not the least. It is in equal parts property of the Royal Bank of Canada and Dexia. RBC Dexia is part of the ten biggest service providers for institutional investors. With 2,300 billion dollars the institution manages more or less twice as much as all the Belgian savings together. J
osé Placido, CEO of RBC Dexia, concluded something else from the disastrous year 2008 than the parliamentarian investigation commission for the bank crisis. Plans to leave the Cayman Islands and other tax havens are non existent, on the contrary: ‘We will continue building and investing in our already decent offshore and onshore service provision for alternative assets such as lever funds, 130/30 funds and private equity structures (the kind of investments that are considered responsible for the financial crisis by experts, bv&mb)’, writes Placido in the preface of the annual report 2008.

Learn from the Norwegians

A second way to measure the social responsibility of banks is the amount of ethical investments. Are the banks with state support investing in companies not respecting human rights or environmental regulations? That was a question also worrying Geert Bourgeois (Flemish party N-VA) in the Flemish parliament during the debate on the 25^th of March 2009 on the government participation in banks. ‘I want a statement regarding the term sheet (agreement on state support, bv&mb) with KBC. Then, we can open the debate to all the participations government has, because of our ethical responsibility and our exemplary role.’
The Norwegian Pension Fund, fed by oil revenues of the Norwegian state, uses already such ethical criteria when investing. ‘When we exclude a company [from the investment portfolio] we do it to avoid the fund contributing to clear unethical activities’, writes Kristin Halvorse, former Norwegian Secretary of Treasury. She was one of the persons that developed the ethical guidelines for the gigantic fund, which belongs to the largest in the world with a portfolio of 450 billion Euros.
On the black list of the Norwegian Pension Fund are next to producers of controversial weapons – in which in Belgium it is forbidden by law to invest – also companies that gravely damage the environment or violate human rights. Namely the mining groups Freeport McMorren, Vedanta Recources, Barrick Gold, Rio Tinto and Norilsk Nickel, the Chinese car producer Dongfeng Motor Group, the American distribution chain Wal-Mart and Elbit System.
Research in the Thomson one databases of financial information provider Thompson-Reuters shows that PNB Paribas Fortis, KBC and Dexia still manage in their own name or in the name of a client billions of shares of companies on the black list of the Norwegian government. The three rescued banks together manage 372 million Euros in unethical investments. During the past year government has been member of the Board of Directors of these banks, the unethical investments did not decrease.

No change in sight

More than a year after government entered the capital of the most important banks massively, harmful investments are still happening and banks are still active in tax paradises.
Members of the bank commission, who are investigating the causes of the crisis thoroughly, react disappointedly: ‘I am convinced more than ever that the government should have nationalised the banks that were in need. Then we would have had a stronger position to enforce changes. Only after that government should have sold the bank to the private sectors,’ says Dirk Van der Maelen.
Chamber member Almaci is disgruntled: ‘In the meantime more than a year has passed. I have not read one article in the newspaper or had one answer of the Secretary of Treasury that proves the government is actively working on social or ecological themes in the rescued banks. On the contrary. This is gross negligence.’
Roland Duchâtelet, who participated in the bank commission for the Flemish political party Open VLD, explains: ‘Federal government has to deal with the whole sector, for example for the implementation of a transaction tax. But there is not that much it can do for individual banks.’
In spite of poor communication, the Secretary of Treasury cannot be blamed a lack of symbolism. With state directors such as ex ING CEO Michel Tilmant he could not have dreamt of any better strategy representatives. Others might have awakened the suspicion that a renewed role has been defined for the government in the banks.  
Watch the mini documentary and the video interviews with Jean-Luc Dehaene and Mel Evans on www.MO.be/banken
This article was produced with the support of the Pascal Decroos Fonds voor Bijzondere Journalistiek.