ING shares rebound after state invests euro10B

[October 20, 2008]  AMSTERDAM, Netherlands (AP) -- Shares in ING Groep NV rebounded more than 20 percent at the start of trading Monday, after the Dutch government threw the bank and insurer a euro10 billion ($13.4 billion) lifeline to shore up its capital position.

The move, which will temporarily make the state ING's largest shareholder, was announced late Sunday and intended to prevent the company from becoming the latest victim of the global financial crisis. ING said Sunday it would cut dividends for the rest of the year and had agreed to cancel bonuses for executives.

Though the bank was not facing a run or acute insolvency problems, its shares had entered an accelerating slide Friday and it said it expected to post a large loss for the third quarter.

Dutch Finance Minister Wouter Bos said ING was considered essentially healthy. 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 euro10 billion."

The state bought 1 billion of a new class of shares -- there are 2 billion common shares outstanding -- for euro10 ($13.46) each.

Shares closed at euro7.34 ($9.86) Friday after a 27 percent tumble, but were quoted 21 percent higher at euro8.87 ($11.93) in early trading in Amsterdam Monday.

The government shares earn at least 8.5 percent interest, and that amount will escalate each year. But ING can repurchase the shares for euro15 ($20.14), giving it a way to limit dilution.

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."

"Although ING does not say so explicitly, the buy-back option suggests that it believes that it does not really need this capital injection," wrote analyst Ton Gietman in a note upgrading the company to "Buy" from "Hold."

"In our view, the shares should no longer trade at a multiple that includes a huge fear-discount."

As part of the deal, the state will name two members of ING's supervisory board. Bos said ING's chief executive Michel Tilmant and other managers would receive no more than a year's pay if they are dismissed.

Tilmant was to give further details later Monday.

ING warned Friday it will post a euro500 million ($670 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 euro2 billion ($2.68 billion) in investment losses, asset write-downs and extra provisions for bad loans.

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 to 8 percent from 6.5 percent.

Earlier this month, the Dutch government established a euro20 billion ($27 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 nationalized outright after its ill-fated acquisition of ABN Amro fell apart. ABN was also nationalized.

Aegon NV, an insurer with large operations in the U.S. and Britain, is the only major financial company to remain free of government money.

[Associated Press; By TOBY STERLING]

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