ING Groep NV, the biggest Dutch lender, may reimburse government aid earlier than planned after a 19 percent rise in second-quarter profit, paving the way for a return to dividends.
The bailed-out bank, which hasn’t paid shareholders since it suffered heavy losses in 2008, said it would decide on the early state repayment once it receives the results of the European Central Bank’s review of its assets, due out this year. Net income rose to 1.07 billion euros ($1.43 billion) from 895 million euros a year earlier, beating estimates.
If the firm pays off its debt to taxpayers ahead of schedule, a full 40 percent of 2015 profit may go to shareholders, Chief Financial Officer Patrick Flynn told reporters today. Otherwise, in the bank’s original scenario outlined in March, investors would split the profit with the state, he said.
“The ECB review is a non-issue for ING,” said Lemer Salah, an Amsterdam-based analyst at SNS Securities. “They are well-positioned, taking into account the requirements and compared to peers. Early repayment of the remaining state aid seems likely now.”
ING shares rose as much as 2.2 percent to 9.76 euros and were 1 percent higher at 15:26 p.m. in Amsterdam trading, giving the firm a market value of 37.6 billion euros. The stock has dropped 3.5 percent this year compared with a 4 percent drop in the STOXX Banks 600 Price Index.
The ECB is scheduled to release its assessment of the balance sheets of the bloc’s largest banks in the second week of October, before taking over supervision from national regulators, ING Chief Risk Officer Wilfred Nagel said today. ING expects to get 48 hours “lead time” before its report card becomes public, he said. The ECB may require banks that it considers vulnerable to build up their capital buffers. Those that can’t manage may be shut down.
The Dutch government came to the rescue after ING took a big hit on assets backed by U.S. mortgages during the financial crisis. Chief Executive Officer Ralph Hamers set out new targets for expanding business in March after shedding insurance assets in a restructuring plan imposed by the European Union.
The bank has said plans to resume dividend payments after it pays off 10 billion euros in bailout money with interest no later than May 2015. To date, it has already returned 9.3 billion euros of the capital injection and 3.2 billion euros in interest and premiums.
Second-quarter earnings beat the 1.01 billion-euro average estimate of six analysts in a Bloomberg survey, helped by a drop in bad-loan provisions. The company reduced exposure to Russia by about 7 percent to 9 billion euros from the first quarter as European and U.S. sanctions curtail business.
Pretax earnings, excluding one-time items, rose 11 percent to 1.28 billion euros. The bank set aside 405 million euros for doubtful loans in the quarter, 34 percent less than in the second quarter of 2013, and also less than the 468 million euros reported in the first quarter. Provisions decreased in real-estate finance and general lending in the commercial banking unit, ING said.
Loan-loss provisions were “much lower than expected,” said JanWillem Knoll, an Amsterdam-based analyst at ABN Amro Bank NV in Amsterdam, adding that’s “a sign of an improving economic environment.” Knoll had expected the bank to set aside 473 million euros in the quarter.
ING Bank plans to expand lending by about 4 percent a year and the balance sheet by about 3 percent. In the second quarter it added 7.4 billion euros in loans, funded by an equal amount of deposits, the firm said today. That brings it ahead of target, CFO Flynn told reporters today.
Structured finance lending increased by 3.1 billion euros spread across all products and geographies, according to a presentation today. In its strategy for the next four years, ING expects to initially expand in industry and trade finance, CEO Hamers said. Expansion in smaller businesses and consumer finance segments should become visible at the end of that period, he said.
ING Bank’s common equity Tier 1 ratio, a measure of financial strength, increased to 10.5 percent from 10.1 percent at the end of March.
Last month ING raised 2.2 billion euros by selling shares in its insurance arm, NN Group NV, a condition for its bailout. The firm has to dispose of its remaining 68 percent stake, valued at 5.1 billion euros, by the end of 2016. It also still owns about 43 percent in Voya Financial Inc., its former U.S. insurance unit, with a total market value of about $9.4 billion.
NN Group shares fell 1 percent to 21.28 euros in Amsterdam, limiting gains since they started trading on July 2 to 6.4 percent.
Operating profit at NN Group’s continuing operations fell 7 percent to 249 million euros as cost cuts failed to offset a drop in earnings from its Dutch life insurance business, ING said. Earnings by that measure exclude a variable annuity business in Japan in which the firm stopped selling new policies in 2009.