Why financial planning just got a whole lot trickier

When a Greek sound engineer heeded his investment adviser’s guidance in January, ploughing half of his life savings into a high-yield bond issued by the Dutch bank SNS Reaal, he did not consider it a high-risk proposition.

Jeroen Dijsselbloem
Jeroen Dijsselbloem

In his view, his investment was not in Greece or through a Greek bank. And though the financial press had been writing about SNS Reaal’s troubled property portfolio, the Greek financial adviser in Athens highlighted the positive: The strong Dutch economy and a Dutch government that had always stood behind the country’s fail financial institutions. And SNS, one of biggest Dutch banks, was offering an excellent returns of 6 percent a year.

What could go wrong?

On Feb. 1, the Dutch government seized SNS to keep it from collapsing under the weight of those problem property loans. And in a drastic action, unprecedented in the five-year-saga of euro zone bank bailouts, the Dutch finance minister decreed: Bondholders like the Greek sound engineer would be wiped out. So much for the ‘can’t lose’ argument.

The rules surrounding financial risks have changed across Europe. Not only are EU parliamentarians taking a much more aggressive stance towards a culture of risk-taking fuelled by banking bonuses, there is now also a concerted effort against those that are actually willing to invest in risk itself, with potentially unpredictable implications for Europe’s banks and their investors.

One of the driving forces behind this new developing culture is Mr. Jeroen Dijsselbloem, the Dutch finance minister. Mr. Dijsselbloem has just been voted head of the Eurogroup, the powerful club of 17 national finance ministers who effectively set financial policy for the euro currency union. Mr. Dijsselbloem is being labelled as the new financial sheriff that has just arrived to clean up the euro zone.

For small investors that are being promised hefty returns, the question they now need to ask themselves is what about the risks associated with those returns. With Mr. Dijsselbloem in the driving seat, those risks are about to become a lot heftier as the loss of the full value of their investments have become a whole lot more real.

This new rigor could make banks and their investors less willing to make risky bets. It may be better for banking safety and soundness, if not for investors in the long term.

But this new philosophy does not make it any easier for the Greek sound engineer who lost half his life savings in a little more than 6 weeks. Self described as not a sophisticated investor he relied fully on his adviser in the Athens office of the international bank HSBC, who he says pushed the SNS bonds as a safe investment, essentially guaranteed by the Dutch government.

“How am I going to save my home and my family?” said the Greek sound engineer, 39, who is recently married. “After so many years of hard work, I now have to start at zero again,” he said. “I invested in a safe system and lost everything in 15 days. What am I supposed to do now?” He said he planned to sue the HSBC Athens office.

It is not just the Greek sound engineer that is searching for answers.

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