Fitch Ratings has affirmed short term and long term issuer default ratings (IRDs) for ING Group on Rating Watch Negative.
ING Group, the group holding company, has two main subsidiaries: ING Bank N.V., which operates most of the group’s banking business and INGV, which runs most of the insurance activities. ING Bank N.V.’s ratings are unaffected by today’s rating action. A full rating breakdown is at the end of this comment.
Fitch also upgraded ING Group’s USD1bn variable rate callable subordinated perpetual preference shares (ISIN US456837AC74) to ‘BB+’ from ‘BB’ to reflect the improved performance of the bank and the insurance company and hence the reduced likelihood of coupon deferral. The restructuring plan agreed with the European Commission (EC) in Q409 does not require ING Group to defer coupons on hybrid instruments or to seek approval from the EC for the payment of coupons on its hybrids. Nonetheless, the rating takes into account the relatively high double leverage at the holding company level, which would indicate higher risk than had they been issued by the bank.
ING Group’s IDRs, senior debt ratings, Support Rating and Support Rating Floor continue to reflect potential support from the Dutch state. Support for the group during the financial crisis has been provided via ING Group. Nonetheless, ING Group’s IDR is one notch lower than ING Bank N.V’s IDR (also support driven) to acknowledge the possibility that future support – should it ever be needed – could be provided directly to ING Bank N.V., rather than via the group.
The rating actions on INGV and its subsidiaries continue to reflect the uncertainty on its prospective ownership structure following ING Group’s announcement that it intends to dispose its insurance operations by end-2013. The RWN also reflects the uncertainties that the sale will generate with respect to the franchise and business position of ING’s insurance operations. Following the sale, the insurance operations will no longer benefit from being part of a large bank-insurance organisation and, as such, will see reduced diversification of risk and business as well as less financial flexibility.
Fitch will resolve the RWN once the disposal is finalised and INGV’s new shareholding structure has been put in place.
INGV’s ratings continue to reflect its strong business positions and geographic diversification. Capital adequacy is in line with the current ratings and Fitch expects debt leverage to reduce in the near future due to accumulated earnings and the proceeds from the disposal of Latin American insurance operations which should both be retained by INGV.
Fitch has also upgraded INGV’s hybrid capital to ‘BB+’ from ‘B+’ to reflect the improved performance of insurance operations and the progress made by the group in paying back the financial support received from the Dutch government. As in the case of the holding company, INGV’s hybrids rating reflects the remaining execution risk related to the restructuring plan filed with the EC.
Once the insurance companies have been divested, ING Group is expected to reduce the double leverage held at the holding company level and will become progressively more of a pure bank holding company rather than a bank-insurance holding company.
Source : Fitch Ratings