AMSTERDAM, Netherlands–The Dutch government said yesterday it will inject 10 billion euros ($13.4 billion U.S.) into ING Groep NV in exchange for an 8.5 per cent stake amid market rumours the bank and insurance company was running out of capital.
Finance Minister Wouter Bos said the deal was necessary given the recent extreme volatility of global financial markets.
ING is "a healthy financial institution," Bos said at a news conference held at the offices of the country's central bank in Amsterdam.
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 10 billion euros.''
The move is the latest case of a government stepping in to help shore up the books of a financial company hammered by the worldwide credit crisis.
The Dutch government will name two members to ING's supervisory board. Bos said that one condition of the deal is that ING's chief executive Michel Tilmant and other managers will receive no more than a year's pay if they are dismissed.
ING said separately it will cancel dividends for the rest of the year.
The company's shares slumped on the Amsterdam stock exchange Friday on rumours it was short of capital, falling 27 per cent. The company's U.S.-traded shares suffered similar losses on the New York Stock Exchange.
After markets closed, it said it expected to post a 500 million euro ($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 2 billion euros ($2.68 billion) in investment losses, asset writedowns and extra provisions for bad loans.
Under the deal announced yesterday, the government will buy newly issued non-voting shares with special rights at 10 euros ($13.43) per share. They will receive a dividend that is greater than common shares, and which grows each year. But they can be repurchased by ING for 15 euros ($20.14).
Bos said the deal was structured to ensure the state would exit the company "as soon as this financial hurricane recedes.''
ING was among the top 20 financial services firms globally in terms of market capitalization in March, but its stock has lost nearly three quarters of its value since then.
On Friday, ING said that, as of Sept. 30, its banking operations were within target solvency ratios and it retained a low-risk ``AA" credit rating. After yesterday's moves, the company said its "core tier-1'' solvency ratio – the measure commonly used to rate a bank's strength – will improve to 8 per cent from 6.5 per cent.
Earlier this month, the Dutch government established a 20 billion euro ($27 billion) fund to support ailing financial companies. Bos said the fund remains open to other takers.
Among the country's major publicly traded financial companies, Fortis NV was nationalized after its ill-fated acquisition of ABN Amro fell apart. ABN was also nationalized. Only Aegon NV, an insurer with large operations in the United States and Britain, remains free of government money.