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Dutch financial firm ING Groep NV (ING) reported Wednesday it turned in a profit for the third quarter compared to prior year's loss, reflecting strong banking segment performance, less severe negative market impacts, and cost savings initiatives amid stabilizing financial market conditions. ING also said it has made significant progress on its various strategic priorities, including the separation of Banking and Insurance operations and share issue, which were announced last month. ING said that its cost-containment initiatives are on track.
Third-quarter net income was 499 million euros or 0.25 euros per share, compared to net loss of 478 million euros or 0.22 euros per share last year.
The latest quarter results included losses from divestments and special items totaling 278 million euros, comprising losses from special items of 106 million euros, net losses on divestments of 168 million euros, and net loss from divested units of 4 million euros. Meanwhile, prior year results included net gains on divestments of 178 million euros, partly offset by losses from special items of 74 million euros, and net loss from divested units of 13 million euros.
On an underlying basis, third-quarter net income was 778 million euros, compared to underlying net loss of 568 million euros in the same period last year. Underlying profit before tax was 861 million euros, compared to underlying loss before tax of 712 million euros in the year ago quarter.
ING in late October had noted that it expects net result after divestment and special items to be 500 million euros or 0.24 euros per share, and underlying net result of approximately 750 million euros for the third quarter.
According to ING, its "third-quarter results showed an improvement, supported by cost savings and a strong commercial performance of the Banking business. Market impacts, however, remained substantial, including impairments on debt securities and real estate revaluations."
Financial markets that continued to stabilize resulted in lower negative market-related impacts in the third quarter than in the previous quarters of 2009, the group noted.
Third quarter results included pre-tax market impacts of 882 million euros loss, including impairments on debt securities and real estate revaluations and impairments. Excluding market impacts and risk costs, third-quarter results were 2.4 billion euros, primarily attributable to the Banking division.
The company's total underlying income declined 13.5% to 12.12 billion euros from 14.02 billion euros in the previous year.
In the quarter, gross premium income fell 16% year-over-year to 7.63 billion euros, and total investment & other income plunged 83.9% to 173 million euros. However, Interest result banking operations rose 18.7% to 3.10 billion euros, and commission income went up 4.7% from last year to 1.22 billion.
Total underlying expenditure in the quarter fell 23.6% to 11.26 billion euros from last year's 14.73 billion euros. The company's cost reduction programs reduced operating expenses by 9.3% to 3.23 billion euros.
Commenting on the results, Jan Hommen, Chief Executive Officer of ING, stated, "ING achieved a strong commercial performance in the third quarter, illustrating the strength of our Banking and Insurance franchises even in this challenging economic environment."
"The Bank continued to benefit from resilient interest results and strong Financial Markets performance. Insurance sales improved from the second quarter, although investment margins were under pressure following de-risking measures taken earlier this year. Negative market impacts were less severe than in previous quarters as equity markets improved; however, results continued to be impacted by impairments on mortgage-backed securities and negative revaluations on real estate investments," Hommen added.
Segment-wise, total Banking underlying income grew 20.7% to 3.17 billion euros from last year's 2.63 billion euros. Retail Banking's underlying income edged down 0.1% to 1.82 billion euros and ING Direct's underlying income fell 38.4% to 282 million euros. Meanwhile, quarterly underlying income from Commercial Banking climbed 27.7% to 1.21 billion euros, despite higher negative revaluations, impairments and other market impacts.
In the quarter, Banking division's underlying net profit was 264 million euros, compared to prior year's loss of 101 million euros in 2008, driven by higher interest margins, an improvement in other income, and lower expenses thanks to cost-containment initiatives and one-time events. Market-related impacts at the Bank were negative 1.12 billion euros, mainly including impairments on debt securities of 664 million euros and real estate revaluations and impairments of 423 million euros. Excluding the impact of market-related items and risk costs, the Bank's result was 2.06 billion euros.
Insurance segment's total underlying income in the quarter fell 21.3% to 9.03 billion euros from 11.47 billion euros a year earlier. Gross premium income was 7.63 billion euros, 16% lower than last year's 9.09 billion euros, mainly due to lower sales, most notably in the US and Asia/ Pacific. The decline in premium was 19.2% excluding currency effects.
In Europe, total underlying income rose 6.5% to 3.26 billion euros, and gross premium income grew 19.6%, excluding currency impacts, to 2.43 billion euros, entirely due to the change in the recognition of life premiums in the Netherlands. Total underlying income in Americas, meanwhile, plunged 30.3% to 3.95 billion euros, and gross premium income declined 24.5% to 3.53 billion euros, or 28.5% excluding currency effects. In Asia/Pacific region, total underlying income fell 32.2% to 2.12 billion euros, mainly due to 27.9% fall in gross premium income to 1.67 billion euros, largely from lower single premium business in Japan SPVA and South Korea.
Insurance division's underlying net profit was 514 million euros, compared to loss of 467 million euros a year ago. Excluding the favorable effect of market impacts, Insurance recorded a result of 346 million euros in the third quarter. The company noted that the division was under pressure in the third quarter due to lower sales and margin pressure.
In its preceding second quarter, ING had reported a 96.3% decline in profit, as real estate impairments and other charges drove down its banking division to a loss. The company's second-quarter net profit was 71 million euros or 0.03 euros per share, lower than last year's 1.92 billion euros or 0.94 euros per share. Underlying profit for the quarter was 229 million euros, down from 1.89 billion euros last year, hurt by market impacts and higher risk costs. ING's gross premium income reached 7.27 billion euros in the second quarter, a decline of 22.3% from the previous year, and total underlying income fell 33.6% to 10.24 billion euros.
For the nine-months of fiscal 2009, ING recorded a net loss of 223 million euros or 0.11 euros per share, compared to prior year's profit of 2.98 billion euros or 1.46 euros per share. Underlying net profit in the quarter fell 75.7% to 702 million euros from 2.88 billion euros a year ago, and underlying profit before tax plunged 81.5% to 654 million euros from 3.53 billion euros in 2008.
Total underlying income for the nine months declined 21.4% to 37.27 billion euros from 47.40 billion euros last year, and gross premium income fell 18.4% to 23.82 billion euros from 29.19 billion euros a year earlier.
Regarding ING's Back to Basics program, Hommen stated, "In the fourth quarter, we announced plans to take our Back to Basics programme a step further and move towards a full separation of Banking and Insurance. This was not a decision we took lightly, but I strongly believe it is the right choice and the right time. -- The split will enable both the Bank and the Insurer to adapt more quickly and emerge from the crisis more efficient, more agile, and more focused on meeting our customers' needs."
It was on October 26 that the company announced that it will completely separate its banking and insurance operations as part of the ongoing review of its strategy and as next step in its 'Back to Basics' program. The bank then said that it will explore all options, including initial public offerings, sales or combinations as part of the separation plan. The bank will plan over the next four years by a divestment of all Insurance operations including Investment Management. ING also made several management changes as part of the separation of its operations.
The company's strategic "Back to Basics" program was initiated in April 2009 to streamline the company and reduce risk, costs and leverage. Under the program, the bank will mainly focus on Europe with selective growth options elsewhere. A key goal of the program was to reduce complexity by operating the Bank and Insurer separately under one Group umbrella.
The company now pointed out that it has made significant progress in delivering on its various strategic priorities over the past several months.
Further, ING noted that its cost-containment initiatives are on track to reach a 1.3 billion euros reduction in costs in 2009 from 2008 levels.
The company added that its divestments will be executed as market conditions permit. ING has announced or completed many divestments in 2009, which generated total proceeds of approximately 4.1 billion euros, and the expected capital release is about 3 billion euros of the estimated capital release of 4 billion euros announced in April.
Last month, ING had finalized negotiations with the European Commission regarding ING's Restructuring Plan. The company noted that a formal approval by the European Commission is expected before the extraordinary General Meeting of Shareholders, scheduled for November 25, 2009.
ING also had revealed on October 26 an agreement with the Dutch State to alter the repayment terms of the core Tier 1 securities, in order to facilitate early repayment. This early repayment option is valid until the end of January 2010. ING said it intends to use the opportunity to repurchase 5 billion euros of core Tier 1 securities in December 2009, financed by a 7.5 billion euros underwritten rights issue, which is subject to shareholder approval at the November 25- EGM.
ING closed Tuesday's regular trading session at $14.50, down $0.48 or 3.20%, on a volume of 2.49 million shares. In the past 52 weeks, shares have been trading in a range of $3.02 to $18.89.
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