State aid and bank intervention: the ING Illiquid Assets Back-up Facility (IABF)

The ING Illiquid Assets Back-up Facility announced January 2009 was a SWAP-based insurance to reduce ING’s exposure to Alt-A related risk. Did the deal involve state aid? Using marketprices to evaluate the SWAP directly is impossible because markets for Alt-A based CDOs had collapsed. We therefore assess the deal’s impact on the market’s valuation of ING to answer the question. We need to correct for two concurrent events: the announcement of the fourth quarter results and the CEO. We find state aid to be between 1.1 and 2.2 b€. Thus the European Commission’s estimate that the IABF entails b€ 5 state aid is at variance with the assessment derived from market based valuations. Moreover, the intervention only had a significant impact on equity values and apparently not on debt values, indicating that ING was sufficiently capitalized.