ING to split itself, issue $11.3 billion of shares

ING Groep NV, one of the world's largest financial services companies, announced plans Monday to sell or list its insurance and investment management arms and to issue euro7.5 billion ($11.3 billion) in new shares to repay state aid and bolster its finances.

The bank said the new capital will repay about half of the aid it received from the Dutch government at the peak of the financial crisis.

In a series of related announcements, the company said it will hive off the insurance arm and its investment management businesses and sell them or seek stock market listings for them. It also plans to sell its U.S. Internet banking arm ING Direct by 2013 and separate and sell some of its Dutch banking operations.

The moves, "taken together, provide a clear plan for resolving the uncertainty created by the financial crisis and will launch a new era for ING," said Chief Executive Jan Hommen, a former board chairman who took the executive job in January after his predecessor was fired.

"Splitting the company is not a decision we took lightly."

ING has been an advocate of the advantages of combining banking and insurance, and historically the two arms have generated about equal shares of the company's earnings.

Along with the announcement of its intention to split, ING gave a preview of its third quarter earnings, putting them at a profit of euro750 million, compared to a loss of euro568 million in the same period a year ago. Banking profits were around euro250 million and insurance earnings around euro500 million.

It said in a statement Monday that profits were helped by 10,800 job cuts so far this year. However, impairments on various investments, notably real estate and derivatives linked to the U.S. housing market, continue to weigh on results.

ING received two major boosts from the Dutch government. First, a euro10 billion direct investment lifeline last October.

Second, in January the state took on the risks and benefits of an 80 percent stake in ING's mortgage-backed security portfolio with a face value of around euro28 billion at the time. The sweetheart deal assumed the securities were worth 90 percent of their face value at a time markets were illiquid and their value was - rightly - estimated by analysts to be much lower than that.

ING said Monday it will use a "rights" share issue - in which shares are offered below market price, but only to current shareholders - to raise the euro7.5 billion.

Of that money, around euro5.9 billion will go to paying back half of the euro10 billion October lifeline, plus interest and premiums.

Another euro1.3 billion will go to the Dutch state as an adjustment to the terms of the January deal. That concession was demanded by EU competition authorities in order to gain approval for the plan announced Monday, ING said.

It will book the payment as a one-time charge in the fourth quarter.