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Saturday, 23 February 2013

Today, the CEO of ING Groep NV announced his resignation: ‘Saying goodbye to Jan Hommen’.

Today, Jan Hommen, the CEO of ING Groep NV ($INGA) announced his resignation as of 1 October 2013. He did so after successfully leading the only Dutch G-SIFI (global systemically important financial institution) for four years through arguably the most difficult period of its lifetime. 

Jan Hommen will be successed by Ralph Hamers, a genuine ING manager who served for 20+ years in the company.

Here are the pertinent snips of Hommen's announcement letter that ING workers received this morning:

Dear Colleagues,

A press release went out this morning announcing that I will step down as CEO of ING Group as of 1 October 2013, and that I’ll be succeeded by Ralph Hamers, the current CEO of ING Belgium and Luxembourg.

Let me start at the beginning. When the Supervisory Board appointed me as CEO in 2009, it was for a term of four years. I’m sure most of you would agree that these four years have been quite extraordinary for the company and the financial sector. I’m very proud of what we’ve achieved together and can truly say it’s been an honour to serve the company so far.

As usual it’s the role of the Supervisory Board to determine CEO succession, and they’ve conducted a thorough process in deciding to appoint Ralph Hamers. Ralph will be familiar to many of you, as he’s been with ING for more than 20 years. Let me tell you what I know to be true about Ralph after knowing him professionally for some time.

Ralph is a man with integrity, good business sense and a strong belief in teamwork. He is extremely dedicated and always looking for ways to grow as a leader and as an individual. He knows the Banking business inside and out and, make no mistake, he won’t hesitate to work as hard as necessary to feel just as at home with the Insurance/IM business.

I’m confident that Ralph is an excellent choice to see ING through the coming years. Although my term as CEO expires at the General Meeting of Shareholders in May, I’ve agreed to stay on until 1 October 2013. I want to make sure there is a seamless handover to Ralph, as there are still quite some tasks left in building successful independent futures for our Banking and Insurance/IM businesses. Ralph and I will soon begin working more closely together but I will continue to fully fulfil my responsibilities as CEO up until 1 October.

By itself, CEO’s who are leaving a company, are seldomly a reason for a special article on this blog. There are dozens of CEO’s leaving companies every day and there are tons of news to react to.

However, Jan Hommen is not just a CEO and the company that he leaves is not just a company. Hommen has been the CEO of the company where I spent with much pleasure the last five years, as a contracted ICT consultant. Although he is not my real employer, he has been my principal-in-chief.

When Hommen came to ING in May 2009, he encountered a bank-insurer in all kinds of trouble:

ING Groep NV, the Dutch bank/insurance conglomerate, existed of the labels ING Bank, Postbank and Nationale Nederlanden insurance in The Netherlands and also numerous foreign subsidiaries, like ING Direct US and ING Direct Australia. Thanks to its massive share buyback program, its Formula One sponsoring contract, the achievements of ING Direct overseas and its generally megalomanic way of doing business, ING was the ‘golden boy’ of the shareholders. 

In the spring of 2008 and with Hommen’s predecessor Michel Tilmant (Belgium) at the helm, ING presented a record-high profit over 2007 of €10 bln. The sky was the limit for ING Groep NV and faith of the shareholders in the bank-insurance model seemed infinite. And that the bank had a debt-to-equity ratio of 70(!!!!) at the time, who cares…?!

And then came Lehman and opened the financial Pandora’s box, which turned into a virtually unrivalled global financial and economic crisis…

ING was among the banks hit the hardest by the crisis. The bank clung on to life by the skin of its teeth and it could avoid nationalization only by a whisker, unlike its peers ABN Amro and Fortis Group.

Nevertheless, it needed a staggering €27+ bln in state support (mainly in subordinated loans) and many billions more in state guarantees on all kinds of (at the time) unnegotiable, structured financial products, like Alt-A mortgages.

These structured products had been bought with money, coming from savings deposited at US subsidiary ING Direct, as these saving had to be reinvested within the United States. In those days, the structured products were almost the only investments which offered the yields that could keep the greedy-guts shareholders happy.

Soon after the credit crunch came at full speed at the beginning of 2009, Tilmant’s stint was over and Hommen entered a bank in despair, that had also come under heavy scrutiny of the EU referees for fair competion. 

At the same time, the bank was involved in a €1 billion ICT and organizational program in The Netherlands, to merge the two Dutch labels Postbank and ING Bank together. This program caused a lot of commotion in the domestic organization.
In spite of all these challenges and slowly, but surely, Hommen achieved the virtually impossible:
  • He reduced the leverage of ING Groep from a suicidal debt-to-equity ratio of 70  to a decent 19.5, while at the same time shrinking the top-heavy balance sheet.
  • He guided ING Groep through a painful series of split-ups, wherein – under pressure of the European Commissioner for Competition – the insurance branches needed to be untwined from the bank branches;
  • With Hommen at the helm, Nationale Nederlanden, one of the largest insurance companies in The Netherlands, became ready to operate as a fully independent company again;
  • He took the foreign company parts (f.i. the global branches of ING Direct), which had to be taken out of the conglomerate under EU pressure, and generally managed to sell those for a decent price given the general circumstances at the financial markets and the forced sale. ING subsidiaries seldomly ‘went cheap in the sales’; 
  • He (initially reluctantly) abolished the bonus culture within ING and guided the company through a series of painful, but necessary reorganizations. Hommen got rid of a lot of red tape in the process and made the bank leaner, meaner and much more customer-oriented than before. The jet set bank that floated miles above us, came back to the New Amsterdam Water level again.
  • Consequently, he slowly rewon the trust of the investors and managed to reinstate a decent image for his bank-insurer again, by taking the high road in business, abolishing the structured products that ‘nobody understood’ and staying out of trouble. This was something that the current state-bank ABN Amro didn’t manage yet.

Chart of ING  Groep NV during the last five year
Data courtesy of
Click to enlarge
People could argue that during Hommen's stint, the ING rates only returned to price levels in the $6 - $10 range: nowhere near the ultimo 2007-level. They could also argue that the stock never showed outstanding performance, except for the time when Hommen had entered the company as a CEO.

I would argue that The Netherlands is currently in the third period of recession, since the crisis started in 2008 and also that Hommen never let the shareholders down the way that Michel Tilmant did before.

However, before you think that I want to award Jan Hommen for the Nobel peace prize for 2013, I want you to take the following also into consideration:
  • Due to Jan Hommen and especially his predessor Michel Tilmant, the Dutch state, and thus all the Dutch citizens, are still the 'happy' owners of a $16 billion package of United States Alt-A mortgages, which probably must be kept into maturity;
  • Dutch housing, as collateral for ING mortgages, is probably still in the ING books at excess values. Something that also Jan Hommen did nothing about;
  • The same is true for the multi-billion euro Commercial Real Estate-portfolio that ING owns:
    • With a vacancy rate of 16% for Dutch CRE (of which about 50% structural vacancy), there should have been huge write-offs on the CRE portfolios at the Dutch banks. This didn't happen at ING and also not at any other bank, except for the recently nationalized SNS Reaal; 
  • He is still one of those executive managers that takes home every year a multi-million euro salary, with virtually no risk involved;
  • Initially, he also misinterpreted the anger in Dutch society about the bonuses and excess salaries in the banking industry, just like many of his peers;
  • Many thousands of people lost their jobs at the bank-insurer, due to the vigorous reorganizations and austerity measures, albeit with a decent social plan:
    • Younger people with families and with small children saw their job and financial stability vanish for a much more uncertain future;
    • Older workers, who were fired, will have a helluva time to find a new job again;
    • On top of that, there are additional reorganizations planned at the bank that will again claim hundreds or thousands of jobs;
  • ING has also been heavily involved in the ‘race to the bottom’ for ICT consultants and especially facility-workers, like cleaners, janitors and catering-personnel; 
    • Especially in the latter categories: people that already earnt relatively low salaries, now even have to settle for less; 
Summarizing however, I think that Jan Hommen did overall a fine job, in not only saving and healing this bank that is so dear to me, but also bringing back some decency in the financial industry, after the cataclysm that struck this industry so heavily.

I thank him and praise him for that and wish him well for the coming years.

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