ING Groep NV, the Dutch bank and insurance company, Wednesday reported a sharp rise in second quarter earnings, mostly because it avoided some of the losses it made a year ago on stocks, bonds, and real estate-related investments.
Net profit was 1.09 billion euros ($1.44 billion), up from 79 million euros in the same period a year ago, as a strong performance by its banking arm outweighed a loss at insurance. Total income rose 52 percent to 15.3 billion euros.
"The sharp decline in equity markets in the quarter severely impacted the results of our U.S. insurance operations," said Chief Executive Jan Hommen in a statement.
"However, the bank continued to benefit from its strong liquidity and funding profile, with lending growth funded entirely by customer deposits."
The earnings "exceeded our and consensus' estimates and was driven by strong bank developments, as insurance somewhat disappointed," analyst Maarten Altena of SNS Securities said in a note on the earnings. He rates shares a buy.
ING plans to hive off its insurance arm as part of a deal with European regulators after having received state aid during the 2008 financial crisis.
Altena said the volatile earnings at the division could hurt its potential sale price. Hommen said he expected the two units' operations would be completely separate by the end of the year. It is to be sold by 2013 at the latest.
At its banking arm, ING reported an underlying pretax profit of 1.61 billion euros, from a loss of 186 million euros.
Underlying figures, a nonstandard measure, strip out the impact of divestments and one-time costs or windfalls.
In 2009, ING had suffered big losses on real estate and mortgage derivatives, as well as betting the S&P index would decline just as it rallied.
This quarter the company continued to benefit from healthy banking margins, as its funding for loans comes from retail accounts on which it currently pays little interest. Provisions against bad loans declined by 45 percent to 465 million euros.
At the insurance arm, ING said it made an underlying pretax loss of 115 million euros, from a profit of 242 million euros.
However, the sharp decline in equity markets forced it to write down the expected value of existing contracts in the U.S. by 521 million euros. In addition it lost 143 million euros on debt investments.
The company said that operating profit was down only modestly to 419 million euros from 482 million euros. ING said sales were steady but margins slipped in part due to higher death claims in the U.S. and less "surrender" profits — which come from penalties for clients cashing in policies early — in Eastern Europe.
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