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Oct. 8 (Bloomberg) -- ING Groep NV’s decision to repay $800 million of subordinated bonds will be reviewed by the European Commission as part of its investigation into state aid to the bank and insurer.
ING, the largest Dutch financial-services company, will repay so-called lower Tier 2 notes due October 2014. The move “will be taken into account in the ongoing state-aid probe,” said Jonathan Todd, a spokesman for the European Commission, in an e-mail today. The Amsterdam-based company got 10 billion euros ($14.8 billion) in aid from the Netherlands last year.
The commission has said financial-services companies shouldn’t use government money to repay equity and subordinated debt and should consult with the regulator about capital transactions. Royal Bank of Scotland Group Plc, the largest bank bailed by the U.K., said in September it won’t call $1.6 billion of subordinated bonds after regulators objected.
“Banks should not use state aid to pay out shareholders and this concerns all kinds of instruments in Tier 1 and Tier 2,” said Max Lienemeyer, an official in the commission’s competition department, at a conference today in Brussels. “We’re clearly against calling, but can allow buying back when it helps with restructuring.”
‘Irreversible’
ING’s decision to repay the subordinated notes wasn’t discussed with the commission and is “irreversible,” Raymond Vermeulen, an ING spokesman, said yesterday. Calling the notes is part of ING’s regular operations and the company will discuss with the commission how to address the move in the investigation, Vermeulen said.
ING’s move “probably was an unhappy choice or maybe just a moment of carelessness,” said Dirk Peeters, a Brussels-based analyst at KBC Securities, who rates the company “reduce.” “I suspect they just didn’t think of consulting the European Commission.”
Banks divide debt capital into tiers, depending on the ability of the bonds to absorb losses. The most junior is Tier 1, followed by upper Tier 2 and then lower Tier 2. Tier 1 and upper Tier 2 securities typically don’t have stated maturities. Tier 1 capital is a measure of a bank’s ability to absorb losses.
“If you exercise call options that means you have too much capital,” Lienemeyer said. “There could be a problem of minimum necessary aid and a problem of burden sharing.”
The commission gave temporary approval in March for ING’s transfer of risks and cash flows of 21.6 billion euros of mortgage assets to the Dutch government to limit future writedowns and boost capital. The EU’s antitrust regulator extended its probe of the transaction last month and said the portfolio may be overvalued.
Dexia SA, Belgium’s biggest bank by assets, said today it will consult the commission on how to proceed with calling 6.25 percent subordinated notes with a face value of 1.5 billion French francs ($337 million). The lender, based in Paris and Brussels, announced calling the notes on Sept. 29, it said
Oct. 8 (Bloomberg) -- ING Groep NV’s decision to repay $800 million of subordinated bonds will be reviewed by the European Commission as part of its investigation into state aid to the bank and insurer.
ING, the largest Dutch financial-services company, will repay so-called lower Tier 2 notes due October 2014. The move “will be taken into account in the ongoing state-aid probe,” said Jonathan Todd, a spokesman for the European Commission, in an e-mail today. The Amsterdam-based company got 10 billion euros ($14.8 billion) in aid from the Netherlands last year.
The commission has said financial-services companies shouldn’t use government money to repay equity and subordinated debt and should consult with the regulator about capital transactions. Royal Bank of Scotland Group Plc, the largest bank bailed by the U.K., said in September it won’t call $1.6 billion of subordinated bonds after regulators objected.
“Banks should not use state aid to pay out shareholders and this concerns all kinds of instruments in Tier 1 and Tier 2,” said Max Lienemeyer, an official in the commission’s competition department, at a conference today in Brussels. “We’re clearly against calling, but can allow buying back when it helps with restructuring.”
‘Irreversible’
ING’s decision to repay the subordinated notes wasn’t discussed with the commission and is “irreversible,” Raymond Vermeulen, an ING spokesman, said yesterday. Calling the notes is part of ING’s regular operations and the company will discuss with the commission how to address the move in the investigation, Vermeulen said.
ING’s move “probably was an unhappy choice or maybe just a moment of carelessness,” said Dirk Peeters, a Brussels-based analyst at KBC Securities, who rates the company “reduce.” “I suspect they just didn’t think of consulting the European Commission.”
Banks divide debt capital into tiers, depending on the ability of the bonds to absorb losses. The most junior is Tier 1, followed by upper Tier 2 and then lower Tier 2. Tier 1 and upper Tier 2 securities typically don’t have stated maturities. Tier 1 capital is a measure of a bank’s ability to absorb losses.
“If you exercise call options that means you have too much capital,” Lienemeyer said. “There could be a problem of minimum necessary aid and a problem of burden sharing.”
The commission gave temporary approval in March for ING’s transfer of risks and cash flows of 21.6 billion euros of mortgage assets to the Dutch government to limit future writedowns and boost capital. The EU’s antitrust regulator extended its probe of the transaction last month and said the portfolio may be overvalued.
Dexia SA, Belgium’s biggest bank by assets, said today it will consult the commission on how to proceed with calling 6.25 percent subordinated notes with a face value of 1.5 billion French francs ($337 million). The lender, based in Paris and Brussels, announced calling the notes on Sept. 29, it said
