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ING Groep NV (INGA), the biggest Dutch financial-services company, reported a 22 percent decline in second-quarter profit after selling Spanish investments at a loss and booking an increase in bad loans.
ING fell as much as 2.8 percent in Amsterdam trading after posting net income of 1.17 billion euros ($1.45 billion), below the 1.26 billion-euro mean estimate of nine analysts surveyed by Bloomberg.
ING, the recipient of a 10 billion-euro taxpayer bailout in 2008, is seeking to bolster capital to meet new rules by 2013, while also repaying the state aid. The firm is cutting risk as Europe’s sovereign-debt crisis roils financial markets. ING reduced its Spanish assets by 6.2 billion euros to 34.9 billion euros in the four months through July, booking a loss of 156 million euros in the second quarter and 78 million euros in July.
“The reduction of their exposure to Spain is impressive and came at a lower-than-expected cost,” said Cor Kluis, a Utrecht-based analyst at Rabobank International. “They accelerated the pace, showing management is not closing its eyes to the risks there.” Kluis, who recommends clients to buy the stock, had expected ING would cut its Spanish investments by about 2 billion euros in the quarter.
ING fell 1.7 percent to 5.66 euros as of 9:10 a.m. in Amsterdam, valuing the company at 21.7 billion euros. The stock is up 1.8 percent this year, compared with a 14 percent gain in the 28-company Bloomberg Europe 500 Insurance Index.
Profit excluding one-time items fell 18 percent to 1.05 billion euros, compared with the 1.03 billion-euro estimate of analysts, the Amsterdam-based company said.
By selling the Spanish assets, ING reduced its funding mismatch, or gap between assets in Spain and local funding, to 12.3 billion euros by the end of July from 19.6 billion euros at the end of the first quarter, ING said in a presentation. It sold Spanish holdings including covered bonds and residential mortgage-backed securities.
“Derisking in this quarter was quite active,” Jan Hommen, ING’s chief executive officer, said on a call with reporters today. “Whether we will continue to maintain that pace we’ll have to see. If we see an opportunity -- and when it is appropriate -- we may decide to go further.”
The net result included a 305 million-euro gain as ING agreed on a revised pension plan for 27,000 Dutch workers.
Underlying pretax profit at ING’s banking operations fell 13 percent to 995 million euros. The firm set aside 541 million euros for doubtful loans, compared with 304 million euros a year earlier. ING mainly increased provisions for Dutch mortgages after house prices in its home country dropped, and in commercial real estate.
The lender had a core tier 1 capital ratio, a key measure of financial strength, of 11.1 percent at the end of June. ING targets a ratio of more than 10 percent before the end of 2013 taking into account new capital rules known as Basel III.
ING has so far repaid the Netherlands 7 billion euros, in addition to 2 billion euros in interest and premiums. Hommen said in June he plans to use the proceeds from the sale of its U.S. online bank earlier this year and a buyback and swap of subordinated debt completed in December for the next repayment. Full repayment by 2012, the original goal, became doubtful because of Europe’s crisis and higher capital demands.
Hommen today repeated his intention to repay another tranche of aid this year. ING said last week it may sell its Canadian and U.K. online banks as the company reviews banking assets that aren’t considered strategically important.
“It is too early to say where that will lead to but it certainly will help us to be in a position to repay the Dutch state,” Hommen said, commenting on the review of the Canadian unit.
The firm is under European Union orders to sell its global insurance operations as a condition for its bailout. After selling a unit in Latin America last year, the sale of ING’s Asian life-insurance and investment management business is now “on track.” The sale may take place through multiple divestments, ING said today.
The insurance division had an underlying pretax profit of 229 million euros, down from 472 million euros a year earlier. The Asian insurance unit reported a pretax profit of 160 million euros. The company took a 180 million-euro goodwill writedown at its investment management unit in South Korea ahead of its planned sale.
While pushing on with the unit sales, ING and the Netherlands are in talks with European antitrust regulators on a revision of the conditions imposed after the bailout. Some divestment plans were derailed by Europe’s debt crisis while the European Commission probes whether the Netherlands is making a sufficient return on the funds it provided.
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