ING Will Accelerate Sale of European Insurer as Profit Rises
ING Groep NV (INGA), the biggest Dutch financial-services company, will accelerate the sale of a stake in its European insurer after first-quarter profit more than doubled. The shares surged.
The company plans to hold an initial public offering next year, Chief Executive Officer Jan Hommen said in a statement from Amsterdam today. Net income in the three months to March rose to 1.8 billion euros ($2.4 billion) from 728 million euros a year earlier. That beat the 1.48 billion-euro median estimate of six analysts surveyed by Bloomberg.
ING is seeking buyers for insurance assets from Asia to the U.S., cutting 7,500 jobs and making savings of 1 billion euros a year by 2015 after receiving a 10 billion-euro government bailout in 2008. The bank has completed about 70 percent of a restructuring plan imposed by European Union regulators.
“We are now accelerating preparations for the base case of an IPO of our European insurance company,” Hommen, 70, said. “We believe that this is possible, simply because of all the things we have done.”
ING will also look at other possibilities for selling a stake in the unit, including a spin off or a sale to an investor, he said. The goal is to be ready for the IPO by the middle of next year, Chief Financial Officer Patrick Flynn said in an interview with Bloomberg Television.
The company’s shares jumped 3.1 percent to 6.79 euros at the close of trading in Amsterdam, climbing for the fifth day and paring losses this year to 3.8 percent. That compared with a 9.3 percent gain for the 46-member Stoxx 600 Banks Index this year and an 11 percent increase for Europe’s benchmark gauge for insurance companies.
Maintaining momentum in restructuring is “the key trigger” for ING’s share performance, said Lemer Salah, an analyst at SNS Securities in Amsterdam who recommends clients buy the shares. “The company showed strong performance across its banking activities and in particular commercial banking.”
The European insurance unit, consisting mainly of operations in the Benelux region and eastern Europe, could be worth 4.8 billion euros, Cor Kluis, an analyst at Rabobank International in the Dutch city of Utrecht, said by phone.
First-quarter profit was boosted by a 950 million-euro gain on the sale of units in Hong Kong, Thailand and Macau. Profit excluding divestments and one-time items rose to 800 million euros in the first quarter from 579 million euros a year earlier, helped by improved interest margins in the bank and cost savings, ING said.
Last week, Hommen raised $1.27 billion by selling 25 percent of the ING’s U.S. insurance unit in an IPO. It expects proceeds of 500 million euros from the transaction, he said.
ING has repaid the Dutch government 7.8 billion euros from the 2008 bailout, with 2.4 billion euros in interest and premiums. The EU agreement requires it to return the remainder by 2015, according to a statement on the company’s website.
Hommen, who is stepping down in October, has overseen more than 25 asset disposals with proceeds of at least 20 billion euros from Latin America to Asia. He’s also renegotiated terms of restructuring imposed by the European Commission. Under the new timeline, ING has to dispose of more than 50 percent of its European insurance arm by the end of 2015 while it got until the end of 2018 to complete the divestment.
ING’s insurance business in Europe and Asia reported first-quarter operating income of 79 million euros, down from 129 million euros a year earlier. Underlying pretax profit was 85 million euros, compared to a loss of 43 million euros a year earlier on lower market-related items.
The company must also sell more than 50 percent of its Asian insurance and investment-management operations by the end of next year, and dispose of the rest by the end of 2016. It should also divest at least 25 percent of its U.S. arm by the end of 2013, more than half by the end of 2014 and the rest by 2016, according to the conditions of its bailout.
Underlying pretax profit for banking operations in the first quarter rose 1.6 percent from a year earlier to 1.17 billion euros, the company said. Interest earnings increased 1.7 percent from the fourth quarter, helped by repricing of loans and moderate volume growth, ING said.
ING’s banking unit set aside 561 million euros for doubtful loans, compared with 439 million euros a year earlier and 589 million euros in the fourth quarter. Costs associated with risks for Dutch mortgages rose to 82 million euros from 33 million euros in the fourth quarter and will probably stay at that level in the coming quarters, ING said.
The bank’s core Tier 1 capital adequacy ratio under Basel III accounting rules, a benchmark measure of financial strength, was 10.4 percent at the end of March, exceeding a target of 10 percent, ING said.
With capital targets met, ING was able to focus on selective loan book growth, particularly in structured finance and the retail business in Belgium, the company said.
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