3rd 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 1432 GMT, ING shares were down EUR0.08, or 1%, at EUR9.04, recovering most of its losses after a 15% tumble earlier in the day.

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.

Gross insurance premium income fell 22% to EUR7.3 billion, as sales dropped due to lower consumer demand for investment-oriented products.

Total underlying income for the group was EUR10.24 billion, down 34% from EUR15.42 billion.

Net profit was well below analyst expectations of EUR388 million, as the company wrote down a more-than-expected EUR584 million from negative revaluations on its property portfolio and made EUR852 million of new provisions for potential loan losses.

Of the second-quarter real-estate revaluations, EUR251 million came from the Canadian Summit portfolio, which contains mainly industrial real estate in the economically hurting Great Lakes region.

Since the start of the year, negative real-estate revaluations have hit EUR1.7 billion, of which 70% are from the U.S., U.K., Australia and Canada.

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

Hommen said 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 government 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 maintained an accumulate rating on the stock even though results were below expectations, said he was disappointed that the Commission still hadn't decided on the measures ING needs to take to get approval for the state aid it has received.

The European Commission said later Wednesday that it was aware of ING's statement: "We are in close contact with all involved parties concerning ING and we can confirm that we have received a restructuring plan which is currently under assessment."

Meanwhile, Fitch Ratings downgraded ING Group's Long-term Issuer Default Ratings to A from A-plus, saying that "consolidated results for 2009 are expected to remain under pressure, despite a number of de-risking and cost-cutting initiatives, and are unlikely to allow the group to rebuild its capital resources in the short term."

KBC Securities analyst Dirk Peeters, who downgraded the stock to accumulate from buy, said, "Most of our concern is about the real-estate exposure that has hurt earnings at ING Direct and ING Real Estate."

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

(Peppi Kiviniemi in Brussels contributed to this report.)