ING Groep NV reported a 19 percent fall in first quarter earnings on Wednesday, citing falling valuations of stocks, bonds and real estate.
ING also wrote down the market value of some of its U.S. mortgage-related investments by 3.6 billion (US$5.6 billion) on its balance sheet, but didn't book that as a loss since it isn't planning to sell.
The Netherlands' largest financial company said net profit in the quarter was 1.54 billion (US$2.38 billion), down from 1.89 billion in the same period a year ago.
The company said banking earnings were up 1.5 percent to 1.41 billion (US$2.18 billion), while insurance earnings fell 31 percent to 722 million (US$1.11 billion).
ING said the main reason for the sharp fall in insurance earnings was a worse performance by the investment portfolio it holds to hedge against potential claims. ING said investment profits fell by 436 million (US$673 million).
Analyst Tim Young of Collins Stewart said in a memo that earnings were in line with expectations and the "credit crunch (was) now surely discounted" in the company's share price.
"Residual concerns about credit exposures are likely to continue to weigh on the stock _ we think unfairly and that the view will reverse." He has a "buy" rating on shares.
Shares rose 1.7 percent to 24.90 (US$38.44) in Amsterdam.
At banking, ING benefited from retail deposits which it can reinvest for a higher return than the interest rate than it offers customers. An overall widening difference between its borrowing and lending rates offset a slowdown in its corporate banking business.
"Although we have perceived some improvement in equity markets and credit spreads since the close of the first quarter, investment returns and asset values will likely remain under pressure," Chief Executive Michel Tilmant said in a statement Wednesday.
The company reported a relatively minor 55 million (US$85 million) in losses on mortgage-related investments.
However, it noted that the fair value of its portfolio of U.S. residential backed mortgage securities on its balance sheets had declined from 27.5 billion (US$42.5 billion) at year-end to 22.8 billion (US$35.2 billion) at the end of March.
ING said that was due to "market illiquidity" and the weak U.S. dollar.
Those derivatives, which act like bonds, are based on "Alt-A," or nontraditional mortgages with a credit rating somewhere between subprime and prime. They are not in default and ING said it wouldn't book any losses on them unless a default becomes "probable."
"ING has greater exposure than many to Alt-A RMBS and has been accused of overoptimism in its valuations," said analyst Young. He said the latest writedown was "lighter than others but too many (investors) assume that all assets in a class are equivalent, patently not the case."
