Analysts attribute this drop to the recent cutting of interest rates
ING Groep NV’s shares dropped following the release of its second-quarter financial results, which revealed higher-than-expected costs and a key financial strength measure falling short of estimates.
The Dutch lender reported an 8.5% increase in operating expenses for the quarter, driven by higher staff and marketing costs. The bank’s common-equity Tier 1 (CET 1) ratio, a crucial indicator of financial stability, was sequentially lower and did not meet the estimates compiled by Bloomberg.
Following the announcement, ING’s shares fell as much as 3.8% in Amsterdam and were trading 2% lower at €16.416 each at 10:14 a.m. local time. Despite this decline, the stock had risen 24% this year prior to the results.
Banks have enjoyed increased profits in recent years due to interest rate hikes. However, with the European Central Bank cutting rates in June, the boost from higher rates is expected to diminish, Bloomberg noted. Nonetheless, ING’s net income for the quarter was €1.78 billion ($1.9 billion), surpassing analysts’ estimate of €1.66 billion, according to a statement on Thursday. Additionally, the bank raised its revenue outlook.
“While the CET 1 ratio missed,” the second-quarter headwinds are expected to reverse, and the capital outlook remains unchanged, RBC Capital Markets analyst Anke Reingen said in a note to clients.
“We come in with strong commercial momentum and strong return on equity, and that’s why” ING raised the outlook, chief financial officer Tanate Phutrakul stated in an interview with Bloomberg TV.
The bank reported an increase in second-quarter fee income as it added customers, expanded investment products, and sold more insurance contracts. Phutrakul highlighted that with interest rates decreasing, mortgage rates normalizing, and housing prices rising, there is “a conducive market for mortgage growth.”
To reduce dependency on interest income, ING has been focusing on growing its fee revenue. The bank has set a target to achieve €5 billion in fee income by 2027.
Do you have any thoughts about this story? Leave a comment below.
