By Jennifer Yousfi
ING Groep NV (ADR: ING) shares jumped more than 20% in early afternoon trading yesterday (Monday) after the Dutch financial firm announced a $13.4 billion (10 billion euro) capital injection and the sale of one of its life insurance subsidiaries.
ING shares gained $2.24 for the day, a 21% gain, to close at $12.89.
Yesterday’s gain was almost enough to erase Friday’s 27% loss in ING’s Netherlands-traded shares after the company announced it would post its first quarterly loss in more than 50 years.
ING projected a third-quarter loss of $665.6 million (500 million euros) after $2.1 billion (1.6 billion euros) in writedowns, partially due to exposure to Lehman Brothers Holdings Inc. (OTC: LEHMQ) debt and incredibly tight short-term credit markets.
“Our capital position was in line with previously targeted levels and regulatory requirements,” ING Chief Executive Officer Michel Tilmant, said in a statement, The New York Times reported.
“However, market 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,” Tilmant said.
Societe Generale SA (OTC ADR: SCGLY) analyst Michael van Wegen said the Netherlands capital infusion for ING is more shareholder-friendly than some other government plans, MarketWatch reported. The government will purchase non-voting preferred shares, which ING can repurchase at 150% of the issued value or convert the shares to common stock after three years. The government will also appoint two members to the ING board of directors.
In a separate announcement today (Monday), ING said it would sell its Taiwan life insurance unit to Taipei-based Fubon Financial Holding Co. Ltd. for $600 million.
Despite its third-quarter loss, many analysts expect ING to be able to redeem the government shares in a relatively short timeframe. As one of the world’s largest financial firms, ING has more than 75 million customers and $450 billion (338 billion euros) in account deposits.
“Although ING does not say so explicitly, the buy-back option suggests that it believes that it does not really need this capital injection,” wrote analyst Ton Gietman in a note upgrading the company to "Buy" from "Hold," The Associated Press reported.
“In our view, the shares should no longer trade at a multiple that includes a huge fear-discount,” Gietman added.
The $13.4 billion cash infusion will raise ING’s Tier 1 capital ratio – a measure of a bank’s stability – to 8 from 6.5.
“ING had little choice but to raise capital over the weekend,” wrote Duncan Russell, an analyst at JPMorgan Chase & Co. (JPM), in a note to clients, Bloomberg News reported. “It is wise in our view to raise significantly more than the minimum needed so as to take the issue completely off the table.”
Russell has an “overweight” rating on ING shares.
News and Related Story Links:
ING shares rebound after state invests euro10B
The New York Times:
The Netherlands to Provide $13 Billion to the ING Group
ING Jumps After $13.4 Billion Injection From State
LIBOR Drops But Short-Term Credit Markets Remain Tight
Tier 1 capital