Steve Wevodau

ING sees loss, job 7,000 cuts, gives state risky assets - posted by Steven Wevodau

AMSTERDAM, Netherlands - Bank and insurer ING Group NV said Monday it will book a large fourth quarter loss, cut 7,000 jobs and change its CEO. It also said the Dutch government will take ownership of most of euro27.7 billion (US$35.8 billion) in troubled U.S. mortgage-backed securities.

There was no immediate word on whether the job cuts would impact ING Canada (TSX:IIC0, the roup’s Canadian subsidiary.

In a statement published Monday, the company estimated its “underlying net result,” - an unaudited and nonstandard measure - will be euro3.3 billion when it reports earnings on Feb. 18.

Under the complex deal with the Dutch state, the government will assume 80 per cent of risk and payments from the portfolio, in exchange for an annual payment to ING of about euro600 million.

The securities derive from “Alt-A” mortgages, which are from prime borrowers, but don’t conform to typical mortgage terms - for instance, some documentation may be missing, or the property might be a vacation home.

“Market prices for these securities have become depressed as liquidity dried up, which had an impact on ING’s results and equity far in excess of reasonably expected credit losses,” the company said.

For ING, the benefits of the deal include further deleveraging of its balance sheet. It said its Tier-1 ratio - the measure commonly used to rate a bank’s strength - will improve to 9.5 per cent from 9.1 per cent.

That ratio was boosted from 6.5 per cent to eight per cent in October, when ING received a euro10 billion investment lifeline from the Dutch state.

Shares rose 13 per cent to euro5.96 in early trading in Amsterdam as solvency fears eased.

ING said Monday’s deal frees up resources so that it can lend euro25 billion in the Netherlands, of which euro10 billion will be eligible for state guarantees under a program introduced by the government last year.

ING said in the fourth quarter “market conditions deteriorated sharply, making it the worst quarter for equity and credit markets in over half a century.”

It suffered euro2 billion in impairments and losses on stocks, bonds and real estate.

Provisions against bad loans rose by euro600 million. It didn’t give details of the performance of its insurance arm.

The job cuts represent five per cent of the company’s total work force.

The company said CEO Michel Tilmant’s abrupt departure should be seen “in light of the extraordinary developments over the past few months and given his personal condition.”

Tilmant, 56, is not known to have any health issues. The company could not immediately be reached to elaborate.

ING said Tilmant will remain an adviser to the company until Aug. 1.

The company nominated its own supervisory board chairman, Jan Hommen as Tilmant’s replacement, pending approval at the company’s annual meeting on April 27. Executive board member Eric Boyer will fulfill the CEO’s duties until then.

Hommen is a former chief financial officer of Royal Philips Electronics NV who left the company after being passed over for the chief executive job in 2005. He is also a former CFO of the Aluminum Company of America, Alcoa.

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