Today, in efforts to "counter the implications of the persistently challenging economic and market conditions," the Dutch government and ING Groep NV separately announced an agreement to create an "Illiquid Assets Back-up Facility" covering a full risk transfer to the Dutch Government of 80% of ING’s €27.7 billion portfolio of Alt-A residential mortgage-back securities (RMBS) at ING Direct USA and ING Insurance Americas, which according to the Dutch Ministry of Finance, are "[s]lightly inferior to the prime segment" and "[p]resently transferable to a very limited extent."
Under the terms of the back-up facility, the risk transfer will take place at a discount of 10% of "par value" of the RMBS and the Dutch Government will participate in 80% of any results and cash flows of the portfolio. ING will remain the legal owner of the securities and will remain exposed to the remaining 20% of any results on the portfolio. ING will pay to the Dutch state an annual Guarantee Fee consisting of a fixed amount plus a percentage of the payments received on the securities in compensation for the risk assumed. Currently, the net present value of this fee is € -0.6 billion. ING will receive from the Dutch Government payments representing a net present value of €0.5 billion and a management fee with a net present value of €0.7 billion. The transaction is expected to close in the first quarter of 2009, subject to further documentation and regulatory approval. ING has stated that "The transaction will significantly reduce the uncertainty regarding the impact on ING of any future losses in the portfolio."
ING also has agreed to extend €25 billion in additional credit to individuals and private companies. The ING Executive Board will give up all bonuses relating to 2009 and for the period afterwards until a new compensation policy has been agreed. ING will also maintain the payment system PIN on its debit cards as long as this payment system is still widely used. Finally, the governance conditions relating to the earlier €10 billion capital strengthening by the Dutch Government remain in place. The back-up facility has been agreed in consultation with the Dutch Central Bank. In addition, to further shore up the company's balance sheet, ING plans to cut operating expenses by €1 billion in 2009 through structural cuts in the company's workforce, and decreasing costs for the company's head office, marketing, the Formula 1 program, consultancy, third-party staff and the renegotiating of certain contracts with IT-vendors, thereby leading to annual savings of approximately € 1.1 billion from 2010 onwards. ING will also increase its focus on businesses and regions where it has a strong position in savings and investments that is sustainable for the long term, which includes divesting of several business units the company has identified but not released publicly.
Separately, ING also announced today that, in light of the extraordinary developments over the past few months and given his personal condition, CEO Michel Tilmant will step down from the Executive Board as of today, but will continue to serve ING as an advisor until August 1, 2009. The ING Supervisory Board has decided to appoint Jan Hommen, currently Chairman of the Supervisory Board, as CEO, subject to his appointment as member of the Executive Board by the annual General Meeting of Shareholders (GMS), scheduled for April 27, 2009. As of today, Eric Boyer, a member of the Executive Board since 2004, will be acting-CEO until Mr. Hommen can formally assume office after the GMS.