(Updates with CEO comment on dividends in fifth paragraph, analyst comment in 15th, legal risks from 16th.)
Feb. 12 (Bloomberg) -- ING Groep NV, the biggest Dutch financial-services company, reported fourth-quarter profit that exceeded analysts’ estimates as earnings at its banking division tripled.
ING rose as much as 6.1 percent in Amsterdam trading, the biggest gain in three months, after posting net income of 539 million euros ($735 million), above the average estimate of 254 million euros in a Bloomberg News survey of eight analysts.
The company is nearing the end of a restructuring program imposed by European Union regulators as a condition for a government bailout in 2008. It has until the end of 2016 to complete the sale of its European and Japanese insurance and investment management activities. Preparations to sell a stake in the European and Japan operations, to be named NN, in an initial public offering in 2014 are “on track” after their capital position was strengthened, ING said.
“We intend to go to market this year, assuming conditions are favorable,” Chief Executive Officer Ralph Hamers said in today’s statement.
The IPO could take place between the end of the second quarter and the fourth, he told reporters in Amsterdam today. As the disposal of its insurance unit nears, ING plans to outline financial goals for its banking unit, including dividend policy, at the end of March, he said. The firm won’t propose a 2013 dividend as it first wants to complete repayment of a 10 billion-euro capital injection it got from the state in 2008.
ING shares posted the biggest intraday gain since Nov. 6, and rose 3.9 percent to 10.57 euros by 5:11 p.m. in Amsterdam. The advance brings the gain this year to 4.6 percent and follows a more than 40 percent increase in 2013.
Fourth-quarter net income declined 64 percent from 1.48 billion euros a year before, when the company recorded 1.6 billion euros of gains on the sale of its Canadian online bank and Malaysian insurance operations.
Profit excluding gains and losses on divestments and discontinued operations rose to 405 million euros in the fourth quarter from 163 million euros a year earlier. ING took a 575 million-euro charge in the quarter to bolster reserves at its Japanese variable annuity business.
ING said pretax profit excluding one-time items at its lending arm rose to 904 million euros from 283 million euros. That beat the 819 million-euro average estimate of 11 analysts surveyed by Bloomberg News. It set aside 560 million euros for bad loans, a 4.9 percent drop from the year earlier level.
A Dutch central bank review of lenders’ commercial real estate loans found provisions and capital levels for ING were largely sufficient, ING said. The impact was “negligible,” Chief Risk Officer Wilfred Nagel told reporters on a conference call.
“It’s positive to see there were no negative asset quality review effects as there was some uncertainty on that,” said Cor Kluis, an Utrecht, Netherlands-based analyst at Rabobank International. Kluis recommends clients buy ING shares.
Bank earnings rose as the net interest margin, the difference between what a bank earns on assets and pays for funding, rose to 1.45 percent from 1.34 percent a year earlier. The unwinding of an aid facility related to U.S. mortgage-backed assets ING got from the Netherlands in 2009 resulted in a 99 million-euro gain during the quarter. That offset 76 million euros in costs related to a restructuring in ING’s Dutch consumer bank.
The company said it plans to cut an additional 300 jobs in the Netherlands, on top of 4,100 reductions previously announced for the consumer bank.
ING insurance’s operating result from continuing operations, which excludes capital gains and accounting charges, rose to 215 million euros from 190 million euros a year earlier, the company said. That compared with the 205 million-euro average estimate of four analysts surveyed by Bloomberg News.
“The bank’s numbers were marked by solid net interest margins, lower than expected loan loss provisions and seasonally lower activity in financial markets,” said Matthias De Wit, an analyst at KBC Securities in Brussels. Improvement in the operating result of ING insurance “was mainly driven by higher investment income and lower expenses in Netherlands Life as well as lower funding costs and corporate expenses,” he said.
ING’s Dutch insurer may face additional charges related to unit-linked products sold in the past as the number of legal challenges increased.
The Dutch insurance units set aside 365 million euros ($495 million) in 2008 to settle claims they charged clients excessive costs for the products, according to its 2012 annual report. Current and future legal proceedings may lead to additional costs, it said in its quarterly report today.
“Whilst in the past the attention has mainly focused on compensation for cost loadings, Dutch insurers now experience an increase in claims initiatives on behalf of multiple policyholders based on multiple legal grounds,” the company said. The financial consequences “can be substantial,” it said.
Ingeborg Klunder, a spokeswoman for Amsterdam-based ING, declined to comment on the number of proceedings that has been initiated against the company. The company can’t give a reliable estimate of the possible financial impact, it said.
Dutch insurers, including ING and state-owned SNS Reaal NV, have set aside about 2.5 billion euros to compensate clients for excessive costs, Finance Minister Jeroen Dijsselbloem said in a June 13 letter to Parliament. The firms settled after the Dutch financial markets regulator said in 2006 they didn’t adequately inform clients about charges that reduced the returns on some of the products.
In addition, some customers are seeking compensation as the value of their policy, which they planned to use to redeem their mortgage or to fund their pension, was reduced to zero or less as investment returns fell behind expectations.
--Editors: Frank Connelly, Mark Bentley