ING, The Dutch financial services giant, last night became the latest large European bank to turn to its government for an injection of capital. The bank, the biggest in the Netherlands, announced it would sell an 8.5 per cent stake to the Dutch government for €10bn (£7.8bn), as it attempts to improve its capital funding.
The capital boost followed a weekend of talks with the Dutch government following ING's announcement on Friday that it had lost €500m in the third quarter of the year, the first such loss in its history, after making €2bn of writedowns on investments.
That revelation – and a 27 per cent fall in ING's share price on Friday – rang alarm bells with the Dutch authorities, which had already set aside €20bn to provide funds as and when needed to the country's banking system.
While ING insisted its capital position was strong, the bank's core tier one ratio prior to the government injection was around 6.5 per cent. By contrast, the British banks participating in the UK government's £37bn bail-out have agreed to raise this ratio to around 8 per cent.
"Our capital position was in line with previously targeted levels and regulatory requirements," said Michel Tilmant, the bank's chief executive. "However, market conditions have changed dramatically in recent weeks and have led to an internationally recognised belief that going forward, in this market environment, capital requirements for financial institutions should be higher."
While Mr Tilmant claimed the fund raising was "in the long-term interests of all stakeholders", the Dutch government has extracted a number of commitments from ING that investors and executives may find difficult.
Although the securities acquired by the Dutch government do not confer voting rights, it will be entitled to nominate two members of the ING board. The bank's existing directors have already agreed to waive all bonuses, whether in cash, options or shares, for this year, and to limit pay-offs to one year's salary if they step down. In addition, ING has promised to review its remuneration policy "to align it with new international standards".
ING also said last night it would not now pay its final dividend for 2008. And while it is free to restore dividends from next year onwards, the coupon on the Government's securities grants it 110 per cent of any dividend paid next year rising to 125 per cent from 2010.
ING is one of the world's 20 largest financial services institutions. The bank launched savings accounts in the UK under the ING Direct brand in May 2003, and an aggressive approach on interest rates has seen it attract more than 1 million savers in the UK.
ING's business in the UK also took over responsibility last week for the accounts of 160,000 savers who had placed £2.5bn with Kaupthing Edge and Heritable Bank, the British subsidiaries of the Icelandic bank now nationalised.
There is currently no question of ING failing, but, in the worst-case scenario, all its customers would have recourse to the Dutch financial services compensation scheme. It offers a more generous guarantee than its UK equivalent, pledging to guarantee savers' losses up to €100,000.
The ING investment is the Dutch government's second massive intervention in the country's banking system this month. It has already broken up the Dutch-Belgian bank Fortis, nationalising part of the group and selling off the remaining parts.