UPDATE 6-ING Q2 profit shrinks after heavy writedowns

* Q2 net misses forecast on worse than expected loan losses

* Fitch downgrades group ratings

* Cost savings target raised 30 percent

* Concerns raised about asset sale program's scope

* Shares fall 1.2 percent, weigh on insurer Aegon shares (Adds ratings downgrade, updates shares)

By Ben Berkowitz

AMSTERDAM, Aug 12 (Reuters) - ING Groep (ING.AS) turned a small profit after three quarters of heavy losses, but the profit was well below expectations as real estate writedowns drove the banking business to a surprise loss.

The writedowns, a 30 percent increase in year-end cost-cut targets and uncertainty over the financial group's ability to wean itself off state aid raised fresh questions about how aggressive its asset sale program will have to be.

ING took a hit of nearly 700 million euros on its real estate portfolio and is "reviewing additional strategic options" to repay 10 billion euros in emergency aid from the Dutch state.

Combined with the ongoing review of its aid package at the European Commission, the statement raised speculation about whether ING will have to sell more assets than it forecast when it announced a restructuring in April. [ID:nLC646763]

Steep declines in the value of new business and single premiums in its European insurance operations weighed on competitors such as Aegon (AEGN.AS), which reports on Thursday.

In response, Fitch Ratings downgraded the group's rating by a notch, to 'A' from 'A+' with a negative outlook, saying that 2009 results would remain under pressure despite restructuring efforts that are "unlikely to allow the group to rebuild its capital resources in the short-term."

ING is in the midst of a worldwide cost-cutting program that includes 6 billion to 8 billion euros in asset sales. ING reaffirmed those targets and said it has already identified which assets to sell.

Sources close to the programme have told Reuters in recent days that ING aims to sign a deal to sell Swiss and Asian private banking assets in September.

What is unclear, though, is how much further than that the program ING may have to go. ING Chief Executive Jan Hommen told a press conference there was no lack of interested buyers, but "not always for the assets we want to sell."

Floris Deckers, the chief executive of Dutch private bank Van Lanschot (VLAN.AS), told Reuters on Tuesday he expects many of the European banks that took state aid to be forced into divestitures by the European Commission. [ID:nLB298568]

RESULTS DISAPPOINT

ING's second-quarter net profit was 71 million euros, down from 1.92 billion euros a year earlier. The consensus of 14 analysts polled for Reuters was a profit of 275 million euros.

That contrasts sharply with Belgian bancassurer KBC (KBC.BR), which surprised last week with stronger-than-expected results on cost controls and trading gains. [ID:nL5441874]

After surprising analysts with larger-than-expected loan losses in the first quarter, ING posted loan losses of 852 million euros. Analysts expected a figure of 776 million euros.

The company said it expects loan losses "at or around" the same level in the second half of the year.

The banking unit lost 204 million euros pre-tax on an underlying basis, driven by the real estate writedowns.

The insurance operations, on the same basis, earned 278 million euros versus a consensus forecast of 123 million euros. All three insurance regions were profitable, though ING said the biggest drivers were low claims levels in the United States and lower costs and sales expenses.

ING shares dropped sharply, but later recovered to trade down 2.2 percent at 9 euros at 1410 GMT in Amsterdam. Aegon shares reversed an initial drop and were up 1 percent. The stock is up from a recent bottom of 6.64 euros fuelled in part by talk of pending asset sales. For a related column: [ID:nLC646763] [NL-FIN-RTRS-LEN] For recent stories on Dutch financials (Editing by David Cowell)