ING's Lower Fee Income Overshadows CEO Hamers's `Solid' Quarter

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(Bloomberg) -- ING Groep NV made less money from fees and commissions in the first quarter, setting back Chief Executive Officer Ralph Hamers’s plan to reduce reliance on lending.

The 3.1 percent decline in net commission income from a year earlier overshadowed a quarter in which the company attracted 400,000 new clients and posted net income that beat analysts’ estimates. Shares of the lender fell 2.3 percent at 11:31 a.m. in Amsterdam trading, the worst performer among the large European banks.

While fees at ING are dwarfed by income from lending, also known as interest income, they are a key part of Hamers’s effort to grow in areas and markets that are more resilient to the ultra-low interest rates that plague Europe’s lenders. Hamers is investing in financial technology to reduce personnel and branch costs at home and seeking to expand outside the Netherlands, where competition from new players like insurers and foreign banks is further squeezing margins.

It’s a “disappointing set of numbers” because of the “weak fees," said Marcell Houben, an analyst at Credit Suisse Group AG. Net interest income “was in line, but we argue the outlook remains clouded due to ongoing margin pressure.”

Net interest income, which accounts for more than three quarters of underlying income, rose 1.6 percent from a year earlier as growth in countries such as Germany and Australia, where the bank won most of the new clients, offset a decline in Belgium. ING said it recorded 12.3 billion euros ($14.6 billion) in core lending growth in the quarter.

That contributed to a 7.2 percent increase in net income to 1.23 billion euros, beating the 1.11 billion euros analysts polled by the lender had expected.

“We delivered solid profitability in the first quarter,” Hamers said in the statement. “We attracted new customers and deepened relationships with existing ones.”

The group’s cost-to-income ratio rose to 60.3 percent from 59.4 percent a year earlier, remaining well above a target set for for 2020. ING invested about 800 million euros on its digital transformation last year and is cutting jobs in Belgium and the Netherlands. The bank has said the ratio should start to come down next year.

Other highlights of the first-quarter report:

  • 1Q underlying pretax profit EU1.69 billion, company-compiled estimate EU1.52 billion
  • 1Q net interest income EU3.40 billion, company-compiled estimate EU3.39 billion
  • 1Q net commission income EU661 million, company-compiled estimate EU696.0 million
  • 1Q underlying cost to income ratio 60.3%, company-compiled estimate 60.7%
  • 1Q common equity Tier 1 ratio 14.3%, company-compiled estimate 14.5%
  • Company says it’s on track to achieve 900 million-euro cost-savings goal by 2021

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