2nd UPDATE: ING Returns To Profit, But Economy Remains Tough

Dutch financial services group ING Groep NV (ING) Wednesday returned to a profit in the second quarter, but real-estate write-downs and loan-loss provisions kept the result below analyst expectations and it said it expects conditions to remain tough for some time.

ING scrapped its interim dividend and Chief Executive Jan Hommen told a news conference that no decision has been taken yet on the possibility of a full-year payout, although the group did say that it was seeing the first signs of a recovery in financial markets. It also raised its 2009 cost-cutting target by 30% to EUR1.3 billion.

At 1225 GMT, ING shares were down EUR0.32, or 3.5%, at EUR8.80, while the benchmark AEX was up 0.4%. The shares had fallen as much as 15% earlier in the session, hitting EUR7.75.

ING's second-quarter net profit of EUR71 million followed three consecutive quarters of losses. But the April-June earnings were down substantially from the EUR1.92 billion net profit a year earlier.

The earnings were driven by the insurance operations, where EUR278 million in pretax underlying profit, which strips out special items, was still down sharply from EUR1.04 billion a year earlier.

The net profit was well below analyst expectations of EUR388 million, as the company wrote down a more-than-expected EUR584 million on its property portfolio and made EUR852 million of new provisions for potential loan losses. The banking business lost money in the second quarter.

ING said it expects loan-loss provisions to be about the same in the second half as in the first.

Hommen told reporters that ING still intends to sell assets worth EUR6 billion to EUR8 billion to help pay down a EUR10 billion lifeline it got from the Dutch government last October to underpin the company's core capital.

He said ING wants to repay the state support as soon as possible, but couldn't say when because of economic uncertainty. He added that the priority is to keep ING viable.

"We won't sell assets at (just) any price," Hommen said, adding that offers received for assets so far haven't been priced right.

ING said it is reviewing additional strategic options and that the stabilization of its capital base has given it more leeway to act.

Hommen said he hopes for more clarity by year-end from the European Commission on its regulatory review of the government's aid to ING and reiterated that discussions with the commission on its restructuring plan begin in the coming weeks, which could have a "significant impact on the company."

SNS Securities analyst Maarten Altena, who is maintaining an accumulate rating on the stock even though results were below expectations, said he was disappointed that the E.U. still hadn't decided on the measures ING needs to take to get approval for the state aid it has received.

So far, ING managed to cut 8,219 jobs by the end of the second quarter, while EUR525 million of cost were cut thus far in 2009. ING doesn't plan to cut jobs this year by more than that amount, Hommen said.

"Most of our concern is about the real-estate exposure that has hurt earnings at ING Direct and ING real Estate," said KBC Securities analyst Dirk Peeters, who has downgraded the company's stock to accumulate from buy. He added that the pricing of the transfer of the risk related ING's Alt-A portfolio to the Dutch state, which is under review by the E.U. could also turn out negative.

- By Bart Koster and Robin van Daalen; Dow Jones Newswires; [phone]; [e-mail]