ING has some big issues on its mind right now. Having recently sold its online bank, ING Direct USA, the company is now looking ahead to spin off its insurance operations in two separate IPOs. A condition imposed by the European Commission as part of the Dutch states 2008 10bn emergency capital injection into the bank, the restructuring is expected to be completed by the start of 2013.
But no one could say ING has been distracted this year. The Dutch instittion has consistently led the way in the bond markets, shining the light for other borrowers and often stepping in to re-open trading markets. This approach was exemplified by the confident sale of a 1.75bn 10 year covered bond at the end of August, the first euro benchmark the market had seen for almost two months.
The borrower has pre-funded heavily this year, raising 20bn against 10bn maturing.
"We did most of that funding in the first quarter," says Martin Nijboer, head of long term funding at ING. "Now we are just looking at the market opportunistically, as well as looking at balance sheet development, Basel III regulations and central bank regulations. Were also trying to issue more long term funding than we have in the past, which was very limited."
But ING seems to have a different interpretation of opportunistically tapping the market to other borrowers. While for most, opportunism means waiting for someone else to open the market, ING steps right in and opens the market itself.
"What we do is try to find the window where you have the best possible focus on your bond," says Nijboer. "That is often in the quieter periods. Last year, the same day as this year we did a five year covered bond for 2bn. If youre the only issuer in the market, it always goes well."
This approach has occasionally hurt the borrower. In May 2011 it launched a 1.5bn five year senior unsecured bond, by far the largest in the market at the time, only to see the market slide before the deal had closed. The paper widened sharply in the secondary market, with some bankers saying the issuer had gone for size over quality.
"All the bonds widened after that day," says Nijboer. "I dont think the performance of that bond was anything to do with the name of ING. If you look at covered bonds, our recent deal is the best performing bond, its still at re-offer while every other recent covered bond has widened."
He adds: "If no one wants to go, Id prefer to be the first and hold the focus, rather than coming the second or third day with three names in the market. If you do that you will definitely go wider and end up with a smaller size. The windows are fairly small so sometimes it closes while you are still in the market, like with the five year. ING is a very good name. The Dutch state is very strong together with Germany and Scandinavia, we are probably one of the strongest in the world. We should take the lead."
Indeed, INGs last senior deal a 1.5bn 18 month deal that was sold in June did just that, opening the market after a two week drought. A defensive trade, but a market re-opener nonetheless, the paper was well received and performed well in the secondary market.
ING does not plan to issue a benchmark for the rest of the year, preferring to look at the MTN and covered bond markets. And after strong capital generation in the first half of 2011, subordinated debt investors will have to wait a little longer for issuance. The bank is in negotiations with the European Commission over its restructuring, and any capital or hybrid issuance is unlikely to come before that process is over.
"The capital position is very strong at the moment, so we have no need to do anything in the lower tier two or hybrid market," says Nijboer.
According to its second quarter results, INGs core tier one ratio stands at 9.4%, with a 3bn payment to the Dutch state (part of the repayment of emergency funds provided by the Dutch state in 2008) largely offset by new capital. The groups pro-forma core tier one ratio including the positive impact of the announced sales of ING Direct US, REIM and Car Lease is 10.7%.
The bank is also on track to meet other Basel III regulations such as the Liquidity Coverage Ratio and the Net Stable Funding Ratio, says Nijboer. But for now, the priority is getting through the restructuring, which means focusing on covered bond and senior funding rather than capital. And in todays markets, that means getting the timing right.
"The markets will be very volatile for the coming year or maybe even years, as we have seen over the past couple of years," says Nijboer. "So you need to choose your windows well. I dont think we will do more than 5bn with the Dutch covered bond programme going forward, but maybe we will issue covered bonds in other jurisdictions like the inaugural Pfandbriefe this year".