Search This Blog

Tuesday, 5 April 2011

ING is now supporting forced sale of ING Direct. Well, they better be!

Sometimes you start to read an article that seems to state the obvious. But when you actually read it, it doesn’t, as it contains an unexpected motivation.

The following article – printed in the Dutch financial newspaper Financieel Dagblad ( – is such an article.

When I started to read the article I thought: well, what’s the news about that. When I would be in their position, I would be glad to get rid of this seemingly “bad bank”. This was the bank of which ING Bank CEO Jan Hommen said a few months ago in the 2nd Chamber of Dutch parliament (translated to English by me – EL)

“I can’t run a company if we would abolish all bonusses. I’m not going to make it…” was the statement of Jan Hommen. “We can’t punish a whole company for mistakes that our USA-based ING Direct branch made when purchasing those subprime mortgages
Well, that’s a done deal. Signed, sealed and delivered! ING Direct was the bank that made the mistakes by purchasing the Alt-A and Subprime mortgages, so the ING management will be glad to say goodbye to this bank. But the tone of voice of the article in the FD is totally different. As this article is a must-read, here is an integral reproduction of it, translated to English by me.

Bank-Insurer ING Bank ceases their attempts to stop the forced sale of their succesful American subsidiary ING Direct USA

Initially ING wanted to keep this branch, in spite of a European obligation to sell, but according to sources the company reconsidered this opinion.

In the meantime the rumors concerning possible buyers surge. Bloomberg states that SJB National Bank, Capital One, CIT Group and GE Capital are interested. ING refuses to comment.

ING should sell ING Direct USA before the end of 2013, by order of the European Commission (EC), in exchange for the received government support. This measure comes on top of the other measures, like the split-up of the bank and insuring branch and the sale of subsidiary Westland Utrecht.

Initially ING was not in favor of the sale of ING Direct USA. They hoped to use the $77.7 bln in American savings, stored in the bank, for financing their own demand for dollars.
However, this would require changed American legislation: ING is currently required to invest the larger part of the savings in mortgages. In contrary to what ING put their hopes upon, this change in legislation should not be expected shortly.

Besides that the European Commission is very decisive in this matter. The EC blames ING Direct USA as the source of all the problems for ING. This was the part of the company that invested in Alt-A mortgages.

ING is currently running an appeal procedure against the EC about the enforced penalties, “but waiting for the result is a risk” according to analyst Cor Kluis of Rabo Securities. “If they should postpone the sale until the appeal at the European Court in Luxemburg has taken place, they put themselves under time pressure. If ING loses the case, there is less time left for the sale”.

At this moment ING  is very busy with the sale. The first rumors spoke of expected proceeds of $10 bln, but according to the calculation of J.P. Morgan Cazenove this is very little, as the buyer receives already $8.9 bln in cash . These analysts think of $12-13 bln in their report. With the paper profit, in the best case-scenario, the whole remainder of Dutch state support can be paid back.
In this scenario ING Bank itself keeps leaning on the Dutch state guarantee that they received in 2008 for the ING Direct Alt-A mortgage portfolio. It is very implausible that ING can sell that portfolio ($16 bln in nominal value) without the state guarantee. Selling the portfolio with the state guarantee might be technically possible, but politically it is a no go-area. In that case the Dutch state would warrant a mortgage portfolio that is in possession of a foreign investor.
It is more plausible that the Alt-A portfolio is transferred from ING Direct USA to ING Bank and that the Dutch state maintains the guarantee. The analysts of J.P. Morgan Cazenove state that it is the most favorable solution to keep this construction upright.
A spokesman of the Dutch Finance Ministery states not be able to tell about the future of these Alt-A mortgages.
Oops, ING Bank sells ING Direct USA to an American financial organization for a “token price” of about $10-12 bln (I’m not very optimistic) and in exchange the Dutch taxpayer receives enduring exposure to a portfolio of $16 bln in Alt-A mortgages, with a probable mark-to-market value of $8.5 bln?

Bartender?! Can I skip this round of drinks? I suddenly had enough.

Let’s cut to the chase: I understand from the European Commission that they force ING to sell ING Direct USA. And being in the shoes of ING, I would even be glad about it, as the obligation to invest the American savers’ money in American mortgages is like a kind of poison pill.

But I don’t understand why ING and the Dutch state didn’t leave the whole portfolio of Alt-A mortgages in ING Direct and charged the buyer an extra $5 bln for it on top of the price of $10-12 bln. In that case the buyer of ING Direct USA would have a fair chance of making money on these mortgages and ING and the Dutch state would be freed from this millstone.

Now it seems that the Dutch taxpayer ended holding the baby!

No comments:

Post a Comment