Nationalized ABN Amro offers fool’s gold

In March, Dutch nationalized banking giant ABN Amro send its trading clients a letter explaining that they have changed the conditions for precious metals trading. In their letter [1], the bank explains that they will no longer deliver physical precious metals (gold, silver, platinum and palladium), that they administer prices slightly differently, and that they have found a new custodian. ABN Amro suggests that clients do not have to do anything, stating “we will administer and manage your precious metals holdings in the new manner”.

Of course clients do not have to do anything, but given the new conditions [2], this is hardly advisable or prudent. Investors with precious metals holdings with ABN Amro are potentially facing fatal risks.

Conditions, schmonditions..

For the proper legal context one must understand that ABN Amro uses a separate brokerage vehicle “Stichting beleggersgiro ABN Amro” through which clients can trade amongst others bonds, stocks, currencies, and precious metals. Under the new conditions — and they state this very explicitly — the “Stichting..” promises that they “will attempt to at least hold 70% of invested funds in precious metals” in the vaults of UBS, in Zürich. Why ABN Amro did not mention UBS is a mere aside, but under the new conditions ABN Amro discloses that they “do not guarantee this to be the case”. So it can be more or less 70% and whether it is actually 60% or 72%, it does not matter; the point is, ABN Amro does not give any guarantee of what is in a UBS vault at all.

Yet there is more. Clients who chose to have exposure to precious metals do not acquire anything themselves. Formally, they only hold a claim on ABN Amro’s brokerage vehicle that owns the metals with UBS. However, UBS can also choose to have gold allocated with a third party, a third party unknown to ABN Amro and its clients. So it is not necessarily the case that clients of ABN Amro have an indirect claim on precious metals in an UBS-vault, but to gold in the vault of some unknown third party “somewhere else”. And then there’s the article that stipulates, “the bank and its “Stichting” cannot be held liable for any third party bankruptcies or that of UBS”. ABN Amro goes even as far as to describe what happens if UBS or an unknown third party goes bankrupt: you stand in line hoping to receive an equal share of what is then to be liquidated, “if there is anything left at all”.

Also troubling, if UBS deems market conditions “extreme”, it has the right to ignore orders given by clients of ABN Amro, and UBS is reserved the right to stop their service at any point in time albeit they have to communicate such a decision 30 days prior before ending their bullion services. So if UBS decides to stop their bullion vaulting “service”, ABN Amro clients can only sell off whatever it is they had bought, and of course, they must hope they have the opportunity to do so without UBS autonomously declaring market conditions as too extreme.

So what is ABN Amro actually offering?

It is an intriguing question to ask: what do precious metals investors at ABN Amro really buy? Obviously, it is not an equivalent of physical ownership. It is a “paper only” account and even that is not a proper description because an account is never a one-way street. Despite ABN Amro denominates this account in terms of weight that is valued in euro, clients can never withdraw precious metals, so this denomination is entirely meaningless. Also, it cannot be considered a quasi ETF-certificate because at most, it is an “un-unallocated” claim: the invested funds may be anywhere and likewise the gold. And since physical delivery has been postponed all together, it cannot be regarded as a quasi futures contract or an option on that either.

Given these new conditions, this precious metals investment has become some sort of twisted commodity swap whereby investors swap their money to invest in any upside price potential of precious metals and whereby they take on all sorts of financial counterparty risks without hedging anything at all. Investors always face a price risk, but if one “buys” precious metals with ABN Amro, then one also faces a forced sell-off risk, a (discounted) cash-settlement risk, and last but not least, an outright default risk. And here’s the gist of it: nobody can be held liable if these risks materialize. In other words, investors bet their money on a horse that might or might not exist and for which they can know upfront, this horse will never cross the finish line.

Fiduciary responsibilities?

Personally, I am disappointed in ABN Amro and most prominently in its board. Under leadership of former minister of Finance Gerrit Zalm, ABN Amro is supposed to act as a custodian of Dutch taxpayers who coughed up €17 billion in the nationalization scheme to save ABN Amro from a disorderly collapse from the Fortis holding in 2008. Taxpayers who vested another €13 billion to absorb hidden losses. That’s €30 billion for a bank that nowadays proclaims to have “embedded” a client-centered approach.

Imagine you invested in precious metals with ABN Amro, for example because you deemed them trustworthy and because you wanted to store your precious metals safely. And then ABN Amro tells you they have changed the conditions introducing the very risks you wanted to avoid and tells you, “You do not have to do anything.” If you ask me, ABN Amro has relegated its precious metals clients from “not so savvy” to mere “muppets”.

Taking issue

Some might argue that since ABN Amro fully disclosed their zero accountability, all is fine or say it is OK because Dutch taxpayers are now off the hook for any mishaps in the precious metals markets. But ABN Amro still has to be sold off one day. So if it is not about protecting the interests of small (financial illiterate) investors, or let alone the bigger picture of the precious metals markets (all that paper metal remains a persistent financial taboo), then it still remains a question of jeopardizing ABN Amro’s reputation. In my humble opinion, there are thus 30 billion reasons to take issue with this.

If you are a client at ABN Amro with precious metals, I wouldn’t wait for something to happen. Make no mistake about this: you are potentially left empty handed. And in case people at ABN Amro read this, here’s a question: When something as utterly simple as sticking a lump of metal in a vault, something you apparently cannot guarantee anno 2013 — a banking establishment for crying out loud — then why offer this financial precious metal mumbo jumbo at all? Is your reputation of a trustworthy counterparty not worth anything at all? Is this ABN Amro’s new interpretation of embedding a client-centered approach? Here’s a simple idea: stop offering “fool’s gold” and go back to basics, because if not now, then when? After it is all too late?

As for members of Dutch parliament and Dutch regulators: anyone paying attention? It wouldn’t be the first time you only acted until after it was too late.


[1] A translation of ABN Amro’s letter by Zero Hedge

[2] ABN Amro’s new conditions (PDF, in Dutch)

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20 Responses to “Nationalized ABN Amro offers fool’s gold”

  1. miggsmacabre Says:

    Is ABN Amro saying unallocated accounts cannot be converted to allocated? Kind of like saying: You can’t get cash from your bank account but it is still worth the same (customers need not worry). Perhaps things are as they should be. Those who want unallocated gold get just that.


  2. Jaco Says:


    ABN Amro did not use the words allocated or unallocated, but yes, it has become impossible to make an (un-)unallocated account, allocated. And yes, exactly like your example with a cash-account.

    On your last note, this essentially is about laws and regulations and let me say this. Perhaps indeed banks should be able to offer guaranteed “haircut-accounts”, and then perhaps indeed, we should all be able to sell snake oil.

    Look at it this way: trust is essential for a smooth functioning of economic markets, and in this light, always remember that banks are the biggest borrowers in an economy (especially in Europe). So it is essential that people can rely on bankers to act in their best interest before they think of earning a honest profit themselves. With this PM-investment, this elementary aspect is turned around: the bank profits under all circumstances while they knowingly shift off any potential losses to their clients. Once banks choose to flunk their fiduciary duties in this fashion then they loose economic legitimacy as a financial intermediary; if not sooner, then later. Is this good for an economy? Nope. Is it good for our collective investment in nationalized ABN Amro? Nope. Should regulations prevent this sort of behavior? In my opinion this is warranted.

    And should a person own unallocated precious metals? Like I suggested, an investor can be not so savvy or just a muppet.

    Kind regards,

  3. miggsmacabre Says:


    I didn’t mean to imply that this outcome is justifiable, only expected. It is unfortunate that many “investors” cannot see the difference between the true value of gold and its currency price. I think you are quite right in advising ABN clients to not wait around. It seems there will be more to this. How do you see this playing out?

    By the way, your articles about Dr. Z are EXCELLENT! Thank you very much for that. I will read them many times! I like the way he thinks.


  4. Jaco Says:

    Seems I misread your last two lines there, but I think things aren’t as they should be; there is still a lot to be done in regard to regulations. This ‘financial product’ is just another sorry example of what shouldn’t be on the market at all.

    How I see this play out? Either our regulators step in and prevent investors get hurt, or investors will get hurt. The Dutch regulator did regulate bullion dealers a coupe of years ago and with that, they took a keen interest in contract (paper) or a form of unallocated accounts, so perhaps they’ll look into this as a means of recurrent oversight. I hope they do because then they do not only regulate, but really enforce as well (something that has been a issue before).

    Zijlstra is intriguingly insightful isn’t he? 🙂 I got this other Zijlstra book from a friend my father’s age, and it was very tempting to give these translations a try. I hope there are not all too many typos or errors, but I am very happy it is appreciated, so thank you! 😀

  5. MartinC Says:

    I am one of the ABN clients that where confronted with these ‘ administrative contract change’. I opened my account ‘GRAM GOUD BELEGGINGSREKENING’ against the practice of hedging / leveraging within the banking system. Also because physical metal cannot be manipulated.

    The change introduces more risks for me, without this is mentioned in the letter of ABN. I think this change is to protect the banks physical holdings, and lock-up customers within the paper gold markets where leverage is common. Also the CFTC is investigating the gold fixing, after Andrew Maguire testify of fraud with bullion / gold & silver markets (in 2010). Investigation is still in progress ?! Also the German government want his gold back in Frankfurt, its costs a timeframe of 7 years ?!

    What is happing in the gold and siver markets? I think it’s the unfolding of paper too physical, where big banks has are confronted with a big physical demand from Asia / India, and could not deliver.

    What are you’re thoughts on this. Why the main stream media is quite?

  6. Jaco Says:

    you will never get a straight answer to the “why” question. Answers to the why-question will always — in different degrees of course — be speculative. Whether the “theory” you get holds true is conventionally a matter of interpretation and taste; not necessarily truth.

    As for our media, I always joke that have become pretty “innovative” with outsourcing their reporting and analysis (in other words, they figured out CTRL-C/CTRL-V). So one factor in my opinion is they face a knowledge gap.

    Considering the bigger picture of precious metals markets, I think it does not matter what I think, but to give you an idea, I think Stein’s Law applies: “If something cannot go on forever, it will stop”. The cards have been shuffled and dealt, and as a European, I like the cards of “our side”. Basically, so long the ECB and its mandate are in place, peace and democracy are guaranteed. We may perhaps be insolvent (we are), but we can recapitalize. I would like our officials to be more straightforward about this, but essentially, in order to recapitalize we have to reform and in that regard, it is of no use to explain everything into detail. I suppose that leaves something for me to explain (from time to time).

    If I may ask, do you still “own” paper PM claims with ABN Amro?

  7. MartinC Says:

    Thanks Jaco. I agree with your comment. I think the common sense will win in the end. I saw David Stockman on youtube about the unsustainable debt of the US: the FED creating bubbles. Fixing the World Wall Street cannot, inflation will come.

    You may: G is collected, S is still paper used by UBS 🙂

    I still have question on the legitimacy of ABN its action. Maybe I should inform the AFM, but what shall the result be …

  8. Jaco Says:

    Good to hear you say that (and please appreciate the sarcasm here..) because now, I don’t have to call you a muppet ;P

    From the perspective of public servants (I have worked for the municipality of Utrecht), it mostly is a good thing to have people call you about issues. For public servants, it’s the most basic way to know what kind of issues are out there. We got a gazillion rules and stipulations, but to have a proper functioning oversight, this kind of input is crucial to make the process work. From there on, it’s in their hands and we just have to be patient.

  9. Sandman Says:

    All things considered wouldn’t it be easier, cheaper and better to just buy gold bars and bury them in the back yard? Why would anybody in his right mind sign up for this abuse?

  10. Bron Suchecki Says:

    I don’t think ABN Amro changed any terms, that account was always a partially backed unallocated account as I discuss here

  11. Economati Says:

    Why ask why? Is it not clear that the global debt Ponzi has entered the collapse stage and that the last thing that the bankers have to monetize is the good name of their institution? And what’s all this foolish talk “before it’s too late”. My God, man, it IS ALREADY too late. If it weren’t too late the con men wouldn’t be playing the obvious con. They would be playing the hard to see con of making money from nothing, the new alchemy, using fiat currency and fractional reserve banking. But that game has gone bust and so now they are having to stoop to trying to con gold holders. My opinion is that the people are going to run away from this new scam and it will fold this fraudulent operation with a year. The whole world is one big interconnected debt Ponzi and no Ponzi ever lasted for ever. The con is gone. The patsies are wise to the grift. Bye bye bankers.

  12. Henk J. Krasenberg Says:

    goed om een Nederlander te horen die kritiek durft te uiten over ‘onze’ nationale staatsbank ABN-AMRO. But since you are having an international audience, I will make my remark in English.
    Interesting to read about their Stichting. Not only do clients who think to own gold, don’t really own the gold outright, they can’t ask for delivery of the gold. They can ask but can only get money back. Weird situation, clients who don’t trust their money and exchange it for gold cannot get their gold but only money. This way, the bank doesn’t need to hold any gold anymore. They only seem to have a bet with their clients on the gold price……..
    And the established financial media, the politicians and others do not seem to be alarmed. Glad you are…….

  13. Jaco Says:

    Bron, thank you for commenting. As always, I appreciate your down-to-earth analyses and commentaries.

    That said, I had similar objections to claims that ABN Amro had defaulted. I do not think this claim has any merit and so there’s no mention about this in my article. I also did not comment on price developments in relation to this change of conditions since I have no interest in commenting on price developments. (There is one exception though, but that’s about how to change the International Monetary Framework’s paradigm (see my Zijlstra 2012 article, there’s a M0-hypothesis in there)).

    As for not changing the conditions, you have a point and also not. When I wrote this, I did not have the old conditions available to me, but one of ABN Amro’s clients was so kind to send me the old conditions. Had I read the old conditions upfront, I would have written one or two sentences differently (i.e. about “extreme market conditions” because that was already in place). Notwithstanding, I left this article unchanged because the points I make a fuzz about still stand.

    First off, ABN Amro should not tell its clients to simply do nothing. That’s flunking your fiduciary responsibilities. In this respect, why did ABN Amro not send the new conditions along with this letter to their clients? They would have been in the position to read for themselves, so why did ABN Amro publish the new conditions on their website after these changes were in effect? That’s not the way businesses should work in my opinion.

    Secondly, ABN Amro did introduce a new source of counterparty risks into the agreement and that has to do with the way UBS allocates the invested sums. At least 30% is in a Metal Account which is part of UBS’ risk weighted capital. So if UBS goes belly up, ABN clients have a preferential claim in UBS’s insolvent estate. The gist of that 70% in the Collective Custody Account — without any guarantee whatsoever; “it could be more, could be less” — is that UBS can choose to make use of a third party to vault the metals instead. In other words, investors with ABN Amro cannot know nor find out who this third party is (theoretically it can change) and they would be in a very difficult spot once UBS/ABN Amro claim it was a third party bankruptcy that has left the clients (partially) empty-handed. So that’s a new source of counterparty risk that the new conditions introduced. Risks like these should not be in these kind of “financial investments” at all and perhaps that defines me too much of a puritan, but in my opinion this is snake-oil equivalent and I think our regulators should step in.

    Your claim that nothing really changed is too readily presented as fact and I disagree with you to the extent that there are now more risks involved. Notwithstanding, I share your objections to some of the ABN Amro reporting that is out there.

  14. Jaco Says:

    @Economati. I did not want to censor your comment, but next time, please bring more merit to the *meta-discussion*. You are entitled to your view (whatever the merit is), but that does not give you any prerogative to refer to my commentary as “foolish” talk. If you had taken time and browsed through my blog only a bit, you would have been able to read how I look at the main aspects of this ongoing crisis (even if you exclude all my Dutch writings).

  15. Jaco Says:

    @ Henk. Dank je.

    I am just surprised that financial institutions still haven’t learned their lesson, or in the opposite case, that they did learn their lesson, but are incapable of changing their behavior. What’s worse? Having not learned the lesson, or having learned the lesson and repeating the same sort of mistake again?

    As for media, politicians, bankers etc., a lecture or two about financial ethics can’t hurt (not that I am the one giving that lecture..). But at the same time, I think you can fairly assume that behind the scenes there is sufficient monetary and financial intellect that is very well aware of the state of financial affairs. And with this, I mean that they have an accurate understanding of what the euro accomplished and how it will proof to have been the key European arrangement for what was long over due.

    Disregarding this latter point, this does not clear them — and with “them” I mean our regulators with AFM/DNB as well as Members of Parliament — of their duty to address defunct financial products that are on the market, and clearly, in my opinion this is a sorry example of a defunct financial product.

  16. Sandman Says:

    6 weeks to get a single lousy 100 oz Royal Canadian Mint silver bar out of liberty in Del Mar, CA (I’m talking physical here). That’s a record. And I’ve been buying such bars since 2008. What do I do if Liberty goes belly up in the interim… We buy physical to avoid counterparty risk, you try buying physical & you get… counterparty risk!

    So it would seem everything is futures now. It’s futures whether your playing with Amro, it’s futures playing on the CME, and it’s also futures trying to take physical delivery of even a single, lousy 100 oz silver bar.

    And people insist there’s no silver shortage…

  17. sculptorbill Says:

    yeah yeah the gold is ah on the bridge, yeah the brooklyn bridge we leased for the purpose of holding your gold yeah thats right, just pay the rent and lets su hold your money for the gold we’ll buy you and we put it on the bridge for you…its is aaaaall yours………..ok? guaranteeed by dis other guy, Mr counterparty

  18. Bron Suchecki Says:


    Fair points and the 70%/30% is certainly new information you found and gives us insight into how the bullion banks “back” their unallocated accounts.

  19. john hathaway Says:

    Hi Jaco,
    Do you have an idea as to the quantity of ABN Amro client assets that are invested in their version of precious metals? Has there been any sort of outflow since March. Thanks. I manage a precious metals fund in NY. Regards,

  20. Jaco Says:

    Hi John,
    I do not have any idea what sums we’re talking about, nor do I have any information on outflows or other information like that. Not that I can say this with certainty, but I don’t think ABN publishes that sort of data. It would surprise me if they do.

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