VZCZCXRO5227
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHTC #0060/01 0261626
ZNR UUUUU ZZH
R 261626Z JAN 09
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC 2460
INFO RUEHAT/AMCONSUL AMSTERDAM 4113
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 THE HAGUE 000060 
 
SIPDIS 
 
STATE PASS FEDERAL RESERVE BOARD - INTERNATIONAL DIVISION, TREASURY 
FOR IMI/OASIA.VATUKORALA, USDOC FOR 
4212/USFCS/MAC/EURA/OWE/DCALVERT 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV PREL NL
SUBJECT: NETHERLANDS: ING'S FINANCIAL WOES DEEPEN 
 
Ref: 08 THE HAGUE 910 
 
THE HAGUE 00000060  001.2 OF 002 
 
 
¶1. Summary:  ING, the largest Dutch financial services and insurance 
provider, announced January 26 that it will cut 7,000 jobs and 
replace Chief Executive Officer Michel Tilmant after reporting a 
second consecutive quarterly loss.  ING also will accept additional 
support from the Government of the Netherlands (GONL), this time in 
the form of a guarantee of 80 percent of the value of a large 
tranche of its problematic U.S. mortgage assets.  In return, ING 
will pump 25 billion euro of additional credit into the Dutch 
economy.  End summary. 
 
-------------------------------------------- 
ING ACCEPTS ADDITIONAL GOVERNMENT ASSISTANCE 
-------------------------------------------- 
 
¶2. ING and Finance Minister Wouter Bos have agreed on an "Illiquid 
Assets Back-up Facility" in which the GONL will guarantee 80 percent 
of ING's 27.7 billion euro portfolio of U.S. medium-quality 
mortgage-backed securities (MBS), whose illiquidity was weighing on 
ING's balance sheet.  These "Alt-A" MBS are owned by ING Direct USA 
and ING Insurance Americas, ING's subsidiaries in the United States. 
 By guaranteeing only ING's "Alt-A" MBS, the GONL has not assumed 
the risk of ING's worst "sub-prime" MBS.  Under the terms of the 
Back-up Facility, the GONL will accept the full risk on 80 percent 
of ING's 27.7 billion euro "Alt-A" portfolio; as a consequence, the 
GONL will be entitled to receive 80 percent of the cash flows of the 
total portfolio.  ING will remain the legal owner of 100 percent of 
the securities and will remain exposed to 20 percent of any results 
on the portfolio.  The GONL insisted on ING retaining this 20 
percent risk exposure to incentivize ING to maximize the performance 
of its MBS, even if it means holding onto them longer. 
 
¶3. ING noted that it had wanted to secure GONL guarantees of its 
problematic MBS in October but could not due to uncertainty about 
possible USG assistance to ING's U.S. subsidiaries via the Troubled 
Asset Relief Program (TARP).  Given ING's ultimate ineligibility for 
the TARP and the continued downward pressure on its balance sheet, 
the GONL agreed January 26 to provide assistance in the form of this 
Back-up Facility.  This is in addition to the 10 billion euro in 
buffer capital that ING accepted in October 2008 from the GONL's 
emergency fund to provide liquidity to struggling financial 
institutions (reftel). 
 
¶4. In return for GONL assistance, ING has agreed to earmark part of 
the capital released by the Back-up Facility and the buffer capital 
supplied by the GONL in October to inject more credit into the Dutch 
market.  Specifically, ING will supply 25 billion euro in credit to 
consumers and commercial and industrial companies in the 
Netherlands.  The ING Executive Board also will forego any bonuses 
in 2009 and will soon introduce a new remuneration system.  Ministry 
of Finance contacts note that these provisions were prerequisites 
for any additional GONL assistance to ING.  The GONL remains 
concerned about the tight domestic credit market, and the Dutch 
public and parliamentarians have repeatedly called for caps on 
extravagant corporate salaries since the onset of the financial 
crisis. 
 
----------------------------------------- 
ING ANNOUNCES JOB CUTS, CEO'S RESIGNATION 
----------------------------------------- 
 
¶5. ING announced January 26 that, in addition to accepting GONL 
Q5. ING announced January 26 that, in addition to accepting GONL 
guarantees, it will cut operating expenses by one billion euro in 
¶2009.  ING expects this move to lead to annual savings of 
approximately 1.1 billion euro from 2010 onward.  ING will achieve 
35 percent of its one billion euro cutback by slashing 7,000 
full-time jobs (or 5.4 percent of its total 130,000 workforce), and 
the remaining 65 percent by reducing costs of marketing, 
consultancy, third-party staff, and IT vendors, as well as other 
non-core divestitures.  Of the total one billion euro reduction, ING 
expects 650 million euro to come from its banking arm and 350 
million euro from its insurance activities. 
 
¶6. Meanwhile, Michel Tilmant, ING's 56-year-old CEO, announced his 
resignation January 26 "in light of the extraordinary developments 
over the past few months and ... his personal condition."  ING 
Supervisory Board Chairman Jan Hommen will succeed Tilmant. 
Contacts at ING noted that, although Tilmant did not have a 
pre-existing medical condition, the high stress environment of the 
last few months had taken its toll on Tilmant's health.  They added 
that the decision to resign was a "mutual" one between Tilmant and 
the Supervisory Board, which was looking for new, more energetic 
leadership in the face of ING's continuing struggles.  Incoming CEO 
Jan Hommen likely is an interim choice to guide ING back to health; 
Hommen is 65 and was previously CFO at Philips and Alcoa (where he 
 
THE HAGUE 00000060  002.2 OF 002 
 
 
had a long U.S.-based career). 
 
--------------------------------------------- ---- 
ING STOCK RISES, BUT OVERALL A GLOOMY PERFORMANCE 
--------------------------------------------- ---- 
 
¶7. The market responded positively on January 26 to news of ING's 
cutbacks, CEO replacement, and GONL assistance; ING's share price on 
the Euronext stock exchange rose 30 percent to 6.84 euro, compared 
with a 52-week low of 4.76 euro and high of 26.02 euro.  Despite 
today's upward tick in share price, ING's performance in recent 
months, like many international financial institutions, has been 
dismal.  ING has lost 73 percent of its market value in the past 12 
months.  It posted its first ever loss in the third quarter of 2008 
as it wrote down the value of stocks, bonds, mortgages, and assets 
related to the bankruptcy of Lehman Brothers.  The GONL's emergency 
capital injection of 10 billion euro in October did little to boost 
performance, with ING anticipating a fourth-quarter pre-tax loss, 
excluding asset sales and special items, of 3.3 billion euro because 
of write-downs on mortgage securities, debt, and equities.  ING 
expects a net loss over 2008 of 0.4 billion euro. 
 
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COMMENT 
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¶8. Comment:  The necessity of a second round of GONL assistance to 
ING in three months highlights its continuing inability to rebound 
from substantial exposure to problematic U.S. mortgage-backed 
securities.  It also underscores ING's strategic error - one made by 
many international financial institutions - of attracting billions 
of dollars in the U.S. savings market but then investing that money 
in poorly understood, risky U.S. financial derivatives that have 
borne the brunt of the downturn.  By insisting that ING provide 25 
billion in credit to Dutch consumers and businesses as part of the 
January 26 deal, the GONL is forcing ING to start lending the state 
aid that it has received since October and help loosen Dutch credit 
markets.  The GONL will not let ING, as the Netherlands' largest 
financial and insurance institution, fail - but the GONL is taking 
prudent steps to ensure that ING gives something back to the slowing 
Dutch economy in return for continued state aid.  End comment. 
 
 
GALLAGHER