ING Groep NV, the biggest Dutch financial-services firm, will get a 10 billion euro ($13.4 billion) lifeline from the Netherlands after mounting credit- market losses drove the stock to a 13-year low.
The government will buy non-voting preferred shares and appoint two representatives to the board of ING, which will scrap this year's final dividend, the Amsterdam-based company said yesterday. The securities pay 8.5 percent annual interest, Dutch Finance Minister Wouter Bos told reporters.
ING fell a record 27 percent on Oct. 17 after predicting a 500 million euro loss for the third quarter and is the first to draw on the 20 billion euros that the Netherlands made available to financial firms on Oct. 10. The company agreed to sell its Taiwanese life insurance unit for $600 million to Taipei-based Fubon Financial Holding Co., the two firms said in a joint statement today.
``The question that remains is whether this government intervention will have a negative impact on ING's commercial performance,'' said Thomas Nagtegaal, an Amsterdam-based analyst at Royal Bank of Scotland Group Plc. Nagtegaal has a ``buy'' recommendation on ING.
The government will have a say in ING's executive compensation and get a share of company profit, Chief Executive Officer Michel Tilmant said.
Third-Quarter Writedowns
The non-voting preferred securities bought by the state won't dilute existing shareholders and will lift the bank's core Tier 1 capital to about 8 percent, according to ING's statement. The bank had core Tier 1 capital, an indicator of a company's ability to absorb losses, of 6.5 percent as of Sept. 30, it said. ``A core Tier-1 ratio of 8 percent is OK given the quality of ING's loan book,'' Nagtegaal said.
ING said Oct. 17 it will take 1.6 billion euros of writedowns in the third quarter. The quarterly loss reflects writedowns for stocks, bonds, structured investments and investments related to Lehman's bankruptcy, as well as lower real-estate values.
Loan-loss provisions totaled about 400 million euros, the bank and insurer said. ING plans to report its third-quarter results Nov. 12.
ING, which traces its roots back to 1743, serves more than 75 million customers around the world and was one of the 20 largest financial institutions worldwide as of March, according to its Web site. The bank had more than 124,000 full-time employees, according to figures for the 2007 financial year.
Governments Rush
Governments from Washington to London to Berlin have rushed to shore up banks' capital and unlock lending since credit markets froze up following the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc. In the U.S., Treasury Secretary Henry Paulson plans to spend $250 billion of a $700 billion bailout package to buy non-voting preferred equity stakes in banks.
The Dutch government bought local units of Fortis and ABN Amro Holding NV earlier this month for 16.8 billion euros. Zurich-based UBS AG agreed last week to sell a stake of 6 billion Swiss francs ($5.3 billion) to the government and split off as much as $60 billion of risky assets.
Royal Bank of Scotland, the U.K.'s second-biggest bank before its shares plunged this year, may sell as much as 20 billion pounds ($35 billion) of stock to the government unless investors agree to buy shares.
`Wouldn't Exist'
``Fortis wouldn't exist anymore if we wouldn't have taken steps,'' Bos said. ING ``is a different case. We are talking here about a very strong bank.''
ING dropped 2.78 euros on Oct. 17 to 7.34 euros, the most since it was created in the 1991 merger of Nationale-Nederlanden and NMB Postbank Group, valuing the company at 15.3 billion euros. The shares have dropped 73 percent this year, compared with the 52 percent decline of the 69-member Bloomberg Europe 500 Banks & Financial Services Index.
ING plans to sell the government securities that the Dutch Central Bank will consider part of core Tier 1 capital, a measure of financial strength. The securities will have equal ranking with ordinary shares in a liquidation and are transferable only with permission of ING and the Dutch Central Bank, they said.
``It's always a shame and negative if measures like these are necessary,'' said Jan Maarten Slagter, director at The Hague- based investor group VEB, who said he's still studying the transaction. ``Profit, if any, will be distributed among more parties, so there will be dilution.''
Incentive to Withdraw
ING can buy some or all of the securities at any time for 150 percent of the issue price of 10 euros per security. The annual coupon will only be paid out if dividends are awarded over the preceding year and will be increased if the dividend exceeds the coupon, the Finance Ministry said in a statement.
``This structure is an incentive to ING to withdraw from this government participation as soon as justified by the share price and the path of dividends,'' the Finance Ministry said.
The Netherlands can nominate two members to ING's supervisory board at the company's shareholders' meeting next year. ING agreed that its executive-board members will forego bonuses for 2008 performance and limit severance payments to one year's fixed salary.
``We aren't a major shareholder, but we'll get a lot of rights as if we are a major shareholder,'' Bos said.
ING will use half the 10 billion euros to boost shareholders' equity at the banking unit and 2 billion euros to bolster the insurance unit. The remaining 3 billion euros will reduce ING's debt-equity ratio to 10 percent from 15 percent, the company said.
``Making the insurance unit better capitalized as well may be sensible given what's happening at the equity and real-estate markets,'' Nagtegaal said.
