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The Dutch ING bank is announcing €3.9 billion ($5 billion) losses and cutting 7000 jobs. But it started from a "catastrophic" success of its postal banking.

FT.com: Knock-on effect of success in online banking hits ING

ING embarked on a gradual expansion of direct banking a decade ago, seeking to capitalise on its experience in retail savings operations, which was built up through running Postbank at home, the post office savings bank.

In the US, where it launched ING Direct in 2000, the bank chose to become a "thrift" or savings association that was required to put at least 55 per cent of its assets into mortgages.

Since ING could attract online savers with eyecatching interest rates much quicker than it could write its own mortgages, the bank started buying mortgage-backed securities.

"Originating mortgages takes time," said Koos Timmermans, chief risk officer. "So the first thing we did was invest in Fannie Maes and Freddie Macs. We built a portfolio, but after reaching a level of $9bn-$10bn we said it's prudent to also look at other originators."

That led to the €27.7bn Alt A portfolio, a group of securities that lie between subprime and prime and which in recent months had dragged ING's share price ever lower.

by das monde on Wed Jan 28th, 2009 at 03:51:36 AM EST
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