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ING’s Q2 net profit plunged 25%

ING Groep NV, the biggest Dutch financial services company, said that second-quarter profit dropped 25 percent as investment earnings at its wholesale-banking and insurance units declined.

Net income fell to 1.92 billion euros (US$2.87 billion), or 0.94 euros a share, from 2.56 billion euros, or 1.18 euros, a year earlier, the Amsterdam-based company said in a statement yesterday. The result was better than analysts’ estimates of 1.56 billion euros.

Profit dropped as the collapse of the US subprime-mortgage market hit stock and bond markets and made borrowing more expensive. Lower real estate and private equity valuations and lower equity capital gains cut earnings by 754 million euros after tax, ING said.

The company took advantage of the brief market rally in April to reduce its equity investments, CEO Michel Tilmant said.

“If ING is in pain, it’s mainly as an investor and not as an originator of risky assets,” said Ton Gietman, an analyst at Petercam SA in Amsterdam who rates ING shares “hold.”

The firm had a 2.2 billion-euro US subprime-mortgage portfolio at the end of the second quarter, while Alt-A mortgage assets amounted to 22 billion euros. Alt-A loans rank between subprime and prime. The company’s net exposure to collateralized debt and loan obligations increased to 4.3 billion euros from 2.1 billion euros in the previous quarter.

Financial institutions worldwide have posted more than US$500 billion in credit losses and writedowns since the start of last year, data compiled by Bloomberg showed.

ING, which traces its roots to 1743, fell about 15 percent in Amsterdam trading in the second quarter, compared with an 18 percent drop in the 70-member Bloomberg Europe 500 Banks & Financial Services Index. Among the 39 analysts tracked by Bloomberg who cover ING, 23 have “buy” ratings on the stock, while four advise selling. Twelve rate it a “hold.”

Earnings from ING’s wholesale banking unit fell 40 percent to 365 million euros, while retail-banking profit slid 9.9 percent to 558 million euros. Both were lower than analysts’ estimates of 449 million euros and 604 million euros respectively. Profit from online banking rose 4.7 percent to 179 million euros.

Insurance profit from the Americas dropped 37 percent to 374 million euros, beating analysts’ estimates, while earnings from Europe declined 42 percent to 397 million euros. Asia and Pacific insurance results fell 19 percent.

“Financial services companies are facing unprecedented market volatility, limited liquidity and intensified competition for deposits, which we see continuing into 2009,” Tilmant, 56, said in the statement. “As markets remain volatile, we will continue to manage our risk and capital with discipline.”

ING was helped last year by the sale of ABN Amro Holding NV shares. The company, which got almost two-thirds of its profit from insurance last year, had further gains when it disposed of shares of Royal Numico NV, the Dutch baby-food maker that was bought by France’s Groupe Danone SA.

Investment returns and asset values will remain under pressure “with the correlated impact on earnings,” ING said on May 14. The drop comes after lower valuations on real estate and private equity and smaller realized stock gains shaved 436 million euros off first-quarter earnings.
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