Free Annual Reports
ING Capital Injection A Mere Booster Shot
The bright orange branding of ING Groep NV (NYSE:ING), along with its competitive savings account interest rates, has helped the financial services company build its base of customer deposits. Despite its success in growing deposits along with selling insurance and offering retirement planning service, the Dutch financial services firm has accepted a 10 billion euro ($13.4 billion) investment from the Dutch Government.
Investors curious about the safety of their savings account and the future of ING should consider the following.
What Happened
On Friday, October 17, shares of ING slumped on the Amsterdam stock exchange on fears of a lack of capital for the bank given the credit crisis hand cuffing the global financial system. ING's preliminary third-quarter figures cited a net loss 500 million euros ($671.5 million). To keep this number in perspective, ING's total revenue in 2007 was 76.587 billion euros ($102.855 billion).
Asset-Backed Exposure
Concern over ING's stability could also have been impacted the -1.5 billion euro (-$2 billion) negative revaluation of its subprime, CDO and other asset backed instruments. Shareholder equity was still expected to come in at 23.9 billion euros ($31.95 billion), but noticeably down from the 28 billion euros ($37.4 billion) reported after the first six months of 2008. On the NYSE shares of ING have dropped about 50% since the beginning of October and are down more than 70% since the beginning of the year.
What Happens Next
The capital injection is an attempt to boost ING's Bank Tier-1 ratio above 10% and lower its debt/equity ratio to 10% from the estimated 15% for the third quarter. In comparison the global banking institution HSBC (NYSE:HBC) of the U.K., which recently rejected offers of government funds, reported a Tier-1 ration of 8.5%. ING's Tier-1 ratio declined to 8.2% during the second quarter due to an increase in risk-weighted assets.
ING is also canceling dividends for the rest of the year to further control its in-house capital. (For more on these figures, read our Debt Ratios Tutorial.)
Back to the Banking Basics
ING is focused on concentrating it business on the key areas of banking, life insurance, investments and retirement services. To make that happen, ING has executed the following transactions:
The desperation that investors saw from firms like AIG (NYSE:AIG) for capital infusions was absent from ING's capital infusion from the Dutch government. Depositor's assets appear to be safe and the impression given is that the capital is meant as more of a booster shot than a necessary treatment. As an investment, any foray into a financial services firm requires a 3-5 year time horizon and a dollar cost averaging approach.
To learn more about this strategy, see Dollar-Cost Averaging Pays.
Investors curious about the safety of their savings account and the future of ING should consider the following.
What Happened
On Friday, October 17, shares of ING slumped on the Amsterdam stock exchange on fears of a lack of capital for the bank given the credit crisis hand cuffing the global financial system. ING's preliminary third-quarter figures cited a net loss 500 million euros ($671.5 million). To keep this number in perspective, ING's total revenue in 2007 was 76.587 billion euros ($102.855 billion).
Asset-Backed Exposure
Concern over ING's stability could also have been impacted the -1.5 billion euro (-$2 billion) negative revaluation of its subprime, CDO and other asset backed instruments. Shareholder equity was still expected to come in at 23.9 billion euros ($31.95 billion), but noticeably down from the 28 billion euros ($37.4 billion) reported after the first six months of 2008. On the NYSE shares of ING have dropped about 50% since the beginning of October and are down more than 70% since the beginning of the year.
The capital injection is an attempt to boost ING's Bank Tier-1 ratio above 10% and lower its debt/equity ratio to 10% from the estimated 15% for the third quarter. In comparison the global banking institution HSBC (NYSE:HBC) of the U.K., which recently rejected offers of government funds, reported a Tier-1 ration of 8.5%. ING's Tier-1 ratio declined to 8.2% during the second quarter due to an increase in risk-weighted assets.
ING is also canceling dividends for the rest of the year to further control its in-house capital. (For more on these figures, read our Debt Ratios Tutorial.)
Back to the Banking Basics
ING is focused on concentrating it business on the key areas of banking, life insurance, investments and retirement services. To make that happen, ING has executed the following transactions:
- ING sold its reinsurance business to Berkshire Hathaway (NYSE:BRK-A) at end of 2007.
- ING acquired a pension and annuity business from Banco Santander (NYSE:STD) at the beginning of 2008.
- ING acquired Citistreet, a leading retirement plan and benefit services in the U.S., after making an agreement with State Street Corporation (NYSE:STT) and Citigroup (NYSE:C) in May 2008.
The desperation that investors saw from firms like AIG (NYSE:AIG) for capital infusions was absent from ING's capital infusion from the Dutch government. Depositor's assets appear to be safe and the impression given is that the capital is meant as more of a booster shot than a necessary treatment. As an investment, any foray into a financial services firm requires a 3-5 year time horizon and a dollar cost averaging approach.
To learn more about this strategy, see Dollar-Cost Averaging Pays.
by
Gregory S. Davis
Gregory is a freelance writer for Investopedia.com. He has a consulting background in the banking, telecommunications and healthcare fields. Gregory is a graduate of the Wharton School of Business. Click here to visit his website.
Free Annual Reports
