Dutch insurance firm ING Groep NV (ING) Wednesday reported a 96.3% decline in its second-quarter profit, as real estate impairments and other charges drove down its banking division to a loss. The company said it has decided not to pay an interim dividend on common shares over 2009, and expects that economic conditions will remain challenging for some time.
The company's second-quarter net profit was EUR 71 million, compared with a profit of EUR 1.92 billion a year ago. Earnings per share declined to EUR 0.03 from last year's EUR 0.94.
The results included the negative impact of EUR 161 million of special items and EUR 2 million net results from divested units. Special items consisted of a EUR 41 million charge related to the Retail Netherlands strategy, a EUR 96 million restructuring provision related to the Group's expense-reduction programme, a EUR 21 million restructuring provision for the SPVA run-off in Japan, and a EUR 3 million charge related to the cancelled launch of ING Direct Japan.
Underlying profit for the quarter was EUR 229 million, lower than EUR 1.89 billion in the same quarter last year, hurt by market impacts and higher risk costs. Underlying profit before tax plunged 96.5% to EUR 74 million from EUR 2.14 billion in the prior-year quarter.
For the preceding first quarter, ING reported a net loss of EUR 793 million or EUR 0.39 per share, and an underlying net loss of EUR 305 million.
ING's gross premium income reached EUR 7.27 billion in the second quarter, a decline of EUR 22.3% from EUR 9.36 billion in the previous year. Total investment & other income was negative EUR 1.33 billion, compared with positive EUR 2.16 billion in the same period last year. Total underlying income slid 33.6% to EUR 10.24 billion from EUR 15.42 billion a year ago.
Commenting on the results, Jan Hommen, Chief Executive Officer of ING, stated, "ING posted solid commercial performance in the quarter, as a more favourable interest rate environment and improved margins on savings and lending led to a 19.4% increase in interest income at the banking operations. In Insurance, the recovery of equity markets in the second quarter helped boost fees on assets under management. However, sales of investment-linked products remained subdued as customers awaited a sustained market rally or opted for traditional life products."
According to the company, property prices declined further in many markets around the world, leading to negative revaluations on real estate of EUR 584 million and impairments on development projects and other real estate investments of EUR 110 million. The ongoing weakness in the US housing market, coupled with rising unemployment, triggered EUR 323 million of impairments related to the retained Alt-A RMBS portfolio.
ING reported underlying result before tax from Banking segment of negative EUR 204 million, compared with positive EUR 1.10 billion last year, as robust interest results were more than offset by higher risk costs and negative revaluations on real estate. Results were further reduced by impairments on US mortgage-backed securities and fair value changes on part of the bank's own Tier 2 debt. Banking's total underlying income declined 21.4% to EUR 2.96 billion from EUR 3.77 billion last year.
Retail banking's underlying income was EUR 1.82 billion, down 6.4% from EUR 1.94 billion a year ago. ING Direct reported a 34.6% decline in its total underlying income to EUR 425 million from EUR 650 million in the prior-year quarter. Commercial banking posted total underlying income of EUR 991 million, down 15.9% from EUR 1.18 billion in the same quarter last year.
Insurance segment's total underlying income was EUR 7.37 billion, down 37.2% from EUR 11.72 billion in the previous year. Underlying result before tax fell 73.3% to EUR 278 million from EUR 1.04 billion a year ago.
Insurance Europe generated total underlying income of EUR 2.49 billion, compared with EUR 3.53 billion last year. Insurance Americas generated quarterly underlying income of EUR 3.52 billion, down 38.2% from EUR 5.7 billion in the same quarter last year. Insurance Asia/Pacific's underlying income for the quarter was EUR 1.72 billion, 21.9% lower than EUR 2.20 billion in the prior-year quarter.
For the first half of fiscal 2009, ING reported a net loss of EUR 722 million or EUR 0.36 per share, compared with a net profit of EUR 3.46 billion or EUR 1.68 per share in the previous year. Total underlying income declined 24.7% to EUR 25.15 billion from EUR 33.39 billion in the prior-year period.
Among ING's peers, AXA Group (AXA) has reported a sharp decline in its profit for the first-half of fiscal 2009, as revenues dropped, reflecting the impact of adverse market environment and lower management fees. For the first six months, the company's net income dipped to EUR 1.32 billion from EUR 2.16 billion a year ago. On a per-share basis, net income plummeted 53% to EUR 0.50 from EUR 1.07 in the prior year. Half-yearly revenues decreased 1.8% to EUR 48.4 billion from EUR 49.32 billion last year.
Going ahead, ING said that economic conditions are expected to remain challenging for some time while the company has begun to see signs of recovery in financial markets. The company now expects that its cost savings will reach EUR 1.3 billion driven by further reductions in infrastructure costs.
The company's headcount has been reduced by 8,219 FTEs year-to-date, well ahead of its original plan to reduce 7,000 FTEs this year. ING also said that it has decided not to pay an interim dividend on common shares over 2009.
ING closed Tuesday's trading at $12.76, down $0.31, on a volume of 1.29 million shares.
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