AMSTERDAM (Netherlands) - BANK and insurer ING Group NV said on Monday it will book a large fourth quarter loss, cut 7,000 jobs and change its CEO. It also said the Dutch government will assume the risk for most of euro27.7 billion (S$53.7 billion) in troubled US mortgage-backed securities ING owns.
In a statement published on Monday, the company estimated its 'underlying net result', - an unaudited and nonstandard measure - will be a loss of euro3.3 billion when it reports earnings on Feb 18.
Under the complex deal with the Dutch state, the government will assume 80 per cent of both risk and payments from the portfolio.
Analysts say that will bring the state euro400 million of interest payments per year - depending on how many of the securities wind up in default.
The securities are based on 'Alt-A' mortgages that are a step below prime mortgages. They were often made with limited or no documentation of assets or income, leading to the nickname 'liar loans', and many borrowers are defaulting.
Analysts say the current market value of these securities is roughly two-thirds of face value. ING's deal with the state assumes they are worth 90 per cent.
'It seems as if the conditions of the TARP-like agreement with the Dutch state are rather favorable,' Analyst Ton Gietman of Petercam Securities said. TARP is the US government program to buy troubled assets from banks.
Mr Gietman said ING's fourth quarter earnings were worse than expected but the deal with the state would reduce uncertainty surrounding the company.
Shares rose 13 per cent to euro5.96 in early trading in Amsterdam as solvency fears eased.
For ING, the benefits of the deal include further deleveraging of its balance sheet. It said its Tier-1 ratio - the measure commonly used to rate a bank's strength - will improve to 9.5 per cent from 9.1 per cent.
That ratio was boosted from 6.5 per cent to 8 per cent in October, when ING received a euro10 billion investment lifeline from the Dutch state.
ING said Monday's deal frees up resources so that it can lend euro25 billion in the Netherlands, of which euro10 billion will be eligible for state guarantees under a program introduced by the government last year.
ING said in the fourth quarter 'market conditions deteriorated sharply, making it the worst quarter for equity and credit markets in over half a century'.
It suffered euro2 billion in impairments and losses on stocks, bonds and real estate.
Provisions against bad loans rose by euro600 million. It didn't give details of the performance of its insurance arm.
The job cuts represent 5 per cent of the company's total work force.
The company said CEO Michel Tilmant's abrupt departure should be seen 'in light of the extraordinary developments over the past few months'.
The company nominated its own supervisory board chairman, Jan Hommen, as Tilmant's replacement, pending approval at the company's annual meeting on April 27.
Mr Hommen is a former chief financial officer of Royal Philips Electronics NV who left the company after being passed over for the chief executive job in 2005. He is also a former CFO of Alcoa, the Aluminum Company of America.
'Naturally, I am disappointed with our results in this extremely tough environment,' Mr Hommen said on a conference call.
He said he regretted the job cuts but 'with the continuing challenging outlook, we feel it is important to take additional action to decrease our risks and expenses'. -- AP