Dutch government moves to protect banking giant

The Dutch government will invest €10bn in ING Groep NV to boost the bank and insurance company's capital position, officials said.

The deal, which makes the country's government a major shareholder in ING, was necessary even though there had been no run on the bank, finance minister Wouter Bos said last night.

ING is "a healthy financial institution", Mr Bos said at a news conference held at the country's central bank offices 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 €10bn".

The Dutch government will name two members of ING's supervisory board. Mr Bos said that one condition of the deal is that ING's chief executive Michel Tilmant and other managers would 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 on Friday on rumours it was short of capital, falling 27%. After markets closed, it said it expected to post a €500m loss for the third quarter, blaming the global credit crisis for its woes.

Under the deal announced yesterday, the government will buy one billion newly-issued non-voting shares with special rights at €10 per share.

The shares will earn at least 8.5% interest once ING begins paying dividends again, and that amount will escalate each year. ING can repurchase the shares for €15 per share, however.

Mr Bos said that would give the company a strong incentive to buy them back and see the state exit "as soon as this financial hurricane recedes".