ING Sees Q3 Net Profit Of EUR 500 Mln; To Split Banking, Insurance Operations; Plans EUR 7.5 Bln Rights Issue - Update

(RTTNews) - Dutch financial firm ING Group NV (ING | Quote | Chart | News | PowerRating) Monday provided preliminary third-quarter results and stated that group net result after divestment and special items is expected to be EUR 500 million or EUR 0.24 per share. The company also announced that it will completely separate its banking and insurance operations as part of the ongoing review of the Group's strategy and as next step in its 'Back to Basics' program.

ING also made several management changes as part of the separation of the banking and insurance operations. Additionally, the bank said that it plans a EUR 7.5 billion rights issue to repay EUR 5 billion of core tier 1 securities.

The bank said it will explore all options, including initial public offerings, sales or combinations as part of the separation plan. The bank will plan over the next four years by a divestment of all Insurance operations including Investment Management.

Earlier this year, ING had presented the Back to Basics program to streamline the company and reduce risk, costs and leverage. A key goal of the program was to reduce complexity by operating the Bank and Insurer separately under one Group umbrella.

Under the program, the bank will mainly focus on Europe with selective growth options elsewhere. The Insurance business will focus on its long-term structural leadership positions in life and retirement services. The Insurance business will be managed regionally, with key building blocks including the operations in the Benelux, US, Central Europe, Latin America and Asia.

The separation of the banking and insurance operations will also lead to changes in the structure and composition of the respective Management Boards. Eric Boyer de la Giroday, in addition to his role as Chief Executive Officer of Commercial Banking, will become Vice-Chairman of the Management Board Banking with day-to-day responsibility for managing all aspects of the banking business. The Management Board Banking will include the newly created positions of CEO Retail Banking Benelux and CEO Retail Banking Direct and International.

Hans van der Noordaa, currently responsible for Insurance Europe and Asia/Pacific will take up the position of CEO Retail Banking Benelux. Eli Leenaars, currently responsible for Retail Banking, will become CEO Retail Banking Direct and International.

The bank also stated that in light of these changes, Dick Harryvan has decided to take early retirement as CEO of ING Direct and member of the Management Board Banking as of January 1, 2010, Harryvan, who started his career with ING in 1979, is retiring after more than 30 years with ING. In April 2006, he was appointed to the Executive Board of ING and CEO of INsG Direct. Since June 1, he served as a member of the Management Board Banking.

Tom McInerney, currently responsible for Insurance Americas, will take up the role of Chief Operating Officer Insurance on the Management Board Insurance, having responsibility for all day-to-day insurance and investment management activities. Matt Rider, currently CFO for ING's global insurance operations, will join the Management Board Insurance and become Chief Administrative Officer with a broad finance responsibility.

Further, ING said that Jacques de Vaucleroy will step down from the Management Board Insurance with immediate effect. He has decided to leave the group to pursue other interests. However, he will remain an advisor to the Management Board until January 1, 2010 to ensure a smooth transition. Vaucleroy, who started his career with ING in 1986, was appointed to the Executive Board of ING Group in April 2006. Since June 1, he has served as a member of the Management Board Insurance and CEO of ING Investment Management. The appointments are subject to approval by the Dutch Central Bank, ING noted.

The bank also stated that negotiations with the European Commission on the Restructuring Plan have acted as a catalyst to accelerate the strategic decision to completely separate the banking and insurance operations. These negotiations have been finalized and a formal approval of the Restructuring Plan is expected before an Extraordinary General Meeting of shareholders, scheduled for November 25. Meanwhile, the bank's strategic decision to divest Insurance operations will be presented for approval to the EGM.

ING also said that it needs to divest the ING Direct USA business by the end of 2013 in order to get approval from the EC on the Restructuring Plan. The divestment is expected to take several years and will not be completed before the end of 2013. This agreement has no impact on other countries.

Under the Restructuring Plan, ING will also create a new company in the Dutch retail market out of part of its current operations. The new company will be a combination of the Interadvies banking division, including Westland Utrecht and the mortgage activities of Nationale-Nederlsanden, and the existing consumer lending portfolio of ING Retail. This business will be divested after separation. As per the bank, the combined business is profitable with a current balance sheet of EUR 37 billion. The combined business also has around 200,000 mortgage contracts, 320,000 consumer lending accounts, 500,000 savings accounts and 76,000 securities contracts. The business's mortgage portfolio amounts to approximately EUR 34 billion, equal to a market share of around 6%. All restructuring measures are expected to be executed by the end of 2013.

Further, ING has agreed not to be a price leader in any EU country for certain retail and SME banking products and will refrain from acquisitions of financial institutions that would slow down the repayment of the Core Tier 1 securities. These restrictions will apply for the shorter period of three years or until the Core Tier 1 securities have been repaid in full to the Dutch State, the bank noted.

ING also said that it has entered into a deal with the Dutch State to alter the repayment terms of the Core Tier 1 securities, in order to facilitate early repayment. This early repayment option is valid until the end of January 2010. ING intends to use this opportunity to repurchase EUR 5 billion of Core Tier 1 securities in December 2009.

ING also plans to launch a EUR 7.5 billion rights issue to finance the repayment of the Core Tier 1 securities for EUR 5 billion plus a premium of up to approximately EUR 950 million and to mitigate the EUR 1.3 billion pre-tax capital impact of the additional payments for an Illiquid Assets Back-up Facility, or IABF. The IABF payment impact will be booked as a one-off pre-tax charge in the fourth quarter of 2009. The bank also expects to finance any further repayments of Core Tier 1 securities from internal resources, including proceeds from the divestment of the insurance operations.

Goldman Sachs International and J.P. Morgan have agreed to underwrite the rights issue, subject to customary terms and conditions. The proposed rights issue will also be presented for authorization at the Extraordinary General Meeting of Shareholders.

According to the bank, the restructuring measures, including steps already taken as part of the Back to Basics program, are expected to result in a pro forma balance sheet reduction of around EUR 600 billion by 2013, equal to approximately 45% of the balance sheet at September 30, 2008. This will be achieved via divestment and through further deleveraging of the bank balance sheet. It is also expected that ING's balance sheet by the end of 2013 will be approximately 30% smaller than at September 30, 2008 including estimated organic growth.

Commenting on the plan, Jan Hommen, chief executive officer of ING, stated, "A little over one year ago, ING began to experience the direct impact of the financial crisis, resulting in two instances of government support to strengthen our capital position and to mitigate risk. Over the last six months, we have worked tirelessly - both inside ING and with the Dutch Government and the European Commission - to devise a plan that will enable us to pay back the Dutch State, address the EC's requirements for viability and fair competition, and return our focus to the business and what matters most to our customers."

"We recognize the considerable efforts of the Dutch Government and the EC, and are pleased to have achieved understandings with them about how we will move forward," Hommen noted.

The bank also stated that the agreements with the Dutch State on repayment of the Core Tier 1 securities and additional payments for the IABF are included in the Restructuring Plan that has been submitted to the European Commission. ING has finalized the negotiations with the European Commission and formal approval is expected before the EGM.

Separately, the bank said that for the third quarter, the company expects a net result after divestment and special items of EUR 500 million, or approximately EUR 0.24 per share, compared with negative EUR 0.22 last year and positive EUR 0.03 per share in the second quarter of 2009.

The company also said that it expects to post an underlying net result of approximately EUR 750 million for the third quarter, in comparison with an underlying net result of negative EUR 568 million in the same quarter of fiscal 2008. For the second quarter, the company's underlying net result was EUR 229 million.

ING said that the third quarter 2009 preliminary results do not include the one-time pre-tax charge of EUR 1.3 billion related to the measures agreed to in the Restructuring Plan filed with the European Commission, as announced today. This charge will be booked in the fourth quarter of 2009. A provision related to the deposit guarantee scheme in the Netherlands following the fall of DSB Bank will also be reflected in the fourth quarter.

According to ING, the moderate stabilization in operating conditions that began in the second quarter continued in the third quarter, supporting the Group's commercial results of approximately EUR 2.4 billion, which were primarily attributable to the Bank. The commercial results represent an increase of 42% from last year and a 3% increase from the second quarter of 2009.

ING also said that ongoing weakness in the global economies and financial markets is expected to have an impact of negative EUR 850 million in the third quarter. Market-related impacts consisted primarily of impairments on debt securities, and negative revaluations and impairments on real estate investments. Positive market-related impacts included one-time capital gains on equity and debt securities, hedge results and favorable mark-to-market valuations, the bank noted.

Further, ING said that based on preliminary figures, the underlying net result of the Banking businesses was approximately EUR 250 million, driven by stable interest income and lower expenses supported by cost-containment programs and one-time gains.

Insurance is expected to report an underlying net result of EUR 500 million for the third quarter. As per the bank, results were influenced by positive market impacts including one-time gains on equity and debt securities and favorable mark-to-market valuations.

The bank also said that risk costs for the third quarter are estimated at negative EUR 700 million, reflecting the challenging credit environment. This compares with negative EUR 852 million of net additions to loan loss provisions in the second quarter of 2009.

Further, the bank stated that its headcount reductions totaled 10,400 FTEs by the third-quarter end, surpassing the full-year expected reduction of 7,000 FTEs.

Based on the current economic outlook, ING expects that risk costs in the coming quarters will remain elevated at around the level of the first half of 2009.

ING closed Friday's trading at $17.37, down $0.11, on a volume of 1.69 million shares.

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