Dutch government invests EUR 10bn in ING
The EUR 10 billion deal will make the government a major shareholder in the bank.20 October 2008
AMSTERDAM -- The Dutch government will invest EUR 10 billion in ING Groep NV to boost the bank and insurance company's capital position, officials said.
The deal, which makes the government a major shareholder in ING, was necessary even though there had been no run on the bank, Finance Minister Wouter Bos said Sunday.
ING is "a healthy financial institution," Bos said at a news conference held at the country's central bank offices in Amsterdam.
But "the situation in the market is so unpredictable at this point in time, so risky, and the expectations of the market are such that it is in the interest of ING to strengthen its capital by EUR 10 billion".
The state will name two members of ING's supervisory board. Bos said that one condition of the deal is that ING's chief executive Michel Tilmant and other managers would receive no more than a year's pay if they are dismissed.
Amsterdam-based ING said separately it will cancel dividends for the rest of the year.
The company's shares slumped on the Amsterdam stock exchange Friday on rumours it was short of capital, falling 27 percent to EUR 7.34. After markets closed, it said it expected to post a EUR 500 million loss for the third quarter, blaming the global credit crisis for its woes.
It said it would post the quarterly loss - its first in 50 years - because of EUR 2 billion in investment losses, asset write-downs and extra provisions for bad loans.
ING was among the top 20 financial services companies globally in terms of market capitalisation in March, but its stock has lost nearly three quarters of its value since then.
ING was worth just EUR 15.2 billion at Friday's closing price.
Under the deal announced Sunday, the government will buy 1 billion newly-issued nonvoting shares with special rights at EUR 10 per share. The shares will earn at least 8.5 percent interest once ING begins paying dividends again, and that amount will escalate each year. But ING can repurchase the shares for EUR 15.
Bos said that would give the company a strong incentive to buy them back and see the state exit "as soon as this financial hurricane recedes".
On Friday, ING said that, as of 30 September, its banking operations were within target solvency ratios and it retained a low risk "AA" credit rating. But the bank didn't rule out needing more capital, and Tilmant was in talks with Bos and central bank authorities throughout the weekend before the deal was announced.
After Sunday's moves, the company said its "core Tier-1" capital ratio - the measure commonly used to rate a bank's strength - will improve from 6.5 percent to 8 percent.
Earlier in October, the Dutch government established a EUR 20 billion fund to support ailing financial companies.
Bos said the fund remains open to other takers.
Among the country's major financial companies with stock market listings, Fortis NV was nationalised outright after its ill-fated acquisition of ABN Amro fell apart. ABN was also nationalised.
After ING, only Aegon NV, an insurer with large operations in the US and Britain, remains free of government money.
[AP / Expatica]