This math is probably not right, but at least you'll be able to follow it. as of Sep 2008 quarter-end, ING had roughly 23.7 bn (euros) in equity value on the balance sheet (book value). Of this amount (using Google Finance as reference), 7.5 bn of this amount was intangible, making tangible equity 16.2 bn. October 17, 2008: ING pre-releases information concerning it's Q3 2008. Stock price on October 17-20 was 9.89 to 14.15, or average of roughly 12. October 19, 2008: Dutch Gov't invests 10 bn euros. Not sure what the terms were, if this investment was made at a discount to post-Q308 earnings share price, or if dilutive warrants were given to Dutch Gov't (something you can check and add into the comments), but let's assume 10 bn went into tangible equity to dilute the shareholder on October 17th when ING management gave a peak into Q308 earnings ("pre-announce"). MATH: Take 16.2 bn in tangible equity, and dilute by 10 bn. That's 38.2% dilution, or the original shareholders now only have 61.8% of the Sep 2008 company's book value. 12.00 avg share price x 61.8% = 7.42. Sep 30, 2008 to December 31, 2009: ING loses about 4.4 bn over the next 3 quarters, but supposedly will report a gain of about 700mm in Q3 2009. MATH: Net loss of 4.4 - 0.7 = 3.7 bn. Take this from book value, so 26.2 - 3.7 = 22.5 bn. Of the 3.7 bn loss, original shareholders bare 61.8% of the loss, or 2.3 bn on their 16.2 bn in tangible equity. So Tang equity is reduced by a further 14% for October 20, 2008 shareholders. 7.42 x 86% = 6.38. October 26, 2009: ING mgt announced capital raise (attempt) for 7.5 bn euros, which adds to 22.5 bn estimated Dec 31, 2009 capital, for total of 30.0 bn tangible equity. The diution is 25%. 6.38 x 75% = 4.79. So if you were a shareholder immediately after the Sep 30, 2008 "pre-released" earnings, and had the foresight to expect the 10.0 bn Dutch gov't investment, the losses thru Dec 31, 2009, AND the 7.5 bn capital raise, you might have expected the share price today to be roughly 4.79. So why is it higher? the economy looks a lot better now than it did back in the midst of the turmoil of mid October 2008. So you must judge HOW MUCH better, and ask yourself if a current shareprice of about 14 euros compares well with 4.79 (assuming you pay book value for ING. At 14, ING trades at roughly 88% of June 30, 2009 book value per Goog Finance, and greater than 100% of tangible book value). IMHO, ING still deserves a discount to adjusted tangible book value, as the stock markets might look better, but the ECONOMY isn't that much improved, especially commercial and residential RE. Willing to give ING a 50% increased share price from my proprietary 4.79 calculated book value. So 7.19 is the target. If you want to do further research, figure out exactly which divisions were sold since Oct 17, 2008. You can then refine what valuation you put on ING's implied book value for original shareholders. Do you think ING sold it's best-performing assets, or worst? If they sold some healthy good growing assets, you would give ING even less valuation. If they sold dogmeat at an expensive price, then give ING some extra credit. My feeling is most banks worldwide sold their best assets, since the cruddy assets were massively depressed in value. So I'd say ING's future is worse than its assets of October 2008 would've implied. It should prove difficult for ING to pay back it's Dutch "TARP" equivalent. Very bad timing too, as we aren't out of the woods yet.
$14.08 (10/26/09)
