ING Groep NV (INGA), the biggest Dutch financial-services company, posted fourth-quarter profit that missed analysts’ estimates as measures to protect capital led to hedging losses and impairments.
Net income rose to 1.19 billion euros ($1.58 billion) from 130 million euros a year earlier, the Amsterdam-based firm said today in a statement. That missed the average 1.89 billion-euro estimate of 10 analysts surveyed by Bloomberg. ING shares fell the most in almost two months.
The company is seeking to sell its insurance unit before a European Union deadline at the end of 2013 and repay state aid amid the region’s debt crisis and tougher capital requirements. Chief Executive Officer Jan Hommen may consider selling bank assets to help raise the 3 billion euros still owed the Dutch state as the firm last month said it may be more difficult to meet its goal of completing repayment this year.
Profit was hurt by 214 million euros in impairments on bonds and equity securities at the banking unit, 348 million euros in losses on a hedge against equity losses at the insurance division and a writedown in ING’s U.S. annuity business. Earnings included a gain of 1.29 billion euros from the sale of assets.
Hedging losses were “surprisingly high” and the U.S. insurance unit charge was “at the upper end of the range -- that’s a bit disappointing,” said Andreas Schaefer, a Dusseldorf-based analyst at WestLB AG. He has a “buy” recommendation on the stock.
ING fell as much as 5.9 percent and was down 3.1 percent to 7.03 euros as of 2:08 p.m. in Amsterdam trading. That compares with a 1.5 percent gain for banks in the Stoxx Europe 600 Index. The shares have advanced 23 percent this year.
ING took a charge of 1.1 billion euros before tax as lower interest rates and stock markets hurt a U.S. annuity business the firm is winding down. The company in December updated its assumptions to reflect market conditions and the behavior of about 500,000 annuity holders who are retaining their contracts for longer than expected. At that time it predicted a writedown in the range of 900 million euros to 1.1 billion euros.
The measures are part of the program to prepare the U.S. insurance business for an initial public offering, Hommen said. The sale could take place as early as this year, he told reporters, while no timetable has been set.
“The equity markets have improved significantly, especially insurance companies have done relatively well,” he said. “There is a market again, you could do an IPO.”
The firm had a loss of 348 million euros on hedges aimed to protect regulatory capital against a drop in equities, Chief Financial Officer Patrick Flynn said. The hedges, which have to be accounted through the profit-and-loss account, improved shareholders funds by 700 million euros, he said.
ING posted a loss, excluding divestments and one-time items, of 516 million euros in the fourth quarter, compared with a profit of 252 million euros a year earlier. Analysts had estimated a fourth-quarter underlying profit of 362 million euros.
Underlying pretax profit at ING’s banking division fell 45 percent to 793 million euros. The company set aside 530 million euros for doubtful loans, compared with 410 million euros a year earlier. Additions to loan-loss provisions are expected to remain high in the coming quarters, ING said.
Net interest margin at the banking unit rose to 1.42 percent from 1.37 percent in the third quarter. The insurance division had an underlying pretax loss of 1.35 billion euros, compared with a loss of 873 million euros a year earlier.
ING wrote down its holdings of Greek sovereign debt to market value as of Dec. 31, leading to a 199 million-euro pretax impairment. That represented a writedown of about 80 percent.
“The fourth quarter was challenging, with very volatile markets and a deepening of the sovereign crisis in Europe,” Hommen told analysts today. “The environment being uncertain, our priority was to protect capital and further reduce our risk position.”
The European Union has ordered ING to exit its insurance business by the end of 2013 as a condition for approving state support. The bank and insurer received 10 billion euros in aid and transferred the risk on 21.6 billion euros of U.S. mortgage assets to the Dutch government after the 2008 financial crisis.
ING expects the outcome of an appeal it filed to the EU General Court in Luxembourg on the restructuring demands on March 2, Hommen said today.
ING last month said its priorities in the next two years are repayment of the Dutch state, completing the EU-ordered restructuring and meeting Basel III capital requirements. ING plans to have a core Tier 1 capital ratio, a measure of financial strength, of more than 10 percent by the end of 2013, it said. That compares to a 9.6 percent ratio at the end of 2011.
After repaying its government bailout and meeting the capital demands, ING plans to resume dividend payments.
ING agreed last year to sell its U.S. online bank to Capital One Financial Corp. (COF) The U.S. Federal Reserve, which has to approve the transaction, yesterday rescheduled a meeting to discuss the matter. The deal is still expected to close in the first quarter, Hommen told reporters on a conference call today. The proceeds may be used to repay part of the state aid by May, he said.
ING last month scrapped a plan to create an Asian-European insurer in an initial public offering and said it may sell the Asian business separately given its greater allure for buyers after European markets worsened.
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