Nips and tucks can only hide so much. News that ING will undergo major reconstructive surgery — amputating its banking arm from its insurance operations — may have been expected, but nonetheless is a major blow to bancassurance as a business model.
The Dutch lender had long struggled to explain itself to investors before being forced to take €10bn of state aid this year.
ING shares had lagged behind analyst sum-of-parts valuations in spite of former CEO Michael Tilmant simplifying its quarterly reporting presentations after taking charge in 2004.
But the financial crisis unearthed some brutal ironies in its supposedly more secure hybrid business structure.
Unexpected losses in its insurance division — some from investments in toxic bank debt — aggravated the pain felt in its banking arm.
The classic bancassurance model, which neatly used retail banking to sell insurance products, was found wanting. Breaking itself up became increasingly the most obvious option — something the ING board came to accept.
Even so, for what was something of a national champion with global ambitions the EU demands will sting.
ING must now divest all of its insurance and investment management operations, its US ING Direct arm, and cannot be a price leader in retail banking in any EU country until the Dutch government is repaid.
Then there was the problem of how to repay the Dutch state. As more nimble competitors managed to raise capital to pay back their respective governments, ING has struggled with having to raise such a large slug of cash.
Palliative approaches were never likely to be accepted by shareholders. ING was rumoured to have been rebuffed after approaching investors over the summer about issuing around €1.5bn of equity to repurchase some of its subordinated debt instruments.
The €7.5bn announced on Monday morning, as KBW analyst Christopher Hitchings notes, is rather more fresh paper than the market had been banking on.
Though less dramatic than the hubris and subsequent humbling of fellow Benelux lender Fortis, the EU’s barking and ING’s whimpers will reverberate across the European banking industry.
Related links:
ING to split as part of deal with Brussels - FT
Burden sharing for bondholders lives! – FT Alphaville