Amsterdam: ING Groep NV, the Dutch bank and insurer, reported net profit of €71 million for the second quarter on Wednesday, down 96% from €1.92 billion in the same period a year earlier, before the financial crisis struck.
In its earnings report, the company focused on the ways in which its recent performance is better than the €793 million loss it reported in the first quarter. It cited better margins at its banking operations and the partial recovery of financial markets.
“ING posted solid commercial performance in the quarter, as a more favorable interest rate environment and improved margins on savings and lending led to a 19.4% increase in interest income at the banking operations,” said chief executive Jan Hommen in a statement. “In insurance, the recovery of equity markets in the second quarter helped boost fees on assets under management.”
However, ING increased its provision against bad loans by €852 million and suffered for being conservative - or wrong - in its positioning during the sharp rebound of recent months.
For instance in the US it had a €176 million gain at its insurance operations as the stock market recovery allowed it to value life insurance contracts more favorably on its balance sheets. But that was more than offset by €346 million in losses because it had bet heavily against a rise in the S&P 500 by shorting index futures.
The company reported a pretax loss of €204 million at its banking operations on an “underlying” basis, a nonstandard measure that strips out the impact of divestments.
On the same basis, its insurance arm reported pretax profit of €278 million.
The company reported a litany of write-downs and devaluations.
In addition to the loan provisions, the company said it had written down real estate assets by €694 million, and suffered €323 million in impairments on investments in subprime mortgage-related securities.
In January, the Dutch state assumed 80% of the risk for ING’s portfolio of €27.7 billion in such derivatives, meaning the losses borne by taxpayers in the Netherlands are four times as large as ING’s.
Wednesday’s charge follows a charge of similar size on the same assets in the first quarter.
ING said its Tier 1 ratio, a key measure of solvency for banks, slipped to 9.4% from 9.7% in March.
According to its balance sheet, total equity was €33.4 billion, €10 billion of which is due to a direct investment lifeline it received from the Dutch government last year.
In January, the company announced plans to cut 7,000 jobs, representing 5% of its total work force, but said Wednesday that it has actually cut more than 8,000 already.