Yesterday, the Dutch government agreed to inject €10 billion into ING Groep NV in exchange for non-voting core Tier-1 securities ranking pari passu with ING Group's common shares. ING Group will use the proceeds of the transaction to increase shareholders’ equity in ING Bank by €5 billion. This €10 billion investment is part of the €20 billion of new capital that the Dutch government announced last week would be "available to each financial enterprise in the Netherlands that is fundamentally sound."
Michel Tilmant, CEO of ING, stated "[M]arket conditions have changed dramatically in recent weeks and have led to an internationally recognized belief that going forward, in this market environment, capital requirements for financial institutions should be higher. … We feel that at this time it is prudent to raise our core capital to reinforce our strong competitive position in this changing landscape." ING also announced that it would not be paying its final 2008 dividend. Dividends will be paid on the new security only if dividends are also paid on the ordinary shares, but when paid will accrue at a rate equal to the greater of 8.5% or 110% of the dividend paid on ordinary shares for 2008, 120% for 2009 and 125% from 2010 and onwards. According to the government's press release, "This structure is an incentive to ING to withdraw from this government participation as soon as justified by the share price and the path of dividends." ING Group may redeem the securities at any time at 150% of the issue price or, after three years, subject to shareholder approval, convert them into ordinary shares on a share-for-share basis.
As part of the agreement, the Dutch government will nominate two members for the ING Group Supervisory Board, who will be elected at ING's general meeting of shareholders in 2009 and who will have approval rights over equity issuances or buybacks (except in connection with this transaction) and strategic transactions with a value equaling more than 25% of ING’s capital and reserves, and executive compensation proposals to shareholders. In addition, all members of the ING Executive Board have volunteered to forego all bonuses – either in cash, options or shares – relating to the performance in 2008 and limit severance to a maximum of one year’s salary.
Separately, ING announced earlier today the sale of its Taiwanese life insurance operations to Fubon Financial Holding for $600 million of Fubon shares and subordinated debt.