ING Groep N.V. Pref Share Earnings Call Insights: Continuity, Macro Outlook

On Tuesday, ING Groep N.V. Pref Share (NYSE:ISP) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.


Domenico Vinci – Goldman Sachs: A few questions from my side. One on the deposit competition it seems to me that remains quite high among Italian banks in general. My question for you is why do you think is not cooling down despite the LTRO support and as far as other several banks are speeding thing up significant low reduction and also when we look at the system data the deposit base remain stable. Do you see any element that can change these and basically reduce the competition of the fight for deposit in the system? My other question is on your sovereign bonds holding clearly has been increasing in the third quarter as you anticipated there is any limit in terms of percent on tangible equity that you think is reasonable, so, any limit beyond which you will not go? Then my question more in general is that you’re almost closing your six months in the bank now and you show very strong continuity in managing the bank very conservatively and very firmly. Now, the environment has been deteriorating since probably you joined. So, my question for you is, there is any area where you think or you see the management in terms of start changing something, and if so, which areas?

Enrico Tommaso Cucchiani – MD and CEO: I’m not sure I heard completely your first two questions, and therefore I leave them to Carlo Messina. On the third question, first of all, it’s four months since I have joined the bank. Talking about continuity, I mean I don’t see any element of discontinuity vis-a-vis the past, and I think it is warranted under the current environment. If anything, probably we are more conservative – given the fact that we are also talking about the first quarter, we are more conservative than in the past when it comes to provisioning, loan loss provisioning, and I don’t think that this is an element of discontinuity. I simply think that the environment is worse than in the past, and it is uncertain. It’s not that I prefer not to start out thinking that things will improve, and if they will not improve, we will adjust in the last quarter. We proceed and we do what we deem fit regardless of the timing throughout the year, which as I said, we try to be very transparent and very consequential. I think that, however, in this first four months what you can see and what you can feel within the bank is that I think there is definitely a very strong pressure on performance. We’ve tighten some screws, and I like to think that more than an element of (discontinuity) this is necessity under the circumstances and in any case is something that I personally like, I appreciate, I’ve always done it and what I enjoy. We have shown in this short presentation some benchmarking with the outside. I don’t want this to be an exercise that we perform with you guys on a quarterly basis I like this to be performed this sort of benchmarking on a very local business-by-business basis by every individual manager. We are already there not quite but we are moving in that direction. I think that we have done, we have pursued very aggressively all the changes what I call the short-term levers to address performance issues under the new normality. We will continue to do so throughout the year and also next year. But in the meantime we are starting to address some more fundamental changes that will improve our execution capabilities, and as I said before we will talk about the transformation journey probably next time we talk or let’s say quarter or so. This is basically it and let me now turn to Carlo Messina for the first two questions.

Carlo Messina – General Manager and CFO: So, looking at the deposit competition, in this quarter we were able to increase our market share on deposits by 50 basis points, so to 70.4%, despite the reduction in interest we pay on our deposits. So, we increased our market share on all the different categories of deposits, (savings) deposit, time deposits, and bonds. There is some, in my opinion, (a flight to) quality in this phase in the market. So, for sure, there is competition, but for what Intesa Sanpaolo is concerned, in my opinion, we had no impact on these, on the industry side. In any case, we are paying interest that is lower than our competitors. Considering the second question, so the sovereign bonds portfolio, as you have seen our presentation, we increased our government bond portfolio by €14 billion. The real point is not the amount of bonds but is the maturity. So, we are ready to increase the portfolio but with very short maturities. So, in our opinion, what is very important is the short-term maturity.

Macro Outlook

Ronny Rehn – KBW: Few questions I had. On the flat operating profit guidance which you maintain from the last quarter, could you give us a number for that that you refer to, and why do you keep this flat operating profit guidance despite what was a very, very strong trading result even if we exclude the hybrid buyback? Secondly, last quarter, we discussed the outlook for provisions. If I remember correctly, you said the underlying LLP or a underlying run rate from 2011 should beat guidance, but this year it’s about 80 say 90 basis points. Is that still the way you look at things? Last question, (when it concerns) of the macro outlook what exactly has changed for you and what has gotten weaker compared to two months ago?

Enrico Tommaso Cucchiani – MD and CEO: I think all three questions are strictly related, macro outlook let’s start with that. Frankly, I see more uncertainty in it. I see the more political uncertainty. We have developments in France, developments in Germany, it’s not clear what they will lead to. I would say economic leadership in Europe continues to be a rather elusive notion I mean very strong from the ECB but other than the ECB I have doubts on the ability to grasp the economic issues from most politicians. The market environment remains extremely volatile. The Italian economic outlook, well I’m not sure it has made all the improvements that we thought. When we spoke I was indeed convinced that in LLP of 80 basis points, 90 basis points was adequate. Right now, I think that we have to be more cautious than that, at least be prepared. For the time being, from what we have seen, I feel more comfortable with our provisions. We were also – I mean we were also lucky enough that we had a good performance and we could afford to do that without any inconvenience, but in any case, what we see developing in the market would be the guiding star, the North star in setting provisions. Concerning earnings, again, I would just go for a flat level, simply because I see a rather uncertain situation ahead and I see a certain number of clouds. Therefore, I mean when you’re dealing with risk, risk is measurable and you can assess it and you can make a projection, as uncertainty is not measurable, and in the situation of uncertainty, I prefer not to give forecast that might lead to unnecessary optimism. You might say that we are also psychologically conservative, and therefore that impairs our effectiveness, frankly speaking I don’t think so, in the way we conduct business. I think we are extremely aggressive, extremely demanding, but on the other side, I don’t want to live with illusions, I’d like to be prepared for the worst and I don’t want to sell a necessary optimism to our investors. We are in this journey for the long run and I think – and my primary objective is to make sure that we deliver superior performance. I don’t know what the market performance will be, what I know is that we on average will deliver above market and we will be distinctive in that respect. Likewise, I don’t particularly care about short-term market fluctuations. We are in for the long run and I trust that this is an organization that in the long run will prove – will make our investors happy.

Ronny Rehn – KBW: One follow-up on this. When you measure yourself against a flat operating performance target, what is the euro number behind this the clean operating profit that we should use as a basis to know what is flat year-on-year?

Enrico Tommaso Cucchiani – MD and CEO: I’d rather not give any guidance on the horizon. Frankly speaking, I mean, the result on the first quarter has been a positive development. I tell you my – and I tell you why, my personal experience I’ve been in business and leading companies for many years I’ve always found that results have always exceeded my own expectations. I don’t want to just dilute anything with any number. Let’s stick to the fundamentals. I mean we have seen that on all key parameters, the Bank has delivered. Again, I am most concerned what I want to put pressure within the organization is on outperforming the peers, the market at all levels. If we do that, then we will continue to do well. If one starts with a figure, then there is the danger of managing figures. We are in the business of managing – not of managing figures but managing business and pushing people to the limit of their capabilities to deliver.