ING Groep NV, the bailed-out Dutch bank and insurer, Wednesday reported a fall in third quarter earnings after writing down the value of its U.S. insurance operations, and said it plans to spin off both its U.S. and European insurance arms with separate initial public stock offerings.
Net profit was 371 million euros ($510 million), down from 499 million euros in the same period a year ago, and included a 513 million euro write-down on the value of its U.S. insurance arm.
ING said its banking division enjoyed good margins during the quarter, borrowing money cheap and lending it dear, especially to retail clients.
It also took fewer charges for bad loans and enjoyed better profits on investments.
ING said its "underlying profit" at banking — a nonstandard measure that strips out the effects of taxes and one-time profits or charges — was 1.51 billion euros, up from 250 million euros in the same period a year ago.
Insurance division operating profit rose to 473 million euros from 393 million euros thanks to better investment returns and higher fees, Chief Executive Jan Hommen said.
SNS Securities analyst Lemer Salah, who rates shares a Buy, said insurance earnings were not quite as good as expected, but banking earnings were in line with expectations.
Shares rose 2.6 percent to 8.174 euros in early Amsterdam trading.
ING plans to hive off its insurance arm and keep its banking operations as part of a deal with European regulators after having received state aid during the 2008 financial crisis. It still owes half of the 10 billion euros it received, and the Dutch state also took on most of the company's exposure to subprime mortgage-backed securities.
ING said Wednesday it is now looking at further dividing its insurance activities into two parts and floating them separately.
"We are going to prepare ourselves for a base case of two IPOs for our insurance businesses: one Europe-led IPO with solid cash-flow combined with strong growth positions in developing markets, and one separate US-focused IPO with a leading franchise in retirement services," Hommen said in a statement.
He didn't set a date for the IPOs, but on a conference call said that they would likely be in 2012.
However, preparations for the U.S. IPO will likely lead to two charges of around 1 billion euros each, ING said, each involving its U.S. variable annuities business.
In the fourth quarter ING will write down the value on annuities by 1 billion euros.
Then in the first quarter of 2011, it is considering changes "to bring its accounting practices for its U.S. insurance business more into line with U.S. peers." That would lead it to an additional write-down of 1 billion euros to 1.3 billion euros, ING said.
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