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  • jpomper jpomper Nov 15, 2011 1:23 PM Flag

    Comments on Q3 results and valuation

    Conclusions for EU banks and ING in particular:

    -the EU Comitte to save the banks should take a look at TARP. Copy the main ideas and adapt to the special features of EU bank crisis. TARP was highly critized at the start, but in the end it was really successful to stabilise the banks, and was profitable for taxpayers. Do not try all other unproven methods first, and at last turn to the already proven, successful method.

    -the Eu banking system just started to get stabilised when PIIGS debt crisis hit. All the efforts since 1.5 years, first reluctantly, are focused to stabilize and keep financing the debtor states, while they further try to spend and blackmail those who help them. Stop this immediately.

    -I do not see much reason to try to pour more money into those EU state’s coffers, whose politicians have already proved their irresponsibility in the last 5 years by overburden their people with debt, and now are reluctant to stop spending. Just consider the Greek idea on referendum to accept the rescue package, or Italy to start strikes against minor austerity measures. Stabilize the banking system with EU’s TARP package first, and support the banks to negotiate PIIGS states into strict austerity measures combined with selling state assets for cash, with IMF leadership.

    -ING is punished by investors for two main reasons. First, ING has the most complicated business structure of the 10 large banks in Eu, with very low transparency. Today it seems nobody wants to invest in a web of complicated bank and insurance conglomerate (see the similarity to BAC and C).

    The current ING efforts to separate bank and insurance, and sell noncore businesses will improve the investor’s confidence. But the adverse IPO environment, plus low trust in ING ’s management’s past performance history does not help investor’s confidence in successful execution.

    -Second, ING has to show much higher earnings predictability and stability. ING’s earnings fluctuated more rapidly and widely than at other banks in the crisis years, and repeatedly have shown negative surprises. The last quarter has also disappointed, albeit not the net result, but the earnings quality and stability.

    Break with ING’s worst tradition of this erratic behavoir. Focus, perform confident and stable. Nonperforming business sector’s managers must resign. (PIIGS’ prime ministers had to resign no matter who failed or bankrupted their country) Bring in new talent. No sacred cows, take a hard look at nonperforming departments. Give absolutely clear guidance and execute reliably.

    -There are clear hints what the market expects. In 2012 pay down Dutch debt, and start to pay 3% dividend. Show progress on IPO. Account their performance separately and transparently to help generate market confidence in them before trying to sell.

    -ING share price will most probably recover slower than others, just like the similar US peers has done. This is acceptable as long as progress is lagging behind others by less than a year. ING’s valuation must improve to the current Eu bank’s average in a year. in 2012 ING must show at least $2.3 earnings and sport a PE=7, and hit $16 share price.

    Anything less must bring mandatory top management change. Period.

11.10+0.08(+0.73%)Jul 22 4:01 PMEDT