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Better margins & rise in CET 1 ratio turns ING bullish

ING GroepRenowned Dutch bank ING Groep N.V. (ING) reported a 29% decline in the fiscal 2016 first-quarter profit, on a y-o- y basis. However, the revenue and earnings report reveal that the financial institution has made huge strides towards better efficiency in the quarter ended March. The share price closed at $11.94 (up 2.58%) on Tuesday and provides an opportunity to go long due the reasons discussed below.

During the fiscal 2016 first quarter, the bank reported a decline in the total revenue to €4.087 billion, from €4.335 billion in the year ago similar period. The interest income in the first quarter has actually increased to €3.248 billion, from €3.175 billion in the first quarter of 2015.

During the first quarter, it is only the other income which has decreased to €161 million, from €442 million in the corresponding period last year. Thus, a decline in revenue should not be of concern.


The net profit for the first quarter declined to €1.257 billion or €0.32 per share, from €1.769 billion or €0.46 per share in the prior year similar quarter. The consensus estimate of analysts was a net profit of €1.24 billion. Again, the main reason for the decline in first quarter net profit is the regulatory costs, which increased to €496 million, from €174 million in the first quarter of 2015. The regulatory costs rose because of higher contributions to deposit guarantee schemes and single resolution fund in Europe.

ING Group’s common equity tier (CET) 1 ratio stood at an impressive 12.9% (improvement from 11.6% in 2015) at the end of quarter ended March. In the fiscal 2016 first quarter, the interest margin of the bank increased slightly to 1.51% from 1.47% in the first quarter of fiscal 2015.

ING Groep Stock Price: May 11th 2016

The non-performing loans as a ratio of total loans decreased to 2.3% in the first quarter, from 3% in the similar period of 2015. During the quarter, the bank attracted new deposits to the tune of €8.8 billion. The cost savings program which began in 2011 has resulted in a savings of €884 million so far. The bank is on course to achieve its targeted annual savings of €1.2 billion in 2017 and €1.3 billion in 2018. The bank also completed divesting its 14.1% (45.7 million shares at €30.15 per share) stake in NN Group, the international insurance and asset management company. The bank sold its stake as a part of its European Commission restructuring plan. Thus, fundamentally, the bank’s performance is expected to attract investors, thereby resulting in an uptrend in the share price.

For the past three months, the stock remained range bound between $11 and $13. The stochastic indicator reflects an oversold scenario. Thus, a long position in the form of a one touch call option contract should be traded by a binary options trader. A break above the upper band of 13 will take the stock to 15 or even 17. Considering the past volatility, we can expect the price action to hit the next resistance in another four weeks time. Thus, a strike price of $15 or less and contract expiry date between the 10 th and 17 th of June looks ideal under the present scenario.

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