EUR 850.00 For Business Accounts Only

Morningstar | Third-Quarter Results at ING Impacted by Settlement, but Underlying Business Performance Good

We don't believe ING's management had this scenario in mind when it chose "Think Forward" as the title of its strategic plan in 2014, although it fits its third-quarter results surprisingly well. Net results in the quarter came in at EUR 776 million, down 44% compared with last year, as the bank booked EUR 775 million in settlement charges with the Dutch Public Prosecution Service related to its money laundering misconduct. Excluding these charges, however, ING showed good underlying performance across segments. Net results before special items grew 10% to EUR 1.5 billion as stronger fee and commission income and other income more than offset slightly higher staff expenses. We do not plan to change our stable moat rating for ING, although management acknowledged that the settlement did have an reputational impact. We are also maintaining our no-moat rating and keeping our fair value estimate of EUR 16.20 per share. We are adjusting our ADR fair value estimate to $18.50 from $19.40 per share, however, to accommodate for the appreciation of the U.S. dollar versus the euro.

The good performance in income generation was owed to growth in growth markets and wholesale banking lending activities more than offsetting negative currency impacts, particularly of the Turkish lira, and weaker performance in financial markets. As a result, and despite slightly higher operating expenses of about 1%, the cost/income ratio improved to just below 50% from 52% last year.

The fully loaded common equity Tier 1 ratio was nearly flat despite the settlement and now stands at 14% versus ING’s medium-term ambition of about 13.5%.