ING: 4Q11 comes in lower – margins are resilient

ING (6,94 EUR, -4,40%) reported a 4Q11 underlying net loss of € 516m which was below our € 428m profit forecast and the € 346m consensus average profit forecast. The net profit stood at € 1,186m (€ 0.31 EPS) vs € 2,267m expected and consensus at € 1,938m.

4Q11 results included € 1,288m of gains on divestments o/w € 995m for the LatAm Insurance, € 265m for ING REIM. Discontinued operations contributed € 10m to net profit. Special items after tax amounted to € 403m o/w € 718m gains from the liability management transaction executed in December 2011 partially offset by costs for various restructuring programmes, including € -118m for Retail Netherlands and € -67m for strategic repositioning initiatives at Commercial Banking. After tax separation costs stood at € 85m.

Bank underlying earnings before tax stood at € 793m (vs € 1,158m expected and consensus at € 1,102m) including € 79m of realised losses from selective de-risking at ING Direct and € 133m re-impairments on Greek government bonds. The net interest margin improved to 1.42% (vs 1.37% in 3Q11) despite pressure on savings margins. Risk costs stood at € 530m or 65bps of average RWA, which was higher than we expected (52bps) mainly reflecting higher losses on mid-corporate and SME lending in the BeNeLux. ING Bank’s core Tier 1 ratio remained flat q/q at 9.6%.

Insurance underlying loss before tax stood at € 1,348m (vs € -1,073m expected and consensus at € -585m) including a € 1,099m charge for the US Closed Block VA assumption changes, as well as losses on hedges in place to protect regulatory capital. The operating result (margin format) rose by 20.4% to € 478m (vs € 583m expected) driven by a higher investment margin, a decline in expenses and lower interest costs. The investment spread improved to 106bps (vs 104bps in 3Q11) primarily in the BeNeLux.. New life sales (APE) stood at € 1,005m vs € 1,051m expected. The Insurance Group Directive (IGD) solvency ratio remained flat q/q at 225% which is still very strong.
Shareholders equity at year-end stood at € 46.7bn or € 12.33 per share.
ING will not propose to pay a dividend.

Our View:
ING's 4Q11 results came in lower at both the banking and insurance activities which is the combined effect of several one-off items (ING Direct, Greek impairments, less gains on ING REIM, higher US Closed Block charge) but also some lower top-line and higher impairments. The NIM at banking and investment margin at insurance do however indicate that the operating performance was quite resilient.

Conclusion:
We maintain our Accumulate rating and € 9 target.