Dutch to Backstop ING Alt-A Portfolio

ING and the Dutch government have agreed to establish an illiquid assets back-up facility covering 80% of ING's more than $36 billion portfolio of alternative-A credit mortgage securities from its ING Direct USA and ING Insurance Americas units after the company released a sizable net loss estimate for fourth-quarter 2008 that stemmed largely from mortgage-related writedowns. ING, which also is planning to cut 7,000 positions and replace its CEO, expects to take an estimated 3.3 billion euro ($4.3 billion) "underlying" net loss for the full year 2008 largely due to poor fourth quarter market conditions that led to 2 billion euros ($2.6 billion) in writedowns on subprime and alt-A residential mortgage-backed securities as well as on collateralized debt obligations and collateralized loan obligations. The facility would transfer 80% of the aforementioned alt-A portfolio's risk to the Dutch government and the Dutch government would, in return, be entitled to 80% of the cash flows of the entire portfolio. ING said the risk transfer would "take place at a discount of 10% of par value" and that it would remain the legal owner of 100% of the securities while remaining exposed to 20% of any results on the portfolio. The company said it would earmark part of the capital released by the facility to support the growth of its Dutch lending business "for an amount of 25 billion euros [$33 billion] at market conforming conditions." The agreement includes an exchange of fees between the Dutch government and the company that are expected to have a "limited" impact on ING first quarter profit and loss.