DBRS Confirms ING Bank of Canada at AA (low), Trend Now Negative

DBRS has today confirmed its ratings for ING Bank of Canada (ING Direct Canada), including its AA (low) Issuer & Long-Term Debt rating. At the same time, DBRS has changed the trend on the long-term ratings to Negative from Stable. DBRS’s Short-Term Debt rating for ING Direct Canada remains at R-1 (middle), with a Stable trend.

This rating action follows the announcement by ING Groep N.V. (ING Group or the Group) that it expects to report a net loss of EUR 1.0 billion for full-year 2008 and a net loss of EUR 3.9 billion for Q4 2008, driven by increasingly challenging market conditions. DBRS had expected ING Group’s earnings to be pressured due to the ongoing financial crisis, but the announced Q4 2008 loss exceeds prior expectations and goes beyond DBRS’s tolerance levels, resulting in the Negative trend.

ING Group also announced an agreement with the Dutch state to transfer 80% of its EUR 27.7 billion (at amortised cost) portfolio of U.S. Alt-A residential mortgage-backed securities (RMBS) to the state. DBRS views the risk transfer positively as it significantly reduces the Group’s exposure to Alt-A RMBS. Still, ING Group remains exposed to the ongoing financial crisis through its large securities and loan portfolios in its banking and insurance operations. In addition, DBRS sees a risk that credit quality may deteriorate in coming quarters, owing to the global economic downturn.

ING Group also announced senior management changes and plans to reduce risk, cut operating expenses and divest certain businesses. DBRS views these plans as likely to solidify ING Group’s financial profile in the medium term. However, the planned sale of assets and businesses under the currently challenging conditions could be difficult to execute.

DBRS’s ratings for ING Direct Canada continue to be based on the financial profile of ING Group and ING Bank N.V., the direct parent of ING Direct Canada. The demonstrated strong support from the Dutch state for ING Group would likely limit any possible downgrade of ING Direct Canada’s ratings to one notch. The rating confirmations for ING Direct Canada reflect DBRS’s view that ING Group is a systemically important institution in the Netherlands and, therefore, likely to receive further government support, if needed.

Going forward, if ING Group’s financial profile weakens or if the Group reports outsized losses, this could have negative ratings implications. Indications that the ING Direct franchise, including ING Direct Canada, may no longer be viewed as a core business for the Group, could also cause negative rating actions. Conversely, the Negative trend could revert back to Stable, should ING Group succeed in reducing its risk profile and improve its operating performance.

Notes:
All figures are in euros unless otherwise noted.

The applicable methodology is Analytical Background and Methodology for European Bank Ratings, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.