UPDATE: ING Returns To Profit, But Is Hit By Property Losses

Dutch bank ING Groep NV (ING) Wednesday said it had returned to a profit in the second quarter after three consecutive quarters of losses, but the profit was well below expectations due to real estate writedowns at its banking business.

The bancassurer said it is seeing the first signs of recovery in financial markets, but cautioned that it expects economic conditions to remain challenging "for some time." It raised its cost savings target by 30% to EUR1.3 billion, from EUR1 billion, but scrapped its dividend due to the uncertain conditions.

ING said it booked a net profit of EUR71 million in the second quarter, down from the EUR1.92 billion profit it made a year earlier but well above the net loss of EUR793 million it posted in the first quarter. The profits were largely driven by its insurance unit, which saw low claims in the U.S. and managed to cut costs and sales expenses.

However, the figure was well below analysts' expectations for a net profit of EUR388 million as it wrote down EUR584 million on the value of its property portfolio and made EUR852 million of new provisions for potential losses on its loan book.

It said it expects loan losses to be about the same amount in the second half of the year.

ING, which received a EUR10 billion Dutch state capital injection in October last year and received a EUR27.7 billion state guarantee on its Alt-A mortgage portfolio in January, is trying to cut costs from its operations around the world and is also trying to sell assets worth EUR6 billion to EUR8 billion.

It said it had managed to cut 8,219 jobs by the end of the second quarter, ahead of its target of 7,000 job cuts by the end of this year.

SNS Securities analyst Maarten Altena, who is maintianing 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 received.

ING Chief Executive Jan Hommen said discussions with the European Commission on the restructuring plan that is needed for definite approval of the Dutch state support "will commence in the coming weeks and it is uncertain what the outcome will be."

In its statement, the company said the EC's decision "could lead to significant changes for ING Group going forward," but Hommen declined to elaborate.

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

At 0800 GMT, ING's shares were 6.9% lower at EUR8.49.

- By Bart Koster; Dow Jones Newswires; [phone]; [e-mail]