AMSTERDAM — Financial services company ING Group NV Monday said chief executive Michel Tilmant is stepping down as it flagged a EUR3.3 billion ($4.3 billion) fourth-quarter loss and announced a shakeup that includes transferring the bulk of its Alt-A portfolio risk to the Dutch State and shedding 7,000 jobs.
Tilmant is stepping down in light of the "extraordinary developments over the past few months and given his personal condition," the company said.
ING shares rallied after the announcement. At 1230 GMT, they were up 22.3% at EUR6.46, firmly outperforming the Stoxx Europe 600 banks index which was up 4.2%.
Analysts welcomed the deal with the Dutch government as it should improve the company's risk profile, while they were disappointed with the company's fourth-quarter results.
"On balance we believe that the transfer of the Alt-A assets is the most important news and this appears to materially improve ING's risk profile," Frank Stoffel, an analyst at Merrill Lynch said. He rates ING at neutral.
ING said its fourth-quarter earnings were hit by impairments, losses and negative revaluations totaling EUR5 billion as a result of sharply deteriorating markets, making it the worst quarter for equity and credit markets in over half a century.
However, analysts were surprised at how steep the loss was. "ING's fourth-quarter performance was much worse than expected," Stoffel said.
While ING received a EUR10 billion capital injection from the Dutch government in October, it said Monday that further measures were needed to counter the impact of challenging economic and market conditions.
The deal with it's Alt-A mortgage securities aims to reduce the impact of any future losses on the portfolio as the market for these has dried up.
ING will transfer the risk attached to 80% of its EUR27.7 billion portfolio of Alt-A Residential Mortgage Backed Securities to the Dutch State at a discount of 10% of par value.
As a result of the latest measures, ING Bank's Tier 1 ratio should rise by approximately 40 basis points to 9.5%, and the core Tier 1 by 32 basis points to 7.4%, both on a pro forma basis. The transaction is expected to close in the first quarter of 2009.
ING also announced additional steps to reduce risk and expenses, and increase focus on its core savings and investment business. It aims to lower operating expenses by EUR1 billion in 2009, 35% of which will be realized by cutting 7,000 jobs. A restructuring provision for severance costs of around EUR450 million after-tax will be booked in the first and second quarters of 2009.
In addition, ING said several business units have been identified for divestment and it decided not to go ahead with the launch of ING Direct operations in Japan.
The chairman of the supervisory board, Jan Hommen, said the proceeds of the divestments are expected to be EUR2 billion-EUR3 billion, without specifying which units would be up for sale.
Some analysts questioned if the Dutch banking and insurance group is yet sufficiently funded.
"The capital position of ING remains weak, so speculation on a second capital injection will continue," said RBS analyst Thomas Nagtegaal. He noted that ING Bank's core Tier 1 ratio will be 7.5% following the latest measures while 8% is the new market standard. RBS rates ING at hold.
Tilmant will be succeeded by Hommen.