ING Gets $13.4 Billion Injection From the Netherlands

ING Gets $13.4 Billion Injection From the Netherlands

Oct. 19 (Bloomberg) -- ING Groep NV, the biggest Dutch financial-services firm, will get 10 billion euros ($13.4 billion) from the Netherlands after warning Oct. 17 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 percent, the Amsterdam-based company said today in a statement. The securities pay 8.5 percent annual interest, Dutch Finance Minister Wouter Bos told reporters today.

ING, which fell a record 27 percent after saying it will post a loss of 500 million euros in the third quarter, is the first to draw on the 20 billion euros that the Dutch government made available to financial firms on Oct. 10. While the government will appointment two representatives to ING's board, have a say in executive compensation and get a share of company profit, ING hasn't been nationalized, Chief Executive Officer Michel Tilmant told reporters today.

``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.''

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 financial rescue package on buying non-voting preferred equity stakes in banks.

Government Ownership

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 ($5.2 billion) to the government and split off as much as $60 billion of risky assets. Royal Bank of Scotland Group Plc, the U.K.'s second-biggest bank before its shares plunged this year, may sell as much as 20 billion pounds of stock to the government unless investors agree to buy shares.

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.

Not Transferable

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.

ING can buy some or all of the securities at any time for 150 percent of the issue price of 10 euros per security. ``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 in a statement.

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 told reporters.

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 from 15 percent to 10 percent, the company said.

``It was necessary and we had to do it,'' Tilmant said. ``We feel that this is a fair price to reinforce the company.''

Third-Quarter Loss

ING, which traces its roots to 1743, 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 the bankruptcy of Lehman Brothers Holdings Inc., 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 on Nov. 12.

ING 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.

BLOOMBERG