ING Group (NYSE:ING) has reported a significant increase in its third-quarter profits, which soared 103% to 1.98 billion euros, outperforming expectations. The bank's net interest income (NII) was 4.03 billion euros for the quarter, impacted by group Treasury and Financial Markets but offset in Other Income, as noted by Jefferies. The bank's Chief Risk Officer Ljiljana Cortan highlighted that lower-than-anticipated loan loss provisions at 183 million euros were partly due to successful Russia de-risking. ING has also initiated a 1.5 billion euro share buyback program this year, joining the likes of HSBC, UniCredit, BBVA (BME:BBVA), and Deutsche Bank who have announced or plan similar programs.
CEO Steven van Rijswijk has expressed caution regarding slowing global economic growth and foresees liability margin reductions due to shifts in the competitive landscape. Despite benefiting from rising interest rates, the bank sees signs of this cycle ending from central banks.
Meanwhile, in the UK, Governor Andrew Bailey's Bank of England is expected to hold interest rates at 5.25%, the highest in 15 years. This decision is driven by concerns over a slowing job market and weak economic growth. The rates were raised since December 2021 to tackle an inflation rate that currently stands at 6.7%, more than triple the Bank's target of 2%. The strategy aimed at reducing consumer spending and encouraging businesses to lower prices.
However, there are fears that rapid increases could trigger a recession due to significant cutbacks in spending and investment. Money markets are predicting a 92% chance of rates being held steady. Economists from Investec and RBC support this decision, citing early signs of a potential recession, a loosening labor market, and slowing economic activity.
The Institute of Economic Affairs has called for rate cuts to prevent a recession. Trevor Williams, former Lloyds (LON:LLOY) Bank chief economist, underscored the issues of declining mortgage lending, rising insolvencies, and households withdrawing money to meet higher repayments. The UK's economic performance is expected to be a central issue in the general election next year.
InvestingPro Insights
According to InvestingPro, ING Group has a market capitalization of $42.54 billion and a low price-to-earnings ratio of 5.53, suggesting the stock may be undervalued. Over the last twelve months as of Q2 2023, the company reported revenue of $25,140.77 million, although this represents a decline of 15.0% from the previous year.
InvestingPro Tips suggest that while ING has raised its dividend for 3 consecutive years and pays a significant dividend to shareholders, poor earnings and cash flow may force future dividend cuts. This is echoed by the data showing a dividend yield of 5.69% as of 2023, but with a negative dividend growth rate of -1.45%. Moreover, while the company is a prominent player in the Banks industry, it suffers from weak gross profit margins and is quickly burning through cash.
InvestingPro provides further tips and data for ING Group and many other companies, offering valuable insights for investors.
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