VZCZCXRO0667
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHTC #0206/01 0851339
ZNR UUUUU ZZH
R 261339Z MAR 09
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC 2703
INFO RUEHAT/AMCONSUL AMSTERDAM 4195
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHBU/AMEMBASSY BUENOS AIRES 0200
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 THE HAGUE 000206 
 
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 SEEKS LEVEL PLAYING FIELD IN U.S. 
 
REF: THE HAGUE 60 
 
THE HAGUE 00000206  001.2 OF 002 
 
 
¶1. This is an action request for State and Treasury; see paragraph 
¶9. 
 
¶2. Summary: The head of ING's insurance operations in the United 
States said the significant presence of U.S. mortgage-backed 
securities on ING's books necessitated a Dutch government bailout 
and layoffs.  Although ING's banking deposits are growing, the 
insurance arm continues to suffer; it will likely be one to two 
years before the company is operating normally again.  ING is 
seeking USG assistance to "level the playing field" between U.S. 
financial institutions and those owned by foreign parent companies. 
ING wants Treasury to open TARP to foreign-owned banks and insurers, 
and to extend the waiver of the loss limitation rule to capital 
support provided by foreign governments.  ING also inquired about 
USG actions in response to Argentina's nationalization of the 
pension industry, including ING's operations there.  End summary. 
 
------------------------------- 
ING WEAK BUT LOOKING TO RECOVER 
------------------------------- 
 
¶3. Charge met March 11 with Tom McInerney, Chairman and CEO of ING 
Insurance Americas, the Americas insurance branch of Dutch-owned 
banking and insurance giant ING.  ING Americas and ING Direct, a 
thrift savings bank, are active in the United States; the presence 
of U.S. "Alt-A" mortgage backed securities (MBS) on their books has 
resulted in significant losses and Dutch government bailouts for the 
whole ING group (reftel).  McInerney characterized ING's overall 
health as good, noting that the banking business is weathering the 
financial crisis better than the insurance branches.  ING's retail 
banking business is growing its deposits, particularly in the 
Benelux region. ING Americas, however, is faring less well.  As 
America's third largest 401K provider, ING Americas is a fee-based 
business. McInerney explained that, as the value of the Alt-A MBS 
and other assets has declined, so too have the fees that ING is able 
to charge.  Meanwhile, ING Americas' fixed costs have not declined, 
thus necessitating an aggressive cost savings plan.  ING plans to 
lay off 7,000 of its 124,000 employees worldwide, including 900 from 
ING America's U.S. operations and 1,500 from its Latin American 
operations. 
 
¶4. McInerney added that the Government of Argentina's (GOA) recent 
decision to nationalize the country's pension industry has hurt ING 
Americas' operations.  The company was forced to write-off 180 
million euro in the fourth quarter 2008 by GOA action.  McInerney 
noted that MetLife also had been significantly affected in 
Argentina.  He asked Charge what the U.S. government had done in 
response to GOA's actions.  We said we would ask and advise 
McInerney accordingly. 
 
¶5. According to McInerney, the assistance provided by the Government 
of the Netherlands (GONL) has been extremely helpful in restoring 
investor confidence.  In accordance with U.S. thrift savings laws, 
ING Direct was required to invest two-thirds of its assets in 
mortgage instruments. The bank therefore bought residential MBS that 
"turned out not to be AAA rated."  In the end, ING Direct was facing 
the possibility of defaulting on 30 billion euro of "Alt-A" MBS, 
while ING Americas was looking at defaulting on 5 billion euro of 
the same instruments.  As ING's capital ratios and share prices 
Qthe same instruments.  As ING's capital ratios and share prices 
plummeted, ING accepted a capital injection of 10 billion euro in 
October 2008 from the GONL's emergency bank fund.  Of that amount, 
approximately 2.2 billion euro was directed toward ING Americas and 
ING Direct's U.S. operations.  In January 2009, the GONL agreed to 
guarantee 80 percent of the 27.7 billion euro portfolio of "Alt-A" 
MBS owned by ING Direct USA and ING Americas.  McInerney noted this 
was a "good deal" for the GONL; it did not have to purchase the MBS 
-- only to guarantee the portfolio.  In return, the GONL receives 
the cash flows from the portfolio; McInerney estimated that the GONL 
should earn about 600 million euro in profit from these assets over 
the next five years.  Meanwhile, the GONL assistance has improved 
ING's capital ratios; ING is now in "good shape" and does not expect 
to need further rescue measures from the Dutch state.  ING is now 
focused on "de-risking" its portfolios and "retaining and growing" 
its customer base.  McInerney estimates that ING in "one to two 
years away from operating normally." 
 
 
--------------------------------------------- --- 
ING WANTS LEVEL PLAYING FIELD FROM U.S. TREASURY 
--------------------------------------------- --- 
 
¶6. McInerney explained that ING was seeking USG assistance on two 
key issues, both related to "leveling the playing field" between 
 
THE HAGUE 00000206  002.2 OF 002 
 
 
U.S. and foreign-owned financial institutions.  First, ING is urging 
Treasury Secretary Geithner to open the Troubled Asset Relief 
Program (TARP) to foreign-owned banks and insurers like ING Americas 
and ING Direct.  McInerney noted that U.S. insurance companies 
currently are not eligible for TARP (only U.S. banks), but Treasury 
will probably be forced to include them soon, given the large, 
variable annuities on their books which must be marked to market. 
If and when TARP is expanded to U.S. insurers, ING wants Treasury to 
provide the same access to U.S. subsidiaries of foreign-owned 
institutions which are identical in structure to their U.S. based 
competitors.  Doing so would create a level playing field, increase 
financial stability, and in ING's case, ensure the continuation of 
retirement plans to 10 million American consumers.  ING also notes 
that it may prove increasingly difficult for foreign governments 
like the GONL to continue providing U.S. banks and insurers with 
capital support.  McInerney emphasized the fact that although ING 
Americas is a subsidiary of a Dutch parent company, it remains one 
of the top five U.S. insurers and acts in every respect like a U.S. 
institution.  In essence, ING is seeking national treatment. 
 
¶7. ING's second request is for Secretary Geithner to retroactively 
extend the waiver of the loss limitation rule to capital support 
provided by foreign governments. Part of Section 382 of the U.S. 
Internal Revenue Code, the loss limitation rule is triggered when 
ownership of a company changes by more than 50 percent in any 
three-year period.  In that case, the IRS severely restricts the use 
of realized tax losses after the ownership change.  In November 
2008, Treasury issued Notice 2008-100 stating that capital support 
from the USG's Capital Purchase Program will not be counted in a 
Section 382 calculation of the cumulative change in ownership 
percentage.  (Notice 2009-14 subsequently extended the provision to 
include all USG capital support issued under the Emergency Economic 
Stabilization Act.)  This relief does not apply, however, to capital 
support that parent institutions of U.S. subsidiaries receive from 
foreign governments. 
 
¶8. The GONL's issuance in November 2008 of 10 billion euro in 
emergency capital to ING brought ING's cumulative change of 
ownership to 42 percent.  As a result, ING argues that even 
relatively small changes in ownership in the coming three years are 
likely to increase this percentage in excess of the 50 percent 
threshold.  ING asserts that triggering the loss limitation rule 
would have a substantial detrimental impact on its equity and 
profit-and-loss.  Again ING is seeking national treatment for U.S. 
institutions owned by a foreign parent.  The absence of a loss 
limitation waiver it makes it impossible for foreign governments or 
private investors to make substantial capital contributions.  ING -- 
as well as the GONL and the Institute for International Bankers -- 
has raised this issue with Treasury; they are calling to 
retroactively extend the relief in Notices 2008-100 and 2009-14 to 
capital support provided by foreign governments. 
 
¶9. Action Request: Post requests guidance from State and Treasury on 
the three issues raised by ING: 
 
- Opening TARP to foreign-owned banks and insurers (para 6); 
Q- Opening TARP to foreign-owned banks and insurers (para 6); 
 
- Extending the waiver of the loss limitation rule to capital 
support provided by foreign governments (paras 7-8), and; 
 
- USG actions in response to the Government of Argentina's 
nationalization of the pension industry (paras 4). 
 
 
GALLAGHER