ING Gets

123jump.com Staff
20 Oct, 2008
New York City

ING Group, the Dutch insurance giant is forced to accept

[R]7:10AM Amsterdam, Holland – ING Group taps 10 billion euros from the Dutch government as the U.S. financial market crisis takes another international victim.[/R]

The Dutch banking giant with multi-national roots ING Group agreed to tap 10 billion euro from the recently set up bank bailout fund set up by the Dutch government.

The reckless speculation in the risky loans tied to the U.S. market where U.S. regulators failed to supervise financial viability of the securities rated by the rating agencies have nearly drowned banks in Europe. Banks in Europe, Asia and the U.S. have written down more than $630 billion of assets that are tied to the U.S. housing market.

ING Group is the latest to seek bailout after a near collapse of another Dutch-Belgian bank Fortis. Royal Bank of Scotland, Northern Rock, HBOS and Lloyds TSB were recently forced to accept $65 billon of emergency funding from the UK government.

ING ((ING)) dropped 27% in Amsterdam and New York trading after the rumors of its lack of capital adequacy made rounds on trading desks on Friday.

ING on Sunday agreed to sell 1 billion of non-voting stocks to the Dutch government which will be classified as Tier-1 securities each valued at 10 euros. The newly issued stock will be treated in par with ordinary common stock and ING will have the right to buyback all or part of 1 billion shares at 150% premium or convert to a common stock on a 1-to-1 basis after three years.

ING will suspend its final dividend for the year, and its interim dividend of 74 euro cents will be the total dividend. The securities issued to the government will pay a dividend of 85 euro cents or 110% of the amount paid to shareholders in 2008, 120% in 2009 and 125% in 2010.

The capital injection in the insurance and banking giant is designed to restore confidence across 85 million customers around the world. ING though its subsidiaries in wholesale banking, insurance and commercial banking does business in the U.S., Europe and Asia.

Insurance business in the U.S., Europe and Asia generated 47% of its total revenue in fiscal 2007 and retail banking contributed another 22% of revenues. Insurance dominated with 62 billion euros of the 67 billion euros of revenue in 2007.

ING formed in 1991 after the merger between NMB Postbank Group and Nationale Naderlanden which traces its roots as far back as 1845.

In the last five years the assets at the company has surged to 1.3 trillion euros from 779 billion euros. However the financial services company has struggled to improve its capital ratio. Lax rules permitted the insurer to keep low level of capital on its balance sheet and its tier 1 ratio hovered between 7% and 7.6% in the last five years.

On Friday, ING released its preliminary third quarter financials and said that its debt to equity ratio is at 15% and it losses linked to financial market will force the company to declare a loss of 500 million euros and wrote down its portfolio of equity and bonds and real estate by 1.6 billion before taxes.

What is surprising is that the company that only took less than 120 million euros of losses in 2007 and declared profit of 11 billion before taxes was forced to take such a large injection of capital from the government.

The crisis of confidence in ING’s ability to weather financial storm was so swift that it left most investors in a state of shock. ING stock in New York dropped from $33 on July 22 to $22 on October 3 and then on Friday plunged 27% or $4 to $10.65.

The recently collapsed financial giants in the U.S. including AIG, Washington Mutual, Bear Stearns and Lehman Brothers witnessed sudden declines in their stock prices but all of them have suffered dramatic withdrawals of customer deposits from their clients. The government guarantees of the safety of their deposits were not enough for most depositors or clients.

In the last two months, Washington Mutual in the U.S. faced a bank run after the collapse of Lehman Brothers and Wachovia was rumored to have a similar level of bank deposit withdrawals as faced by WaMu in the final two weeks before it was sold to JP Morgan Chase.

Fortis, Dexia in Benelux countries and HBOS and Northern Rock in the UK have faced bank runs. It is not clear if the ING has faced deposit withdrawals in the last two weeks, at least the management of the company is not talking or reassuring publicly.

In the latest statement from ING, chief executive Michael Tilmant noted, “Our capital position was in line with previously targeted levels and regulatory requirements. However, market conditions have changed dramatically in recent weeks and have led to an internationally recognised belief that going forward, in this market environment, capital requirements for financial institutions should be higher.

We feel that at this time it is prudent to raise our core capital to reinforce our strong competitive position in this changing landscape.”