Euroclear reflected this action by switching the ISINs in holders accounts to reflect that they no longer owned a bond but just owned the right to the compensation claim // in meinen Augen eine Frechheit und Unverschämtheit........Hände weg von Holland

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Subject: Fwd: lir What actually happened with SNS : An Explanation

Date: 13FEB2013 18:24:44.000+0100

Q. What actually happened with SNS Bank?

A. The Dutch government expropriated all subordinated debt of SNS Bank on 1st
February 2013 using Dutch legislation (the Financial Supervision Act).

Q. What does expropriation actually mean in this context?

A. In practice that means the subordinated bonds were no longer owned by bond
holders but instead were seized by the Dutch government. Instead of owning
bonds investors now just had the right to a compensation claim which is likely
to be zero. Euroclear reflected this action by switching the ISINs in holders
accounts to reflect that they no longer owned a bond but just owned the right to
the compensation claim.

Q. Does that mean the bonds still exist?

A. Yes, the bonds still exist, they are just owned by the Dutch government no
not the original holders.

Q. So the bond holders get nothing except compensation but where does that leave
CDS?

A. For CDS it is interesting one as the ISDA DC needed to decide whether this
was a Restructuring Credit Event or not. Normally we would expect to see an
actual write down of bonds, for example by insertion of a sub par call but here
the bonds were just expropriated by the legislation.
That left the ISDA DC with a choice:
1) apply a literal interpretation to the wording in the CDS definitions which
would mean no trigger as the bonds have not actually been amended to reduce the
principal claim or 2) applying a purposive interpretation to the wording in the
CDS Definitions that the effect of the legislation was to write down the
principal claim as the expropriation resulted in bond holders no longer being
entitled to a par claim on the bonds, just compensation.

Q. The DC called a Restructuring Event - what does that mean going forward?

A. Like any decision making body the DC will continue to look at each
occurrence on its merit, obtain legal advice, consider the economic intentions
of the contract and determine the CDS definitions appropriately.

Q. What does that mean for recoveries on CDS?

A. As the subordinated bonds have been expropriated only senior bonds are
obtainable and therefore deliverable which means very high recoveries even for
sub CDS.

Q. Will there be a failure to pay trigger in the future?

A. It is possible at some point but the bonds may well be amended before that
occurs, have payment waived or there may never be any public information on what
exactly happened following the expropriation.

Q. What do we think of all this?

A. In our view expropriation will remain a very rare occurrence not least
because European legislation on bail-in etc is fast developing but we do think
it is worth considering including the topic as part of the ongoing discussions
on CDS changes required for bail-in legislation.