potential settlement with the US authorities (compliance issues related to dealing by NY office with unauthorised countries). The ING Direct USA underlying earnings that accrue to Capital One were settled and are included in the above mentioned capital gain.
Bank underlying earnings before tax stood at € 1,126m (vs. € 1,125m expected and consensus at € 1,116m), including € -304m of credit and debt valuation adjustments and fair value changes on own Tier 2 debt as credit spread tightened. Impairments and losses from de-risking were up strongly. The net interest margin deteriorated 8bps to 1.32% due to higher cash balances with Central Banks and margin pressure. Risk costs stood at € 441m or 59bps of average RWA but compares unfavourable to 1Q11 which saw some releases. ING Bank’s core Tier 1 ratio rose by 130bps q/q to 10.9%.
Insurance underlying loss before tax stood at € -18m (vs. € -79m expected and consensus at € -176m) including € 379m hedging losses (net of reserve changes) in theUS Closed Block VA to protect regulatory capital. The operating result (margin format) declined by 7.0% to € 475m supported by strong investment margin (118bps) and higher fees and premium-based revenues. New life sales (APE) rose 5.1% y/y to € 1,302m vs. € 1,308m expected. The Insurance Group Directive (IGD) solvency ratio remained flat y/y at 225% which is still very strong.
Shareholders equity at the end of March stood at € 47.6bn or € 12.56 per share.
ING has begun discussions with the Dutch State, and together with the State will soon start discussions with the European Commission following the favourable court ruling on ING's appeal.
Our View:
The 47.9% decline in underlying earnings before tax was in line at both the banking and insurance activities whereas the drivers were those that we expected (impairments, margin pressure, hedging losses, ...). We see no elements that would change our investment case.
Conclusion:
We maintain our Accumulate rating and € 9 target.