(Updates with analyst’s comment in seventh paragraph.)
Jan. 13 (Bloomberg) -- ING Groep NV said it may consider selling banking assets to hasten the repayment of state aid to the Netherlands, which faces delays by new regulatory capital demands and Europe’s debt crisis.
The bank’s priority in the next two years is to repay the Dutch state 3 billion euros ($3.9 billion) and meet Basel III requirements on capital levels while completing a European Union-ordered restructuring, the Amsterdam-based firm said in a statement today. A “further review of non-core assets” in the lender may help speed up repayment, ING said in a presentation posted on the company’s website.
ING has to shrink its balance sheet by 45 percent through to the end of 2013 from 2008 levels and exit its insurance business. It received 10 billion euros of state aid and transferred the risk on 21.6 billion euros of U.S. mortgage assets to the Dutch government after the 2008 financial crisis. It has returned 7 billion euros in aid to date and had set out to complete repayment by May.
“Ideally, we would like to complete the state repayment this year,” Chief Executive Officer Jan Hommen said in the presentation. “However, given the ongoing crisis in the euro zone and increasing regulatory capital requirements, we need to take a cautious approach and maintain strong capital ratios in the bank as we build towards Basel III.”
ING plans to have a core Tier 1 capital ratio, a measure of financial strength, of more than 10 percent by the end of 2013, it said today. That compares to 9.6 percent at the end of the third quarter. After repaying its government bailout and meeting the capital demands, it plans to resume dividend payments. It expects Basel III rules to reduce its core Tier 1 ratio by 80 basis points at the end of 2013.
ING shares fell 2 percent to 6.07 euros as of 1:02 p.m. in Amsterdam today, after rising as much as 2.8 percent. The stock has still advanced 11 percent this week, after announcing it plans to sell its Asian insurance unit separately from the European part of the business.
“Although the less-and-later aspects of today’s message are a disappointment, we feel comfortable with our ‘Buy’ recommendation,” said Lemer Salah, an analyst at SNS Securities in Amsterdam. “We are not surprised that ING is giving its capital position priority over the repayment of state aid.”
ING might consider selling assets such as its stake in Bank of Beijing Co., ABN Amro Bank analyst Jan Willem Weidema said yesterday. Divestments of minority stakes in Asian banks aren’t included into the strategic plan presented today, Hommen told investors today.
The bank was designated as a systemically important firm by Dutch and international regulators. That will lead to additional capital demands of 1 to 3 percent of risk-weighted assets, Hommen said.
ING has a target return on equity, a measure of profitability, of 10 percent to 13 percent by 2015, the bank said today. That compares with a goal of 13 percent to 15 percent it had set itself for 2013, taking into account a core tier 1 ratio of at least 7.5 percent.
Cost cuts and investment in its computer systems should help ING Bank to limit expenses as a proportion of revenue to 50 percent to 53 percent by 2015, the bank said. ING reduced expenses in its lending unit by 3 percent from 2008 to 2010. Those efforts are being hampered by higher regulatory costs and bank taxes, ING said.
A planned new Dutch deposit guarantee plan in the Netherlands would add 230 million euros in annual costs, while a Dutch and Belgian bank tax would cost 120 million euros a year on implementation, according to ING.
The firm sees 300 million euros in annual savings by 2015 from procurement initiatives, it said today.
ING presented “overall ambitious targets,” Benoit Petrarque, an Amsterdam-based analyst at Kepler Capital Markets said in a note to investors.
In the fourth quarter ING Bank cut its holding of Italian sovereign debt by 800 million euros and Spanish government bonds by 300 million euros. That leaves it with 2 billion euros in Greek, Italian, Spanish and Portuguese government debt, the bank said today.
--With assistance from Martijn van der Starre in Amsterdam. Editors: Jon Menon, Keith Campbell
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