ING Shows How Bank Dismemberment Is Done

ING, one of Europe’s biggest financial groups, has announced a detailed plan of dismemberment. This has been forced on the company by the European Commission, as a consequence of ING needing a capital infusion in the financial crisis.

The process starts immediately, as soon as the plan is approved by the Commission, expected to occur within a month. A statement issued by ING on Monday contained the following:

Jan Hommen, CEO of ING, commented: “Today we are announcing a comprehensive set of actions that, taken together, provide a clear plan for resolving the uncertainty created by the financial crisis and will launch a new era for ING. A little over one year ago, ING began to experience the direct impact of the financial crisis, resulting in two instances of government support to strengthen our capital position and to mitigate risk. Over the last six months, we have worked tirelessly - both inside ING and with the Dutch Government and the European Commission - to devise a plan that will enable us to pay back the Dutch State, address the EC’s requirements for viability and fair competition, and return our focus to the business and what matters most to our customers. We recognize the considerable efforts of the Dutch Government and the EC, and are pleased to have achieved understandings with them about how we will move forward."

Some of the specific actions to be taken include:

• Divestiture of all Insurance activities;
• Divestiture of all Investment Management activities;
• Divestiture of all "interadvies" (sic) - whatever that is;
• Divestiture of existing consumer lending portfolio in the Netherlands;
• Divestiture of ING Direct USA;
• Elimination of double leverage;
• Significantly reduce balance sheet.

The divestments may be through direct sales, IPOs or a combination of the two. The entire process must be completed within four years (by end of 2013).

Some additional specific agreements with the Dutch government in the ING announcement:

• Agreement with Dutch State to facilitate early repayment of capital injection.
• ING to repurchase EUR 5 billion of Core Tier 1 securities in December 2009 at a premium.
• Additional payments to Dutch State in form of fee adjustments for Illiquid Assets Back-up Facility.
• Additional IABF payments lead to one-off pre-tax charge of EUR 1.3 billion in Q4 2009.
• EUR 7.5 billion rights issue to finance repayment and cover charge for additional IABF payments.
• Further repayments to be financed from internal resources and divestment proceeds.

Compare this orderly process with the U.S. implementation regarding its two biggest sore thumbs, American Insurance Group (AIG) and CitiGroup (C). These two floundering elephants have been thrown bundles of cash, large government equity positions taken and no reorganization plan established.

AIG is obviously in a dismantling process, but there is no published plan. That is probably because there is no plan. Citi is bleeding cash like a drunken billionaire in Las Vegas. In the past six quarters, C has lost more than $22 billion after proceeds from asset sales are removed from reported earnings. The only way Citi is surviving is by selling assets.

Washington: Removing instability and resolving insolvency can be accomplished in an orderly manner. Get a clue.

More can be read about ING in an article by Michael Steen at ft.com.

Disclosure: Own SKF (Ultrashort Financial ProShares)

Comments

[RobbieP:]

Hi John,

Great summary. Yesterday, ING lost 18% on the stockmarket and ended around 8 EUR. In March the stock value was 2.30 EUR. Creating the plan is waking up the industry. Insurance and Bancing will be seperated. Back to the core business. ING will be healthy in no time. C and BoA should have learned their lessons. BDW. I don

Oct 27 06:56 AM

[Clive Corcoran:]

Surprisingly (perhaps not on second thoughts!) the US Administration appears to be taking exactly the same path with its zombie banks as the Japanese did in the 90's.
As you suggest there is a way to "heal" the banking system but only with bold and fundamental re-structuring

Oct 27 07:56 AM

[really:]

Actually if you look what the Swiss did with UBS you'd have a better example. The gov't sold a large equity position acquired in UBS's bailout in August '09 at a profit. The US tax payer could have reaped the same reward had the gov't sold its stake or at least part a few months ago. But, perhaps politicians are most interested in keeping a stake in order to have a hand in the banks.

Oct 27 08:22 AM

[tripleblack:]

This common sense (and anvil obvious) approach will never fly in Washington. Where is the pork, the patronage, the kickbacks, the advantage for the power players? Where is the advantage for the ideological agenda?

And all that transparency!

Oct 27 08:52 AM

[Donald Ingram:]

Exactly! It would spell the end of all that porkulous. Besides Washington's boss's on Wall Street would not allow it. You don't think the country is still ruled from Washington do you? Goldman Sachs has owned the Treasury since the Clinton years. Now they surround Obama and whisper in both his ears constantly about how great he's doing - just keep listening to us.


On Oct 27 08:52 AM tripleblack wrote:

> This common sense (and anvil obvious) approach will never fly in
> Washington. Where is the pork, the patronage, the kickbacks, the
> advantage for the power players? Where is the advantage for the ideological
> agenda?
>
> And all that transparency!

Oct 27 09:17 AM

[bottoms-up:]

Essentially you take ING and make it ETC.

Is that what you're saying here John?

:-)

Oct 27 09:40 AM

[Lilliana:]

ING As a new Conglomoration...rather than a supervisoty bank. will be much more viable in finance and exceptionally profitable.

Wasnt it the Dutch that BOT a crummy island from the Indians and turned it into a place called New York city.?

Oct 27 11:03 AM

[John Lounsbury:]

Glenn Hall, Edtor-in-Chief of TheStreet .com, has an article this morning about the fading expectation for bank reform (www.thestreet.com/stor... )

Oct 27 11:54 AM

[TinyTim:]

It's embarrassing and enraging (to use the verb-du-jour) to see the Europeans making simple work out of something that sorely needs to be done here.

They have no issue with "Too Small To Compete"

Thanks for bringing this up.

Oct 27 02:47 PM

[Shaftsinker:]

The Dutch traded Manhattan to the English for Suriname...

Speaking from experience (I'm currently working in the country)... no it's not the best example


On Oct 27 11:03 AM Lilliana wrote:

> ING As a new Conglomoration...rather than a supervisoty bank. will
> be much more viable in finance and exceptionally profitable.
>
> Wasnt it the Dutch that BOT a crummy island from the Indians and
> turned it into a place called New York city.?

Oct 27 02:50 PM

[DonFurio:]

Hey idiot author, the gov't is up big on C because they own the common at around 2.60 a share. C will pay the gov't back in full if they give them time. TARP was supposed to be for 3 years and then it got more punitive, but it's barely been 1 year and all you crazies are trying to blow up everything now in the name of "punishment" or in author's case because he's short. C is not expected to be profitable until the middle of next year, but once they get through this period they will be profitable, although smaller, but the asset sales will have helped them weather the storm and the stock will have risen from 4 now to 12-15 by 2012.

There is a plan for AIG. Some of their strongest insurance companies will been spon-off and have an IPO. Others will be sold as the market comes back in a few years. In the end, the gov't will make a profit on the pref stock they bought in the financials which will be way more than they will be able to say about GM and Chr.

Oct 27 03:40 PM

[John Lounsbury:]

DonFurio - - -

Thanks for your informed and respectful comment.

Oct 27 05:39 PM

[derryl:]

Put Paul Volcker and Thomas Hoenig in a room for a few days and they can write up a detailed plan to do for US money center banks exactly what is being done with ING. We already have the expertise and the willingness on the part of these honest central bankers. Unfortunately guys like these are not the ones who own the government. But if US citizens could control their government then their government could control the banksters via a Volcker-Hoenig plan to break up the too bigs.

Oct 27 06:01 PM

[icandoitdon:]

i'll do what john was too polite to do.

only an imbicile could defend the structure of the financial services industry in the united states. it's clear to all without an atrophied brain that it was the too big to fail culture that would have bankrupted the entire system had the federal reserve and treasury not both guaranteed private debt and turned on the printing presses 24/7 to prevent it. the treasury still guarantees the debt of many of these institutions and taxpayers remain on the hook for billions. and nothing about the structure of the financial system has changed. the fed still keeps rates at zero, using those taxpayers smart enough to acquired assets the hard way...through savings...to recapitalize these failed institutions that nearly bankrupted the system through ignorance and greed. and you think they deserve another bite at the apple just because you own a few shares of shitibank.

you're clueless.


On Oct 27 03:40 PM DonFurio wrote:

> Hey idiot author, the gov't is up big on C because they own the common
> at around 2.60 a share. C will pay the gov't back in full if they
> give them time. TARP was supposed to be for 3 years and then it got
> more punitive, but it's barely been 1 year and all you crazies are
> trying to blow up everything now in the name of "punishment" or in
> author's case because he's short. C is not expected to be profitable
> until the middle of next year, but once they get through this period
> they will be profitable, although smaller, but the asset sales will
> have helped them weather the storm and the stock will have risen
> from 4 now to 12-15 by 2012.
>
> There is a plan for AIG. Some of their strongest insurance companies
> will been spon-off and have an IPO. Others will be sold as the market
> comes back in a few years. In the end, the gov't will make a profit
> on the pref stock they bought in the financials which will be way
> more than they will be able to say about GM and Chr.

Oct 27 07:04 PM

[The Geoffster:]

Haven't the banks already pledged all their toxic paper to the FED? Now that's one big bad bank.

Oct 27 07:07 PM

[Donald Ingram:]

LOL! Way to go John. Love the sarcasm! Unfortunately it's lost on someone who has suffered a severe brain injury in childhood.


On Oct 27 05:39 PM John Lounsbury wrote:

> DonFurio - - -
>
> Thanks for your informed and respectful comment.

Oct 27 10:01 PM

[Tack:]

Regardless of whether one favors or disfavors bank dismemberment, it's pretty obvious that the market has concluded that ING will be a much less effective financial institution on an international scale than previously. Such a "wonderful" development, if accretive, isn't rewarded with a Niagara-Falls-like 25+% decline overnight.

Even as an past investor in ING common shares holder of some of their debt, I'd have to conclude that the market has sized this situation up correctly. For all the moral sanctity awared ING's action by critics of present bank structures, the reality is that unless there is wholesale worldwide similar action on every large multinational bank, those that are forced into such action (as ING was by the government) will be at a serious competitive disadvantage versus other institutions that remain financial conglomerates.

Those institutions will have funding, income-source, diversification and other advantages that narrowly-defined banks will not enjoy, similarly to how large money-center banks now dominate business over regional banks, whose business is more limited to one sphere.

So, while anyone is revelling in this development as a "win for the good guys," one might want to separate that from their enthusiasm for being an investor in such an entity, unless one wishes to do it for moral rectitude, rather than profit.

Oct 27 10:47 PM

[BRUCE E. W.:]

HEY...YO...YO...! Put DOWN the cocaine and pick up a reality check. Sign it and bring it in to your nearest C; they'll be glad to help you OUT.


On Oct 27 03:40 PM DonFurio wrote:

> Hey idiot author, the gov't is up big on C because they own the common
> at around 2.60 a share. C will pay the gov't back in full if they
> give them time. TARP was supposed to be for 3 years and then it got
> more punitive, but it's barely been 1 year and all you crazies are
> trying to blow up everything now in the name of "punishment" or in
> author's case because he's short. C is not expected to be profitable
> until the middle of next year, but once they get through this period
> they will be profitable, although smaller, but the asset sales will
> have helped them weather the storm and the stock will have risen
> from 4 now to 12-15 by 2012.
>
> There is a plan for AIG. Some of their strongest insurance companies
> will been spon-off and have an IPO. Others will be sold as the market
> comes back in a few years. In the end, the gov't will make a profit
> on the pref stock they bought in the financials which will be way
> more than they will be able to say about GM and Chr.

Oct 28 01:36 AM

[Steven Hansen:]

i am thinking along the lines of Tack.

i believe that we need to return to separation of banking activities - and eliminate bank holding companies.

during times of economic instability, the current system is most at risk of failure.

Oct 28 03:08 AM

[DonFurio:]

No, only an "imbecile" (great spelling buddy) like you would not be buying stocks this past March. You complain about the fed funds rate being at zero and being a saver, but don't take the opportunity to buy defensive stocks with high dividends were yield 5% or more(only taxed at 15% too by the way..). PM was in the 30's, it's now it’s almost at 50, plus it still has a 4% div yield, as an example.

Or if you are such as saver, why not load up on the 3-5 year maturity CDs when it was obvious the fed fund rate was going to have to come down in 2006/2007?

The reality is that the banks were and always have been super regulated. The shadow banking system was not. The banks did what they could to compete, but at some point you end up making some bad loans just so you don't lose a lot of your market share. The banks all lived within the 10% deposit cap that was in place. If you say that it was too large, that's your opinion, but that is the law that was in place.

It also didn’t / doesn’t help that the gov’t basically forces banks to be loan to people who don’t deserve credit at all, won’t allow them going forward to adjust their credit card loans for risk, the regulators don’t allow them to build reserves before the recession and the gov’t makes it a goal to take people who should be renters into homeowners.

Greed is not bad thing, it’s an important piece of capitalism, and it is part of the incentive that keeps everyone hungry. It’s what makes it worth it to risk your capital and be an owner/shareholder. It’s also what makes it possible in the US to get ahead. Many people chose a profession in which they will not get ahead, but that’s their choice, there are plenty of people who get the education/credentials and pick a profession that allows them to get ahead.

You guys keep short the market, I'll stay long, I know what the long term trend is and I'll take some dividends in the mean time.

On Oct 27 07:04 PM icandoitdon wrote:

> i'll do what john was too polite to do.
>
> only an imbicile could defend the structure of the financial services
> industry in the united states. it's clear to all without an atrophied
> brain that it was the too big to fail culture that would have bankrupted
> the entire system had the federal reserve and treasury not both guaranteed
> private debt and turned on the printing presses 24/7 to prevent it.
> the treasury still guarantees the debt of many of these institutions
> and taxpayers remain on the hook for billions. and nothing about
> the structure of the financial system has changed. the fed still
> keeps rates at zero, using those taxpayers smart enough to acquired
> assets the hard way...through savings...to recapitalize these failed
> institutions that nearly bankrupted the system through ignorance
> and greed. and you think they deserve another bite at the apple just
> because you own a few shares of shitibank.
>
> you're clueless.

Oct 28 10:34 AM

[DonFurio:]

You're the moron who's been bearish all year and missing out on the big gains. Hahahaha. Hopefully you've been short for a long time and I've been short busting you. Hahahaha.


On Oct 27 10:01 PM Donald Ingram wrote:

> LOL! Way to go John. Love the sarcasm! Unfortunately it's lost on
> someone who has suffered a severe brain injury in childhood.

Oct 28 10:41 AM

[John Lounsbury:]

DonFurio - - -

I am pleased you have apparently acquired great wealth. Congratulations. Perhaps you will come back frequently and share your wisdom with those less fortunate.

Oct 28 01:07 PM

[Swashbuckler:]

I don't think I could have made it through the day without your philosophical take on the banks in general or capitalism in particular. I'm sure you are all in right now, given your investment outlook. Probably leveraged to the max. Enjoy those dividends, inbred, when the margin call onslaught arrives. Which won't be long. A few months at most.


On Oct 28 10:34 AM DonFurio wrote:

> No, only an "imbecile" (great spelling buddy) like you would not
> be buying stocks this past March. You complain about the fed funds
> rate being at zero and being a saver, but don't take the opportunity
> to buy defensive stocks with high dividends were yield 5% or more(only
> taxed at 15% too by the way..). PM was in the 30's, it's now it’s
> almost at 50, plus it still has a 4% div yield, as an example. <br/>
>
> Or if you are such as saver, why not load up on the 3-5 year maturity
> CDs when it was obvious the fed fund rate was going to have to come
> down in 2006/2007?
>
> The reality is that the banks were and always have been super regulated.
> The shadow banking system was not. The banks did what they could
> to compete, but at some point you end up making some bad loans just
> so you don't lose a lot of your market share. The banks all lived
> within the 10% deposit cap that was in place. If you say that it
> was too large, that's your opinion, but that is the law that was
> in place.
>
> It also didn’t / doesn’t help that the gov’t basically forces banks
> to be loan to people who don’t deserve credit at all, won’t allow
> them going forward to adjust their credit card loans for risk, the
> regulators don’t allow them to build reserves before the recession
> and the gov’t makes it a goal to take people who should be renters
> into homeowners.
>
> Greed is not bad thing, it’s an important piece of capitalism, and
> it is part of the incentive that keeps everyone hungry. It’s what
> makes it worth it to risk your capital and be an owner/shareholder.
> It’s also what makes it possible in the US to get ahead. Many people
> chose a profession in which they will not get ahead, but that’s their
> choice, there are plenty of people who get the education/credentials
> and pick a profession that allows them to get ahead.
>
> You guys keep short the market, I'll stay long, I know what the long
> term trend is and I'll take some dividends in the mean time.
>
> On Oct 27 07:04 PM icandoitdon wrote:

Oct 28 09:41 PM

[DonFurio:]

No margin buddy, long-term investor...


On Oct 28 09:41 PM Swashbuckler wrote:

> I don't think I could have made it through the day without your philosophical
> take on the banks in general or capitalism in particular. I'm sure
> you are all in right now, given your investment outlook. Probably
> leveraged to the max. Enjoy those dividends, inbred, when the margin
> call onslaught arrives. Which won't be long. A few months at most.
>

Oct 29 08:56 AM

[Moon Kil Woong:]

This is one good reason why Europe is recovering faster than the US for once. The US is quickly becoming the new model for an economy stymied by an over-reliance on government crutches.

Although some may say breaking ING up is bad for ING, it's most certainly good for the economy. Similarly Glass-Stegall is good for the US even though financial institutions loathe it.

Oct 29 11:04 PM