ING takes €10bn injection from Dutch state

The share price of ING rose sharply on Monday after the Dutch banking and insurance group accepted a €10bn capital injection from the Dutch government to shore up its core capital.

The government will buy a new class of securities that count towards ING’s core Tier 1 capital but have no voting rights and are not dilutive for ordinary shareholders, ING said on Sunday. The group will also scrap its final dividend for 2008, and the executive board will take no bonuses – either in cash or shares – this year. The government will take two of the 12 supervisory board seats.

ING also announced on Monday that it had agreed to sell its Taiwan life insurance unit to Fubon Financial for $600m.

Its share price climbed 23 per cent to €9.02 in early trading.

The group scrambled to negotiate the capital injection after announcing its first quarterly loss of on Friday when its shares slumped 27 per cent.

It is the first Dutch financial group to benefit from a €20bn fund created a week ago by the government to recapitalise banks and insurers.

The €10bn injection will boost ING’s Tier 1 capital, which stood at 6.5 per cent at the end of September to 8 per cent. It will also reduce the group’s debt-to-equity ratio from 15 to 10 per cent.

Michel Tilmant, ING chief executive, insisted his company met regulatory requirements last week, but the market had come to expect much higher levels following state recapitalisations of banks around the world.

The €500m third-quarter loss is due to more than €2bn in impairments on equity, bond and real estate investments, losses due to the collapse of other banks and higher loan loss provisions.

The scale of the impairments came as a shock for a group that had prided itself on its conservative retail banking business model and insulation from the effects of the credit squeeze.

The Dutch central bank has approved the new securities – subordinated bonds – as contributing to Tier 1 capital even though they are neither ordinary nor preference shares.

They will pay a fixed 8.5 per cent annual coupon, with a step-up guarantee to match dividends on ordinary shares, and can be bought back at any time for 150 per cent of their issue price. ING also has the option to convert them into ordinary shares after three years.

Although ING insisted on Friday it had no urgent need for fresh capital, ebbing investor confidence may have forced its hand in the wake of the demise of Fortis, its Belgian-Dutch rival, which lost public and government confidence as its share price sagged.

While ING’s capital was not as stretched as Fortis, the group acknowledged it would have to follow an international trend of bolstering its capital.

However, Wouter Bos, Dutch finance minister, dismissed any comparison of the deal to the bail-out and nationalisation of Fortis. “Fortis-ABN Amro was a bank about to fall,” he said. “This is a healthy company. We just wanted to give it extra buffers to withstand market forces.”