May 16 (Bloomberg) -- ING Groep NV, the largest Dutch financial-services firm, plans its first share buyback, of 5 billion euros ($6.8 billion), as profit fell less than analysts estimated.

ING will buy back the stock over the next year to ``optimize the capital structure and maximize shareholder returns,'' the bank said in a statement today. It will retain enough capital for internal growth, so-called bolt-on acquisitions and dividends. ING shares fell 27 cents, or 0.8 percent, to 32.92 euros in Amsterdam, giving it a market value of 72.8 billion euros.

``It's good news that ING buys back shares, as opposed to participating in an inflating European consolidation wave,'' Ton Gietman, an Amsterdam-based analyst at Petercam with a ``buy'' rating on ING, wrote to investors. Unicredit SpA and Capitalia said yesterday they are in talks and Barclays Plc agreed last month to buy ABN Amro Holding NV, in which ING has a stake.

ING's first-quarter net income declined 5.6 percent to 1.89 billion euros, or 88 cents a share, from 2.01 billion euros, or 93 cents a share, a year earlier, the Amsterdam-based company said. Earnings were crimped by a decline in retail banking and because some insurance gains weren't repeated. The company said it will cut 2,500 jobs as it combines its Dutch retail units in one brand from 2009.

The bank said last month it could free up as much as 6 billion euros of additional capital this year for acquisitions or payouts. Chief Executive Officer Michel Tilmant said February that ING had the ``capacity'' for a 20 billion-euro takeover.

`No Big Acquisitions'

``A big acquisition is not in the strategy,'' Tilmant said at a press conference today, adding that the company is working on several small purchases. ``ING continues to be strongly oriented toward organic growth.''

The buyback is ``significantly above the 2 billion euros we hoped for'' and ``underlines the disciplined management approach,'' London-based analysts at UBS AG including Marc Thiele wrote in an investor note. ING is one of the main beneficiaries of new European capital adequacy rules, they said.

ING has sold more than 15 businesses since 2004 as it pursues earnings from online banking, U.S. pensions and Asian insurance. The company said today it will invest 890 million euros in Dutch retail banking to deliver an extra 440 million euros in annual pretax earnings by 2011.

Combining ING Bank and Postbank is a ``logical development that you see happening at other big banks as well,'' said Yolande van den Dungen, who helps manage the equivalent of about $3.3 billion at SPF Beheer in Utrecht and owns ING shares. ``The ING brand name is lot stronger.''

Rivals' Earnings

Fortis, based in Brussels and the Dutch city of Utrecht, and Aegon NV of The Hague last week reported a decline in first- quarter earnings. Fortis, Belgium's biggest financial-services company, reported a 24 percent drop in retail-banking income. Profit at ABN Amro was little changed at 1.04 billion euros.

ING's profit from insurance declined 8.7 percent to 848 million euros from a year earlier. Banking earnings fell 3 percent to 1.05 billion euros.

``Looking forward to the rest of the year, we do not anticipate a significant shift in the market environment,'' Tilmant said in today's statement.

Underlying profit before tax at ING Direct, the company's online banking arm, rose to 165 million euros from a restated 155 million euros. ING Direct will start in Japan later this year, Chief Financial Officer John Hele said in an interview. Japan is ``one of the largest savings markets in the world,'' he said.

ING is a ``very interested shareholder'' in ABN Amro, Hele said. Spokeswoman Carolien van der Giessen said ING controls more than 5 percent of the voting rights in ABN Amro.

`Too Early to Say'

Barclays's bid was valued at about 63.8 billion euros in stock at yesterday's close. ABN Amro this month rejected a possible counter-offer from Royal Bank of Scotland Group Plc, Fortis and Santander Central Hispano SA, worth 72.2 billion euros in cash and shares. It's ``too early to say'' which is the better offer, Hele said today.

``We reserve our choice for when the choice is in front of us,'' CEO Tilmant told reporters on a conference call today. ING hired Goldman Sachs Group Inc. and JPMorgan Chase & Co. last year to advise on ABN Amro's valuation. Its decision not to buy the bank was ``proactive'' and felt ``right,'' he said on April 24.

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

Last Updated: May 16, 2007 12:27 EDT