ING reports a solid third quarter; watch video about quarterly results with CEO Ralph Hamers

At a glance

ING in the third quarter 2013

Underlying profit before tax

Bank --- profit of EUR 1,103 million is in line with third quarter 2012; down 3.8% on the second quarter 2013

Insurance EurAsia --- a profit of EUR 136 million compared to a profit of EUR 10 million in the third quarter 2012; down 25.3% on the seasonally high second quarter 2013

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Key points*

Bank

Net interest margin continues to strengthen
Cost containment programmes continue to yield savings
Risk costs remain elevated but down on previous quarters this year

Insurance Eurasia

Both operating result and underlying profit before tax significantly higher
Higher investment margin supported by WestlandUtrecht Bank
Benelux transformation programme lowers expenses

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ING Group posted a third-quarter underlying net profit of EUR 891 million, driven by solid performance at both ING Bank and Insurance EurAsia. ING Bank recorded a solid third-quarter underlying result before tax of EUR 1,103 million while achieving progress towards its Ambition 2015 targets. Results at Insurance EurAsia showed significant improvement compared with the third quarter of last year, on both an operating and underlying profit before tax basis.

Good progress

Commenting on the third quarter results ING Group CEO Ralph Hamers said: “ING continued to make strong progress on its restructuring programme in the third quarter, advancing further into the end phase of our transformation. At the same time, our businesses recorded another good set of quarterly results while delivering on our strategic priorities.”

“Under a new agreement with the European Commission, the total restructuring of ING Group will now be completed two years earlier, by the end of 2016. The divestment of the Asian insurance and investment management activities is almost complete. The sale of ING Life Korea is expected to close by year-end. We have carefully explored and evaluated several divestment options for ING Life Japan, and have now included this business within the scope of the base case IPO of ING Insurance. Preparations for the base case IPO are progressing well and we will be ready to go to the market in 2014. The successful sale of 38 million ING U.S. shares in October brought our stake down to 57% and moves us close to meeting the requirement to divest more than 50% of the U.S. by the end of 2014. The EUR 4.8 billion of leverage in the Group holding company is covered by the proceeds from our share sales of ING U.S. and SulAmérica this year, together with the market values of our remaining stakes in these companies.”

“We are grateful for the support the Dutch State extended to us during the crisis. Strong capital generation at the Bank facilitated the payment of another tranche of core Tier 1 securities today, reducing the principal amount of outstanding State aid to EUR 1.5 billion. We are also very pleased to have reached an agreement with the State on the unwinding of the lliquid Assets Back-Up Facility.”

“The various performance improvement programmes and restructuring initiatives underway across the company are on track, and the results are encouraging.”

“The Bank’s capital position strengthened further to a 12.1% pro-forma core Tier 1 ratio, after today’s payment to the Dutch State and including the estimated impact from unwinding the IABF. ING Bank is continuously working to optimise its capital structure and is already meeting most of the CRD IV requirements. In order to reinforce our capital adequacy ahead of upcoming regulation, we are launching exchange offers for EUR 4.7 billion of outstanding subordinated debt into two CRD IV-compliant securities. We have also announced our intention to call a USD 2.0 billion hybrid with an 8.5% coupon, which will reduce our cost of capital.”

“At Insurance EurAsia, both operating and underlying results improved compared with a year ago, rising to EUR 218 million and EUR 136 million, respectively. Third-quarter results primarily reflected a higher investment margin, lower expenses as a result of the transformation programme in Insurance Benelux, and better performance in Non-life.”

“We are proud of the financial and strategic progress that we have achieved this quarter. I am very determined and excited to be leading ING during this next phase of its transformation, and am convinced that our focused, simpler and stronger company is well positioned to help our customers and society prosper, and to grow our business.”

Bank

ING Bank posted solid third-quarter results as the interest margin strengthened to 1.44% and risk costs declined. The underlying result before tax was almost stable at EUR 1,103 million compared to the same quarter last year, boosted by higher margins on both savings and lending.

Results declined 3.8% from the previous quarter, mainly due to a negative swing in credit and debt valuation adjustments (CVA/DVA)**. Strong cost control continues to be a priority at the Bank and is evident in the improvement of the cost/income ratio to 55.2% for the first nine months of 2013, despite additional restructuring charges in the third quarter from ongoing reorganisations. Cost savings initiatives are on track, which are helping to offset the impact of inflation, higher pension costs and the additional restructuring costs in the third quarter.

Risk costs remained elevated amid the continued weak macroeconomic environment, but declined by EUR 64 million from the previous quarter.

ING Bank continued to demonstrate good progress towards its Ambition 2015 targets, a set of financial position improvement targets for 2015. The year-to-date return on IFRS-EU equity rose to 9.3% from 8.8% a year ago, while the cost/income ratio improved to 55.2% from 56.7% in the first nine months of 2012. ING Bank’s balance sheet declined following the transfer of EUR 4.9 billion of assets and EUR 3.7 billion of liabilities from WestlandUtrecht Bank (WUB) to ING Insurance, and the sale of EUR 2.2 billion of Dutch mortgages and EUR 0.9 billion of US Real Estate Finance loans during the quarter.

Supporting the Dutch economy

ING Bank launched several initiatives to support the Dutch small to medium enterprises (SMEs) both in the Netherlands and other countries. ING contributed to the launch in September of the Orange Capital Enterprise Fund (OCE) whose mission is to nurture and promote Dutch SMEs. This is a non-listed fund to which incumbent and retired directors/owners, large businesses and institutional investors will contribute venture capital in order to help SMEs grow their operations and reach their full potential.

The second initiative was the Orange Trade Mission Fund. It was launched by ING, KLM and the Dutch SME Association, and is supported by the Dutch ministry of foreign affairs. The goal of this fund is to assist Dutch businesses to explore new overseas markets.

Customer focus

ING’s efforts to maintain an unwavering focus on customer interests were rewarded with several awards. In India, ING Vysya Bank last month won the Best Private Sector Bank award in the Asset Quality category at the Dun & Bradstreet – Polaris Banking Awards 2013. ING Direct in Australia was voted as the country’s best bank in a consumer survey, the Mozo People’s Choice awards. At the awards, ING Direct Australia also won best bank account, the best savings account and the most recommended bank. It also received a top 5 ranking for home loans and debit cards.

On the innovation front, ING Bank Slaski introduced an app for Android tablets, which addresses the demand for apps which have more functionality than existing smartphone applications. Tablet devices are increasingly replacing personal computers.

Insurance Eurasia

Results at Insurance EurAsia showed significant improvement compared with the third quarter of last year, both in terms of operating profit and underlying profit before tax. The third-quarter operating result was EUR 218 million, up 89.6% from the third quarter last year. The improvement reflects a higher investment margin following the partial transfer of assets and liabilities from WestlandUtrecht Bank to NN Bank, lower expenses resulting from the transformation programme in the Benelux, improved results in the non-life business and lower funding costs.

Compared to the second quarter, both the operating and underlying profit before tax declined, as the second quarter included seasonally higher dividend income and a strong non-life result.

Total new sales (APE) at Insurance EurAsia decreased 4.7% compared to the previous September quarter, excluding the effects of currency, as 17.3% sales growth in Central and Rest of Europe was more than offset by a 32.4% drop in total new sales in the Benelux.

Compared with the previous quarter, total new sales at Insurance EurAsia decreased 7.2% excluding currency effects. The decline primarily reflects a 16.7% fall in Central and Rest of Europe on seasonally lower third quarter sales, which was only partially offset by a 15.0% increase in total new sales in the Benelux, driven by renewals of corporate pensions in the Netherlands.

Restructuring continues

ING continued with its restructuring programme as agreed with the European Commission. The programme has now entered its final phase. During the quarter, ING reached an agreement to sell its investment management business in South Korea to Macquarie Group, an Australia-based, global provider of financial services. ING also announced it had reached an agreement to sell ING Life Korea, its wholly owned life insurance business in South Korea, the country’s largest private equity company and one of the largest in the Asia-Pacific region.

In early July, ING reached an agreement to sell its 50% stake in its Chinese insurance joint venture ING-BOB Life Insurance Company to BNP Paribas Cardif, the insurance arm of BNP Paribas.

In Europe, ING completed the merger of the commercial operations of WestlandUtrecht Bank with Nationale-Nederlanden Bank, boosting Nationale-Nederlanden Bank’s presence in the Dutch mortgage and savings market.

Enhancing the customer experience

ING Insurance/Investment Management continues to focus on providing first-class service and products that best meet customers’ financial needs at all points in their lives, as it works towards a stand-alone future.

In Turkey, ING became the first insurance company to open retail insurance outlets (Sigorta Cini) where advisers sit with customers and compare insurance products from many different insurance companies including ING, and select the one that best meets the customer’s needs.

Insurance is typically sold in Turkey through traditional channels, such as banks and agents, and ING’s innovative approach to selling insurance is on display in major shopping centres in Istanbul and Ankara.

Sustainable investing is now a major consideration in investment management. In France, ING Investment Management’s Sustainable Equity Fund received a SRI Novethic Label. This classification by Novethic, an independent French SRI (Socially Responsible Investing) research agency, highlights the quality, clarity and consistency of the Sustainable Equity Fund’s investment process and has helped raised awareness for ING Investment Management’s SRI expertise on the French market.

*In light of ING’s intention to divest its remaining stake in ING U.S. over time, as of the third quarter 2013, ING U.S. is classified as held for sale and reported in ING Group’s IFRS financial statements under net results from discontinued operations.

**CVA/DVA are adjustments to certain asset and liability items in the balance sheet that are measured at market value. CVA (on the asset side) refers to changes in counterparty credit risk, which are related to changes in the market value of derivative assets. DVA refers to changes in the market value of derivative liabilities and ING’s funding liabilities that are measured at fair value, resulting from changes in ING’s own credit spreads.