ING reported a 4Q12 underlying net profit of € 373m which was below our € 499m profit forecast and below consensus (€ 428m). The net profit stood at € 1,434m (€ 0.38 EPS) vs. € 1,702m expected and consensus at € 1,592m.
Net gains/losses on divestments amounted to € 1,613m o/w € 1,135m from the sale of ING Direct Canada, € 745m from the sale of Insurance Malaysia and € -244m to be announced on the sale of ING Direct UK. This was partially offset by € 643m negative special items predominantly reflecting costs for various restructuring programmes.
Bank underlying earnings before tax stood at € 184m (vs. € 390m expected and consensus at € 437m), reflecting negative CVA/DAV adjustments (€ 187m), de-risking losses (€ 151m) and the Dutch bank tax (€ 175m). The net interest margin declined 5bps to 1.33% but remained level with 3Q12. Risk costs stood at € 588m or 84bps of average RWA (62bps in 4Q11). ING Bank’s core Tier 1 ratio rose by 80bps q/q to 11.9%. The pro-forma Basel III core Tier 1 ratio would amount to 10.4% (including IAS-19R).
Insurance underlying profit before tax stood at € 272m (vs. € 191m expected and consensus at € 244m). The operating result (margin format) declined by 15.2% to € 296m, despite improving investment margin (132bps) and slightly higher commission income. The improvement (restated for scope changes) was driven by hedging gains linked to the US VA book. New life sales (APE) rose by 12.7% (restated figures) to € 753m. The Insurance Group Directive (IGD) solvency ratio stood at 245% down 4 points q/q. The decline stems from the redemption of a € 1.125bn hybrid security by ING Verzekeringen N.V. and from the deterioration of the solvency position at Nationale-Nederlanden Life resulting from updated mortality assumptions.
Shareholders equity at the end of December stood at € 54.4bn.
4Q12 underlying earnings came in weaker than we expected and weaker than consensus. Solvency was however strong and the restructuring charges should allow for structural savings of more than € 1bn by 2015. Market will most likely focus on the upcoming IPO of ING Insurance Americas where timing and price will be important for the valuation of ING Group.
We maintain our Accumulate rating and € 9.0 target.