ING Plans Europe, U.S. Insurance IPOs

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Dutch bancassurance group ING said on Wednesday it planned two initial public offerings, rather than one, for its insurance activities as part of a mandatory split-up imposed because of its state bailout.

Chief executive Jan Hommen told a conference call that two IPOs could allow ING to achieve a higher valuation and raise more money for insurance assets with a combined book value of €21 billion ($28.94 billion). The group still needs to repay half of its €10 billion [$13.8 billion] Dutch state capital injection.

“While the option of one IPO remains open, we are going to prepare ourselves for a base case of two IPOs for our insurance business,” Hommen said.

A Europe-focused IPO would have a solid cash flow combined with strong growth positions in developing markets, he said, while a separate U.S.-focused IPO would have a strong position in retirement services.

ING shares opened weaker before trading steady at €7.96 [$10.97], below a year high of €8.18 [$11.27] set in October and after a 15.5 percent rise this year for a market value of some €30 billion [$41.35 billion].

The two IPOs would give ING more flexibility as investors used different valuation models for operations in the United States and Europe while European Solvency II regulatory changes would make the U.S. business less competitive, Hommen added.

Hommen said while the fourth quarter of 2011 was still possible as a window for the market operations, 2012 was more likely for the floats in Amsterdam and New York. He added that the group is still in talks with many interested parties about the insurance operations.

The smaller Westland Utrecht Bank unit will run as stand alone from Nov. 18. The ING brand will stay with banking activities.

Lemer Salah, analyst at SNS Securities, said the IPO plans could go ahead as soon as the fourth quarter of 2011 especially if there was a strategic buyer and favorable market conditions.

“The current environment is quite favorable, and there is no pressure (to sell). It’s do-able. They have a lot of time, they have the resources,” he said.

The split of ING into banking and insurance businesses will reverse its creation through the merger nearly 20 years ago of bank NMB and insurer Nationale Nederlanden. The separation was imposed by the European Commission as a bailout condition.

ONLINE BOOMS, INSURANCE SLUGGISH
ING posted a higher third-quarter underlying net profit as a strong performance by its ING Direct online banking activities offset still sluggish insurance income, but fell slightly short of consensus expectations.

ING Direct swung to a profit of €412 million [$567 million] from a loss of €358 million [$492.5 million] due to lower impairments.

The banking activities had an underlying pretax profit of €1.513 billion [$1.586 billion], versus €250 million [$344 million] last year and a consensus expectation of €1.305 billion [$1.796 billion], due to lower charges and risk costs and healthy margins.

The insurance operations saw operating profit rise to €473 million [$651 million], versus €393 million [$541 million] last year. There was a €356 million [$490 million] charge in the third quarter in Japan and the U.S.

Underlying pretax profit fell to €18 million [$24.7 million], from €551 million [$758.4 million] and against a consensus of €105 million [$144.6 million].

“Insurance results are improving quarter by quarter and I am pleased about that,” Hommen told Dutch NOS radio.

ING sees a write-down on variable annuities in the United States of some €1 billion [$1.38 billion] in the fourth quarter and was also planning a move towards fair-value accounting on withdrawal benefit reserves in the U.S. that could lead to a book value reduction of €1.0 billion to €1.3 billion [$1.79 billion] as of January.

(Editing by Sara Webb and Hans Peters)