Last week I read an interview in the newspaper (De Gelderlander) with Roel Janssen. Janssen is a financial economic journalist and has published a book called “De afrekening”. It is about the fact that ING was almost bankrupt at the time of the crisis and that a whole soap seems to have been behind this. This article is not meant to advertise a book, but the interview encouraged me to delve a little more into the enormous financial problems that ING ended up in 2008.
In 2007, ING announce that the two banking companies, ING Bank and Postbank, will continue under one brand in 2009. It seems to be going well for ING and the bank is becoming a multinational. ING is one of the first banks to develop digital banking and is therefore growing very fast, especially in the United States. The bank wants to grow and, even just before the crisis, pays out interim payments to shareholders. Which is another reason to believe that ING did not see the crisis coming.
But there she is, the beginning of the crisis. In September 2008, the Lehman Brothers bank fell. Banks are hit by “bad” mortgages and ING was no exception.
As mentioned earlier, ING is growing in the US before the start of the crisis. As a result, the Americans forced the American branch of ING (ING Direct USA) to invest a large part of the money in mortgages. However, ING refused this and the bank therefore decided to purchase existing mortgages. The Internationale Nederlanden Groep buys the so-called Alt A mortgages. This was described as the second best class of mortgages. In this way, a bundle of 39 billion euro in Alt A mortgages is built up. ING was aware of the risk they were running on some mortgages, but not in a large size.
Afterwards, this turned out to be a huge mistake.
The first one to find out that ING’s Alt A mortgages were much more risky was Tonko Gast. He was a Dutch whistle-blower studying the American mortgage market with his American company Dynamic Credit. When he found out, he first went to the Federal Reserve. However, the Fed themselves had no idea of the risk.
After Gast reporter the issue at ING, ING did not that much with it. In a response to the NOS, ING stated that they were aware that there were risky mortgages in their bundle, but that they had estimated this to be a mortgage portfolio of 200 million euro’s (instead of the actual 39 billion euro’s). ING also doubts whether a restructuring of the portfolio could have taken place in the short time between the conversation with Gast and the fall of Lehman Brothers, in the light of the extreme market developments of that time. These doubts seem justified, because the conversation with Gast was in August 2008 and Lehman Brothers fell one month later. Moreover, ING already had its own independent analysis made.
Once the crisis started, ING made a loss of 3.9 billion euro’s in a short period of time. As a result, ING was almost bankrupt. The following question raised: “How do we save ING?”. The opinions were divided on this. The Nederlandsche Bank and ING themselves thought that the Dutch state should take over the Alt A mortgages. However, the Ministry of Finance was not waiting for this, because it had to take over ABN Amro and Fortis a short time before. Ultimately, the Dutch government provided ING a loan of 10 billion euro’s. This amount of money was by far not enough to close the gap made by the mortgages. It seemed that ING would go bankrupt or became nationalized, but the Ministry of Finance eventually took over the mortgage portfolio.
End of story, you might think. That was also the mistake that ING seemed to have made. Because there was state aid, the European Commission still hat to look at the matter and they felt that the sanctions made by the Dutch government were not strict enough. The European Commission stated that ING should halve their company and that the interest they had to pay to the Dutch state had to be increased. In the end, the Dutch government even made some money, because of their helping hand to ING.
By: Wouter Pen