ING Shares Fall as EU Starts Re-Examination of Bailout Terms

ING Groep NV (INGA) fell in Dutch trading as European regulators started a new probe into its restructuring plan and appealed a court ruling that overturned some of the conditions imposed on the bank and insurer’s rescue.

ING shares lost 6 percent, the biggest decline among the 32 stocks in the Stoxx Insurance 600 Index. (SXIP) The European Commission opened an “in-depth investigation” into changes proposed by ING and the Dutch state to the 2009 deal that set out conditions allowing government aid, according to a statement the regulator released on May 11 after trading closed for the week. The probe also includes an assessment of the Netherlands’ return on securities issued as part of the bailout, which ING didn’t pay interest on while making a profit in 2010 and 2011.

“The EC is playing hardball by starting these new investigations, and in the short term I don’t see clarity on a relaxation of the restructuring terms,” said Cor Kluis, an Utrecht-based analyst at Rabobank International.

The Amsterdam-based company was ordered to sell its insurance operations, its U.S. online bank and Dutch mortgage lender WestlandUtrecht Bank before the end of 2013 in the wake of its 2008-09 rescue. Some of those sale plans have been derailed by Europe’s debt crisis and higher capital requirements, which have scared off potential buyers.

Return on Investment

ING slid 31 cents to 4.91 euros in Amsterdam trading. The stock outpaced declines by other financial shares, which slumped in Europe today on concern that Greece may be moving closer to exiting the euro.

ING received 10 billion euros ($13 billion) of aid in 2008 and agreed on an average return on investment of at least 10 percent for the Dutch state over the duration of the bailout support. That return includes coupon payments ING would have to make if it paid a dividend to shareholders, and a 50 percent penalty premium if it bought back the so-called Tier 1 securities. ING hasn’t paid dividends over the last two years, and will not do so while state aid is outstanding.

The Netherlands made an average return of 17.2 percent on the 7 billion euros ING repaid by May 2011, plus 2 billion euros of income from interest and premiums, said Raymond Vermeulen, a spokesman for ING.

Implementation Problems

ING Chief Executive Officer Jan Hommen told shareholders in Amsterdam today that he didn’t rule out returning part of the remaining amount this year.

“Since the original decision, the plan has revealed some implementation problems that must be assessed in an additional thorough analysis,” said Joaquin Almunia, the European Union’s antitrust chief. “I am confident that they can be settled together with the Dutch authorities.”

The EC said it will look into alternatives proposed by ING for the divestment of WestlandUtrecht, which the company considers unfeasible given current market conditions.

“There seem to be hints at some more flexibility if ING agrees to extra payments on the aid,” Kluis said.

The new investigation will also cover ING’s pricing in Italy to check if the company was able to undercut rivals as a result the Dutch government’s help, the commission said.

The European Commission challenged a March ruling by the EU’s General Court forcing it to reconsider the conditions the agency imposed on ING. The court said the commission wrongly considered a revision of repayment terms as 2 billion euros of additional aid to ING, on top of the 10 billion euros it received in 2008.

Amended Restructuring Plan

The lender has informed the EC that it will submit an amended and updated restructuring plan, it said on May 11. Hommen told shareholders today he spoke with Almunia over the weekend, and that they agreed that remaining issues should be resolved quickly.

Selling the European insurance business in an initial public offering would be “very difficult,” Hommen told reporters today. He said he’s “optimistic” that an IPO for the U.S. activities is possible, as markets there have shown some recovery.

“This is the start of tough negotiations,” Rabobank’s Kluis said. The main concession that would help ING is more time to offload its insurance units, he added.

To contact the reporters on this story: Maud van Gaal in Amsterdam at mvangaal@bloomberg.net; Aoife White in Brussels at awhite62@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Anthony Aarons at aaarons@bloomberg.net

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