KEY POINTS:
ING Groep, the biggest Dutch financial services firm, will get 10 billion euro ($22 billion) from the Netherlands after warning on Saturday of its first quarterly loss and falling the most in Amsterdam trading since 1991.
ING will scrap this year's final dividend and sell the government non-voting preferred securities that won't dilute existing shareholders and will lift the bank's core Tier 1 capital to about 8 per cent, the Amsterdam-based company said. The securities pay 8.5 per cent annual interest, Dutch Finance Minister Wouter Bos said.
ING, which fell a record 27 per cent after saying it will post a loss of 500 million euro in the third quarter, is the first to draw on the 20 billion euro the Dutch government made available to financial firms on October 10.
While the Government will appoint two representatives to ING's supervisory board, have a say in executive compensation and get a share of company profit, ING hasn't been nationalised, chief executive officer Michel Tilmant said.
"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. Nagtegaal has a "buy" recommendation on ING.
Governments from Washington to London to Berlin have rushed to shore up banks' capital and unlock lending since credit markets froze up following the September 15 bankruptcy of Lehman Brothers Holdings.
In the United States, Treasury Secretary Henry Paulson plans to spend US$250 billion ($408 billion) of a US$700 billion financial rescue package on buying 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 euro.
Zurich-based UBS AG agreed last week to sell a stake of 6 billion Swiss francs ($8.6 billion) to the government and split off as much as US$60 billion of risky assets.
Royal Bank of Scotland, the UK's second-biggest bank before its shares plunged this year, may sell as much as £20 billion ($56.5 billion) of stock to the government unless investors agree to buy shares.
"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 on Saturday 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 euro.
The shares have dropped 73 per cent this year, compared with the 52 per cent 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."
ING can buy some or all of the securities at any time for 150 per cent of the issue price of 10 euro 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.
ING will use half the ¬10 billion to boost shareholders' equity at the banking unit and ¬2 billion euros to bolster the insurance unit. The remaining ¬3 billion will reduce ING's debt-equity ratio from 15 per cent to 10 per cent, the company said.
"Making the insurance unit better capitalised as well may be sensible given what's happening at the equity and real estate markets," Nagtegaal said.
ING, which traces its roots to 1743, said it would take ¬1.6 billion of writedowns in the third quarter.
The quarterly loss reflects writedowns for stocks, bonds, structured investments and investments related to the bankruptcy of Lehman Brothers Holdings, as well as lower real estate values.
Loan-loss provisions totalled about 400 million euro, the bank and insurer said. ING plans to report its third-quarter results on November 12.
"Financial markets have been in turmoil," Tilmant said.
"The expectations for capital levels have changed following massive capital injections."
ING had Core Tier 1 capital, an indicator of a company's ability to absorb losses, of 6.5 per cent as of September 30, it said.
"A core Tier-1 ratio of 8 per cent is okay given the quality of ING's loan book," Nagtegaal said.
- BLOOMBERG
