ING reports a solid first quarter

At a glance

ING in the first quarter

Underlying profit before tax

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Key points

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ING Group posted strong results in the first quarter, despite a challenging operating environment and weak macroeconomic climate. Bank earnings rebounded from the fourth quarter, supported by improvement in the interest margin and lower expenses. Results from Insurance EurAsia remained under pressure amid the low yield environment. Insurance ING U.S. posted solid operating results from the on-going business, however underlying results reflected hedge losses on the closed block variable annuities as equity markets increased.

A solid result

Commenting on the first quarter results ING Group CEO Jan Hommen said: “ING has demonstrated steady progress so far this year on the Group’s restructuring, culminating in the successful IPO of our US insurance business, which was completed last week.

The transaction satisfied our agreement with the European Commission to sell 25% of the US business before the year-end deadline, while raising EUR 0.5 million of proceeds for the Group. With that milestone completed, we are now accelerating preparations for the base case of an IPO of our European insurance company, with the aim of being ready to go to the market in 2014.”

“At the same time, the Bank has continued to show strong capital generation, with a Basel III core Tier 1 ratio of 10.9%, well above our 10% target, allowing us to plan another EUR 1.5 billion upstream to the Group in the second quarter. This, combined with the US IPO proceeds, is expected to reduce the double leverage in the holding company from EUR 7 billion to EUR 5 billion, taking us a step closer to completing the financial and governance separation of the banking and insurance businesses.”

“ING Bank is also making good progress on its strategic priorities. After taking major strides last year to optimise the balance sheet and de-risk the investment portfolio, we are now comfortably meeting our capital, funding and liquidity targets, giving us room to selectively grow our loan book. Net loan growth was a moderate EUR 2.5 billion in the quarter, following a contraction in the second half of 2012, while net funds entrusted grew by an impressive EUR 16.5 billion.”

“As we look to the months ahead, we will continue to focus on driving our operating performance as we prepare the companies for standalone futures, while keeping our customers at the heart of everything we do.”

Bank

ING Bank’s results recovered from the fourth quarter as the interest margin improved and previously announced cost-containment programmes yielded savings. The first-quarter underlying result before tax was EUR 1,169 million, and was up fourfold from the fourth quarter 2012, which included EUR 181 million of negative CVA/DVA** adjustments and a EUR 175 million annual charge for the Dutch bank tax.

The underlying net interest margin rose from the fourth quarter, supported by higher lending margins.

Expenses were stable compared with a year ago, but declined 8.8% from the previous quarter, which included the Dutch bank tax and higher year-end marketing costs. The underlying cost/income ratio improved to 55.2% from 57.2% a year ago and 72.9% in the fourth quarter 2012.

Risk costs remained elevated amid the weak macroeconomic environment, but improved slightly from the fourth quarter.

ING Bank continued to improve its funding profile through further growth in the deposit base. Customer deposits grew by EUR 16 billion to EUR 471 billion, including EUR 9 billion more in savings accounts, with net inflows mostly in Belgium and Germany.

The return on IFRS-EU equity improved to nine per cent in the first quarter, approaching the Bank’s target of 10-13% for 2015 under its Ambition 2015 programme.

With CRD IV*** capital and LCR (liquidity) targets met, the Bank was able to focus on selective loan book growth. Total net lending increased modestly by EUR 2.5 billion, mainly at Retail Banking.

Customer focus

ING Bank won several awards in the first quarter in recognition of its customer focus and service. ING DiBa was voted ‘Online Broker of the Year’ for the third consecutive year by German investment magazine, Börse Online and ING DiBa’s residential mortgage broker, Interhyp received a German Service Award from the German Institute for Service Quality. ING Direct Australia was awarded Best Customer Experience award in the Australian Lending Awards.

ING continues to invest in mobile banking. ING Bank Slaski in Poland launched a mobile banking application for corporate customers. The new ‘app’ ING BusinessMobile, enables corporate clients to use internet banking on their mobile devices.

INSURANCE EURASIA

Results at Insurance EurAsia continued to be affected by pressure on the investment margin amid the low yield environment, as well as lower Non-life results in the Netherlands due in part to the economic downturn.

The first-quarter operating result (purely from business operations and excludes market-related impacts) of Insurance EurAsia was EUR 79 million, down 38.8% from the EUR 129 million in the first quarter 2012. The lower result was affected by a EUR 31 million non-recurring loss on a reinsurance contract. Excluding this impact, the operating result was 14.7% lower than the first quarter 2012.

The underlying result before tax (including market impacts) improved compared to both prior quarters due to lower volatility in market-related impacts.

New sales (APE - Annual Premium Equivalent) at Insurance EurAsia were on par with the first quarter of 2012. APE in the Benelux declined by 8.7% due to lower single-premium product sales in Belgium reflecting the lower interest rate environment; this was partially offset by higher corporate pension renewals in the Netherlands. Sales in Central and Rest of Europe grew by 11.3%, as pension sales jumped 78.6% following regulatory changes in Turkey. Life sales in Central and Rest of Europe were lower due to exceptionally high sales in several countries in the first quarter 2012. Compared to the fourth quarter, total sales at Insurance EurAsia grew 18.8% at constant currencies, driven primarily by seasonally higher corporate pension renewals in the Netherlands.

Restructuring continues

Restructuring of Insurance EurAsia’s insurance and investment management businesses continued to progress.

During the quarter, ING completed the sale of its life insurance units in Hong Kong, Macau and Thailand to Pacific Century Group (PCG) and also its 26% interest in ING Vysya Life Insurance Company Ltd. to its joint venture partner Exide Industries Ltd.

Enhancing the customer experience

In March, ING IM won Dutch financial publication CASHcow People’s Choice Award as best investment manager in the Netherlands for the second year in a row. The CASHCOW Peoples’ Choice award for best asset manager is elected by readers of CASH magazine, visitors of CASHcow.nl and readers of the CASHCOW daily news letter.

To get closer to clients in an informal, pleasant setting, Nationale-Nederlanden opened the Nationale-Nederlanden Douwe Egberts café in the Dutch city of Rotterdam. Situated next to Rotterdam’s newly rebuilt central station, one of the busiest points in the city, Nationale-Nederlanden intends the café to be a convivial place for people to relax, meet friends and work. The insurer is also planning workshops there on complex financial subjects made more accessible.

In Spain, ING launched a new website for customers, which was developed based on extensive web and customer research.

ING Insurance/Investment Management will continue to focus on providing first-class products and services to its customers, as it works towards a stand-alone future.

INSURANCE ING U.S.

Insurance ING U.S., which includes ING’s US-based retirement, investment and insurance business posted a solid quarter with strong net flows, higher fees on assets under management consistent with the increase in equity markets, and a resilient investment margin.

Nevertheless, the operating result declined to EUR 87 million, down 26.9% from one year ago and 36.5% lower than in the previous quarter (or 27.5% and 35.6% lower respectively, excluding currency effects). The decline on both comparable quarters was mainly attributable to higher funding costs as the company issued more long-term debt ahead of the Insurance ING U.S. initial public offering launched last week.

The first quarter underlying result before tax of Insurance INGU.S. was EUR -192 million, reflecting losses on the US Closed Block VA equity hedges as equity markets appreciated 10% during the quarter. The US Closed Block VA hedge programme is focused on protecting regulatory and rating agency capital rather than mitigating IFRS earnings volatility.

New sales (APE), excluding currency effects, at Insurance U.S. grew 15.1% compared to the first quarter 2012, driven by strong Retirement sales. They were 15.7% higher than the previous quarter (fourth quarter 2012), largely due to higher Employee Benefits sales. Generally, over half of the Employee Benefits sales in the year are recorded in the first quarter. Individual Life sales were down from both comparable periods consistent with ongoing management actions to focus on less capital-intensive products.

On 2 May, ING U.S.’s**** shares began trading on the New York Stock Exchange in an initial public offering (IPO). It was a major step in ING U.S.’s journey towards a standalone future and signifies a new phase in the restructuring of ING Group. It fulfills part of ING’s amended agreement with the European Commission that the company divest at least 25% of ING U.S. by the end of this year.

*ING Insurance results are now split into two reporting segments: Insurance EurAsia and Insurance ING U.S.

**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.

***CRD IV is a Capital Requirement Directive under Basel III international standards on bank capital requirements.

****ING U.S. is ING’s listed entity in the United States. It includes Insurance U.S., U.S Closed Block VA, ING Investment Management U.S. and Corporate Line U.S..