ING’s Hamers suffers cost-cutting reversal

Bloomberg

ING Groep NV, the biggest Dutch lender, saw expenses increase as a proportion of income last year as Chief Executive Officer Ralph Hamers said the bank increased spending on measures that will help it cut costs further in the future.
ING reported a cost-to-income ratio of 59.9 percent in the fourth quarter, a rise from a year earlier and higher than the consensus estimate. The bank has focussed on cutting spending and increased digitalization to ease the pressure on earnings from record-low interest rates. The increased spending will bear fruit between 2019 and 2021, Hamers said on a conference call.
“We have stepped up our investments and accelerated that in the fourth quarter,” Hamers said on a conference call. “Overall, the ratio was expected to increase because the investment comes before the savings.”
ING fell as much as 2.8 percent in Amsterdam trading and was down 1.1 percent at 15.89 euros as of 9:06 a.m. The stock is down 0.5 percent over the last six months, giving the company a market value of 61.9 billion euros ($76 billion.) While the bank is reducing jobs in the Netherlands, ING is also adding positions as it expands outside the country. The bank invested about 800 million euros on its digital transformation last year, and spending increases were in line with the company’s expectations, the CEO said.
“The earnings were a bit of a disappointment on the cost side,” said Benoit Petrarque, an analyst at Kepler Cheuvreux. “We see that it’s due to higher investment in IT but it’s higher than consensus.” He said he expects the bank to reach its 2020 cost-to-income targets, which call for a ratio of 50 percent to 52 percent.
The cost-to-income ratio for the full year rose to 55 percent from 53.9 percent a year earlier. The consensus estimate was 56 percent for the fourth quarter and 54.7 percent for 2017, according to data compiled by the bank.
The Amsterdam-based lender is cutting thousands Dutch jobs and expanding abroad to help counter growing competition at home from insurance companies and other non-bank mortgage lenders. Some of that pressure is now easing as the Dutch economy accelerates, boosting demand for loans and mortgages.
After contracting in the aftermath of the financial crisis, ING again has international ambitions.