ING reports a solid second quarter

At a glance

ING in the second quarter 2013

Underlying profit before tax

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Key points

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ING Group achieved a solid result in the second quarter, driven by robust performance in all three business segments: Banking, Insurance EurAsia and Insurance ING U.S. ING Group recorded an underlying net profit of EUR 942 million, up 17.8% on the previous quarter, but down 15.1% on the second quarter 2012.

ING Bank posted a solid second quarter as the net interest margin continued to improve and ongoing cost containment programmes yielded further expense savings. Results from Insurance EurAsia showed substantial improvement compared with both the second quarter of 2012 and the previous quarter. Insurance ING U.S. recorded a strong quarter, driven by a significant improvement in operating results and continued strength in net flows in Retirement and Investment Management.

Given the uncertain financial environment, increasing regulatory requirements and ING’s priority to repay the remaining outstanding core Tier 1 securities, no interim dividend will be paid over the first six months of 2013.

Good progress

Commenting on the second quarter results ING Group CEO Jan Hommen said: “ING has made good progress so far this year as we work to improve our operational performance, execute our restructuring and prepare our banking and insurance companies for independent futures.”

“We successfully completed the IPO of our U.S.-based retirement, investment and insurance business in May. The proceeds from the IPO, along with a capital upstream from the Bank, have reduced the leverage in the Group holding company to EUR 4.4 billion, which is covered by the value of our remaining stake in ING U.S. today. We completed the merger of the commercial operations of WestlandUtrecht Bank with Nationale-Nederlanden Bank on 1 July, paving the way to divest these operations as part of the Insurance Europe IPO.”

“The financial performance in all three business segments was robust in the second quarter. ING Bank posted solid underlying pre-tax results of EUR 1,147 million, despite higher risk costs reflecting the challenging economic climate. Savings inflow remained strong, with net funds entrusted growth of EUR 6.5 billion, while the net interest margin improved to 1.42%. Cost-containment efforts helped reduce the cost/income ratio to 54.3% and the return on equity for the first six months increased to 9.3%, approaching our Ambition 2015 target of 10-13%.”

“The operating results of Insurance EurAsia showed substantial improvement both year-on-year and sequentially. The European business has been accelerating its transformation programme to be ready for a base case IPO in 2014. The programme has already yielded cost savings that supported the second-quarter results together with an improvement in the Non-life result and lower funding costs. To expedite the IPO process, ING U.S. will be transferred out of ING Insurance (ING Verzekeringen N.V.), clearing the way to use ING Insurance as the IPO entity.”

“In its first quarter as a public company, ING U.S.** continued to generate robust net inflows from the Retirement and Investment Management businesses, contributing to higher fees and premium-based revenues, which drove this quarter’s solid operating performance. The strength of the U.S. franchise is evident in the 50% appreciation of its stock price since the IPO, bringing the current market value of ING’s remaining 71% stake in the company to EUR 4.5 billion.”

“I am extremely proud of what our people have achieved this quarter and over the past years, through an exceptional period of change within our company and in the financial industry. Every step of the way, we have tried to keep the interests of our customers as our first priority. I am grateful for the support of our employees and consider myself privileged to have been given the opportunity to serve as their leader during this period of enormous change.”

“On 1 October, Ralph Hamers will take over from me as CEO of ING Group. Ralph and I are working together to ensure a smooth transition, and I am confident that he will continue the drive to build strong, sustainable futures for our businesses, while placing the highest priority on the needs of our customers.”

Bank

Underlying result before tax rose 13.5% from a year ago to EUR 1,147 million, supported by higher margins and volume growth and an improvement in the cost/income ratio to 54.3%. Results declined marginally from the first quarter as higher risk costs and seasonally lower Financial Markets results largely offset higher margins on savings and volume growth.The underlying net interest margin rose from the first quarter, supported by higher lending margins.

Cost savings initiatives are on track, helping to offset the impact of inflation, high pension costs and bank levies. Compared to the last quarter, underlying operating expenses were 2 per cent lower, however they were up 2.3% on the same quarter last year. However, the second quarter last year included a EUR 38 million reimbursement from the old deposit guarantee scheme in Belgium as well as lower performance-related personnel expenses.

Risk costs remained elevated amid the persistent weak economic environment. Compared to a year ago, they were higher largely due to the higher risk costs in the Dutch mortgage portfolio as a result of the continued weakness in the Dutch economy.

ING Bank continued to attract a strong net inflow of funds entrusted. They increased by EUR 6.5 billion during the quarter, mainly from Retail Banking and with net growth in all regions. Net lending production was modest at EUR 1.4 billion and was due mainly to the Retail Banking businesses outside of the Netherlands and in the Trade Finance Services of Commercial Banking.

The year-to-date underlying return on IFRS-EU equity improved to 9.3% from 8.7% in the first half of 2012 as higher earnings more than offset the increase in the equity base.

Customer focus

ING Bank continued to win awards around the world for its customer service and focus. ING Bank Slaski was named best large bank in Poland, according to respected finance and banking publication, Gazeta Bankowa. It also picked up an award for the most convenient personal account on the Polish market.

ING-DiBa in Germany was singled out for its online service and quality by Euro economics magazine, which named the bank the ‘most popular bank’ in 2013, the seventh year in a row it has won this award. In Australia, ING Direct’s Living Super (pension savings product) was awarded Best New Superannuation Product at the 2013 Rainmaker Excellence Awards by superannuation specialist research firm, Rainmaker.

ING continued to invest in innovation to meet customers’ evolving demands. In June, it became the first Dutch bank to issue contactless, debit cards. Customers only need to ‘tap’ their card against a payment machine (where they are available) to make payments of EUR 25 or less. Payment for basic items is faster than a regular debit card and saves queuing at the checkout.

Insurance Eurasia

Results from Insurance EurAsia showed substantial improvement compared with both the second quarter of 2012 and the previous quarter. The operating result (purely from business operations and excludes market-related impacts) rose 26.1% from a year ago, reflecting expense reductions from the Insurance Europe transformation programme announced last year, as well as an improvement in the Non-life result and lower funding costs.

Compared to the previous quarter, the operating result more than tripled, largely due to the factors mentioned above as well as seasonally higher dividend income. The first quarter of 2013 also included a non-recurring loss on a reinsurance contract, which dampened results in that quarter.

The underlying result before tax improved on both comparable quarters to EUR 182 million from a loss of EUR 110 million in the second quarter of 2012 and EUR 85 million in the previous quarter. This was largely attributable to the lower impact of market-related items.

Total new sales (APE) at Insurance EurAsia declined 20.3% compared to the second quarter 2012 excluding currency effects, as a 64.0% decrease in the Benelux new sales was only partly compensated by 36.0% sales growth in Central and Rest of Europe. The decline in the Benelux was due to lower retail life sales and lower sales and renewals in corporate pensions in the Netherlands, as well as lower single-premium product sales in Belgium due to the low yield environment.

In Central and Rest of Europe, pension sales more than doubled, largely due to pension reforms in Turkey, and life sales were higher because of strong sales in Poland. Compared to the first quarter, new sales (APE) at Insurance EurAsia were 32.3% lower excluding currency effects, as the first quarter included seasonally higher corporate pension renewals in the Netherlands.

Restructuring continues

ING continued with its restructuring programme as agreed with the European Commission. During the quarter, it completed the sales of its investment management businesses in Malaysia and Thailand and the sale of its 49% stake in South Korean insurer KB Life. The process to divest the remaining insurance and investment management businesses in Asia is ongoing. After the close of the quarter, ING announced, in July, the sale of ING Investment Management in South Korea and its stake in ING-BOB Life, its Chinese insurance joint venture.

Enhancing the customer experience

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

At ING IM, the quest for consistent investment outperformance for investors was recognised with an award in the Netherlands. Funds research company Lipper awarded ING IM the title of best fund manager in the large group category for consistent outperformance over a three-year period. In addition to the award, ING IM has also won a Lipper Award for best fund manager in the large mixed assets category for its mixed funds which typically include shares, bonds and other asset classes.

Nationale-Nederlanden expanded its range of banking products to include internet banking and term deposit accounts. Together with mortgages and other banking products such as pension savings accounts, Nationale-Nederlanden aims to give customers choice and flexibility in reaching their short term as well as long term financial goals.

Insurance ING U.S.

Insurance ING U.S. recorded 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.

The operating result rose 37.3% to EUR 140 million compared to the second quarter last year and was up 59.1% on the first quarter, excluding the effects of currency.

The second quarter underlying result before tax of Insurance ING U.S. was EUR -19 million, reflecting EUR 112 million of losses in the US Closed Block VA primarily reflecting hedge losses as equity markets rose 2.4% in 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, were down 8.6% from the second quarter of 2012 and 34.1% lower than in the previous quarter. Higher sales of full service retirement plans and annuity/mutual fund products were offset by declines in Individual Life sales (following management actions to focus on less capital-intensive products) and lower Stable Value sales which can be volatile by quarter. The decline versus the first quarter was primarily due to seasonality in Employee Benefit sales and lower retirement sales following a very strong first quarter of 2013.

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 signified a new phase in the restructuring of ING Group. It fulfilled 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.

**ING U.S. is ING’s listed entity in the United States. In ING Group’s accounts, it is referred to as Insurance ING U.S.