Netherlands rides to INGs rescue

October 21st, 2008 by admin | Filed under Daily News, Debt, Global Credit Crisis, Money Management, Recession, Saving, World Banks.

Although it recently said it didn’t need help, ING took about 10bn Euros from the Dutch state and had some, by now, pretty standard conditions placed upon it…Executive pay restrictions etc.

INGs reason was to shore up its capital base and restore investor confidence. ING will issue 10 billion Euros worth of securities to the Dutch state, which will have a position similar to common shareholders. The transaction is designed not to dilute shareholder capital.

But with a coupon of at least 8.5 percent and the right to buy back the securities at any time at 150 percent of the issue price or convert them into ordinary shares, ING will have a strong incentive to pay back the government.

The announcement that the state is to pump in funds may have surprised Dutch customers of ING and its better-known subsidiary the Postbank, but their confidence in the banking group remains. Monday saw ING’s share value make a recovery, while there were no signs of any run on either bank.

One customer at an ING branch in Hilversum commented on Monday: “I’ve always had a lot of trust in the Postbank and ING.”

Another customer said: “I’m staying within the safe amount”. This ‘safe amount’ is actually 100,000 Euros in savings, which is the limit of the amount guaranteed by the Dutch state in the event of a bank collapsing.

But not everyone is as confident.” One woman notes:

“It’s scary. All our savings are with the bank. We’re putting money to one side for our four children – that does make me nervous.”

If ING wants the government off its back, it must pay €15bn for the €10bn injection. Alternatively, after 2011 ING can swap the state’s stake into ordinary shares – but if the state doesn’t like the deal it can get its money back in cash.

If ING’s shares recover quickly, the company will have the money and the incentive to pay back the €15bn to secure its freedom. The new core Tier 1 capital ratio of 8% has definitely reassured investors, who pushed the shares up by 22% on October 20. But with the shares still at €8.5, there’s still some way to go.