ING’s solid earnings recovery continued with underlying net profit for the nine months of 2011 up 43.3% to EUR 4,276 million

ING RECORDS 53.9% RISE IN THIRD QUARTER PROFIT

ING Group announced on November 3 that it had lifted third quarter underlying net profit by 53.9% to EUR 1,285 million compared to the third quarter last year. For the nine months of 2011, ING’s solid earnings recovery continued with underlying net profit up 43.3% to EUR 4,276 million compared to the same period in 2010. In the third quarter, ING Bank’s result was affected by impairments on Greek government bonds. Insurance reported a substantial improvement in performance on the same quarter last year.

ING maintained strong capital ratios in the third quarter. ING Bank’s core Tier 1 ratio strengthened to 9.6%. Core Tier 1 capital rose by EUR 1 billion, largely driven by retained earnings, including the proceeds from the completion of the sale of ING Car Lease and part of ING Real Estate Investment Management.

ING Group earnings remain resilient

Commenting on the third quarter results, CEO Jan Hommen said: “The third quarter saw a marked deterioration on debt and equity markets amid a slowdown in the macroeconomic environment and a deepening of the sovereign debt crisis in Europe. In this challenging environment ING’s earnings remained resilient, and our strong funding position enabled us to continue to increase lending to support our customers in these uncertain times.

“We continued to take a prudent approach to risk, increasing hedging to preserve capital and selectively reducing exposures to southern Europe. Results were impacted by EUR 467 million in pre-tax impairments on Greek government bonds as all bonds were impaired to market value.

“As income is coming under pressure, we must renew efforts to reduce expenses across the Group to adapt to the leaner environment and maintain our competitive position. In Retail Banking Netherlands we are taking decisive steps to reduce costs by decreasing overhead and improving efficiency through operational excellence. It is inevitable that these measures will lead to redundancies of approximately 2,000 internal FTEs and 700 external FTEs, but we will do our utmost to implement the measures with care.

“Despite the volatile market environment, we continue to work towards the separation of our insurance companies so we will be ready to move ahead with the IPOs when markets recover. Regulatory approvals are underway to create a separate holding company for our European and Asian insurance and investment management activities, and today we announced the creation of a management board for these operations. As we continue to advance on these priorities and our Ambition 2013 performance plans, we will remain focused on providing our customers with the exemplary service and products they need to manage their financial futures during these uncertain times.”

Bank result down on Greek impairments

ING Bank reported an underlying result before tax of EUR 1,063 million, down 28.8% from the third quarter of last year and 18.5% lower than the second quarter of 2011. The decline in
results compared with both prior periods was mainly caused by EUR 267 million of impairments on Greek government bonds and a sharp decline in the Financial Markets results of Commercial Banking, reflecting sustained weakness in fixed income and equity
markets.

The interest margin narrowed to 1.37%, partly due to lower Financial Markets results in Commercial Banking. Underlying operating expenses declined for the third straight quarter. Expenses were down 2.9% from a year ago due to lower impairments on real estate development projects and the partial sale of REIM. Compared with the second quarter of 2011, ING Bank’s total underlying operating expenses were down 2.0%, primarily due to lower deposit insurance premiums, marketing costs and performance-related personnel expenses.

The Bank continued to make progress on meeting its Ambition 2013 targets. These are business improvement program targets, mostly established in October 2009. These targets involved boosting underlying income, lowering overall costs, reducing risk costs and lifting return on equity.

Although costs continued to decline, the third quarter underlying cost/income ratio increased to 61.3%, or 55.8% excluding market impacts, due to lower income.

The year-to-date underlying return on equity based on a 7.5% core Tier 1 ratio was 16.5%, exceeding the Ambition 2013 target of 13-15%.

Risk costs rise but expected to be lower than 2010

Risk⁽¹⁾ costs rose compared to both the same period last year and the last quarter primarily due to further provisioning for some large, existing non-performing files. Risk costs increased by 18.4% to EUR 438 million on the previous quarter, mainly in the Structured Finance and General Lending portfolios in Commercial Banking and the US mortgage portfolio at ING Direct.

Generally, the quality of the Bank loan book did not change significantly, as non-performing loans and on-watch exposures remained stable in the quarter. For the full year, ING expects risk costs as a percentage of risk-weighted assets and in absolute terms to remain below the level seen in 2010.

Total funds entrusted at ING Bank increased by EUR 6.5 billion in the third quarter despite increased competition for savings. Commercial Banking contributed EUR 5.5 billion, consisting mainly of short-term deposits from asset managers and corporate treasuries, and EUR 1 billion came from Retail Banking, principally from net inflows into ING Direct and Retail Central Europe.

In general, ING Bank’s current strategy is to combine and build on the strength of its banking businesses, to manage its balance sheet more efficiently and to manage its loan book so as to optimise return on equity under the constraints of Basel III.

Insurance/Investment Management (IM) continues along improvement path

Following a solid first half, Insurance/IM results continued to show strong improvement in the third quarter.

The operating result of ING Insurance improved significantly to EUR 527 million versus EUR 415 million in the third quarter of 2010, driven by an increase in the investment margin⁽²⁾ and higher fees and premium-based revenues. The operating result declined 23.6% from the strong second quarter of 2011, which was boosted by seasonal and nonrecurring items.

The third-quarter underlying result before tax of EUR 561 million was supported by non-operating items consisting primarily of positive hedging results in the Benelux, which more than compensated for impairments, including EUR 200 million of impairments on Greek government bonds.

The higher investment margin was mainly attributable to the Netherlands, driven by reinvestment into fixed income securities, and dividends on private equity, real estate and fixed interest funds. Fees and premium-based revenues were boosted by higher sales in Asia/Pacific.

In April last year, ING Group set down its strategy to improve performance. This entailed improving investment margins, containing costs and pursuing growth to achieve a double digit return on equity by 2013. Under the Ambition 2013 program, ING Insurance/IM plans to lift investment performance and thereby income by widening the investment margin to 105 basis points; to lower costs to achieve an administrative expenses/operating income (Life & ING IM) ratio of 35%, to grow sales by 10% a year and to lift return on equity to 10%.

Investment margin widens

In the third quarter of 2011, the investment margin widened to 104 basis points (bps) from 84 bps in the same period last year and 99 bps in the previous quarter. The ratio of administrative expenses to operating income was 40.7%. The ratio improved compared to the third quarter last year (43.9%) but increased slightly on the second quarter (38.0%). The underlying return on equity was 9.3% for the nine months of the year, compared to - 0.9% for the same period last year.

As ING continues to prepare for two IPOs of its Insurance businesses, important steps have been made to realign the legal structure and governance of the insurance operations. Regulatory approvals are nearing completion to create a new holding company for the European and Asian insurance and investment management activities called
ING Insurance EurAsia. The US insurance and investment management operations will continue to be part of a separate, already existing legal entity (ING America
Insurance Holdings). This change in legal structure is an important step towards the IPO preparation.

For further information

For further information, please go to the Investor Relations section of www.ing.com and then click on the Results & Interim Accounts tab to access the Press Release and all other financial results publications including the Quarterly Report, Statistical Supplement, presentations and audiocasts.

(1). Risk costs mainly refer to what are called “loan loss provisions,” or the funds a bank needs to set aside to cover for loans that may default. Those costs increase in times of economic uncertainty.
(2). Spread between investment income earned and interest credited to policyholder reserves (excluding market impacts, including dividends & coupons).

KEY POINTS

ING AT THE THREE-QUARTER MARK

PROFIT (Nine months to September 30)

Underlying net result

ING Group up 43.3% to EUR 4.276 billion
Bank down 8.7% to EUR 2.891 billion
Insurance EUR 1.385 billion profit vs a EUR -182 million loss