ING Turns Tide After Suffering Run of Bad News; Shares Jump

(Bloomberg) -- ING Group NV put a run of bad news behind it, with a third quarter profit that beat estimates and progress toward its cost targets. The shares jumped the most in 18 months.

While net income plunged because of a 775 million-euro ($879 million) settlement for failing to monitor and prevent money laundering, the hit was less severe than some had feared as the Dutch bank beat expectations in several areas.

“Even the people who are bearish on ING will have a difficult time finding negatives,” Mediobanca analyst Robin van den Broek said by phone. The bank beat expectations in areas including net interest income, fee income and capital buffers, he said.

ING shares have slumped this year even though the company beat expectations in previous quarters amid concerns over the settlement, a rising cost-to-income ratio and problems with Chief Executive Officer Ralph Hamers’ ongoing effort the accelerate the company’s digital transformation, particularly in Belgium.

The fine was “clearly kind of a shock to some of our people and certainly also some clients,” Hamers said in a Bloomberg TV interview. “For us, we knew that there were shortcomings in our processes, we didn’t wait for a fine” to start addressing them. As part of an agreement with Dutch prosecutors, the bank acknowledged serious shortcomings in monitoring and preventing money laundering from 2010 until 2016.

Amid the public outrage in the bank’s home country after the settlement, Chief Financial Officer Koos Timmermans announced that he would step down when a successor is found. Hamers said on Thursday that the bank is still searching for his replacement.

ING’s cost-to-income ratio fell to 49.7 percent in the third quarter, compared with 51.9 percent a year earlier. That’s the first year-on-year improvement in six quarters. Some of the fruits of ING’s investments in digitization are now starting to come through, the outgoing CFO told reporters. “At Belgium and wholesale, for example, we see the costs coming down.”

In Belgium, the bank is merging its computer systems with those in the Netherlands in a project that won’t be completed until 2021. The unit already migrated 600,000 customers this year from its Record Bank subsidiary -- which will continue its operations under the name of ING -- to the new platform.

Bloomberg reported in early October that crashing software programs and system shutdowns have occurred recently in Belgium, forcing some customers to wait hours or even days for routine transactions to be processed.

“In Belgium, the organization is working hard to adapt to the consequences of the intensive transformation and integration that were implemented during the first half,” Roeland Berkhout, head of the Benelux region, said in the third-quarter report. “As the newly created cross-border organization and the new service model start to gain momentum and digital solutions become available, the service levels will return to our high standards.”

The stock gained as much as 5.9 percent in Amsterdam trading, the most since April 2017, and was up 5.7 percent at 11.07 euros as of 11:11 a.m.

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