Pick-Me-Up For ING – US-FOREX.US
ING Group got pummeled in the market on Wednesday as soon as it released its second-quarter results. Not surprising, since the Dutch insurance giant had missed big on net profit expectations and posted a surprise loss at its banking division. But ING, whose fortunes are intertwined with those of both of the real economy and financial markets, is still displaying some encouraging signs. First, shareholders’ equity, or ING’s total assets minus its liabilities, increased to 22.3 billion euros in the second quarter, from 19.4 billion euros in the last quarter. The company can thank last quarter’s rally in equity and debt markets for that, even though it didn’t benefit as much as it could have. A short position on S&P index futures proved to be an incorrect bet, and ING booked a 346 million-euro loss because of it. But if ING
was being too conservative in its equity trading, it has been anything but that when it comes to cost cutting. The company, which is an amalagamation of banking, insurance and asset management divisions, had said in January that it would cut 7,000 jobs, but on Wednesday it had cut more than 8,000 already. It also increased its cost-savings target to 1.3 billion euros , from 1 billion euros .The ramp up looks like the mark of new chief executive Jan Hommen, who recently told Forbes that ING wanted to change into a “different organization.” Hommen is in the middle of finding buyers for a handful of the bank’s assets so that it can raise 8 billion euros to help it pay back a 10 billion euro capital injection from the Dutch government. So far the market knows that ING wants to sell its private banking assets in Switzerland and Asia, and is hoping to fetch around 1 billion euros for them. It has also already raised 1.4 billion euros by selling its 70% stake in ING Canada and will reportedly get 350 million for its annuity and mortgage business in Chile. Though little else has been reported, ING said Wednesday that it had identified the rest of the businesses it intended to sell. This will lend some confidence to investors, much needed at a time when ING is still making significant write-downs to its real estate portfolio. The big disappoint for the market on Wednesday wasn’t just that ING’s 71 million euro net profit significantly missed forecasts, but that it also lost 584 million euros on the deteriorating value of its property assets.
Such is ING’s exposure to economic conditions, which it expects to “remain challenging.” Nico Van Geest, an analyst at Keijser Capital in Amsterdam, says that if factors like house prices and unemployment improve, ING can benefit in the same way it has received a boost from the mild recovery in financial markets. ING has, in fact, said that it is more tied to the fortunes of the real economy than to the financial markets, he points out. “You get a huge leverage in the [profit and loss] if the economy develops,” he said. Van Geest calculates that shareholders’ equity at ING implies a book value of 11 euros , which is well above the current share price. He added that he was now considering upgrading the stock to “buy” from “neutral.” Shares of ING declined by 5.4%, or 49 euro cents , to 8.62 euros on Wednesday afternoon in Amsterdam.