For the second time in three months ING, the Netherlands' biggest bank and insurer, has knocked on the door of Dutch finance minister Wouter Bos. And once again the government must bail the company out after it became clear that the risks taken by ING were greater than previously thought.

Former CEO Michel Tilmant stated a year ago that there were few ING ties to risky American investments. Monday's figures show investments in Alt-A mortgages are proving to be riskier than expected. The result: a net loss of 3.9 billion euros for 2008, the CEO is stepping down, the government will guarantee 21.6 billion euros in investments related to the US housing market, and 7,000 jobs will disappear.

This is all disastrous news, that nonetheless was warmly received at the stock exchange - where the stock of ING rose by 20 percent. Investors hope that the worst is behind the bank, and were happy with the news that the company wants to mitigate risks on all types of investments.

ING will have a rough time of it, with or without the guarantees. The situation in the financial markets is still extremely unsettled and the economic malaise has pulled countries worldwide into recession. ING is not completely to blame for all its troubles. The global economic downturn is unprecedented and predictions about the malaise are repeatedly revised - for the worse. ING said on Monday that the last three months have proven to generate its worst quarterly results in 50 years for credit and equity markets.

No 'bank for bad loans'

With the new government guarantees, the fate of the Dutch taxpayer is more directly linked to that of the American homeowner. The Dutch government will now guarantee the risks ING has taken on with its portfolio of bundled and repackaged so-called Alt-A mortgages. And the value of these loans - considered only slightly less risky than subprime loans - is difficult to determine given the fact that they are hardly on the market anymore. The economic problems in the US have put this category of 'liar loan' mortgages, for which the income of buyers was never verified, at risk. ING and the government hope that when the market normalises, that the eventual value of these loans won't be that far off from their book value. If they are significantly lower, then the taxpayer will end up covering them.

The finance ministry has negotiated a striking rescue package. ING will be required to provide an extra 25 billion euros in loans to Dutch businesses and customers. Bos hopes this will counter complaints that banks are refusing costumers and the guarantee will help the national economy in general. The top ING executives also agreed to forego their bonuses in 2009, as they handed those over after the 10 billion euro capital injection granted to ING by the government last October.

Taking the polluted portfolio away from ING might revive the faith of investors, whose distrust was expressed in the sharp drop in price on the stock markets of the past weeks. It might also prevent the flight of savings account holders. The government has long been worried about the enormous amount of savings - 199 billion euros - that ING Direct had on its books.

The alternative Bos had - and did not choose - was to set up a 'bad bank.' This would have been a special bank that the government would have create to take on all troubled assets. Thus, ING remains the legal owner of dubious credit. ING will pay a so-called guarantee provision to the state, but the government will for its part pay a provision to the bank for the management and the financing of the portfolio in question.

ING says it will now return to its roots. It wants to again become an old-fashioned institution that shies away from risky investments that have brought down this storm of trouble. It wishes to return to being an old-fashioned banking institution depending on monies from (savings) deposits, lends most of that money out and invests the remaining amount. Yet ING can not withdraw from the American housing market entirely, says Koos Timmermans, head of risk management at the bank. However, risky categories of mortgages should be avoided in the future. He reiterated that the bank should have acknowledged problems far sooner. "We are long-term investors and don't react immediately when the market drops. Plus you can't reduce a portfolio of 38 billion overnight."