ING Groep NV (INGA), the biggest Dutch financial-services company, will complete its reorganization two years earlier than planned after winning regulators’ permission to combine its Japanese insurance unit with European operations in a 2014 initial public offering.
Under its agreement with the European Commission, ING will accelerate the sale of its European insurance and investment management activities by two years to the end of 2016, the Amsterdam-based company said today. The deadline to sell more than half of ING Life Japan was extended by two years to the end of 2015 after the company failed to find a buyer. The stock reached a five-year high.
“The positive news is they found a solution for Japan,” said JanWillem Knoll, an Amsterdam-based analyst at ABN Amro Group NV. “Now they can sweat the bad assets out rather than being a forced seller.” Knoll has a buy rating on the shares.
Since taking over in October, Chief Executive Officer Ralph Hamers, 47, has cut ING’s stake in its U.S. insurance unit to about 57 percent and reached a deal with the Netherlands on how the nation will sell U.S. mortgage bonds it took over in a 2009 bailout. ING today reported third-quarter profit excluding one-time items that was in line with analysts’ estimates.
The shares rose as much as 6.5 percent to 9.88 euros, the highest value since Oct. 15, 2008, before ING’s first bailout. The stock was up 4.4 percent to 9.68 euros as of 3:59 p.m. in Amsterdam and has increased 37 percent this year.
Net income dropped 85 percent to 101 million euros in the third quarter from a year earlier, after a 950 million-euro writedown on the sale of its South Korean life insurance unit, ING reported. Profit excluding one-time items rose 5.6 percent to 891 million euros, compared with the 899 million-euro estimate of analysts.
ING is paying the Netherlands 1.13 billion euros in state aid received in 2008 with interest today, a step toward resuming dividend payments to investors. It will make a subsequent payment in March and a final reimbursement by May 2015.
“We look to pay the next one on the due date next year,” Chief Financial Officer Patrick Flynn told reporters on a call today. “Thereafter we’ll see what the lay of the land is. Our ambition would be to exit the state as fast as possible whilst maintaining prudent capital ratios.”
ING got a 10 billion-euro capital injection from the Dutch government in 2008 and transferred the risk on 21.6 billion euros of U.S. mortgage assets to the state in 2009. The rescue was approved by EU regulators on the condition that the company sells its global insurance operations and returns the financial aid with a premium and interest.
With progress made in recent weeks, ING is “advancing further into the end phase” of its transformation, Hamers said.
Underlying pretax earnings at ING’s European insurance unit rose to 136 million euros from 10 million euros a year earlier, helped by cost cuts.
A sale of the Japanese unit was precluded by its complex structure, Flynn said, as it consists of separate corporate-owned life insurance and variable annuity businesses folded into one legal entity.
The Japan unit made an operating profit of 161 million euros in the first nine months of the year, ING said in a presentation today. The company stopped selling variable annuities -- products offering guaranteed benefits that a provider generates through investment returns -- in Japan in 2009 and about 90 percent of the portfolio will run off by 2019, releasing capital.
Preparations to sell stakes in the European and Japan operations, to be named NN, in an initial public offering in 2014 are progressing well, ING said. The Japanese unit may make the business more attractive to investors, Flynn said.
Cor Kluis, an analyst at Utrecht, Netherlands-based Rabobank International, said the revised plans may increase his price estimate on ING’s stock by 10 cents. Kluis recommends clients buy the shares and currently has a price target of 10 euros.
While working through the restructuring, Hamers has to deal with struggling European economies, including a recession at home.
The European Commission, the European Union’s executive arm, yesterday cut its forecast for euro-area growth. Gross domestic product in the 17-nation currency bloc will rise by 1.1 percent in 2014, less than the 1.2 percent forecast in May, according to the forecast.
The commission also lowered its 2014 economic forecast for the Netherlands, citing weak domestic consumption that will only gradually pick up in the course of next year.
Pretax profit excluding one-time items at ING’s banking operations fell 0.6 percent to 1.1 billion euros, beating the 1.03 billion-euro estimate of six analysts in a Bloomberg survey. The bank set aside 552 euros for bad loans in the third quarter, less than the 608 million-euro estimate of analysts.
Loan-loss provisions, while lower than the previous quarter, are expected to remain high in the foreseeable future, Chief Risk Officer Wilfred Nagel said today.
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