AP Photo: Peter Dejong

AMSTERDAM (AP)—Dutch bank and insurer ING Groep NV said Wednesday its first quarter earnings were cut in half due to a myriad of charges and provisions, while its core businesses were modestly weaker.

Net profit at the group, designated one of the world’s “systemically important” financial companies by the G-20’s Financial Stability Board, was €680 million ($882 million), down from €1.38 billion in the same period a year ago.

ING said banking earnings fell 27 percent to €1.13 billion, hit by worse interest margins and higher provisions for bad loans. Meanwhile, insurance earnings flipped to an €18 million loss from a €428 million profit, due mostly to losses on hedges.

“The European sovereign debt crisis persisted, increasing volatility on financial markets,” CEO Jan Hommen said in a statement. “The impact of this environment was evident in our underlying results.”

Net profit was helped by the sale of ING Direct USA to Capital One for €489 million in February, a sale that also strengthened ING’s balance sheet. ING said Wednesday its core Tier one capital ratio—the most-watched measure of solvency for banks, and vital for investor confidence in times of crisis—had risen to 10.9 percent from 9.6 percent at the end of 2011.

The company added that it issued €9.2 billion in long-term debt in the quarter, covering about half its long-term funding needs for 2012.

ING shares rebounded 1.3 percent to €5.064 in Amsterdam, after a fall of more than 5 percent on Tuesday.

But the shares have a book value of €12.56 per share—a wide discrepancy common in bank shares at the moment that telegraphs investors either don’t believe the company is valuing its assets and liabilities correctly, or that investors are highly skeptical of future prospects.

One source of concern is ING’s exposure to Spain, around €38 billion in debt and loans, mostly linked to real estate and personal loans.

However, chief risk officer Wilfred Nagel told reporters on a conference call that the company’s Spanish portfolio is “of high quality.”

ING is also highly exposed to the Dutch housing market, which has suffered only modest declines during the crisis but more are forecast.

ING recorded €515 million in “special charges,” mostly against an impending fine from the U.S. Office of Foreign Assets Control for allegedly violating U.S. economic sanctions against countries such as Cuba and Iran. The charges are against ING’s commercial banking arm and cover several years up to 2007.

The first quarter earnings were “in line with our expectation and slightly ahead of consensus, if we exclude the special items,” said analyst Lemer Salah of SNS Securities, who rates shares a “buy.”

“In our view ING’s…performance was good, given that the financial markets were tough.”

ING also reported eye-catching losses on “annuity hedging derivatives.” In December, ING surprised markets by saying it would take a charge of around €1 billion to close its U.S. variable annuities business after an internal review found it was not going to be as profitable as the company hoped.

On Wednesday, the company said it was booking an additional €379 million of losses in the U.S. annuities business and another €191 million in the Netherlands.

ING said without those charges, its insurance operating profit fell just 7 percent to €475 million, as investments performed well and premiums grew—but profit margins declined.

ING still owes the Dutch state €3 billion in bailout money from the rescue it received during the 2008 financial crisis and has plans to repay it by the end of 2013. The Dutch state also helped ING out in 2009 by taking over the risk on €22 billion worth of U.S. mortgage-linked debt.

However, in March the EU General Court overturned the EU’’s punishment package against ING for having accepted state aid. Now the EU and company are negotiating a new settlement.

ING said Wednesday it still plans to split its banking and insurance arms as ordered, but it is waiting for calmer financial markets.

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