Real estate drags down ING results

       ING Groep NV, the Dutch bank and insurer, yesterday reported a net profit of 71 million ($100 million) for the second quarter, down 96% from 1.92 billion in the same period a year earlier, before the financial crisis struck.
       In its earnings report, the company focused on the ways in which its recent performance is better than the 793 million loss it reported in the first quarter.It cited better margins at its banking operations and the partial recovery of financial markets.
       "ING posted solid commercial performance in the quarter, as a more favourable interest rate environment and improved margins on savings and lending led to a 19.4% increase in interest income at the banking operations," said chief executive Jan Hommen in a statement."In insurance, the recovery of equity markets in the second quarter helped boost fees on assets under management."
       However, ING increased its provision against bad loans by 852 million and suffered for being conservative - or wrong - in its positioning during the sharp rebound of recent months.
       For instance in the US it had a 176 million gain at its insurance operations as the stock market recovery allowed it to value life insurance contracts more favourable on its balance sheets.
       However, that was more than offset by346 million in losses because it had bet heavily against a rise in the S&P 500 by shorting index futures.
       The company reported a pretax loss of204 million at its banking operations on an "underlying" basis - a nonstandard measure that strips out the impact of divestments.
       On the same basis, its insurance arm reported pretax profit of 278 million.The company reported a litany of write-downs and devaluations.
       In addition to the loan provisions,the company said it had written down real estate assets by 694 million, and suffered 323 million in impairments on investments in subprime mortgagerelated securities.
       In January, the Dutch state assumed 80% of the risk for ING's portfolio of
       27.7 billion in such derivatives - meaning the losses borne by taxpayers in the Netherlands are four times as large as ING's.
       ING said its Tier 1 ratio - a key measure of solvency for banks - slipped to 9.4% from 9.7% in March.
       According to its balance sheet, total equity was 33.4 billion,10 billion of which is due to a direct investment lifeline it received from the Dutch government last year. ING said it hoped to repay that money, but didn't set a deadline.
       Additionally, it said it was now entering talks with the Dutch government and the EU Commission on restructing - a requirement for all European banks that received bailout money during the financial crisis of last autumn.