Twenty years ago, it was 1998. I was a financial journalist for the newspaper De Tijd in those days. Very busy times for me. It was a year of big mergers in the financial sector: Kredietbank, ABB, Cera Bank and Fidelitas merged into KBC, Generale Bank was absorbed by the Fortis insurance group, insurer Royale Belge was incorporated by Axa and Dexia acquired Artesia.
None of the financial big guns managed to escape a thorough change of identity that year. Even for Generale Maatschappij, which had been the symbol of Belgian finance for a century and a half, 1998 was its swan song, as it was acquired by French group Suez.
All these mergers continuously put the Brussels stock market in the spotlight. Investments were hip in those days, and both the government and the media contributed to their popularity. Dozens of great companies applied for a stock market listing: Kinepolis, IBA, Omega Pharma, Miko, Quest for Growth, Mobistar, EVS, Roularta, Ontex, Remi Claeys Aluminium, Retail Estates and so on.
The BEL 20, the benchmark stock market index of the twenty most important Belgian listed companies, achieved a return of 43% that year. It was a fantastic result, despite a sizeable financial crisis towards the end of the year when huge hedge fund LTCM capsized and almost dragged the entire financial system down with it.
However, such awful moments did not spoil the fun. They were more seen as proof that the stock market was this really exciting place. The stock market was and remained loved. The Hoegaarden brewery showed a clever approach to this with a joke on its coasters that roughly translated as: ' Hell's BELs 20!'
The Zurstrassen brothers and Gégoire de Streel also considered the highly esteemed Brussels stock market as a viable source of income at the time. They founded online stockbroker VMS-Keytrade. Later, this online expert became fully-fledged bank Keytrade Bank. Today, twenty years later, Keytrade Bank is flourishing under the wings of Crédit Mutuel Arkéa.
Particularly because flourishing is by no means obvious in this context. Actually, the establishment of Keytrade Bank was ill-timed: the stock market's allure was at its highest. Ever since then, this allure went one way: down. The fact that Keytrade Bank moved in the opposite direction – up – is indeed a great achievement.
I am not here to adulate Keytrade Bank. At any rate, it seems more interesting to answer the question: 'Why did the reputation of equity investments in Belgium melt away so significantly?' In search of an answer, I listed the ruthless killers of the Brussels stock market culture. Initially, I thought I could come up with five killers if I thought long and hard. After about half an hour, I had already found ten without any trouble. That is when I decided to stop. It was not a particularly pleasant exercise to undertake.
It led me to a Belgian killer elite jeopardising a highly necessary pillar of a prosperous society.
- The decline of stockbroking firms. In the 80s, Belgium still had more than two hundred stockbroking firms. Today, this crucial contact between the stock market and small investors has virtually disappeared, mainly due to a tsunami of legal requirements and investment needs. Establishing a stockbroking company has almost become impossible today.
- The Albert Frère phenomenon. Walloon financier Albert Frère masterfully collected Belgium's great industrial treasures in order to later flog them to France one by one, about twenty years ago. Frère had his finger in the pie of the sales of Petrofina, Electrabel, Royale Belge, Cockerill Sambre and BBL. They were all Belgian gems and are now part of Total, Engie, Axa, Arcelor Mittal and ING, respectively. They constituted a huge loss for the Brussels stock market.
- When Lernout & Hauspie left everyone speechless. Twenty years ago, IT flagship Lernout & Hauspie Speech Products was the Flemish region's pride and joy. For a while in early 2000, LHSP was the fifth largest company in Belgium. Tens of thousands of small investors had put their money in this unlikely success story, which unfortunately was built more on air and deception than technological ingenuity.
- The exodus of the insurers. Because of the substantial, wealthy, steadfast shareholders of twenty years ago, Belgian companies were more at ease than they are now in these times of large numbers of anonymous, volatile shareholders. In a first round, stock market giants such as Royale Belge sold their Belgian interests because they themselves were Belgian no more (see item 2). Then they sold because the Belgian regulators barely allowed them to own shares.
- The crisis ten years ago. There were many causes and many parties responsible for the financial crisis of 2008. The banks also made mistakes: in the US by massively offering mortgage loans to families who would never be able to make the repayments and elsewhere in the world by investing massively in those worthless loans through shady products. The stock market itself actually had nothing to do with the crisis, but ordinary people – and many well-known people – pointed to it as the cause of all this misery. This was unfortunate and incorrect: stock investors who could afford to simply sit out these events of 2008 and 2009 have now more than recovered their money. Unfortunately, many sold at the worst possible time.
- No more solid shares typically held by affluent, prudent investors. Dexia and Fortis left many people with a financial hangover and a permanent dislike of the stock market.
- The Arco cesspit. On 18 September 2008, at the deepest point of the crisis four days after the collapse of Lehman Brothers, Chairman of the Board Francine Swiggers wrote in Arco's members magazine: "Fortunately, there are still stable financial products out there for investors looking for an investment that is not affected by stock market fluctuations. One indisputable example of these is Arcopar D shares, a profitable and flexible financing formula." These incredibly misleading words are detrimental to the reputation of the stock market. 'Investor' and 'investment' are used in a context of just a single share, Dexia. This is much more reckless than what an investor would ever do. The unfortunate Arco story has nothing to do with savings or 'investments'. The fact that to this day political party CD&V relates these events to the stock market to run the stock market down in the hope of winning votes raises questions. After all, irresponsible and reckless Arco was a cooperative holding of Christian trade union ACW (now beweging.net), a member of the CD&V family.
- An orgy of stock market taxes. Even though the stock market was not to blame for the financial crisis in 2008 and the Arco fiasco in 2011, its reputation had been badly damaged. The governments led by Elio Di Rupo and Charles Michel believed they could win votes by inflicting tax penalties on small investors. The series of tax introductions and increases that followed was nothing short of spectacular and downright disgraceful. Some examples from the past ten years:
- Withholding tax on dividends from shares: +100%
- Withholding tax on dividends from regulated real estate companies (with the exception of healthcare real estate): +100%
- Stock market tax for share transactions: +106%
- Stock market tax on the sale of capitalisation equity funds: +164%
- Abolition of share strips with reduced withholding tax entitlement
- Introduction of 0.15% securities tax from an invested amount of €500,000
- Introduction and subsequent cancellation of a tax on the rich and a tax on speculation
- Continuous threat of capital gains tax
- Endless smear campaign in the Flemish media. Shares were said to be for the rich, the fiddlers, the gamblers. They were said to promote inequality, whereas the opposite is true: if as many ordinary people as possible were to save their money in shares, there would be less inequality and general prosperity would increase, so that more funds would be available to help those who stayed behind.
- Ultra-low interest rates. Businesses no longer see the point of a stock market listing. The first reason for this is the enormous burden of its rules and obligations, while the second reason is that low interest rates allow them to finance their operations cheaply through loans. Why would they go through all the red tape of going public?
As promised, I will stop here. Enough talk about killers.
However, it is essential to neutralise these killers before it is too late. The stock market is an economy lifeline. An ailing stock market will also make its community sick. It is driven by people who are willing to take risks, so what if nobody wants to do that anymore? If everyone puts everything in a savings account that loses money, what then? The country will come to a halt and our prosperity will evaporate.
I think we can all agree that that is not what we want. We are and will remain optimistic: stock market aversion is gradually reaching its low point. We believe that enough future policymakers understand the logic and urgency of a healthy savings culture. We believe that the next government will realise that savers must get a fair chance to achieve a good return. It will then hopefully take the appropriate measures to ensure that investors and companies are welcomed rather than shunned. So which measures will it need to take? There are plenty of possibilities to choose from this table.
Seven ways to encourage efficient savings
- Give founder shares five (or up to ten) voting rights in the IPO. This ensures that the family business owners retain control.
- Encourage local trade in small shares (market value < €1 billion), for example by reducing the withholding tax on dividends for that category.
- Encourage optional dividends with a lower withholding tax on dividends paid in shares.
- Tackle the favourable tax treatment of savings accounts: rather than setting a fixed amount of tax-free interest income (€960 this year), set a maximum amount for which no tax is due: €20,000, for example. This means that the higher the interest rate, the more attractive savings accounts become.
- Encourage long-term investments, for example with tax incentives for several years of shareholding.
- Educate! Make sure the people understand the virtues of efficient saving. Make 'savings and investments' a mandatory subject for Flemish sixteen-year-olds.
- Stop the amateurish legislative tinkering and stop devising more and more new tax monstrosities. Instead, provide years of fiscal stability!
This table is by no means complete. The government does not have to introduce all measures. It may come up with ideas that are quite different from the seven recommendations above. Of course it is free to choose, but we sincerely hope that it will make substantial progress on the final item: fiscal stability. That alone would ensure that the next twenty Keytrade years will be more prosperous than the first twenty.
Pierre Huylenbroeck is the author of Onsterfelijk Beursadvies and Iedereen Belegger. He publishes Mister Market Magazine, a biweekly digital journal for curious investors. Please download a free trial issue.
This article does not contain any investment advice or recommendation, nor a financial analysis. Nothing in this article may be construed as information with a contractual value of any sort whatsoever. This article is intended for information only and does not constitute in any way a commercialization of financial products. Keytrade Bank cannot be held liable for any decision made based on the information contained in this article, nor for its use by third parties. Every investment entails risks such as a possible loss of capital. Before investing in financial instruments, please inform yourself properly and read carefully the document "Overview of the principal characteristics and risks of financial instruments" that you can find in the Document centre.Close