About nine months ago, I wrote the following in reference to Netherlands-based bank ING (NYSE:ING), "... the potential here appears to be among the best in Europe right now."
I was wrong.
While others certainly have done worse (including Unicredit (OTCPK:UNCFF), Deutsche Bank (NYSE:DB), and Santander (NYSE:SAN)),
and European banks have performed poorly in general, ING's nearly 25%
decline in local terms since that article is quite weak and notably
worse than the performance of French banks like BNP Paribas (OTCQX:BNPQY) and Societe Generale (OTCPK:SCGLY) and Austria's Erste (OTCPK:EBKDY), not to mention fellow Dutch (but state-owned) bank ABN AMRO.
ING has taken hits on multiple fronts. Loan growth and spreads in its
core Benelux markets haven't been great, and the prospect for rate
increases (and higher lending margins) has faded across the banking
sector. Investors have also grown more concerned with ING's energy loan
book, while more stringent capital ratio rules are going to reduce
prospective capital returns (as well as returns on capital).
The conditions in which ING operates are certainly less than ideal,
but I do not believe that the book should trade for less than tangible
book value. My base case estimates value of the bank at around $15/ADR
on long-term earnings growth in the 5% to 6% range (a long-term ROE of
10% to 11%), but if lower-for-long rates, higher loan losses, and weaker
returns on capital drive ROEs persistently below 10% for the future,
today's price is pretty close to the mark on value.
Read the full article here:
ING Feeling An Uncomfortable Squeeze
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