Dutch bancassurer ING outlined plans for the expected early repayment of state aid it received during the credit crunch, further evidence of the Dutch financial sector’s recovery from the crisis.
ING said on Monday that by May 2011 it will have repaid €7 billion [$9.816 billion] out of a total €10 billion [$1.402 billion] it received from the Dutch state, with the remaining €3 billion [$4.207 billion] to be paid back by May 2012.
Early repayment is an important step for the banking and insurance group: once free of its state shackles, a European ban on acquisitions will be lifted and ING will have more pricing flexibility, allowing it to compete more easily.
The Dutch government paid nearly €40 billion [$56.1 billion] to rescue the domestic financial sector in 2008 when it nationalised ABN AMRO and provided capital injections for ING, insurer Aegon, and bancassurer SNS Reaal.
“Today’s announcement marks another important milestone as we work towards the full repayment of the support ING received from the Dutch state,” said Jan Hommen, ING’s chief executive, in a statement.
“The strong recovery of the banking business in 2010 has enabled us to accelerate the repurchase of the core Tier 1 securities from retained earnings, while maintaining a robust capital position post repayment.”
ING shares opened lower after the news, and were flat by 0925 GMT.
Both ING and Aegon have said recently that they plan to make significant repayments, while state-owned ABN AMRO is being readied for a stock market listing in 2014.
Aegon, which received €3 billion [$4.207 billion] of state aid in the crisis, last month raised about €900 million [$1.262 billion] in a share issue to help repay its debt.
ING has already divested several non-core assets, including most of its real estate management operations and its Asian private banking business, to raise funds, and plans to list its insurance units in 2012.
“ING wants to prevent any European Commission actions and show they (are doing) their best to pay back” the state, said Rabobank in a research note.
“If ING had not paid back by 13 May there might have been negative consequences from the European Commission…There was a risk that it would consider extra consequences for ING,” Rabobank said.
ING has already repurchased half of the €10 billion of core Tier 1 securities it used to borrow from the state and said that it aimed to repurchase the remainder by May 2012.
On Monday, it said that it would exercise its option for early repurchase of €2 billion [$2.805 billion] of core Tier 1 securities at the next coupon reset date on May 13, 2011. The early repurchase entails a 50 percent repurchase premium, or penalty, bringing the total cost of the deal to €3 billion.
ING will then have paid €7 billion out of a total of €10 billion, leaving it with €3 billion to repay.
ING said its recovery last year boosted its capital position resulting in a core Tier 1 ratio of 9.6 percent as of the end of December 2010.
“Based on our capital position at that date, the intended repurchase in May would reduce the core Tier 1 ratio by 90 basis points, and the ratio is expected to remain above 8.5 percent,” ING said in a statement.
(Editing by Sophie Walker)
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