| For more on bank rights issues see: European banks go it alone |
It was all going so smoothly. Shareholders were supporting bank rights issues, governments were getting their capital repaid, and then along came Dutch financial group ING to remind everyone of the risks. The company’s shares fell 21% in the four days after it announced a €7.5 billion rights issue and divestment strategy to repay the Dutch state on October 26, dragging other European bank stocks with it. Over the same period, shares in Lloyds Banking Group, which is reportedly considering a £12 billion rights issue to avoid the UK government’s asset protection scheme, dropped by 11%.
According to one equity capital markets banker, people are reading too much into the market response to the ING deal. "It came as a surprise and it is a relatively complicated situation with a lot of questions around execution with the sale of €20 billion or more of assets," he says.
Another ECM banker thought there were broader lessons to be learnt. "The real message is that in a difficult market, shareholders want to know that companies have a decisive solution to repay government capital without the execution risk attached to a divestment strategy."