Restoring confidence is key

Recently, the Dutch government acquired all shares in the capital of the Dutch subsidiary of Fortis, i.e. Fortis Bank Nederland, including ABN AMRO Bank.

Furthermore, the Dutch government has set aside $27.5 billion of capital to protect the financial institutions of the Netherlands. Although there are many banks that have enough capital to get them through this period of market turmoil (a ‘credit tsunami’, according to Alan Greenspan), many of these financial institutions are not in a position to lend money at the levels that are necessary to support the Netherlands economy. The Credit Guarantee Scheme (click here for the details) is designed to fill that gap. The purpose is two-fold: to encourage financial institutions to build capital to increase the flow of financing to businesses in the Netherlands and consumers as well as to increase confidence in the financial institutions of the Netherlands.

ING Group has applied for this plan. Dutch finance minister Wouter Bos is now injecting $13.4 billion in ING Group. Although ING is a healthy financial institution, it is nevertheless in ING’s interest to strengthen its capital. The government’s stake will be around 8.5% of the company, but the investment is temporary. ING will issue 1 billion of non-voting core tier-1 securities to the Dutch government. The government will have a position similar to common shareholders and the transaction is designed not to dilute shareholder capital. The government will name two members of ING’s supervisory board. The question remains, however, whether this is a good move.

Earlier this week, the Dutch minister of economic affairs, Maria van der Hoeven, announced a program to support small and medium-sized businesses which cannot obtain loans at banks at an acceptable interest rate because of the current financial crisis. Businesses meeting the criteria now can opt for a government loan guarantee. The program’s purpose is to keep the credit crisis from hurting the real economy.

Karel Frielink
Attorney (Lawyer) / Partner


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