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Thursday, 3 November 2011

ING Group NV is cutting 2700 jobs in The Netherlands; mass lay-offs as a new trend further sustained.

Last week on Thursday, October 27, I noticed in Companies have worries on the economy… that mass lay-offs seem to be a sustaining trend:

The part-time unemployment benefit [in 2009 and 2010 - EL] halted companies in the operation of becoming ´lean and mean´ again, by reducing their production capacity and by laying off excess workers.

These excess workers remaining in their jobs painted a false image of a healthy economy in The Netherlands in 2010 and the beginning of 2011. And now, with the first economic headwinds ahead, companies raise the white flag and lay-off the people they should already have laid off in 2009.

This seems like a cruel measure, but it is better to lay off a few workers, than to go down with the whole company.

There is another company following this trend: ING Group NV, the prominent Dutch bank/insurer and one of the largest banks in the world. In their Dutch operation the group lays-off 2700 jobs (or FTE’s); 2000 full-time internal and 700 external jobs.

This is very unfortunate for the people involved, but understandable with the previous paragraph in mind.

The mass lay-offs were announced at the same day that the Q3 results of ING Group were presented by Jan Hommen, CEO of ING. Here are the pertinent snips of this press release (some line(part)s have been removed for conciseness:

3 November 2011

·     ING Group’s 3Q11 net result was EUR 1,692 million, or EUR 0.45 per share, including divestments, discontinued operations and special items.
·     Bank underlying result before tax declined to EUR 1,063 million, including EUR 267 million of impairments on Greek government bonds. The net interest margin narrowed to 1.37%, primarily due to lower Financial Markets results.
·     Insurance operating result rose 27.0% to EUR 527 million, driven by a higher investment margin and higher fees and premium-based revenues. Sales (APE) grew 6.5% from 3Q10 and 5.2% from 2Q11, excluding currency effects. The underlying result before tax was EUR 561 million
·     ING maintained strong capital ratios in the third quarter. ING Bank’s core Tier 1 ratio strengthened to 9.6%.

Chairman’s Statement

CEO Jan Hommen:“The third quarter saw a marked deterioration on debt and equity markets amid a slowdown in the macroeconomic environment and a deepening of the sovereign debt crisis in Europe. Results were impacted by EUR 467 million in pre-tax impairments on Greek government bonds as all bonds were impaired to market value.

As income is coming under pressure, we must renew efforts to reduce expenses across the Group to adapt to the leaner environment and maintain our competitive position. In Retail Banking Netherlands we are taking decisive steps to reduce costs by decreasing overhead and improving efficiency.These measures will lead to redundancies of approximately 2,000 internal FTEs and 700 external FTEs.

Despite the volatile market environment, we continue to work towards the separation of our insurance companies".

These results look good, very good. But Peter Atwater, the savvy and wise professor of Minyanville (http://www.minyanville.comk/), once stated: the P/L sheet of a bank tells you about the past, while the balance sheet of a bank tells you about the future.

What he meant is that the P/L only tells you about profits or losses that have been made under certain circumstances, using certain valuations for assets. These results tell you nothing about the financial health of the bank in the end.

The latter kind of information can be partially found in the balance sheet: leverage, the amount of equity and reserves, valuations, amounts of derivatives and risk-laden assets. Unfortunately, the balance sheet for Q3 is not available yet.

But CEO Jan Hommen of ING Group made statements on Business News Radio ( and Dutch public news radio Radio1 ( this morning. I took the most telling quotes of these interviews:

Hommen (translated and summarized from Dutch to English):

"The profit of €1.7 bln is indeed large, but €560 mln of this were one-off book profits from the sale of company parts. If you deduct this, about €1.1 bln is remaining. Although the insurancy group is doing fine, the banking business is becoming less profitable.

The financing costs are higher and there are additional expenses, due to new supervisor regulation. Also the customers changed their demand for products and services. These circumstances made lay-off in retail banking inevitable.

ING made a substantial haircut of 60% on its Greek investments to the amount of €467 mln in Q3, maintaining a 40% valuation for the remaining Greek exposure for all maturing dates, inclusive 2020 and later.

Trust in the international banking business is still very hard to find. Nevertheless we managed to completely fulfill our financing needs for 2011 and already partially for 2012.

Although the authorities make it harder and harder to supply loans to private customers, we still managed in Q3 to supply €8 bln in credit and loans to private and corporate customers".

I understand Hommen and I understand his tough decision to lay-off 2700 jobs. The banking industry made an almost total change from ‘banking at the bank’ to ‘banking at home’ during the last decade. For 75% of bank services you don’t have to leave your home anymore.

Now that the interest margins are decreasing and it is becoming tougher to supply loans to private and corporate customers, I think Hommen made the right decision to lay-off those people, no matter how hard this may seem.

And although the exposure to Greece has been minimized by ING, I really doubt if this is true for the exposure to Spain and Italy. People should not forget that the exposure of the Dutch banks to Greece was ‘peanuts’, compared to the exposure to Italy (€8.8bln), Ireland (€26.5bln) and Spain (€24.6bln). And then don’t even mention France (€46.9bln)

I print yet again the table that shows the exposure of the Dutch banks mid-2011 to the South-European countries and that I also showed in The Dutch banks are solid as a rock:

Source: De Nederlandsche Bank (
Click to enlarge

I guess there is room enough for worries, as far as Jan Hommen is concerned and I think it’s for the better when ING becomes ‘mean and lean’ in the coming months of recession/depression and uncertainty on the Euro and the Euro-zone.

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