ING's Second-Quarter Profit Surges on Banking; Insurance Segment Slips

ING Group recorded a big jump in second-quarter net profit on a turnaround in its banking unit, even as the insurance segment posted an operating loss.

Second-quarter net profit was 1.09 billion euros, compared with a 71 million euro profit for the same period a year earlier. The banking segment had an underlying pretax profit of 1.61 billion euros, compared with a loss of 186 million euros a year earlier. The insurance segment posted a pretax loss of 115 million euros, compared with a year-earlier profit of 242 million euros.

Chief Executive Jan Hommen said the banking segment benefited from lower volatility compared with last year, while the U.S. insurance operations were hurt by declines in equity markets.

"Sovereign risk concerns, combined with fear of a 'double dip' scenario, had a significant impact on interbank markets in the euro area as well as on equity markets worldwide," said Hommen in a statement. "The sharp decline in equity markets in the quarter severely impacted the results of our U.S. insurance operations. However, the bank continued to benefit from its strong liquidity and funding profile, with lending growth funded entirely by customer deposits, and refinancing of long-term funding already completed for the year."

Hommen said investment margins for the U.S. insurance business "remained under pressure" in a low interest-rate environment, and declining equity markets had a particular impact on the U.S. closed block of business. Administrative expenses also increased, due to investments to support growth initiatives and business improvement programs.

ING reported continued "insurance sales momentum, as sales rose 22.2% to 1.25 billion euros, excluding currency effects and closed blocks in Japan and the United States. New sales were down in European markets but made gains in the United States, Asia/Pacific and Latin American markets.

The operating result for life insurance and investment management fell to 561 million euros from 628 million euros a year earlier. In nonlife insurance, operating profit was flat at 69 million euros. Corporate line insurance had an operating loss of 212 million euros, a slight improvement on 216 million euro loss a year ago.

The insurance segment reported losses on investment impairments of 143 million euros, compared with 34 million euros in losses a year earlier.

ING (NYSE: ING) is moving ahead with a previously-announced separation of its banking and insurance units (BestWire, May 12, 2010). "We continue to work towards the operational separation of our banking and insurance operations, with the aim to have the businesses operating on an arm's-length, stand-alone basis by the end of this year," said Hommen.

"Good progress was made in the second quarter," he added. "We currently have 1,100 projects under way worldwide, with separation costs estimated at 110 million to 150 million euros for 2010, of which 30 million euros was taken in the first half. At the same time we are working to improve the performance of the insurance business, while reviewing our options so we will be ready to act when markets are favorable."

ING stock was at $9.65 in trading on the morning of Aug. 11, down 3.60% from the previous close.