ING Profit Beats Forecasts, Says Risk Exposure Limited
Dutch financial services group ING took a lower than expected impairment charge of 194 million euros ($286 million) on its riskier investments in its fourth-quarter results and it plans to grow in retail banking and the pension market, CFO John Hele told CNBC Europe on Wednesday.
"Wherever there's turmoil, there's opportunity," Hele said, adding that the financial group has strong capital.
ING's strong commercial performance and life insurance sales were among the factors that helped it feel the impact of the subprime fallout less than other peers, he said.
Net profit in the quarter rose 7.6 percent to 2.48 billion euros, or 1.18 euros per share, just ahead of the average forecast of 2.34 billion euros, or 1.12 euros per share, given in a Reuters poll of seven analysts.
ING said it booked a gain of 1.03 billion euros on the sale of its stake in local rival ABN Amro to a consortium of three banks in October. ING had also booked gains from ABN and other asset sales in the third quarter.
Analysts polled by Reuters had expected ING to write down between 200 million and 1 billion euros on its riskier investments, including RMBS investments backed by subprime loans and "Alt-A" loans, which are made to borrowers with a slightly better credit profile than those in the subprime category, as well as from collateralised debt obligations (CDOs).
Instead, ING said it had taken a negative revaluation of 751 million euros on investments in subprime, Alt-A and CDO through shareholders' equity, but it was not directly booked as a loss.
Chief Executive Michel Tilmant said "solid risk management" helped to shield ING from the worst of the credit and liquidity crisis that has forced banks on both sides of the Atlantic to take large impairments on investments once thought to be less risky.
"ING's exposure to the riskiest assets is limited, and the RMBS investments we selected have a high level of structural credit protection to absorb significant losses as the U.S. housing crisis deepens," Tilmant said in a statement.
High Credit Protection
ING said that the business environment remained "challenging" and that it had to lower valuations on its real estate and private equity investments as well.
Hele said the 751 million euros in revaluations was "only important if these assets become impaired."
"The market values have held up quite well in these assets… and that's because we have very high credit protection, credit enhancement, in the structures of the triple-A tranches that we bought," Hele told "Squawk Box Europe."
In contrast to the troubles with investments in ING's banking arm, insurance performed well, posting a quarterly underlying profit of 1.82 billion euros, up 37 percent from a year earlier.
That was due in part to the stake sales, which offset lower valuations of real estate and private equity investments, and a 10 percent rise in premium income helped as well.
Banking profit was mostly flat in the quarter from a year earlier, at 1.15 billion euros.
For 2007 ING said net profit rose 20 percent to 9.24 billion euros, or 4.32 euros per share. Analysts had expected, on average, a full year profit of 8.71 billion euros, or 3.96 euros per share.
-- Reuters contributed to this report