ING becomes latest member of helping hand scheme

Financial services group ING on October 19 agreed terms with the Dutch government for a €10 billion capital injection, becoming the latest beneficiary of the state-supported recapitalisation process underway in Europe and the US.

In exchange for its support, the Dutch government will receive securities that “have largely the same features as shares”. The securities – issued at a price of €10 per unit - rank the same as common shares, so not to dilute share capital held by existing investors.

According to ING, the transaction raises its Tier 1 capital ratio to around 8% and reduces its debt/equity ratio to approximately 10%. “Our capital position was in line with previously targeted levels and requirements. However, market conditions have changed dramatically in recent weeks and have led to an internationally recognised belief that, going forward, capital requirements for financial institutions should be higher,” said Michel Tilmant, chief executive officer at ING.

The securities carry a nominal annual coupon of 8.5%, which will only be paid if dividends were awarded during the preceding year. If dividends exceed 8.5%, the coupon rises to 110% of the dividend in the first year; 120% in the second, and 125% in subsequent years. ING can terminate the arrangement by redeeming the value of securities in cash at 150% of the issue price or by converting them to ordinary shares after three years.

“The structure is an incentive to ING to withdraw from this government participation as soon it is justified by the share price and path of dividends,” said the Ministry of Finance and the Netherlands Bank.

Although the Dutch government opted against demanding preference shares for its participation, the terms of the deal give it significant powers in determining ING’s immediate future. Firstly, it will nominate two supervisory board members, with the right to veto decisions on acquisitions or investments worth over 25% of the bank’s funds, as well as changes in capital levels and proposals to change remuneration schemes.

Those government representatives will also sit on the audit, remuneration, nomination and corporate governance committees.

One condition of the government’s backing was that members of ING’s executive board forgo all bonuses for 2008, while redundancy packages will be limited to one year’s fixed annual pay.

ING said it is reviewing its remuneration policy for executive board members and senior management, with the aim of “linking incentive schemes to long-term value creation and risk”.

On October 9, the Dutch finance ministry and central bank said that capital would be made available to “each financial enterprise [including insurers] that is fundamentally sound and viable”. It immediately made a pool of €20 billion available to interested parties, with the offer ending on October 10, 2009.

The direct support of the Dutch government follows similar commitments by its peers in the US and European countries including the UK, Germany, France and Switzerland.

See also: Swiss National Bank to take $60 billion in UBS assets
Treasury to take $125bn equity in nine US banks, says Paulson
Eurozone governments unveil details of rescue plans