Aug. 12 (Bloomberg) -- ING Groep NV, the largest Dutch financial-services company, said second-quarter profit fell 96 percent, more than analysts estimated, as it set aside money for risky loans and reduced the value of its real-estate holdings.

Net income was 71 million euros ($100 million), or 3 cents a share, compared with 1.92 billion euros, or 94 cents, a year earlier, ING said in a statement today. The median estimate of 10 analysts surveyed by Bloomberg by e-mail was for a 362 million-euro profit.

“Market impacts and the weaker economic environment continue to strain ING’s results,” Chief Executive Officer Jan Hommen said in the statement. “Credit quality worsened, leading to a rise in risk costs, while lower property prices in many regions triggered negative revaluations on real estate.”

Hommen, who took over in January, aims to raise as much as 8 billion euros selling assets to boost capital. The bank said today it has cut 8,219 jobs, more than previously planned, and expects to reduce costs by 1.3 billion euros this year. ING, which traces its roots to 1743, had about 4.98 billion euros of losses over the previous three quarters.

“The negative market impact and risk costs were markedly higher than expected and therefore disappointing,” Paul Beijsens, an Amsterdam-based analyst at Theodoor Gilissen Bankiers NV, said. “Overall, ING’s results were mixed, given that the underlying earnings were better than estimated,” said Beijsens, who rates ING “hold.”

Possible Changes

ING shares rose 21 cents, or 2.4 percent, to 9.33 euros in Amsterdam, after tumbling as much as 15 percent. The stock has risen 27 percent this year, lagging behind a 45 percent gain in the 52-member Dow Jones Stoxx 600 Banks Index. The company has a market value of 19.2 billion euros.

ING, which received a 10 billion-euro lifeline in October from the Netherlands and transferred the risk on most Alt-A mortgage assets to the Dutch state, is reviewing additional strategic options “to facilitate our continued transformation and realize our ambition to repay the Dutch state,” the company said today. Hommen declined to comment on the possible options.

“Given the 15 billion-euro redemption cost of these securities, these are likely to be highly significant for the group,” London-based Citigroup Inc. William Elderkin said in a note to investors, adding ING’s comments are “intriguing.” Elderkin has a “hold” recommendation on ING.

Higher Provisions

Discussions between the European Commission, the Dutch government and ING about the restructuring plan the company earlier submitted will start soon, the lender said. “The outcome could lead to significant changes for ING going forward,” it said. The European Commission temporarily approved the risk transfer agreement in March.

ING set aside 852 million euros for doubtful loans in the second quarter, up from 234 million euros a year earlier. Analysts estimated provisions of 796 million euros.

The company’s banking units posted a pretax loss, excluding one-time items and divestments, of 204 million euros, as ING Real Estate had a 580 million-euro loss. The company’s online banking business unexpectedly had a 175 million-euro loss after writedowns on the investment portfolio and a rise in risk costs. The insurance operations had a profit of 278 million euros.

ING’s bank core capital ratio, a measure of financial strength, was 7.3 percent at the end of June, compared with 7.5 percent at the end of March.

Asset Sales

Fitch Ratings cut ING’s long-term issuer default rating to A from A+ today, and said the outlook remains negative.

“Consolidated results for 2009 are expected to remain under pressure, despite a number of de-risking and cost-cutting initiatives, and are unlikely to allow the group to rebuild its capital resources in the short-term,” Fitch said.

ING won’t pay an interim dividend on common shares over 2009, the company said.

ING raised 1.4 billion euros in February by selling its 70 percent stake in ING Canada Inc., that country’s largest property and casualty insurer. The company agreed to sell its annuity and mortgage businesses in Chile to Corp Group Vida Chile SA last month. Corpvida will pay about $350 million for the assets, Santiago-based newspaper Diario Financiero said.

ING has sent out preliminary sales documents to potential buyers of its Asian and Swiss private banking assets, two people familiar with the talks said last month. The combined assets may fetch about $1.5 billion, one of the people said.

Hommen Strategy

Hommen, 66, presented a new strategy for ING in April after replacing Michel Tilmant, 57, on Jan. 26.

ING plans to concentrate on its banking operations in the Benelux region, as well as Poland, Romania and Turkey. The company plans to integrate its investment-management units in Europe, the Americas and Asia and include real-estate investment management.

In insurance, ING will focus on life and retirement services in the Benelux countries, central Europe, the U.S., Latin America and Asia. The life-insurance activities in China are under review. In the U.S., ING will explore “strategic options” for its employee benefits, group reinsurance and existing annuities book.

To contact the reporter on this story: Martijn van der Starre in Amsterdam at vanderstarre@bloomberg.net

Last Updated: August 12, 2009 12:16 EDT