ING’s recent sterling hybrid got a good reception because it satisfied investor appetite for both insurance and banking. ING’s Maarten van Eden tells Edward Russell-Walling that all the market needed was a little persuasion.
ING Group wanted to launch its first sterling hybrid Tier 1 issue a few years back, but the market turned up its nose. After a sparkling 2005, the bancassurer tried it again, to be met this time with an altogether warmer reception.
ING is in more dynamic shape than on its first attempt, and rehabilitated investor perceptions of bancassurance itself also helped. Unlike most remaining European bancassurers, its business is evenly split between the two sectors, and both are performing well.
“Are we a bank or an insurer?” asks Maarten van Eden, ING Group’s director of capital management. “We are both. ING is a two-story credit. If investors have a taste for insurance, they can get it. If they have a taste for banking, they can have that too. And they can also satisfy a taste for both.”
Mr van Eden admits that it has been “something of a challenge” to persuade the markets to appreciate this. “But increasingly they are getting there,” he says. “And our experience with the sterling deal showed an enormously positive reception to our credit story.”
Coupled success
ING exceeded expectations with a 25% increase in net profit last year, with strong gains from both parts of the business. That was particularly true of banking, which includes the highly successful ING Direct online banking unit, which has 15 million customers in eight countries. Last year the group raised €6.3bn of capital. This was made up of about €2bn in Tier 1 capital (including $1.7bn in dollar issuance), E1bn in lower Tier 2 capital raised by ING Bank and €3.3bn in senior debt issued by ING Insurance. All hybrid Tier 1 funding is done at group level, and the funds are then onlent to the bank or insurance company.
“The group issues some senior debt, which is permitted by the diversification between the bank and the insurance company,” Mr van Eden explains. “With 10% debt leverage at group level, we feel that is justified.”
The bank itself is not issuing much in the way of senior paper right now. “The very high growth of ING Direct gives us an enormous amount of funding, so we are liability-driven on the banking side at the moment. But the bank does need lower Tier 2 capital, and the insurance company has senior funding needs,” says Mr van Eden.
The bank’s risk-weighted assets grew by almost 17% last year to €320bn, and it transacts a growing volume of synthetic securitisations – about €5.5bn last year, planned to rise to €14bn in 2006.
Capacity to issue debt
Whether at group, bank or insurer level, as ING generates retained earnings (or redeems outstanding issues) it acquires the capacity to issue further debt. On that basis, it plans to issue more hybrid Tier 1 and senior paper at group level this year. ING Insurance will be issuing senior debt, and ING Bank issued a well-received €1bn in floating-rate lower Tier 2 capital during January. Mr van Eden estimates that the amount of capital to be raised this year will exceed the 2005 total “because we are a growing company”.
ING’s core markets are the euro and US dollar, though it is happy to diversify where the cost is reasonable. While it has yet to tap into the Australian or Canadian dollar markets, for example, it has previously issued senior paper in sterling. This year’s £600m hybrid Tier 1 offering was the first of its kind from ING, however, and the largest from a non-UK bank. As such, it justified a road show in London and Scotland.
“We listen very carefully to what our investment bankers have to say about the market, and where we can issue at an attractive cost,” Mr van Eden notes. “The sterling market is an important one. Earlier this year there was significant arbitrage, and a fantastic opportunity to diversify our investor base, get our story out to another market, and raise finance at an attractive level.”
Joint bookrunners ING, Lehman Brothers and UBS marketed a £600m NC10 transaction with a step-up, with price guidance in the high 90s to 100 basis points (bp) over gilts. They reported no concerns about the credit itself, but rather a focus on value compared with deals from the likes of ABN AMRO and Crédit Agricole.
Orders of more than £900m came in from UK institutional investors and hedge funds, with interest from Germany, Italy and Scandinavia. The trade was finalised at the tight end of guidance, at 97bp, and tightened a little further in the aftermarket. “We were very happy with the book,” Mr van Eden concludes.
