ING back to reality

The most important social argument for the split of ING is it became something of a state above the State due to its growth over the past decades.

We will never know for sure, but without a capital injection of 10 billion euros ING's share may well have become worthless a year ago. The financial markets on Monday did not allow themselves to be lead by the memory of this bailout by the Netherlands' government. After ING announced the bank-insurance company would split and extra shares would be issued to help repay the debt to the government, it lost a fifth of its shareholder value, as investors with only short-term gains in mind sold their shares.

There is no going back for the group, however. And not just because Europe, in the person of European Competition Commissioner Neelie Kroes, has stipulated that ING must undergo drastic reorganisation. The reasoning behind this is correct. The government support alone demonstrates the bank-insurance company cannot survive independently on the market. But that market has now been disrupted by the bank because of the bailout money.

There is good reason why banks throughout Europe who leaned heavily on the government last year are now working on repaying their debts to the state via share issues. They hope this will help them regain their freedom to manoeuvre and at the same time they are anticipating the requirements for financial buffers that the group of the twenty largest industrialised countries (G20) stipulated for the future during their summit in Pittsburgh last month.

But there are other reasons for this step as well. ING must also reorient itself for the sake of its own business and its home base in the Netherlands. The notion of a combined bank and insurance company, thought up twenty years ago as a model to hedge interest risk rates and increase synergy in operations, perished in the credit crisis. The expansion, primarily in the United States with the successful internet concept ING Direct, succumbed as well.

The most important social argument for the split however is that ING became something of a state above the State due to its growth over the past decades. The group’s balance sheet total was almost twice the gross national product of the Netherlands, even though it is the state that ultimately foots the bill in case of disaster.

The citizens of Iceland can certainly attest to the consequences of a balance between the state and a bank being out of kilter.

The "back to basics" policy ING CEO Hommen will now put in practice does not just apply to this bancassurer. Almost the entire financial sector is taking this approach now, forced to do so by the crisis. Amsterdam can no longer dream of competing with the City and Wall Street. This is a painful realisation for those who earn their livelihood in this industry and adjoining sectors. But it is inevitable that the sector must once again plant its feet firmly on Dutch earth.