updated 10/19/2008 6:35:14 PM ET 2008-10-19T22:35:14

The Dutch government said Sunday it will inject 10 billion euros ($13.4 billion) into ING Groep NV to shore up the bank and insurance company amid market rumors it was running out of capital.

Finance Minister Wouter Bos said the deal was necessary given the recent extreme volatility of global financial markets.

ING is “a healthy financial institution,” Bos said at a news conference held at the offices of the country’s central bank in Amsterdam.

But “the situation in the market is so unpredictable at this point in time, so risky, and the expectations of the market are such that it is in the interest of ING to strengthen its capital by 10 billion euros.”

The move is the latest case of a government stepping in to help shore up the books of a financial company hammered by the worldwide credit crisis. Among moves in the U.S., the Federal Reserve is loaning American International Group $123 billion, while the government plans to buy about $250 billion in major bank stocks. In Europe, the German government helped bailed out mortgage lender Hypo Real Estate and Britain partially nationalized lender Bradford & Bingley.

The Dutch government will name two members to ING’s supervisory board. Bos said that one condition of the deal is that ING’s Chief Executive Michel Tilmant and other managers will receive no more than a year’s pay if they are dismissed.

Amsterdam-based ING said separately it will cancel dividends for the rest of the year.

The company’s shares slumped on the Amsterdam stock exchange Friday on rumors it was short of capital, falling 27 percent to 7.34 euros ($9.86). The company’s U.S.-traded shares suffered similar losses on the New York Stock Exchange.

After markets closed, it said it expected to post a 500 million euro ($670 million) loss for the third quarter, blaming the global credit crisis for its woes.

It said it would post the quarterly loss — its first in 50 years — because of 2 billion euros ($2.68 billion) in investment losses, asset write-downs and extra provisions for bad loans.

ING was among the top 20 financial services companies globally in terms of market capitalization in March, but its stock has lost nearly three-quarters of its value since then. ING was worth just 15.2 billion euros ($20.4 billion) at Friday’s closing price.

Under the deal announced Sunday, the government will buy 1 billion newly issued non-voting shares with special rights at 10 euros ($13.43) per share. The shares will earn at least 8.5 percent interest once ING begins paying dividends again, and that amount will escalate each year. But ING can repurchase the shares for 15 euros ($20.14).

The government’s investment in a new class of ING shares would represent roughly a 33 percent stake in the company, based on the number of common shares outstanding on Friday. But it underlined it saw the investment as temporary and structured the deal to make it likely ING will buy the shares back as soon as possible.

Bos said ING has a strong incentive to buy the new shares back and see the government exit “as soon as this financial hurricane recedes.”

On Friday, ING said that, as of Sept. 30, its banking operations were within target solvency ratios and it retained a low risk “AA” credit rating. But the bank didn’t rule out needing more capital, and Tilmant was in talks with Bos and central bank authorities throughout the weekend before the deal was announced.

After Sunday’s moves, the company said its “core Tier-1” capital ratio — the measure commonly used to rate a bank’s strength — will improve to 8 percent from 6.5 percent.

Earlier this month, the Dutch government established a 20 billion euro ($27 billion) fund to support ailing financial companies.

Bos said the fund remains open to other takers.

Among the country’s major publicly traded financial companies, Fortis NV was nationalized outright after its ill-fated acquisition of ABN Amro fell apart. ABN was also nationalized.

After ING, only Aegon NV, an insurer with large operations in the U.S. and Britain, remains free of government money.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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