ING, ONE of Europe’s biggest financial groups, is to be broken up under pressure from the European Commission competition authorities, stemming from the state aid that it received during the financial crisis.
The commission’s order yesterday that ING must sell its insurance business – which is worth an estimated €12 billion to €15 billion – and focus solely on banking, goes further than expected and also includes a requirement that ING sell ING Direct USA, its US bank.
It is one of the toughest interventions yet by Europe’s competition authorities, which waved through state aid to financial groups but made clear that these would be scrutinised if they appeared too generous. The restructuring will leave ING with a balance sheet about 45 per cent smaller than before it turned to the state for support last year.
This is roughly equivalent to Commerzbank, the German lender, which agreed in May to cut its balance sheet by 45 per cent to comply with Brussels’ demands. In the UK, Lloyds Banking Group and Royal Bank of Scotland are likely to face demands to shrink.
ING also announced plans to raise €7.5 billion in equity to cover the early repayment of half the €10 billion capital injection it received, plus premium, and to fund about €1.3 billion in extra payments for state guarantees on risky assets.
Although both the commission and ING declined to be drawn on the extent to which Brussels dictated the radical restructuring plans, there was little doubt among analysts that the company had faced a long list of demands from Neelie Kroes, the EU competition commissioner.
“The reason they’re selling the whole lot is because Kroes told them to,” said Chris Hitchings, analyst at Keefe Bruyette Woods. “They don’t want to.”
ING, which embarked on a “back to basics” restructuring programme earlier this year, had drawn up plans to manage insurance and banking separately – in a retreat from the classic bancassurance model.
The requirement to sell ING Direct USA is a blow to ING. However, it was ING Direct USA’s decision to invest in “alt-A” mortgage-backed securities that led the group to seek state aid.
Shares in ING tumbled 18 per cent and dragged down financial stocks across Europe.
In Dublin, AIB fell 4.8 per cent to close at €2.37, while Bank of Ireland dropped 3.9 per cent to finish at €2.45, despite an affirmation of the triple-A rating on its covered bonds by ratings agency Fitch.
Financial stocks were also hit as investors digested reports that the US authorities would soon unveil plans that would make it easier for the government to seize control of failing financial institutions.
A government official said a so-called Resolution Authority would make it easier to oust failing managers, buy out shareholders and restructure loans. – Copyright Financial Times Service 2009
