ING Group (NYSE:ING) had a pretty mediocre second quarter, right? Don't be so sure. While the reported consolidated numbers weren't great, a look below the surface reveals a business that I think is performing better than it appears.
On a reported basis, ING's net profit fell about 7% from last year. A decent showing in the banking group was overpowered by a poor result from the insurance business. However, if you filter divestment gains and other non-recurring items from the year-ago results, you see a profit increase of about 7%. In addition, some transitory problems in the Asian insurance group may be hurting numbers now, but they don't appear to be a long-term issue.
In banking, ING saw pre-tax profit growth of more than 13%. Wholesale banking rose nearly 14%, retail banking was up nearly 30%, and ING Direct pulled up the rear with less than 2% profit growth. Although the company continues to make strides with its profitability, a flatter yield curve kept a lid on overall growth.
The picture in insurance is a bit murkier. Reported pre-tax profit dropped more than 23% for the quarter, led by a plunge of more than 64% in the Asia/Pacific region. The company's decision to strengthen its reserves in Taiwan blasted its regional results. Some of ING's older policies in Taiwan include interest rate guarantees of up to 8%. The company took an 80-million-euro charge in the quarter to help shore up its reserve position.
Outside Taiwan, though, the insurance business looked all right. Results in Europe were down 4% because of declines in the Netherlands, but profits in the Americas rose 19%, and aside from Taiwan, Asia showed double-digit growth. Overall premiums rose about 9%, and the company's non-life combined ratio worsened just slightly (from 89% to 90%) in the quarter.
Even though second-quarter results weren't completely clean, I still think ING shares may be worth considering. The company sports an impressive return on capital (over 25%) while paying a rather respectable dividend. There are a wealth of other interesting insurance or banking plays -- AXA (NYSE:AXA), MetLife (NYSE:MET), AIG (NYSE:AIG), Citigroup (NYSE:C), and Bank of America (NYSE:BAC) all have some appeal -- but ING has the lowest P/E and the highest yield of the bunch.
Further financial Foolishness:
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
