ING reins in exposure to potentially-bad euro debt
AMSTERDAM—ING Groep NV, the bailed-out Dutch bank and insurer, said Friday it sold a further euro1.2 billion ($1.54 billion) worth of bonds issued by southern European nations, as it continues efforts to reduce risks to its balance sheet.
The firm, which is due to split into two by next year, is seeking to alter its business model after running into deep trouble during the financial crisis that started in 2008 following the collapse of U.S. investment bank Lehman Brothers.
Its CEO Jan Hommen said the company's banking arm plans to return to a more traditional approach, relying more on funding from retail depositors and less on financial markets, and investing more in business loans rather than in financial products developed by other banks.
Even after the sales undertaken during the fourth quarter of 2011, ING holds euro2 billion of bonds from southern Europe, mostly from Italy. Worries over the level of debts in a number of euro countries have reduced the market value of their bonds. Greece is negotiating with private creditors to get them to reduce the value of their holdings of Greek debt by 50 percent.
ING is due to report fourth quarter earnings on Feb. 9. and announced new strategy plans at a meeting with investors Friday.
Hommen said the company plans to pay no dividends until it repays the remaining euro3 billion of the euro10 billion in direct aid it received from the Dutch state in 2008. That should be done "as soon as possible," but not necessarily by May 2012 as ING had previously said.
"Given the ongoing crisis in the eurozone and increasing regulatory capital requirements, we need to take a cautious approach and pay special attention to liquidity, funding and capital," Hommen said, abandoning the original deadline.
Shares fell 2.6 percent to euro6.038 in Amsterdam.
"We are not surprised that ING is giving its capital position priority over the repayment of state aid," said analyst Lemer Salah of SNS Securities. "Although the 'less-and-later' aspects of today's message are a disappointment, we feel comfortable with our 'buy' recommendation because of the fundamental attractiveness of what will remain in the medium term."
The EU Commission has ordered ING to split itself into separate insurance and banking companies by 2013 in response to the state support it received during the crisis, which also included the Netherlands assuming most of the risk for ING's portfolio of U.S. mortgage-backed securities. ING plans to sell its European and Asian insurance business, and spin off its U.S. insurance and asset management arm in an initial public offering of shares by the end of 2013.
Though Hommen said regulatory demands were "limiting banks' ability to grow," he laid out the hope that ING's banking arm will prosper by returning to a more traditional model of seeking funding from retail depositors and then lending the money to businesses itself.
In the years before the crisis, European banks generally raised increasing amounts of short-term funding from financial markets and invested in exotic financial products -- such as mortgage-backed securities and derivatives -- that they did not themselves create.
As short term credit markets are increasingly closed to European banks, many have been forced to turn to the European Central Bank for funding. Hommen told investors he would seriously consider taking advantage of the ECB's second offer of three-year funding at 1 percent in February.
"It's too attractive to pass up," he said.
ING's presentation Friday noted it is continuing attempts to sell "non-core" assets to shrink its balance sheet, without elaborating on which.
Hommen said ING's strategy changes will "improve the quality of the overall asset side and produce a better return, with a low risk balance sheet."