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ING Groep Q1 profit down 19 per cent as insurance investment earnings slump |
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Written by Toby Sterling, THE ASSOCIATED PRESS
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Saturday, 17 May 2008 |
AMSTERDAM, Netherlands - ING Groep NV reported a 19 per cent decline in first-quarter profits Wednesday and wrote down the value of its U.S. mortgage-related investments by US$5.6 billion.
However, the writedowns were not booked as a loss because the Dutch bank and insurance company plans to hold on to those investments.
ING said bank earnings were up 1.5 per cent to 1.41 billion euros ($2.18 billion), while insurance earnings fell 31 per cent to 722 million euros ($1.11 billion).
Insurance earnings were hurt by the performance of an investment portfolio ING holds to hedge against potential claims, the company said. ING said investment profits fell by 436 million euros ($673 million).
Analyst Tim Young of Collins Stewart commented that earnings were in line with expectations and the "credit crunch (is) now surely discounted" in the company's share price.
"Residual concerns about credit exposures are likely to continue to weigh on the stock - we think unfairly and that the view will reverse." He has a "buy" rating on shares.
ING shares rose 1.7 per cent in Amsterdam.
ING's banking operations benefited from retail deposits which it can reinvest for a higher return than the interest rate than it offers customers. An overall widening difference between its borrowing and lending rates offset a slowdown in its corporate banking business.
"Although we have perceived some improvement in equity markets and credit spreads since the close of the first quarter, investment returns and asset values will likely remain under pressure," chief executive Michel Tilmant stated.
The company reported a relatively minor 55 million euros ($85 million) in losses on mortgage-related investments.
However, it noted that the fair value of its portfolio of U.S. residential backed mortgage securities on its balance sheets had declined from 27.5 billion euros ($42.5 billion) at year-end to 22.8 billion euros ($35.2 billion) at the end of March.
ING said this was due to "market illiquidity" and the weak U.S. dollar.
Those derivatives, which act like bonds, are based on "Alt-A," or nontraditional mortgages with a credit rating between subprime and prime. They are not in default and ING said it wouldn't book any losses on them unless default becomes "probable."
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