Disappointing 3Q for ING Groep

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ING Groep NV (ING) reported its third-quarter 2012 underlying net profit of €719 million ($921 million). This reflects a decline of 34.6% from €1.1 billion ($1.4 billion) of net profit recorded in the prior-year quarter.

However, considering certain divestments and non-recurring items, the net profit came in at €609 million ($780 million) in the reported quarter, substantially declining by 64% from €1.7 billion ($2.2 billion) in the prior-year quarter.

Higher operating expenses were the main reasons behind the company’s poor performance in the quarter. However, a healthy balance sheet and strong capital ratios were the positives.

Performance in Detail

Underlying income was down 18.5% on a year-over-year basis to €9583 million ($12,271 million) from €11,764 million ($15,064 million).

Underlying operating expenses for the quarter totaled €3063 million ($3,922 million), slightly up 2.5% year over year. A rise in staff and other expenses was partially offset by a decline in intangibles amortization and impairments expenses.

Segment Performance

Banking: Underlying income stood at €3,813 million ($4883 million), up 10.5% from the prior-year quarter. Underlying operating expenses were almost stable at €2,237 million ($2865 million), compared with the prior-year quarter, reflecting ongoing cost-containment efforts. Underlying profit before tax stood at €1,021 million ($1307 million), up 16.3% year over year.

Insurance: Underlying income stood at €5,807 million (7,436 million) down 31.0% from the prior-year quarter. Operating Expenses stood at €825 million (1,056 million), rising 8.1% from the year-ago quarter. The hike reflected increased staff expenses partially offset by a marginal decline in other expenses. Underlying profit before tax was €44 million ($56 million), plunging 90.6% from the prior-year quarter.

Balance Sheet

ING Groep’s total assets as of September 30, 2012, came in at €1,248 billion ($1,598. billion), marginally climbing 0.9% from €1,237 billion ($1,584 billion) as of June 30, 2012.

Cash and balances with central banks came in at €28,367 million ($36,324 million) as of September 30, 2012 compared with €16,165 million ($20,699 million) as of June 30, 2012.

Total shareholders’ equity came in at €53 billion ($68 billion), climbing 3.9% from €51 billion ($65) recorded in the prior-quarter.

As of September 30, 2012, debt equity ratio stood at 12.3%, unchanged from June 30, 2012. This reflected stable adjusted equity as well as core debt levels of the company.

Our Viewpoint

We expect ING Groep’s diversified business model and sound financial position to keep contributing to its overall growth in the future. Further, the company’s de-risking efforts, coupled with expense management initiatives, are also expected to drive profitability in the years to come.

However, we are concerned about the increasing competition, volatility in the global economy and the effects of the deepening Euro-Zone crisis on the same.

Currently, ING Groep retains a Zacks #4 Rank, which translates into a short-term Sell rating. Among its peers, Lincoln National Corporation (LNC) retains a Zacks #2 Rank (a short-term Buy rating).
 

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