Jan. 26 (Bloomberg) -- ING Groep NV, the biggest Dutch financial-services company, said it will cut 7,000 jobs and replace Chief Executive Officer Michel Tilmant after reporting a second consecutive quarterly loss.

The job cuts, equal to 5.4 percent of the workforce, are part of a plan to reduce operating expenses by 1 billion euros this year, Amsterdam-based ING said today in a statement. Supervisory board Chairman Jan Hommen, a former chief financial officer at Royal Philips Electronics NV, will succeed the 56- year-old Tilmant.

“Developments that we have seen take place in the last couple of months really have taken a toll on Michel,” Hommen, 65, said on a conference call. “It is clear that the environment in which we work today will continue to be challenging and that ING will need to have somebody and some people at the leadership to weather these difficult times.”

ING rose the most in three months in Amsterdam trading after saying it will transfer the risk on 80 percent of its 27.7 billion euros ($35.9 billion) in Alt-A mortgage securities to the Dutch government, limiting further writedowns. The company, which traces its roots to 1743, received a 10-billion-euro lifeline from the Dutch government last year, the first company to draw on a 20-billion-euro fund set aside to prop up financial firms.

“We view most of the announced measures as very positive,” said Dirk Peeters, an analyst at KBC Securities in Brussels, in an e-mailed note. He advises investors to “buy” the shares.

ING rose 1.46 euros, or 28 percent, to 6.74 euros. It has lost 69 percent of its value in the past 12 months.

Fourth-Quarter Loss

The company will post a fourth-quarter pretax loss, excluding asset sales and special items, of 3.3 billion euros, because of writedowns on mortgage securities, debt and equities. The net loss will amount to 3.9 billion euros, ING said.

Earnings were hurt by 1.8 billion euros of writedowns on the Alt-A mortgage assets and by 700 million euros of equity impairments. The company’s loan-loss provisions increased to 600 million euros “reflecting worsening economic conditions,” ING said.

ING in November posted a third-quarter loss, the first since its creation in a 1991 merger, as it wrote down the value of stocks, bonds, mortgages and assets related to the bankruptcy of Lehman Brothers Holdings Inc.

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

Government Aid

ING said the transaction with the Dutch government will reduce the company’s risk-weighted assets by about 15 billion euros, raising the banking unit’s core Tier-1 ratio, a measure of financial strength, by 32 basis points to 7.4 percent on a pro forma basis.

The risk transfer will take place at a discount of 10 percent of par value, which is “definitely attractive,” Paul Beijsens, an Amsterdam-based analyst at Theodoor Gilissen Bankiers NV, said. “The deal may be imitated elsewhere, but not necessarily at the same price as Alt-A assets can differ a lot,” said Beijsens, who may cut his “buy” rating on ING.

As part of the agreement with the Dutch state, ING’s executive board will forego all bonuses for 2009. The firm will “proactively” use 10 billion euros of the Netherlands’ 200 billion-euro loan guarantee plan this year to support the scheme, and will make at least 25 billion euros available for lending to companies and consumers.

‘Solid Shape’

Hommen, who was appointed to ING’s supervisory board in June 2005, said he’ll stay “as long as necessary” and will make sure the company is in “solid shape” when he leaves. The bank and insurer, which will continue its current strategy, may create between 2 billion and 3 billion euros by selling units, he said.

ING aims to reduce the bank’s balance sheet by 10 percent, or 110 billion euros, by decreasing the non-lending part to 25 percent by the end of 2009. The company cut its proprietary equity exposure by 33 percent to 5.8 billion euros in the fourth quarter from the previous quarter. Of the remainder, 3.9 billion euros are hedged against further market losses, ING said.

To contact the reporter on this story: Martijn van der Starre in Amsterdam at vanderstarre@bloomberg.net; Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net

Last Updated: January 26, 2009 12:06 EST