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  • jpomper jpomper Nov 20, 2012 10:23 AM Flag

    ING Restructuring Deadlines all are postponed by EU

    The contradictionary statements on ING future from ING, from Dutch state, from Dutch Central Bank and from EU sitting asa cloud of smog for 2 months now is getting cleared by this new agreement.

    ING has been given another five years to sell its insurance and asset management units by the European Union. The CEO added it might be able to divide the company in a stock-split among existing shareholders, without selling, provided the group’s other financial commitments are met.

    ING is part-way through a restructuring and downsizing plan that was imposed on it by European competition authorities.

    In this process this statement is the very first time ING hinted to make something for the existing shareholders, by splitting-out some parts of Insurance business as separate company. This might be the good part of the news. The bad part is that ING remains under close EU and state supervision much longer than originally promised. And ING is not allowed to pay dividend, which further postpones the price recovery.

    So net-net this is a compromise where the shareholders first have to wait more years to ING's recovery process to complete, in return for a vague promise (coming from the very unreliable mouth of a failed CEO) to get something in return which was originally clearly theirs- the ING Insurance business.
    I think this is something hard to call a great step forward.

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    • disagree, what this does, if the world continues to recover, it gives the bank leverage to negotiate better sales pricing, as the buyers will now know they are under no pressure to do so. I am sure the banks management will sell at good prices, and that could be quickly, if the recovery continues. So I only see this as good.

      • 1 Reply to vandemar1
      • Your comment on the usefulness of buying 5 more years time, to relieve the pressure to sell at fire sale prices, might be correct. The current conditions are clearly not favorable to sell $20-20B worth of insurance business.

        But there are 2 clear arguments against this thought, and the 5 years extra time delay to sell Insurance.

        First, ING's Insurance business has cca. 20-24B Euros equity comitted, has 320B Assets, and practically made no profit (actually devoured cca. 6.5B in losses in different management catastrophes like Closed Block VA, etc.,) in the last 4 years.
        Plus, for comparison, a similar size and equity US Insurer, Manulife, makes 2.5B/year profit. If you check other smaller/larger insurers, they are operating at similar profitability ratios. This is nothing extraordinary, it is 10% profit on equity.
        So, simply by keeping and having ING Insurance, we shareholders lost 6.5 in losses plus 4years of 2.5B profit, total 16.5B in the last 4 years, just because WE HAVE INSURANCE.

        If 4 years of incompetent executive management and cca. 16.0B loss does not convince you that ING management can not manage this business, I dont know what will.

        Secondly, Insurance still has a lot of loss-making products, and, as long as bond rates and business profitability will not improve markedly (and since FED and ECB will keep rates down at least until 2015,so bond rates will not improve much), so, in all probability, Insurance will continue to lose money.
        So look ahead 4 more years of losses (or as many as ING needs to SELL Insurance).
        We might speak similar amount, like in the last 4 years, maybe close to 16B (!) loss again, and idle equity committed to Insurance.

        This 2 argument might be enough to support my thesis, that any further delay to sell, will most probably make much more loss in continued mismanagement than the 2-5B higher selling price (10-25% better price is not easy to get!) simply by waiting 4 more years until favorable selling conditions emerge.

        In summary:
        Your argument looks to me like hope wins you over, against your experience.
        Like in some second marriages.;-)
        I still favor fire sale for somewhat less money than 4 more year of losses.

 
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