ING shares rebound after state invests euro10B

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AMSTERDAM — Shares in ING Groep NV rebounded by nearly 30 percent Monday after the Dutch government threw the bank and insurer a 10 billion euros ($13.4 billion) investment lifeline to strengthen its cash position and keep it from falling victim to the global financial crisis

Shares rose to 9.48 euros ($12.72) in afternoon trading in Amsterdam; they closed Friday at 7.34 euros ($9.86) Friday after a 27 percent tumble, but have now recovered most of that ground.

The move announced Sunday will temporarily make the Dutch government ING's largest equity holder.

ING said it also would cut dividends for the rest of the year to preserve cash and had agreed to cancel bonuses for executives. Though the bank was not facing a run or acute solvency problem, its shares entered an accelerating slide Friday and it said it expected to post a large loss for the third quarter.

"The price Friday was based on all sorts of rumors ... that we would have to recapitalize and the shareholders would be diluted and all of a sudden, you know the way it works today, rumors spread panic," said chief executive Michel Tilmant on a conference call Monday.

Dutch Finance Minister Wouter Bos said Sunday ING was essentially healthy — but needed the money.

"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," he said.

Tilmant argued that because of the way the government investment is structured, it should not be seen as a partial nationalization and was not highly dilutive to shareholders.

The state bought 1 billion of a new class of shares — alongside 2 billion common shares outstanding — for 10 euros ($13.46) each. If ING converts them to common shares, as the deal allows, that would represent roughly a 33 percent stake.

The government shares yield at least 8.5 percent interest, and more than that if ING pays a large dividend. But ING has the right to buy them back for 15 euros ($20.14) each, putting a cap on how much the state will benefit if the company's profits recover and its share price rises.

"The beauty of this transaction is that it is a security which is flexible in the way that we can take the state out," Tilmant said.

Bos said that for its part, the state intends to exit "as soon as this financial hurricane recedes."

"Although ING does not say so explicitly, the buyback option suggests that it believes that it does not really need this capital injection," wrote Petercam Securities 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."

Though the government shares are nonvoting, the state will name two members of ING's supervisory board. Bos said they will review pay practices at the company, and in any case Tilmant and other managers would receive no more than a year's pay if they are dismissed.

ING warned Friday it will post a 500 million euros ($670 million) loss for the third quarter, blaming the global credit crisis. It said it would post the quarterly loss — the first since its founding in 1991 — because of 2 billion euros ($2.68 billion) in investment losses, asset write-downs and extra provisions for bad loans.

Separately Monday, ING said it would sell its life insurance arm in Taiwan to Taipei Fubon Financial Holding Co. for $600 million.

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