The Netherlands sold U.S. mortgage-backed bonds it acquired in a 2009 bailout of ING Groep NV (INGA) for $8.9 billion after prices of the securities recovered from lows that year.
The sale of the securities, with a face value of $11.5 billion, resulted in a profit for Dutch taxpayers of $1.9 billion, when including an earlier loan and $500 million payment by ING, Finance Minister Jeroen Dijsselbloem said in a statement today. Proceeds were used to reduce the nation’s debt by 1.1 percentage point of gross domestic product, he said.
The profit exceeded an estimate of about 800 million euros ($1.1 billion) Dijsselbloem gave in November, as the U.S. housing market recovered from the 2008 financial crisis. Home prices in 20 U.S. cities rose in November from a year earlier by the most since February 2006, according to the S&P/Case-Shiller index (SPCS20Y%) published Jan. 30.
The bonds were sold in three auctions managed by BlackRock Inc. (BLK) Credit Suisse Group AG bought the largest portion with a face value of $3.73 billion, followed by Bank of America Corp. with $2.62 billion and Goldman Sachs Group Inc. with $1.74 billion. Barclays Plc (BARC), Citigroup Inc. and Morgan Stanley (MS) were the other buyers, according to statements from the Dutch State Treasury Agency.
ING received a 10 billion-euro capital injection from the Dutch state in October 2008, when mortgage-backed securities plunged in value after foreclosures soared and property prices slumped. In a second round of aid in January 2009, the Netherlands assumed 80 percent of the risk on the 27.7 billion-euro portfolio of mortgage bonds, many of which were tied to riskier borrowers.
ING had sold the bonds to the Dutch state at a discount, while giving the government a loan, which shrank as the mortgages underlying the debt defaulted or were repaid.
U.S. non-agency home-loan bonds, or debt not backed by the U.S. government, rallied last year as the Federal Reserve pushed down borrowing costs and house prices jumped. Securities backed by option adjustable-rate mortgages, one of the types held by the Dutch, gained 2.5 cents on the dollar to 72.5 cents over the past three months, according to Barclays Plc data. The notes, tied to loans that can allow borrowers to pay less than the interest they owe by increasing principal, fell as low as 33 cents in 2009.
The cost of bank rescues in the Netherlands, including the nationalization of Fortis and SNS Reaal NV, contributed to an increase in national debt to an estimated 75 percent of gross domestic product in 2013 from 46 percent in 2007.
To comply with European Union demands attached to its rescue, ING has been shedding assets across the globe, including its U.S. online bank and insurance assets from Latin America to Asia. The company is preparing its insurance operations in Europe and Japan, to be named NN, for an initial public offering this year.
ING has to date returned the Netherlands 11.3 billion euros of bailout money with interest and premiums. Upon full repayment, the country will have received 3.5 billion euros on top of the original 10 billion euros, according to an agreement with the European Union regulators that had to approve the bail-out.
The company also paid “a couple of hundred million of euros” for guarantees the Netherlands provided on bond issues since 2009, former Chief Executive Officer Jan Hommen said in May.
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