S&P Affirms ING’s ‘AA’ Ratings; Outlook Remains Negative

January 28, 2009

Standard & Poor’s Ratings Services has affirmed its ‘AA-/A-1+’ long- and short-term counterparty credit ratings on ING Groep N.V. and ING Verzekeringen N.V., and its ‘AA/A-1+’ long- and short-term counterparty credit ratings on ING Bank N.V. The outlooks on all entities remain negative.

S&P said it had affirmed the ratings “following the group’s announcement of a full-year loss in 2008 and a risk-transfer facility (Illiquid Asset Back-up Facility; IABF) with the Dutch state for the group’s Alt-A securities portfolio, among other derisking activities and cost-saving initiatives [See IJ web site https://www.insurancejournal.com/news/international/2009/01/26/97254.htm].

However, S&P explained that the “negative outlook continues to reflect the significant performance pressures across ING. Loan quality is deteriorating, and credit costs are expected to remain high throughout 2009, pressuring bank earnings. Equity market weakness and volatility, combined with low interest rates and a weak global economic outlook will constrain insurance earnings in 2009.

Credit analyst Claire Curtin added: “he risk of investment-related volatility remains a concern, although Standard & Poor’s views favorably the removal of much of the downside risk on ING’s Alt-A portfolio through the IABF, and the ongoing risk reduction initiatives.”

S&P pointed out that the ING Group had reported a net loss of €1 billion ($1.328 billion) for full-year 2008 “following a weak second half. Ongoing weakness in financial markets pressured the bottom line, with significant impairments on Alt-A and equity securities, and weakening credit trends.

“The IABF provided by the Dutch State should provide greater stability to earnings going forward. ING has transferred 80 percent of the risk of its €30 billion [$39.9 billion] Alt-A securities portfolio to the Dutch State. This is part of a broader program of derisking, including the hedging or sale of much of the group’s equity exposure, select asset disposal, and deleveraging at the bank.

The group aims to cut €1 billion of costs in 2009, equivalent to about 6.5 percent of the 2008 cost base, primarily from headcount reduction, and head office and marketing savings. This should help protect the bottom line. A €450 million [$598 million] net restructuring charge will be booked in the first half of 2009.”

The group will continue to refocus on its core activities and markets, as announced in October 2008.

“The negative outlook reflects our view of the ongoing performance pressures in both the banking and insurance operations, which may result in earnings levels that we would consider incompatible with a ‘AA’ rating,” Curtin explained.

For the future, S&P said it expects “economic and financial market weakness is likely to impact underlying performance over the next 18 months, with a heightened risk of elevated credit costs on lending, and markdowns or impairments on financial investments. The ratings could be lowered if earnings weakness is indicative of deterioration in ING’s underlying performance or higher-than-expected investment related losses.

“The outlook could be revised to stable if the group demonstrates a high level of resilience in underlying performance over the coming quarters, in both the banking and insurance operations, as measured by new sales, margins, client balances, and underlying profits. An outlook revision to stable would also be predicated on ING maintaining its capital strength, while managing down hybrid and debt leverage.”

Source: Standard & Poor’s – www.standardandpoors.com

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