S&P Lowers ING’s Ratings; Outlook Stable; Hybrid Ratings Lowered To ‘B’

September 4, 2009

Standard & Poor’s Ratings Services has lowered its long-term counterparty credit ratings on The Netherlands-based ING Groep N.V. and ING Verzekeringen N.V. to ‘A’ from ‘A+’ and its long- and short-term counterparty credit ratings on ING Bank N.V. to ‘A+/A-1’ from ‘AA-/A-1+’. S&P also affirmed the ‘A-1’ short-term counterparty credit ratings on ING Groep and ING Verzekeringen, and said the outlooks for the ratings remains stable.

However, S&P has lowered the ratings on ING Groep’s and ING Verzekeringen’s deferrable subordinated instruments to ‘B’ from ‘BBB’.

“The rating actions reflect our view that the group is now increasingly likely to post a loss in 2009 after a weaker-than-expected first-half result,” explained credit analyst Claire Curtin.

S&P noted that ING’s first-half performance “was pressured due to impairments and write-downs on securities and real estate, as well as the continuing difficult operating environment. We expect these pressures to continue into 2010.

“We consider that this performance is not sufficient to support a ‘AA-‘ rating. In our view, a loss-making 2009 also makes it more likely that the European Commission (EC) will require the group to defer payment of the coupons on its deferrable subordinated instruments.”

In addition S&P noted that the ratings on ING’s core operating subsidiaries “incorporate our view of the group’s significant exposure to investment risk, and a challenging operating environment. The ratings also reflect our view of the group’s strong competitive positions, diversification, and proactive risk management.

“The downgrade of the group’s deferrable subordinated instruments reflects our view that the EC is significantly more likely to require banks in receipt of state aid to defer payment to hybrid debt holders when an institution reports losses. Given our revised view that the group will likely be loss making in 2009, we consider deferral risk significantly heightened. We consider that a determination from the EC is likely in the coming month at the same time as the EC determines whether the transfer of “Alt-A” securities to the Dutch state conformed to its rules on state aid.”

Curtin added that the stable outlook “reflects our view that the group’s capital base is sufficient to absorb these near-term earning pressures. Although we do not anticipate that further extraordinary support will be required, we do expect that the State of the Netherlands would provide further support to the group in case of need.”

S&P added the caveat that ING’s ratings are predicated on its expectation that the Group ” will maintain its capital strength, execute on derisking initiatives, and manage down hybrid and debt leverage. We see little upside potential for the ratings in the near term. Although we do not consider this a likely scenario, negative rating actions could result if the restructuring requirements from the EC are significantly more far-reaching than anticipated.”

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

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