Now ING needs Government Support

Posted on 19 October 2008 by Ray Boulger

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Less than 2 weeks ago our Government transferred the £2.5bn worth of retail deposits held by 160,000 UK customers in Icelandic bank Kaupthing Edge to ING. It also arranged for the transfer to ING of £538m of deposits held by British customers of the Landsbanki subsidiary Heritable Bank.

At the time (don’t forget this was less than 2 weeks ago) ING Direct's UK Chief Executive, Johan de Wit, said: "ING Direct is in a position of strength. We are very pleased to have been able to take such rapid and decisive action that has provided Heritable Bank's customers, and those of Kaupthing Edge, with the reassurances they need."

This evening it was announced that ING, Holland’s biggest financial services firm and, according to their web site, one of the 20 largest financial institutions in the world, would receive a 10bn euros (£7.75bn) injection from the Dutch Government after it said last week it expects to post its first ever quarterly loss. This injection of funds will lift ING’s core Tier 1 capital from 6.5% to about 8%.

ING will scrap this year's final dividend and issue to the government non-voting preferred shares with a minimum coupon of 8.5%, although this will not be paid in any year when ING does not pay a dividend on its ordinary shares in the previous financial year. Interestingly the minimum interest rate on these shares is exactly half way between the 5% coupon on similar shares bought by the US Government in the banks they have bailed out and the 12% coupon on preferred shares issued to our Government by the banks it has bailed out. Although 12% seems rather usurious the banks needing UK Government funds had put themselves in a rather weak negotiating position!

Concerns about ING surfaced on Friday after it announced it would post a 500m euros third quarter loss this year when its results are announced on 12 November, resulting in its shares sliding 27%, and bringing the fall this year to 73%. This loss is after write downs of £1.6bn euros, which includes losses related to the bankruptcy of Lehman Brothers.

This evening’s news rather begs the question of how much thought the UK Government gave to deciding that ING should be the recipient of UK savers’ funds being transferred from the Icelandic banks. Despite having to act quickly, a call to the Dutch banking regulator before doing so would hopefully have elicited sufficient information about ING to make it aware ING would shortly be calling on the Dutch Government for support. This of course assumes that the Dutch banking regulator was not asleep on the job.

Surely many of our home grown British banks would have welcomed with open arms the £3bn of retail deposits transferred to ING. The latter is only a recent entrant to the UK mortgage market and its lending so far is on a very small scale. As new mortgage lending will largely have to come from retail deposits I hope as part of the deal our Government extracted a commitment from ING to use a large part of these new deposits to increase their mortgage lending in the UK, but the absence of any statement from the Government to that effect makes me doubtful such a commitment was obtained.

The £3bn of savings involved is not insignificant against a net mortgage lending figure expected to be in the region of £50bn this year, compared to last year’s £108bn, and the probability of a further sharp fall next year. In fact in 2009 an extra £3bn of mortgage lending (it is too late for anything more than a token of these funds to be lent this year) could easily increase net lending by 10%.  

I wonder how many of the UK savers whose funds our Government transferred to ING less than a fortnight ago feel much more confident about their savings now than they did when they were with Kaupthing Edge or Heritable Bank!

 

 

 

 

 

 

 

Category: Miscellaneous, Mortgages, Regulation

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