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ING Groep says no insurance spin off this year, fourth quarter profits rose on asset sales

By: Toby Sterling, The Associated Press

Posted: 02/9/2012 2:05 AM | Comments: 0 (including replies) | Last Modified: 02/9/2012 7:00 AM

A branded flag flies outside the ING head office in Amsterdam, Thursday, Feb. 9, 2012. THE CANADIAN PRESS/AP, Peter Dejong

AMSTERDAM - ING Groep NV is struggling with how to repay €3 billion ($4 billion) it still owes the Dutch state from bailouts following the 2008 financial crisis but is unlikely to spin off its insurance business until some time in 2013.

The remarks from chief executive Jan Hommen came as the bank and insurance company reported fourth quarter earnings that showed a significant rise in profit for in the fourth quarter of last year, even though Europe's debt crisis increasingly weighed on business.

"The financial crisis spread further into the real economy, and uncertainty around the European sovereign debt crisis continued to erode confidence and amplify market volatility," Hommen said Thursday.

Shares fell 3.6 per cent to €6.995 in early trading in Amsterdam.

The group reported a fourth quarter net profit of €1.19 billion ($1.58 billion), way up from the €130 million it posted in the same period the year before.

The increase was mostly due to a one-time €1.29 billion profit from selling its insurance business in Latin America and its real estate investment management businesses in Europe and Asia. ING also benefited from a €647 million gain from buying back ING-issued bonds that were trading below their face value — a manoeuvr only possible when investors doubt the bonds will be repaid.

Those one-off items helped compensate for tough conditions for its day-to-day businesses.

Its banking division saw "underlying" operating profits — a nonstandard measure — drop 45 per cent in the fourth quarter to €793 million.

SNS Securities analyst Lemer Salah said the banking operations performed worse than expected as competition for retail deposits increased and the bank had to offer customers better deals, hurting margins.

"We expect that the tough markets will continue for retail banking in the first quarter," he said.

ING also took a €133 million writedown on its holdings of Greek bonds. After selling down its portfolio of bonds issued by Southern European governments throughout the year, ING now holds around €2 billion worth, mostly Italian.

At its insurance division, operating results before one-time charges were up 20 per cent to €478 million mostly because of cost-cutting. But the "underlying" result was a loss of €1.35 billion as ING took a €1.1 billion charge to write down the value of its U.S. annuity business — people are living longer than ING had expected, and fewer are allowing their policies to lapse.

The bailed-out ING is trying to get itself back into shape after the Dutch government gave it €10 billion in aid and took over most of its portfolio of mortgage-backed securities in the wake of the 2008 financial crisis.

Hommen said the company is at a loss on how to repay the Dutch state a remaining €3 billion, with a court case ongoing as to whether it must pay a €1.5 billion penalty if it does so.

"We would like to repay a significant amount this year," Hommen said on a conference call with analysts. However, he said the company also had doubts about "what amount can we afford to pay," given new global rules on greater financial buffers for the 29 global financial companies identified as 'systemically important.' ING is among the 29.

Hommen said the company still has work to do before it can spin off its insurance arm in an initial public offering of shares. The sale has been mandated by the European Commission's competition authority to compensate for the state aid.

"It will be much better to look for an IPO ... next year, rather than this year," he said.

The company repeated Thursday it will not pay a dividend until the state aid is repaid and it can meet the new rules on financial buffers.

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