SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For November 4, 2011
Commission File Number 1-14642
ING Groep N.V.
Amstelveenseweg 500
1081-KL Amsterdam
The Netherlands
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F x Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T rule 101(b)(7): ¨
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes ¨ No x
If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b).
EXHIBIT 2 OF THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-155937) OF ING GROEP N.V. AND TO BE PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.
This Report contains a copy of the following:
(1) | The Press Release issued on November 3, 2011; and |
(2) | A redacted copy of the ING Restructuring Plan submitted to the Dutch State and subsequently provided to the European Commission on October 22, 2009. |
Page 2 of 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ING Groep N.V. | ||||
(Registrant) | ||||
By: | /s/ H. van Barneveld | |||
H. van Barneveld | ||||
General Manager Group Finance & Control | ||||
By: | /s/ C. Blokbergen | |||
C. Blokbergen | ||||
Head Legal Department |
Dated: November 4, 2011
Page 3 of 3
3 November 2011
ING 3Q11 underlying net profit increases to EUR 1,285 million
| ING Groups 3Q11 net result was EUR 1,692 million, or EUR 0.45 per share, including divestments, discontinued operations and special items. The underlying return on IFRS-EU equity was 13.9% for the first nine months of 2011. |
| Bank underlying result before tax declined to EUR 1,063 million, including EUR 267 million of impairments on Greek government bonds. The net interest margin narrowed to 1.37%, primarily due to lower Financial Markets results. Risk costs rose to EUR 438 million, or 55 bps of average RWA. Operating expenses declined for the third straight quarter and were 2.9% lower year-on-year. The underlying cost/income ratio was 55.8%, excluding market impacts. |
| Insurance operating result rose 27.0% to EUR 527 million, driven by a higher investment margin and higher fees and premium-based revenues. The investment spread increased to 104 bps. Sales (APE) grew 6.5% from 3Q10 and 5.2% from 2Q11, excluding currency effects. The underlying result before tax was EUR 561 million, supported by significant hedging gains which more than offset impairments, including EUR 200 million on Greek government bonds. |
| ING maintained strong capital ratios in the third quarter. ING Banks core Tier 1 ratio strengthened to 9.6%. The Insurance IGD solvency ratio was 242%. |
Chairmans Statement
The third quarter saw a marked deterioration on debt and equity markets amid a slowdown in the macroeconomic environment and a deepening of the sovereign debt crisis in Europe. In this challenging environment INGs earnings remained resilient, and our strong funding position enabled us to continue to increase lending to support our customers in these uncertain times, said Jan Hommen, CEO of ING Group. We continued to take a prudent approach to risk, increasing hedging to preserve capital and selectively reducing exposures to southern Europe. Results were impacted by EUR 467 million in pre-tax impairments on Greek government bonds as all bonds were impaired to market value.
As income is coming under pressure, we must renew efforts to reduce expenses across the Group to adapt to the leaner environment and maintain our competitive position. In Retail Banking Netherlands we are taking decisive steps to reduce costs by decreasing overhead and improving efficiency through operational excellence. It is inevitable that these measures will lead to redundancies of approximately 2,000 internal FTEs and 700 external FTEs, but we will do our utmost to implement the measures with care.
Despite the volatile market environment, we continue to work towards the separation of our insurance companies so we will be ready to move ahead with the IPOs when markets recover. Regulatory approvals are underway to create a separate holding company for our European and Asian insurance and investment management activities, and today we announced the creation of a management board for these operations. As we continue to advance on these priorities and our Ambition 2013 performance plans, we will remain focused on providing our customers with the exemplary service and products they need to manage their financial futures during these uncertain times.
Key Figures1
3Q2011 | 3Q20102 | Change | 2Q2011 | Change | 9M2011 | 9M20102 | Change | |||||||||||||||||||||||||||||
ING Group key figures (in EUR million) |
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Underlying result before tax Group |
1,624 | 1,220 | 33.1 | % | 1,977 | -17.9 | % | 5,725 | 4,185 | 36.8 | % | |||||||||||||||||||||||||
of which Bank |
1,063 | 1,494 | -28.8 | % | 1,304 | -18.5 | % | 4,061 | 4,383 | -7.3 | % | |||||||||||||||||||||||||
of which Insurance |
561 | -274 | 673 | -16.6 | % | 1,663 | -198 | |||||||||||||||||||||||||||||
Underlying net result |
1,285 | 835 | 53.9 | % | 1,528 | -15.9 | % | 4,276 | 2,984 | 43.3 | % | |||||||||||||||||||||||||
Net result |
1,692 | 239 | 607.9 | % | 1,507 | 12.3 | % | 4,580 | 2,680 | 70.9 | % | |||||||||||||||||||||||||
Net result per share (in EUR)3 |
0.45 | 0.06 | 650.0 | % | 0.40 | 12.5 | % | 1.21 | 0.71 | 70.4 | % | |||||||||||||||||||||||||
Total assets (end of period, in EUR billion) |
1,241 | 3.4 | % | 1,282 | 1,261 | 1.7 | % | |||||||||||||||||||||||||||||
Shareholders equity (end of period, in EUR billion) |
40 | 10.5 | % | 45 | 42 | 5.7 | % | |||||||||||||||||||||||||||||
Underlying return on equity based on IFRS-EU equity4 |
12.1 | % | 8.0 | % | 15.2 | % | 13.9 | % | 10.2 | % | ||||||||||||||||||||||||||
Banking key figures |
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Interest margin |
1.37 | % | 1.41 | % | 1.42 | % | 1.41 | % | 1.40 | % | ||||||||||||||||||||||||||
Underlying cost/income ratio |
61.3 | % | 56.8 | % | 59.2 | % | 58.3 | % | 55.6 | % | ||||||||||||||||||||||||||
Underlying risk costs in bp of average RWA |
55 | 44 | 47 | 48 | 53 | |||||||||||||||||||||||||||||||
Core Tier 1 ratio |
9.4 | % | 9.6 | % | 9.0 | % | ||||||||||||||||||||||||||||||
Underlying return on equity based on IFRS-EU equity4 |
8.6 | % | 13.0 | % | 11.7 | % | 11.4 | % | 13.0 | % | ||||||||||||||||||||||||||
Insurance key figures |
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Operating result (in EUR million) |
527 | 415 | 27.0 | % | 690 | -23.6 | % | 1,728 | 1,162 | 48.7 | % | |||||||||||||||||||||||||
Investment margin / life general account assets (in bps) |
104 | 84 | 99 | |||||||||||||||||||||||||||||||||
Administrative expenses / operating income (Life & ING IM) |
40.7 | % | 43.9 | % | 38.0 | % | 39.5 | % | 44.1 | % | ||||||||||||||||||||||||||
Underlying return on equity based on IFRS-EU equity4 |
10.9 | % | -4.6 | % | 11.3 | % | 9.3 | % | -0.9 | % |
The footnotes relating to 1-4 can be found on page 15 of this press release.
Note: Underlying figures are non-GAAP measures and are derived from figures according to IFRS-EU by excluding impact from divestments and special items.
ING GROUP CONSOLIDATED RESULTS
2 ING GROUP PRESS RELEASE 3Q2011
BANKING
Banking key figures
3Q2011 | 3Q2010 | Change | 2Q2011 | Change | 9M2011 | 9M2010 | Change | |||||||||||||||||||||||||||||
Profit and loss data (in EUR million) |
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Underlying interest result |
3,297 | 3,415 | -3.5 | % | 3,348 | -1.5 | % | 10,041 | 9,936 | 1.1 | % | |||||||||||||||||||||||||
Underlying income |
3,880 | 4,319 | -10.2 | % | 4,101 | -5.4 | % | 12,489 | 12,873 | -3.0 | % | |||||||||||||||||||||||||
Underlying operating expenses |
2,379 | 2,451 | -2.9 | % | 2,427 | -2.0 | % | 7,287 | 7,155 | 1.8 | % | |||||||||||||||||||||||||
Underlying addition to loan loss provision |
438 | 374 | 17.1 | % | 370 | 18.4 | % | 1,141 | 1,336 | -14.6 | % | |||||||||||||||||||||||||
Underlying result before tax |
1,063 | 1,494 | -28.8 | % | 1,304 | -18.5 | % | 4,061 | 4,383 | -7.3 | % | |||||||||||||||||||||||||
Key figures |
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Interest margin |
1.37 | % | 1.41 | % | 1.42 | % | 1.41 | % | 1.40 | % | ||||||||||||||||||||||||||
Underlying cost/income ratio |
61.3 | % | 56.8 | % | 59.2 | % | 58.3 | % | 55.6 | % | ||||||||||||||||||||||||||
Underlying risk costs in bp of average RWA |
55 | 44 | 47 | 48 | 53 | |||||||||||||||||||||||||||||||
Risk-weighted assets (end of period, in EUR billion, adjusted for divestm.) |
315 | 1.6 | % | 320 | 331 | -3.3 | % | |||||||||||||||||||||||||||||
Underlying return on equity based on IFRS equity1 |
8.6 | % | 13.0 | % | 11.7 | % | 11.4 | % | 13.0 | % | ||||||||||||||||||||||||||
Underlying return on equity based on 7.5% core Tier 12 |
12.4 | % | 17.6 | % | 16.9 | % | 16.5 | % | 17.1 | % |
1 | Annualised underlying net result divided by average IFRS-EU equity. |
2 | Annualised underlying, after-tax return divided by average equity based on 7.5% core Tier 1 ratio. |
ING GROUP PRESS RELEASE 3Q2011 3
4 ING GROUP PRESS RELEASE 3Q2011
INSURANCE
Insurance key figures1
3Q2011 | 3Q20102 | Change | 2Q2011 | Change | 9M2011 | 9M20102 | Change | |||||||||||||||||||||||||||||
Margin analysis (in EUR million) |
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Investment margin |
452 | 367 | 23.2 | % | 476 | -5.0 | % | 1,301 | 1,026 | 26.8 | % | |||||||||||||||||||||||||
Fees and premium-based revenues |
1,149 | 1,094 | 5.0 | % | 1,147 | 0.2 | % | 3,506 | 3,302 | 6.2 | % | |||||||||||||||||||||||||
Technical margin |
136 | 209 | -34.9 | % | 260 | -47.7 | % | 591 | 556 | 6.3 | % | |||||||||||||||||||||||||
Income non-modelled life business |
19 | 37 | -48.6 | % | 24 | -20.8 | % | 69 | 99 | -30.3 | % | |||||||||||||||||||||||||
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Life & ING IM operating income |
1,756 | 1,708 | 2.8 | % | 1,907 | -7.9 | % | 5,467 | 4,982 | 9.7 | % | |||||||||||||||||||||||||
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Administrative expenses |
715 | 749 | -4.5 | % | 724 | -1.2 | % | 2,159 | 2,198 | -1.8 | % | |||||||||||||||||||||||||
DAC amortisation and trail commissions |
475 | 437 | 8.7 | % | 458 | 3.7 | % | 1,415 | 1,264 | 11.9 | % | |||||||||||||||||||||||||
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Life & ING IM operating expenses |
1,191 | 1,185 | 0.5 | % | 1,182 | 0.8 | % | 3,574 | 3,461 | 3.3 | % | |||||||||||||||||||||||||
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Life & ING IM operating result |
565 | 522 | 8.2 | % | 725 | -22.1 | % | 1,893 | 1,520 | 24.5 | % | |||||||||||||||||||||||||
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Non-life operating result |
39 | 34 | 14.7 | % | 68 | -42.6 | % | 149 | 118 | 26.3 | % | |||||||||||||||||||||||||
Corporate line operating result |
-77 | -142 | -103 | -314 | -477 | |||||||||||||||||||||||||||||||
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Operating result |
527 | 415 | 27.0 | % | 690 | -23.6 | % | 1,728 | 1,162 | 48.7 | % | |||||||||||||||||||||||||
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Non-operating items |
34 | -689 | -17 | -65 | -1,360 | |||||||||||||||||||||||||||||||
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Underlying result before tax |
561 | -274 | 673 | -16.6 | % | 1,663 | -198 | |||||||||||||||||||||||||||||
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Key figures |
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Administrative expenses / operating income (Life & ING IM) |
40.7 | % | 43.9 | % | 38.0 | % | 39.5 | % | 44.1 | % | ||||||||||||||||||||||||||
Life general account assets (end of period, in EUR billion) |
156 | 9.6 | % | 171 | 165 | 3.6 | % | |||||||||||||||||||||||||||||
Investment margin / life general account assets3 (in bps) |
104 | 84 | 99 | |||||||||||||||||||||||||||||||||
ING IM Assets under Management (end of period, in EUR billion) |
326 | 1.2 | % | 330 | 329 | 0.3 | % | |||||||||||||||||||||||||||||
Underlying return on equity based on IFRS-EU equity4 |
10.9 | % | -4.6 | % | 11.3 | % | 9.3 | % | -0.9 | % |
1 | Insurance operating and underlying figures exclude the Insurance Latin American pension, life insurance and investment management operations, following the announced sale of these businesses on 25 July 2011. The result of Insurance Latin America has been transferred to net result from discontinued operations. Previous periods have been restated. |
2 | The result of this period has been restated to reflect the change in accounting policy, i.e. the move towards fair value accounting for Guaranteed Minimum Withdrawal Benefits for life in the US Closed Block VA as of 1 January 2011. |
3 | Four-quarter rolling average |
4 | Annualised underlying net result divided by average IFRS-EU equity. (The 2010 quarterly results are adjusted for the after-tax allocated cost of Group core debt injected as equity into Insurance by the Group.) |
ING GROUP PRESS RELEASE 3Q2011 5
6 ING GROUP PRESS RELEASE 3Q2011
BALANCE SHEET AND CAPITAL MANAGEMENT
Balance sheet and capital management key figures
ING Group | ING Bank N.V. | ING Verzekeringen N.V. | Holdings/Eliminations | |||||||||||||||||||||||||||||||||||
End of period, in EUR million |
30 Sept. 11 | 30 June 11 | 30 Sept. 11 | 30 June 11 | 30 Sept. 11 | 30 June 11 | 30 Sept. 11 | 30 June 11 | ||||||||||||||||||||||||||||||
Balance sheet data |
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Financial assets at fair value through P&L |
270,177 | 255,190 | 150,503 | 136,540 | 119,893 | 120,125 | -219 | -1,475 | ||||||||||||||||||||||||||||||
Investments |
214,894 | 207,807 | 85,984 | 88,477 | 128,910 | 119,330 | ||||||||||||||||||||||||||||||||
Loans and advances to customers |
597,083 | 589,108 | 573,698 | 565,869 | 32,093 | 30,380 | -8,708 | -7,141 | ||||||||||||||||||||||||||||||
Assets held for sale |
61,955 | 61,188 | 59,159 | 58,014 | 2,796 | 3,174 | ||||||||||||||||||||||||||||||||
Other assets |
138,187 | 127,438 | 104,202 | 93,702 | 41,463 | 38,074 | -7,478 | -4,338 | ||||||||||||||||||||||||||||||
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Total assets |
1,282,296 | 1,240,731 | 973,546 | 942,602 | 325,155 | 311,083 | -16,405 | -12,954 | ||||||||||||||||||||||||||||||
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Shareholders equity |
44,528 | 40,288 | 33,760 | 32,486 | 22,466 | 19,461 | -11,698 | -11,659 | ||||||||||||||||||||||||||||||
Minority interests |
748 | 832 | 681 | 715 | 82 | 94 | -15 | 23 | ||||||||||||||||||||||||||||||
Non-voting equity securities |
3,000 | 3,000 | 3,000 | 3,000 | ||||||||||||||||||||||||||||||||||
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Total equity |
48,276 | 44,120 | 34,441 | 33,201 | 22,548 | 19,556 | -8,713 | -8,637 | ||||||||||||||||||||||||||||||
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Debt securities in issue |
139,790 | 151,593 | 131,038 | 142,925 | 3,912 | 3,895 | 4,840 | 4,773 | ||||||||||||||||||||||||||||||
Insurance and investment contracts |
267,063 | 259,599 | 267,063 | 259,599 | ||||||||||||||||||||||||||||||||||
Customer deposits/other funds on deposit |
458,620 | 458,262 | 469,660 | 464,954 | -11,040 | -6,692 | ||||||||||||||||||||||||||||||||
Financial liabilities at fair value through P&L |
152,362 | 123,174 | 148,795 | 121,423 | 4,128 | 3,240 | -561 | -1,489 | ||||||||||||||||||||||||||||||
Liabilities held for sale |
62,767 | 58,991 | 61,471 | 57,502 | 1,296 | 1,489 | ||||||||||||||||||||||||||||||||
Other liabilities |
153,418 | 144,992 | 128,141 | 122,597 | 26,208 | 23,304 | -931 | -910 | ||||||||||||||||||||||||||||||
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Total liabilities |
1,234,020 | 1,196,610 | 939,105 | 909,401 | 302,607 | 291,527 | -7,692 | -4,318 | ||||||||||||||||||||||||||||||
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Total equity and liabilities |
1,282,296 | 1,240,731 | 973,546 | 942,602 | 325,155 | 311,083 | -16,405 | -12,954 | ||||||||||||||||||||||||||||||
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Capital ratios (end of period) |
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ING Group debt/equity ratio |
13.4 | % | 13.9 | % | ||||||||||||||||||||||||||||||||||
Bank core Tier 1 ratio |
9.6 | % | 9.4 | % | ||||||||||||||||||||||||||||||||||
Insurance IGD Solvency ratio |
242 | % | 252 | % |
ING GROUP PRESS RELEASE 3Q2011 7
OTHER DEVELOPMENTS
8 ING GROUP PRESS RELEASE 3Q2011
ING GROUP PRESS RELEASE 3Q2011 9
APPENDIX 1 ING GROUP: CONSOLIDATED PROFIT AND LOSS ACCOUNT
ING Group: Consolidated profit and loss account
Total Group1 | Total Banking | Total Insurance | ||||||||||||||||||||||||||
in EUR million |
3Q2011 | 3Q20102 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q20102 | ||||||||||||||||||||||
Gross premium income |
6,229 | 6,509 | 6,229 | 6,509 | ||||||||||||||||||||||||
Interest result Banking operations |
3,298 | 3,398 | 3,297 | 3,415 | ||||||||||||||||||||||||
Commission income |
984 | 1,054 | 611 | 646 | 373 | 407 | ||||||||||||||||||||||
Total investment & other income |
4,659 | 1,583 | -28 | 258 | 4,788 | 1,414 | ||||||||||||||||||||||
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Total underlying income |
15,170 | 12,544 | 3,880 | 4,319 | 11,390 | 8,330 | ||||||||||||||||||||||
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Underwriting expenditure |
9,668 | 7,379 | 9,668 | 7,379 | ||||||||||||||||||||||||
Staff expenses |
1,885 | 1,900 | 1,357 | 1,385 | 527 | 515 | ||||||||||||||||||||||
Other expenses |
1,352 | 1,407 | 948 | 954 | 404 | 454 | ||||||||||||||||||||||
Intangibles amortisation and impairments |
74 | 113 | 74 | 113 | ||||||||||||||||||||||||
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Operating expenses |
3,310 | 3,420 | 2,379 | 2,451 | 931 | 969 | ||||||||||||||||||||||
Interest expenses Insurance operations |
123 | 146 | 223 | 251 | ||||||||||||||||||||||||
Addition to loan loss provisions |
438 | 374 | 438 | 374 | ||||||||||||||||||||||||
Other |
7 | 6 | 7 | 6 | ||||||||||||||||||||||||
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Total underlying expenditure |
13,546 | 11,324 | 2,817 | 2,825 | 10,829 | 8,604 | ||||||||||||||||||||||
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Underlying result before tax |
1,624 | 1,220 | 1,063 | 1,494 | 561 | -274 | ||||||||||||||||||||||
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Taxation |
332 | 363 | 327 | 385 | 5 | -22 | ||||||||||||||||||||||
Minority interests |
7 | 22 | 20 | 18 | -13 | 3 | ||||||||||||||||||||||
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Underlying net result |
1,285 | 835 | 715 | 1,090 | 570 | -256 | ||||||||||||||||||||||
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Net gains/losses on divestments |
516 | -32 | 520 | -26 | -5 | -5 | ||||||||||||||||||||||
Net result from divested units |
6 | 11 | -4 | |||||||||||||||||||||||||
Net result from discontinued operations |
13 | 66 | 13 | 66 | ||||||||||||||||||||||||
Special items after tax |
-122 | -637 | -42 | -48 | -80 | -588 | ||||||||||||||||||||||
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Net result |
1,692 | 239 | 1,193 | 1,026 | 499 | -787 | ||||||||||||||||||||||
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1 | Including intercompany eliminations |
2 | The result of this period has been restated to reflect the change in accounting policy, i.e. the move towards fair value accounting for Guaranteed Minimum Withdrawal Benefits for life in the US Closed Block VA as of 1 January 2011. |
ING GROUP PRESS RELEASE 3Q2011 10
APPENDIX 2 ING GROUP: CONSOLIDATED BALANCE SHEET
ING Group: Consolidated balance sheet
ING Group | ING Bank NV | ING Verzekeringen NV | Holdings/eliminations | |||||||||||||||||||||||||||||||||||||||||||||||||||
in EUR |
30 Sep. 2011 | 30 June 11 | 31 Dec. 10 pro forma1 |
30 Sep. 2011 | 30 June 11 | 31 Dec. 10 pro forma1 |
30 Sep. 2011 | 30 June 11 | 31 Dec. 10 pro forma1 |
30 Sep. 2011 | 30 June 11 | 31 Dec. 10 pro forma1 |
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Assets |
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Cash and balances with central banks |
25,077 | 12,091 | 12,661 | 22,058 | 9,044 | 9,205 | 9,949 | 7,273 | 8,549 | -6,930 | -4,226 | -5,093 | ||||||||||||||||||||||||||||||||||||||||||
Amounts due from banks |
55,098 | 56,580 | 51,478 | 55,098 | 56,580 | 51,477 | ||||||||||||||||||||||||||||||||||||||||||||||||
Financial assets at fair value through P&L |
270,177 | 255,190 | 263,174 | 150,503 | 136,540 | 137,124 | 119,893 | 120,125 | 127,785 | -219 | -1,475 | -1,735 | ||||||||||||||||||||||||||||||||||||||||||
Investments |
214,894 | 207,807 | 212,353 | 85,984 | 88,477 | 89,754 | 128,910 | 119,330 | 122,599 | |||||||||||||||||||||||||||||||||||||||||||||
Loans and advances to customers |
597,083 | 589,108 | 583,135 | 573,698 | 565,869 | 557,387 | 32,093 | 30,380 | 31,014 | -8,708 | -7,141 | -5,266 | ||||||||||||||||||||||||||||||||||||||||||
Reinsurance contracts |
5,807 | 5,447 | 5,787 | 5,807 | 5,447 | 5,787 | ||||||||||||||||||||||||||||||||||||||||||||||||
Investments in associates |
3,329 | 3,235 | 3,825 | 886 | 847 | 1,494 | 2,460 | 2,375 | 2,434 | -17 | 13 | -103 | ||||||||||||||||||||||||||||||||||||||||||
Real estate investments |
1,742 | 1,743 | 1,906 | 501 | 502 | 562 | 960 | 961 | 963 | 281 | 280 | 381 | ||||||||||||||||||||||||||||||||||||||||||
Property and equipment |
2,874 | 2,920 | 2,962 | 2,414 | 2,465 | 2,478 | 460 | 455 | 484 | |||||||||||||||||||||||||||||||||||||||||||||
Intangible assets |
3,728 | 3,975 | 4,370 | 1,790 | 1,905 | 2,085 | 2,095 | 2,226 | 2,433 | -157 | -156 | -148 | ||||||||||||||||||||||||||||||||||||||||||
Deferred acquisition costs |
10,138 | 10,021 | 10,489 | 10,138 | 10,021 | 10,489 | ||||||||||||||||||||||||||||||||||||||||||||||||
Assets held for sale |
61,955 | 61,188 | 61,204 | 59,159 | 58,014 | 57,761 | 2,796 | 3,174 | 3,443 | |||||||||||||||||||||||||||||||||||||||||||||
Other assets |
30,394 | 31,426 | 33,660 | 21,455 | 22,360 | 23,745 | 9,595 | 9,316 | 9,678 | -656 | -250 | 237 | ||||||||||||||||||||||||||||||||||||||||||
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Total assets |
1,282,296 | 1,240,731 | 1,247,005 | 973,546 | 942,602 | 933,073 | 325,155 | 311,083 | 325,659 | -16,405 | -12,954 | -11,727 | ||||||||||||||||||||||||||||||||||||||||||
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Equity |
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Shareholders equity |
44,528 | 40,288 | 40,904 | 33,760 | 32,486 | 34,451 | 22,466 | 19,461 | 20,159 | -11,698 | -11,659 | -13,706 | ||||||||||||||||||||||||||||||||||||||||||
Minority interests |
748 | 832 | 729 | 681 | 715 | 617 | 82 | 94 | 112 | -15 | 23 | |||||||||||||||||||||||||||||||||||||||||||
Non-voting equity securities |
3,000 | 3,000 | 5,000 | 3,000 | 3,000 | 5,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total equity |
48,276 | 44,120 | 46,633 | 34,441 | 33,201 | 35,069 | 22,548 | 19,555 | 20,271 | -8,713 | -8,636 | -8,707 | ||||||||||||||||||||||||||||||||||||||||||
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Liabilities |
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Subordinated loans |
10,844 | 10,180 | 10,645 | 19,883 | 18,924 | 21,021 | 4,396 | 4,266 | 4,407 | -13,435 | -13,010 | -14,783 | ||||||||||||||||||||||||||||||||||||||||||
Debt securities in issue |
139,790 | 151,593 | 135,604 | 131,038 | 142,925 | 125,066 | 3,912 | 3,895 | 3,967 | 4,840 | 4,773 | 6,571 | ||||||||||||||||||||||||||||||||||||||||||
Other borrowed funds |
21,608 | 19,526 | 22,117 | 8,858 | 7,555 | 8,414 | 12,750 | 11,971 | 13,703 | |||||||||||||||||||||||||||||||||||||||||||||
Insurance and investment contracts |
267,063 | 259,599 | 270,393 | 267,063 | 259,599 | 270,393 | ||||||||||||||||||||||||||||||||||||||||||||||||
Amounts due to banks |
86,803 | 81,889 | 72,052 | 86,803 | 81,889 | 72,053 | ||||||||||||||||||||||||||||||||||||||||||||||||
Customer deposits and other funds on deposits |
458,620 | 458,262 | 453,323 | 469,660 | 464,954 | 461,266 | -11,040 | -6,692 | -7,943 | |||||||||||||||||||||||||||||||||||||||||||||
Financial liabilities at fair value through P&L |
152,362 | 123,174 | 138,538 | 148,795 | 121,423 | 136,581 | 4,128 | 3,240 | 3,677 | -561 | -1,489 | -1,720 | ||||||||||||||||||||||||||||||||||||||||||
Liabilities held for sale |
62,767 | 58,991 | 61,196 | 61,471 | 57,502 | 59,407 | 1,296 | 1,489 | 1,789 | |||||||||||||||||||||||||||||||||||||||||||||
Other liabilities |
34,165 | 33,396 | 36,504 | 21,456 | 21,785 | 22,611 | 12,954 | 11,485 | 12,742 | -245 | 126 | 1,151 | ||||||||||||||||||||||||||||||||||||||||||
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Total liabilities |
1,234,020 | 1,196,610 | 1,200,372 | 939,105 | 909,401 | 898,005 | 302,607 | 291,527 | 305,389 | -7,691 | -4,321 | -3,021 | ||||||||||||||||||||||||||||||||||||||||||
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Total equity and liabilities |
1,282,296 | 1,240,731 | 1,247,005 | 973,546 | 942,602 | 933,073 | 325,155 | 311,083 | 325,659 | -16,404 | -12,954 | -11,727 | ||||||||||||||||||||||||||||||||||||||||||
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1 | Adjusted for transfer of ING Direct US, ING Car Lease and ING Latin America to assets/liabilities held for sale, and the restating to reflect the change in accounting policy i.e. move towards fair value accounting for Guaranteed Minimum Withdrawal Benefits for life in the US Closed Block VA as of 1 January 2011 |
ING GROUP PRESS RELEASE 3Q2011 11
APPENDIX 3 RETAIL BANKING: CONSOLIDATED PROFIT AND LOSS ACCOUNT
Retail Banking: Consolidated profit and loss account
Retail Banking Benelux | Retail Direct & International | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Retail Banking | Netherlands | Belgium | ING Direct | Central Europe | Asia | |||||||||||||||||||||||||||||||||||||||||||||||||||||
in EUR million |
3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | ||||||||||||||||||||||||||||||||||||||||||||||
Interest result |
2,488 | 2,523 | 915 | 964 | 400 | 403 | 967 | 974 | 171 | 139 | 35 | 43 | ||||||||||||||||||||||||||||||||||||||||||||||
Commission income |
323 | 329 | 124 | 127 | 78 | 74 | 43 | 40 | 62 | 73 | 15 | 14 | ||||||||||||||||||||||||||||||||||||||||||||||
Investment income |
-84 | 43 | 0 | 4 | -10 | 14 | -97 | -5 | 1 | 2 | 23 | 28 | ||||||||||||||||||||||||||||||||||||||||||||||
Other income |
42 | 59 | 17 | 3 | 25 | 25 | -25 | -18 | 15 | 40 | 8 | 10 | ||||||||||||||||||||||||||||||||||||||||||||||
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Total underlying income |
2,769 | 2,954 | 1,057 | 1,098 | 494 | 516 | 888 | 991 | 248 | 254 | 81 | 95 | ||||||||||||||||||||||||||||||||||||||||||||||
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Staff and other expenses |
1,659 | 1,642 | 604 | 587 | 361 | 340 | 461 | 469 | 188 | 193 | 45 | 53 | ||||||||||||||||||||||||||||||||||||||||||||||
Intangibles amortisation and impairments |
5 | 10 | 4 | -1 | 1 | 0 | 0 | 11 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||
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Operating expenses |
1,664 | 1,652 | 609 | 586 | 362 | 340 | 460 | 479 | 187 | 194 | 45 | 53 | ||||||||||||||||||||||||||||||||||||||||||||||
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Gross result |
1,105 | 1,301 | 448 | 512 | 132 | 176 | 428 | 512 | 61 | 60 | 36 | 41 | ||||||||||||||||||||||||||||||||||||||||||||||
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Addition to loan loss provision |
294 | 293 | 99 | 135 | 35 | 36 | 125 | 100 | 32 | 17 | 4 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||
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Underlying result before tax |
811 | 1,008 | 349 | 377 | 97 | 140 | 303 | 412 | 29 | 44 | 32 | 36 | ||||||||||||||||||||||||||||||||||||||||||||||
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Client balances (in EUR billion) |
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Residential mortgages |
328.3 | 306.7 | 142.1 | 136.7 | 28.1 | 25.0 | 153.8 | 141.0 | 3.8 | 3.4 | 0.6 | 0.7 | ||||||||||||||||||||||||||||||||||||||||||||||
Other lending |
91.2 | 87.2 | 42.5 | 43.7 | 29.6 | 27.0 | 4.0 | 3.5 | 11.5 | 10.3 | 3.7 | 2.8 | ||||||||||||||||||||||||||||||||||||||||||||||
Funds entrusted |
444.3 | 428.4 | 104.2 | 106.3 | 71.4 | 68.7 | 246.1 | 231.4 | 18.8 | 18.6 | 3.7 | 3.4 | ||||||||||||||||||||||||||||||||||||||||||||||
AuM/mutual funds |
53.5 | 55.7 | 14.7 | 16.2 | 26.3 | 26.5 | 10.5 | 10.7 | 1.6 | 1.9 | 0.3 | 0.4 | ||||||||||||||||||||||||||||||||||||||||||||||
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Profitability and efficiency1 |
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Cost/income ratio |
60.1 | % | 55.9 | % | 57.6 | % | 53.4 | % | 73.3 | % | 65.8 | % | 51.8 | % | 48.4 | % | 75.4 | % | 76.2 | % | 55.5 | % | 56.5 | % | ||||||||||||||||||||||||||||||||||
Return on equity2 |
17.2 | % | 21.5 | % | 28.5 | % | 27.7 | % | 20.5 | % | 31.7 | % | 13.0 | % | 18.8 | % | 4.3 | % | 8.9 | % | 18.1 | % | 16.9 | % | ||||||||||||||||||||||||||||||||||
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Risk1 |
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Risk costs in bp of average RWA |
66 | 64 | 81 | 100 | 75 | 74 | 65 | 51 | 54 | 30 | 16 | 21 | ||||||||||||||||||||||||||||||||||||||||||||||
Risk-weighted assets (end of period) |
179,719 | 183,496 | 48,940 | 55,163 | 18,952 | 19,392 | 79,733 | 77,100 | 22,863 | 22,468 | 9,232 | 9,373 |
1 | Key figures based on underlying figures |
2 | Underlying after-tax return divided by average equity based on 7.5% core Tier 1 ratio (annualised) |
ING GROUP PRESS RELEASE 3Q2011 12
APPENDIX 4 COMMERCIAL BANKING: CONSOLIDATED PROFIT AND LOSS ACCOUNT
Commercial Banking: Consolidated profit and loss account
Total Commercial Banking |
GL & PCM |
Structured Finance |
Leasing & Factoring |
Financial Markets |
Other Products |
Total Commercial Banking excl. RE |
ING Real Estate |
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in EUR million |
3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest result |
872 | 888 | 224 | 226 | 272 | 266 | 47 | 49 | 208 | 239 | -2 | -1 | 750 | 779 | 122 | 109 | ||||||||||||||||||||||||||||||||||||||||||||||||
Commission income |
290 | 324 | 53 | 49 | 145 | 133 | 11 | 10 | -13 | 8 | 40 | 42 | 236 | 242 | 54 | 81 | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment income |
-150 | -28 | -13 | -2 | 13 | 1 | 0 | 0 | -160 | 4 | -3 | 2 | -163 | 5 | 13 | -33 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other income |
41 | 209 | 10 | 9 | -15 | -29 | 62 | 53 | -22 | 157 | -11 | -10 | 25 | 180 | 17 | 30 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total underlying income |
1,052 | 1,393 | 274 | 282 | 415 | 371 | 120 | 112 | 14 | 408 | 25 | 33 | 847 | 1,206 | 205 | 187 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Staff and other expenses |
610 | 649 | 137 | 130 | 97 | 98 | 55 | 53 | 184 | 186 | 68 | 79 | 540 | 546 | 70 | 103 | ||||||||||||||||||||||||||||||||||||||||||||||||
Intangibles amortisation and impairments |
62 | 93 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 1 | 0 | 61 | 93 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Operating expenses |
672 | 743 | 137 | 130 | 97 | 98 | 55 | 53 | 184 | 186 | 69 | 79 | 541 | 546 | 131 | 197 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Gross result |
380 | 650 | 137 | 151 | 318 | 273 | 65 | 58 | -170 | 222 | -44 | -46 | 306 | 660 | 74 | -9 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Addition to loan loss provision |
144 | 81 | 25 | 21 | 49 | 26 | 30 | 19 | 0 | -1 | -1 | 0 | 104 | 65 | 40 | 16 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Underlying result before tax |
236 | 570 | 112 | 130 | 269 | 247 | 35 | 39 | -170 | 223 | -43 | -46 | 202 | 594 | 34 | -25 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Client balances (in EUR billion) |
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Residential mortgages |
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Other lending |
140.3 | 135.8 | 36.3 | 36.2 | 51.7 | 45.2 | 14.3 | 16.7 | 3.9 | 3.3 | 0.2 | 0.1 | 106.4 | 101.5 | 33.8 | 34.3 | ||||||||||||||||||||||||||||||||||||||||||||||||
Funds entrusted |
63.6 | 63.1 | 34.1 | 34.0 | 2.0 | 3.3 | 0.0 | 0.0 | 27.4 | 25.1 | 0.0 | 0.7 | 63.6 | 63.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||
AuM/mutual funds |
30.8 | 65.3 | 30.8 | 65.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Profitability and efficiency1 |
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Underlying cost/income ratio |
63.9 | % | 53.3 | % | 50.0 | % | 46.3 | % | 23.3 | % | 26.4 | % | 45.8 | % | 47.7 | % | 1338.8 | % | 45.5 | % | 277.6 | % | 238.5 | % | 63.9 | % | 45.3 | % | 64.0 | % | 104.9 | % | ||||||||||||||||||||||||||||||||
Return on equity2 |
6.6 | % | 15.7 | % | 10.6 | % | 13.0 | % | 25.9 | % | 27.0 | % | 18.8 | % | 16.9 | % | -21.8 | % | 26.4 | % | -27.4 | % | -30.5 | % | 6.6 | % | 19.4 | % | 7.0 | % | -16.0 | % | ||||||||||||||||||||||||||||||||
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Risk1 |
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Risk costs in bp of average RWA |
43 | 22 | 26 | 19 | 49 | 25 | 166 | 91 | 0 | -1 | -7 | -1 | 34 | 20 | 125 | 40 | ||||||||||||||||||||||||||||||||||||||||||||||||
Risk-weighted assets (end of period) |
135,921 | 143,074 | 38,650 | 42,617 | 40,900 | 39,306 | 6,497 | 8,233 | 32,833 | 32,866 | 4,183 | 5,487 | 123,063 | 128,509 | 12,859 | 14,565 |
1 | Key figures based on underlying figures |
2 | Underlying after-tax return divided by average equity based on 7.5% core Tier 1 ratio (annualised) |
ING GROUP PRESS RELEASE 3Q2011 13
APPENDIX 5 INSURANCE: MARGIN ANALYSIS AND KEY FIGURES
Insurance: Margin analysis and key figures1
ING Insurance | Benelux | Central & Rest of Europe |
United States 2 | US Closed Block VA2 | Asia/Pacific | ING IM | Corporate line | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In EUR million |
3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | 3Q2011 | 3Q2010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment margin |
452 | 367 | 187 | 119 | 19 | 22 | 230 | 212 | -1 | 1 | 15 | 10 | 2 | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fees and premium-based revenues |
1,149 | 1,094 | 146 | 131 | 108 | 117 | 259 | 267 | 39 | 20 | 370 | 345 | 227 | 215 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Technical margin |
136 | 209 | 36 | 51 | 45 | 46 | 12 | 53 | 5 | 7 | 38 | 52 | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income non-modelled life business |
19 | 37 | 9 | 8 | 3 | 6 | 0 | 0 | -0 | -0 | 7 | 23 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Life & ING IM operating income |
1,756 | 1,708 | 378 | 308 | 174 | 191 | 502 | 532 | 44 | 28 | 430 | 431 | 228 | 218 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Administrative expenses |
715 | 749 | 144 | 143 | 69 | 66 | 192 | 226 | 20 | 18 | 112 | 116 | 179 | 180 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DAC amortisation and trail commissions |
475 | 437 | 50 | 49 | 51 | 49 | 161 | 160 | 28 | -11 | 185 | 189 | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Life & ING IM expenses |
1,191 | 1,185 | 193 | 191 | 119 | 115 | 353 | 386 | 48 | 8 | 297 | 304 | 180 | 181 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Life & ING IM operating result |
565 | 522 | 185 | 117 | 55 | 75 | 149 | 146 | -4 | 21 | 133 | 126 | 48 | 37 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Non-life operating result |
39 | 34 | 36 | 32 | 2 | 1 | | | | | 1 | 1 | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate Line operating result |
-77 | -142 | -77 | -142 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Operating result |
527 | 415 | 220 | 149 | 57 | 76 | 149 | 146 | -4 | 21 | 134 | 127 | 48 | 37 | -77 | -142 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Gains/losses and impairments |
-330 | -127 | -108 | 18 | -160 | 0 | -72 | -158 | 0 | 4 | 8 | 11 | -0 | -1 | 2 | -0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revaluations |
290 | 192 | 230 | 29 | | | 62 | 204 | -0 | 1 | -2 | -1 | -1 | -8 | 2 | -33 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Market & other impacts |
74 | -754 | 199 | -2 | | | -54 | -46 | -23 | -349 | -24 | 3 | | | -25 | -360 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Underlying result before tax |
561 | -274 | 541 | 194 | -103 | 76 | 86 | 145 | -27 | -324 | 117 | 140 | 47 | 28 | -99 | -534 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Life Insurance - New business figures |
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Single premiums |
2,564 | 2,905 | 521 | 547 | 161 | 137 | 1,756 | 2,003 | | 81 | 126 | 138 | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Annual premiums |
755 | 717 | 36 | 45 | 59 | 59 | 241 | 247 | | | 419 | 366 | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
New sales (APE) |
1,011 | 1,008 | 88 | 100 | 75 | 73 | 417 | 447 | | 8 | 431 | 380 | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Key figures |
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Gross premium income |
6,229 | 6,509 | 1,305 | 1,378 | 471 | 465 | 2,562 | 2,848 | 97 | 115 | 1,788 | 1,697 | | | 6 | 7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adm. expenses / operating income (Life & ING IM) |
40.7 | % | 43.9 | % | 38.1 | % | 46.4 | % | 39.7 | % | 34.6 | % | 38.2 | % | 42.5 | % | 45.5 | % | 64.3 | % | 26.0 | % | 26.9 | % | 78.5 | % | 82.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Life general account assets (end of period, in EUR billion) |
171 | 165 | 65 | 63 | 7 | 8 | 66 | 64 | 7 | 6 | 25 | 22 | 1 | 2 | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment margin / Life general account asset (in bps)3 |
104 | 84 | 100 | 75 | 98 | 95 | 142 | 122 | 50 | -32 | 29 | 20 | 19 | 112 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for life insurance & investm. contracts for risk policyholder (end of period)4 |
109,323 | 114,503 | 22,001 | 23,528 | 3,376 | 3,663 | 33,252 | 32,686 | 29,544 | 33,104 | 21,150 | 21,399 | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net production client balances (in EUR billion) |
-2.7 | -1.0 | -0.7 | -0.5 | 0.2 | 0.6 | -0.5 | -0.0 | -0.6 | -0.6 | -0.5 | 0.1 | -0.6 | -0.6 | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Client balances (end of period, in EUR billion) |
385.0 | 385.9 | 69.7 | 70.0 | 24.9 | 27.8 | 93.5 | 93.0 | 30.3 | 33.8 | 44.0 | 41.7 | 122.6 | 119.6 | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Administrative expenses (total) |
857 | 888 | 244 | 240 | 70 | 67 | 192 | 226 | 20 | 18 | 113 | 117 | 179 | 180 | 39 | 40 |
1 | Insurance operating and underlying figures exclude the Insurance Latin American pension, life insurance and investment management operations, following the announced sale of these business on 25 July 2011. The result of Insurance Latin America has been transferred to net result from discontinued operations. Previous periods have been restated. |
2 | The result has been restated to reflect the change in accounting policy, i.e. the move towards fair value accounting for Guaranteed Minimum Withdrawal Benefits for life in the US Closed Block VA as of 1 January 2011 |
3 | Four-quarters rolling average |
4 | 3Q2010 includes EUR 124 million for Latin America |
ING GROUP PRESS RELEASE 3Q2011 14
Notes from the front page table:
1 | Insurance operating and underlying figures exclude the Insurance Latin American pension, life insurance and investment management operations, following the announced sale of these businesses on 25 July 2011. The result of Insurance Latin America has been transferred to net result from discontinued operations. Previous periods have been restated. |
2 | The figures of this period have been restated to reflect the change in accounting policy, i.e., the move towards fair value accounting for Guaranteed Minimum Withdrawal Benefits for life in the US Closed Block VA as of 1 January 2011. |
3 | Result per share differs from IFRS earnings per share in respect of attributions to the core Tier 1 securities. |
4 | Annualised underlying net result divided by average IFRS-EU equity. (For Insurance, the 2010 quarterly results are adjusted for the after-tax allocated cost of Group core debt injected as equity into Insurance by the Group) |
ING GROUP PRESS RELEASE 3Q2011 15
ING GROEP N.V. HAS CLAIMED CONFIDENTIAL TREATMENT OF PORTIONS OF THIS DOCUMENT IN ACCORDANCE WITH RULE 24B-2, 5 U.S.C. § 552(B)(4) AND 17 C.F.R. § 200.80(B)(4) |
Updated Restructuring Plan
Further Elaboration
INGs Restructuring Plan
Amsterdam
21 October 2009
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
Page 1
Page 2
This document contains the Restructuring Plan as proposed after discussions with the European Commission (hereafter: the Commission) on previous Restructuring Plans, submitted to the Commission on 12 May 2009 and 7 July 2009 respectively. For information on INGs current organisation, descriptions of market positions and market shares, the background of the State interventions etcetera reference is made to these documents.
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
As indicated on each page, this document contains business secrets and otherwise confidential information. It contains proposals that may be subject to further internal ING review and required approval procedures.
This plan is being submitted to the Commission and will be implemented on the basis that the Commission will grant its final approval of the two interventions of the Dutch State, hereinafter also referred to as respectively the core-Tier 1 and Illiquid Assets Back-up Facility (IABF) agreements (Transactions), which have been notified to the Commission in October 2008 and March 2009, respectively.
Page 3
INGs Restructuring Plan meets the requirements laid out in the Restructuring Communication of the European Commission. It has been designed to ensure the long term viability of the company, to clarify INGs own contribution, as well as to limit any distortion of competition.
In addition to earlier documentation submitted to the Commission, this Restructuring Plan includes an increase of the remuneration under the IABF, restructuring proposals through divestments and / or public offerings, as well as a number of behavioural commitments and further conditions. In total it includes:
1 | Categorisation of measures according to the EC framework |
2 | Measures to reduce the size of the balance sheet |
3 | Measures to decrease risk exposure |
4 | Measures to contain costs |
5 | Divestments |
5i | Divestments categorised in accordance with the EC Restructuring Communication |
5ii | The carve-out and creation of a new company from INGs Dutch retail banking business |
6 | Commitments and further conditions |
7 | Trustee Arrangements |
8 | Continued behavioural commitments agrred with the Dutch State |
9 | The envisaged end state after restructuring. |
2.1 Categorisation of measures according to the EC framework
Pursuant to its Restructuring Communication the Commission has indicated that ING must implement certain restructuring measures. The purpose of these restructuring measures is:
(i) | To ensure the long term viability of ING |
(ii) | To ensure a sufficient own contribution to the restructuring effort |
(iii) | To limit any distortion of competition. |
A categorisation of the various measures proposed by ING according to this framework is given subsequently.
Page 4
(i) To ensure its long term viability, ING proposes to:
| Sell-off ING Life Taiwan (completed) |
| Stop selling Single Premium Variable Annuities (SPVA) in Japan (completed) |
| Stop the launch of ING Direct Japan (completed) |
| Run-off existing variable annuities book in the US |
| Run-off Financial Products business in the US |
| Simplify the organisational structure, eliminating the existing holding company |
| Execute a cost containment programme (see section 2.3 for details) |
| Derisk the balance sheet and product and services portfolio |
| Eliminate double leverage, as this constrains INGs growth and ability to lend. |
(ii) To ensure a sufficient own contribution, ING proposes to:
| Divest Non-life Insurance Canada (completed) |
| Divest Annuity and Mortgage Businesses in Chile (completed) |
| Divest Insurance Russia - Non state Pension Fund (completed) |
| Divest Insurance Argentina - Origines Seg. De Retiro (completed) |
| Divest Insurance Asia - HK platform services (completed) |
| Divest Private Banking Asia & Switzerland (signed) |
| Divest US Group Re Insurance (signed) |
| Divest Insurance Asia/Pacific (Australia (signed), New Zealand (signed), Japan, Korea, Hong Kong, India, Thailand, Malaysia) |
| Divest Asset Management Asia/Pacific |
| Divest US Employee Benefits |
| Divest ING Direct US |
| Divest Insurance US (US Retirement Services, US FA, Traditional Life) |
Page 5
| Divest Asset Management US |
| Divest Insurance Latin America (Brazil, Chile, Mexico, Peru, Colombia, Uruguay) |
| Divest Asset Management Latin America |
| Divest Insurance Central Europe (Bulgaria, Czech Republic, Greece, Hungary, Poland, Romania, Slovakia, Spain) |
| Divest Asset Management Europe. |
| In order to reach a quick and overall agreement with the Commission, ING has agreed to a series of additional payments to be made by ING Group to the Dutch state, effectively resulting in a significant increase of the States remuneration for the IABF. These additional payments are described in more detail in section 2.6. |
(iii) To limit any distortion of competition, ING proposes to:
| Commit to a temporary ban on certain acquisitions (see section 2.6 for further details). |
| Commit to a temporary ban on price leadership in certain markets (see section 2.6 for further details) |
| Divest Insurance Benelux (Nationale Nederlanden Insurance, RVS, Retail Insurance Netherlands (former Postbank Insurance), Insurance Belgium, Insurance Luxembourg) |
| Divest Asset Management Europe |
| Divest the business of Interadvies (Westland Utrecht Hypotheekbank, Westland Utrecht Effectenbank, Nationale Nederlanden Hypotheekbedrijf, Nationale Nederlanden Financiële Diensten), including the consumer credit portfolio of the former Postbank (see section 2.5ii for further details). |
| Maintain most of the behavioural commitments made under the core Tier-1 and IABF agreements with the Dutch State (see section 2.8 for further details) |
| Bear the significant costs and the strict conditions of the core Tier-1 securities, even though these are relatively less favourable to ING than the costs and conditions imposed on competitors, which have been granted similar recapitalisation measures by their respective governments. For amendments to this agreement reference is made to section 5.1 |
Page 6
2.2 Measures to reduce the size of the balance sheet
The restructuring measures presented in INGs revised restructuring plan will result in an expected balance sheet reduction of EUR 616 bn based on the sizes of the units on 30 September 2008, via deleveraging initiatives of the bank balance sheet, divestment of several bank units and the complete disposal of INGs insurance business. Compared to the balance sheet on September 2008 (i.e. EUR 1.376 bn), this amounts to a total balance sheet reduction of approximately 45%. The EUR 616 bn balance sheet reduction consists of approximately EUR 194 bn bank deleveraging and balance sheet integration initiatives, approximately EUR 111 bn bank divestments and the divestment of all of Insurance of approximately EUR 311 bn.
For completeness sake it is noted that ING has fulfilled the balance sheet growth restraints to which the Dutch State and ING committed in the context of the provisional authorisation decision concerning the core Tier-1 Securities transaction (dated 12 November 2008). On approval of this Restructuring Plan the Commission confirms that this temporary balance sheet growth restriction will terminate following the Commissions approval of this Restructuring Plan. ING will have an acquisition ban during a predefined period of time (see section 2.6), however ING is allowed to grow organically. ING projects a for the bank moderate organic growth of approximately 5% per year in the coming years, which would imply a balance sheet by the end of 2013 of approximately [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] (i.e. an expected decrease in balance sheet size of approximately [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] by the end of 2013 when compared to 30 September 2008).
The unique nature of ING should be noted in that it is a 50% Insurance and 50% Bank company, while the nature of an Insurance company is that it has a much smaller balance sheet than a bank of similar earnings power.
| The total ING Group balance-sheet of EUR 1.376 bn1 as of 30 September 2008 is split into EUR 311 bn Insurance (about 22%) and EUR 1.076 bn Bank (78%) (excluding small Group level corporate line and intercompany items). However, traditionally (i.e. in the pre-crisis environment), the split of activities in terms of profit is approximately 50/50, as is shown in the graph below. |
Result before tax (EUR mn) | 2006 | 2007 | ||||||||||||||
EUR | % | EUR | % | |||||||||||||
Insurance |
4,935 | 49 | 6,533 | 59 | ||||||||||||
Banking |
5,005 | 51 | 4,510 | 41 | ||||||||||||
Total |
9,940 | 100 | 11,043 | 100 |
1 | After EUR 10 bn of Interco eliminations. |
Page 7
Therefore, even though half of INGs activities (i.e. Insurance) is to be divested, the resulting balance sheet reduction is less than if ING had been a pure bank.
| The balance sheet of the bank amounts to EUR 912 mn as of 30 June 2009. This is a reduction of almost EUR 164 bn (i.e. 15%) compared with 30 September 2008, which is due to various reduction measures, including investment/trading book, repos, netting, stopping /run-off of certain non-core loans books, etc. |
Indicatively, it is believed that a moderate annual organic growth of approximately 5%, i.e. about EUR 45 bn per year is reasonable and necessary in view of:
| Intrinsic annual increase (e.g. savings/deposits are increasing with annual interests by [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] per year, and investment assets will appreciate as markets recover) |
| INGs mission and important function to fund the economy which is under recovery: ING expects most SME/Corporate clients to start borrowing after having used their treasuries. ING has sizeable undrawn committed facilities on which customers can draw at any time. We also expect mortgages to pick up. |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
ING proposes to achieve this balance sheet reduction through:
| Deleveraging initiatives amounting to EUR 164 bn as per 30 June 2009 (compared to 30 September 208). This is clearly in excess of the originally foreseen reduction of EUR 110 bn. |
| Divestments of insurance operations in Canada and Taiwan amounting to EUR 24 bn. |
| The integration of the balance sheet of the Bank. Assuming that local regulators in Europe will allow cross-border consolidation of bank assets and liabilities required for balance sheet integration as well as assuming continuation of the single market for financial products and services, this results in a reduction of approximately EUR 30 bn. |
| Proposed divestments representing over EUR 400 bn of total assets per 30 September 2008. These will be realised through divestments / public offerings etc. and involve all of INGs Insurance activities including Asset Management, ING Direct US, Private Banking operations outside the EU, WUH/Interadvies (including Consumer Credit activities in the Netherlands). A more extensive overview of the impact of the various divestments is given in the following graph. |
Page 8
| It should be noted that ING remains in the position to achieve organic growth, as this is an important aspect to ensure long term viability. Organic growth is forecasted at approximately 5% per year, and will partly offset the total reduction of the balance sheet. |
ING will reduce its balance sheet with 45% compared to 30 September 2008 by the end of 2013 and will divest a list of units as described in section 2.1, in particular Insurance and ING Direct US, with [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| 45% by the end of 2013 |
Page 9
These figures refer to projections that do not take into account the possible impact of organic growth and exclude any possible additional increase due to potential (new) regulatory requirements in the coming years, such as an obligatory increase of liquidity buffers due to (new) European-wide regulations. Such requirements could increase the balance sheet significantly beyond the current organic growth projections. For further details, including a review clause, on the commitment on the balance sheet reduction and the divestments that derive from it, please refer to section 2.6.
ING has reached agreement to sell its insurance operations in Australia and New Zealand to ANZ. The deal is subject to regulatory approvals and is expected to be booked and closed in the fourth quarter of 2009. The divestment of Private Banking Asia and Switzerland has been announced in the third quarter of 2009. [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
2.3 Measures to decrease risk exposure
INGs key capital and leverage ratios have always remained within regulatory and internal targets. However, given increased market expectations towards solvency levels, ING has taken significant measures to lower its risk exposure. These notwithstanding, variations in asset prices and currency valuations will doubtlessly remain important potential risk factors.
De-risking measures in 2008
In 2008, primarily in the last quarter, the following de-risking measures were taken:
| A temporary equity hedging programme was put in place |
In the fourth quarter of 2008 a temporary hedging programme of USD 1.9 bn was put in place by ING Insurance in order to protect capital, but was at the expense of accounting P&L. This programme was increased to USD 5 bn in the first quarter of 2009 in order to reduce equity risk.
| On a sub-portfolio level various other measures were taken to reduce the overall risk profile: |
Over the course of 2008 ING realised net reductions of real estate exposure (predominantly in its Insurance operations) amounting to EUR 900 mn. This has not only reduced its earnings sensitivity, but also its overall exposure to developments in real estate markets.
Credit and interest rate risk were reduced through the closure of a EUR 650 million CDO portfolio in the fourth quarter of 2008 by ING Insurance.
ING Insurances private equity and alternative assets (alter alia hedge fund portfolio) was reduced by EUR 700 million (-28%)
Netting of debit and credit balances in current accounts significantly helped reduce the balance sheet, as well as the reduced trading of derivatives.
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| Lengthening of the duration of assets to match liabilities. |
Additional interest rate swaps were purchased in the fourth quarter of 2008, predominantly by Nationale Nederlanden Life Insurance in The Netherlands. A considerable reduction in economic capital could thus be realised. The impact of this measure on regulatory capital has been limited.
The variable annuity product offering in the US was adapted in January 2009, which helped to reduce market risk exposure.
| Reduction of direct equity exposure |
The direct public equity exposure was reduced from EUR 15.8 bn by the end of 2007 to EUR 5.8 bn at year-end 2008. This was done through negative fair value revaluations, contributing EUR 6 bn, and through sales, contributing EUR 4 bn. The reduction was primarily realised by divesting various shareholdings. In the first quarter of 2009 direct public equity exposure was further reduced by EUR 0.3 bn through the sale of ING Canada.
Per 31 December 2008, the equity portfolio contains strategic banking stakes, amounting to EUR 1.9 bn, especially in Bank of Beijing and Kookmin Bank. The remaining balance sheet exposure of EUR 3.9 bn is attributable to ING Insurance, which has significantly hedged its exposure against further market losses.
De-risking measures in 2009
The following additional de-risking measures were taken in 2009:
| 80% of Alt-A RMBS exposure transferred to the Dutch State in order to stabilise the accounting impacts related to the tightened underwriting conditions on mortgages in 2009. |
A full risk transfer was realised on 80% of the portfolio of Alt-A RMBS at ING Direct US and ING Insurance Americas, amounting to EUR 30 bn (USD 38.6 bn par value), under the terms of the Illiquid Assets Back-up Facility (IABF). The IABF resulted in a release of EUR 13 bn of risk weighted assets.
Risk transfer of 80% of Alt-A RMBS portfolio
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For further details on the amendments to this transaction, including the remuneration adjustments, reference is made to section 5.2.
| Reclassifications of CMBS and RMBS: |
ING reclassified EUR 22.8 bn in investments from Available for Sale (AfS) to Loans & Receivables (LaR) as of 22 January 2009 in order to reduce accounting volatility in shareholders equity and the impact of P&L hits from impairments.
This reclassification relates to European covered bonds, RMBS, ABS and CMBS instruments. A negative revaluation of EUR 0.9 bn (after tax) was locked in at reclassification date. This ensures a better alignment of the valuation and P&L impact with INGs buy-and-hold investment style.
| Reduction of exposure in financial institutions |
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
| Insurance product portfolio review |
The existing variable annuity portfolios in the US and Japan have been put into run-off.
| ING decided to refrain from earlier identified growth opportunities |
The Greenfield Insurance operations in Russia and Ukraine have been suspended.
The launch project of ING Direct Japan was stopped in January 2009.
ING expects to realise cost savings amounting to EUR 1.3 bn in 2009 as a result of the cost containment programme which is being implemented to bring costs in line with the operating environment. This will be done as follows:
| ING expects to realise an operating expense reduction of EUR 1.3 bn in 2009, which is EUR 0.3 bn higher than the initial cost reduction target of EUR 1.0 bn. The cost reduction is achieved for 35% by a reduction of FTE-related cost, and 65% through other expenditure reductions including expenses for external staff, marketing activities and Formula 1 racing. The head office contributes to the cost reductions. As per August 2009, a cost reduction of over EUR 800 million has been realised. |
| Worldwide, staff has been reduced by more than 10,000 FTE, well above the initial target reduction of 7,000 FTE. |
To achieve this cost reduction, ING established a restructuring provision of approximately EUR 450 million after tax.
ING is proposing an extensive package of divestments which will contribute to a significant reduction in the size of ING and reduced market positions in its core markets, including retail banking. ING will divest 45% of its balance sheet compared to 30 September 2008 by the end of 2013 and will divest a list of units (as described in par 2.1), in particular Insurance, Asset Management and ING Direct US, with the intermediate milestones indicated in section 2.2. The specific commitments relating to this package of divestments are further explained in section 2.6.
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2.5i Divestments categorised according to the EC Restructuring Communication
As indicated, the restructuring measures proposed by ING aim to address the three requirements laid out by the Commission. This specifically applies to the proposed divestments:
| The divestment of ING Life Taiwan has contributed to INGs long term viability. [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| The own contribution of ING consists, amongst other things, of significant divestments, including inter alia ING Asset Management, ING Insurance Central Europe, Insurance Americas and Insurance Asia/Pacific (a more extensive overview was already given under 2.1). |
| Measures to compensate any distortion of competition include those with respect to INGs activities in the Benelux retail insurance market and Asset Management Europe. To accommodate the Commissions request for measures in the Dutch home market, ING proposes to divest activities which it would otherwise have continued, namely its Dutch retail insurance business and to divest WUH/Interadvies. (see sub section 2.5ii below). |
2.5ii The carve-out and creation of a new company from INGs Dutch retail banking business
The proposed measures aim to address the Commissions requirements. This specifically applies to the measure ING proposes to implement in its Dutch home market.
ING will create a new company for divestment in the Netherlands, which will be carved out from its current Dutch business. This new company will comprise the business of the WUH/Interadvies banking division, which is currently part of the Dutch insurance operations, and the Consumer Credit Portfolio of ING Bank. WUH/Interadvies is an ING business unit under the umbrella of Nationale Nederlanden Insurance unit. It is (predominantly) a mortgage bank operating on the basis of its own banking licenses. It is a viable standalone player, having its own sales force for customer service and an independent organisation with a solid underlying income.
The WUH/Interadvies banking division consists of four main entities: Westland Utrecht Hypotheekbank, Westland Utrecht Effectenbank, Nationale Nederlanden Hypotheekbedrijf, and Nationale Nederlanden Financiële diensten. Hereinafter the new company (i.e. including the aforementioned Consumer Credit Portfolio) will be referred to as the WUH business. A further description of the WUH business, the carve-out and the transitional support measure is set out in Annex A.
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To date, the WUH business is a significant and viable business. The total balance sheet amounts to a total of EUR 37 bn per August 2009, i.e. approximately 20% of the estimated balance sheet of INGs Dutch retail bank. It generates EUR 368 mn of income and a pro-forma estimated pre-tax profit of approximately EUR 150 mn. In addition, it has close to one million customer contracts [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]. The WUH business is a significant player (with a mortgage portfolio amounting to approximately EUR 33 bn per 30 September 2008) on the Dutch retail mortgage market [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION], a solid portfolio quality and good business prospects. It has a strong market position with a nationwide distribution network through independent financial advisors (IFAs / intermediaries/ brokers). The divestment of the WUH business comprises approximately 25% of INGs Dutch mortgage business.
The specific commitments related to the carve-out and the creation of a new company from the WUH business will be further outlined in the following two sections.
2.6 Commitments and further conditions
Commitments
Additional remuneration for the IABF
In order to reach a quick and overall approval from the Commission on the restructuring plan and the core Tier-1- & IABF transactions, ING has agreed to a series of additional payments to be made by ING Group to the Dutch state, effectively resulting in a significant increase of the States remuneration for the IABF.
| Starting 25 October 2009, ING Group will make additional payments to the Dutch State, corresponding with an adjustment of the Alt-A remuneration of -50 basis points on the funding fee received by ING and of +82.6 basis points on the guarantee fee paid by ING. The guarantee fee related adjustment includes 15.6 basis points representing an adjustment for the period from 26 January 2009 - the start of the IABF - until 25 October 2009. The additional payments will be applied to the extent and duration that the IABF agreement is in place. |
| The additional payments will be implemented in the form of a separate agreement between ING Group and the Dutch State, in order to keep the original IABF intact. The additional payments will not be passed on to US entities. |
| The additional payments, excluding the part related to the period between 26 January 2009 and 25 October 2009 (i.e. the 15.6 basis points included in the guarantee fee related adjustment) have no residual settlement in case of an early unwinding of the IABF. The amount of the unpaid additional payments that relates to the period between 26 January 2009 and 25 October 2009 (i.e. the 15.6 basis points included in the guarantee fee related adjustment) will become payable in case of partially or wholly unwinding of the original transaction. If the IABF is partially unwound, this early redemption settlement would be applied proportionally. |
The Dutch State commits to notify any measures of early full or partial unwinding of the IABF to the Commission.
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Balance sheet reductions and divestment
ING will reduce its balance sheet with 45% compared to 30 September 2008 by the end of 2013 and will divest a list of units as described in section 2.1, in particular Insurance and ING Direct US, with [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| 45% by the end of 2013 |
These figures refer to projections that do not take into account the possible impact of organic growth and exclude any possible additional increase due to potential (new) regulatory requirements in the coming years, such as for example if banks are required to hold significantly larger liquidity buffers due to (new) European-wide regulations. Such requirements could increase the balance sheet significantly beyond the current organic growth projections.
ING will not have a restriction on organic growth of the balance sheet of its businesses. ING projects a moderate organic growth in the coming years, which would imply a balance sheet by the end of 2013 of approximately EUR [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] (i.e. an expected decrease in balance sheet of approximately [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] compared to 30 September 2008. Going forward, ING will have a general policy to use its growth in funds entrusted by customers mainly to grow in lending to the real economy (corporates and consumers) and decrease its exposure to higher risk asset classes within US CMBS, US RMBS, and not start new initiatives that aim to increase its direct real estate exposure2, in line with the general derisking policy as described in the restructuring plan.
With respect to units ING commits to sell (as listed in section 2.1), if a divestment of any such unit has not taken place by 31 December 2013 (for example on the basis of a final binding sale agreement having been entered into), the Commission may whenever appropriate or due to exceptional circumstances, in response to a request from the Dutch State, grant an extension of this time period.3 The Commission may also in such a case (i) request the Netherlands to appoint one or more (divestiture) trustee(s) 4, preselected and proposed by ING (and subject to the Commissions approval) [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
2 | i.e. excluding mortgages, as these are not considered direct real estate exposure |
3 | In particular ,whenever a divestment is undertaken through an IPO process which has already commenced and significant (30% or more) share placements have been made prior to the end of the divestment period, the Commission (in consultation with the Dutch State and ING) shall actively consider allowing the entity more time to place remaining shares. |
4 | It is accepted that different trustees may be appointed with respect to different regions and/or business. |
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Whenever the Dutch State seeks an extension of a time period, it shall submit a request to the Commission no later than one month before the expiry of that period, showing good cause. In exceptional circumstances, the Dutch State shall be entitled to request an extension within the last month of the time period. The Commission may, after receiving a request from the Dutch State showing good cause, waive, modify or substitute one or more of the aspects of any commitment to sell the above units.
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
On approval of the Restructuring plan, the Commission will confirm lifting the temporary limitation on balance sheet growth as set out in the Commissions decision dated 12 November 2008, concerning the recapitalisation measure to ING, taking into account that ING has committed to the Dutch State to support the growth of the Dutch lending to corporates and consumers.
Carve-out of a new company (WUH business)
ING will create a new company for divestment in the Netherlands, which will be carved out from its current Dutch retail banking business. The result has to be that this carved-out new company is a viable and competitive business, which is stand alone and separate from the businesses retained by ING and that can be transferred to a suitable purchaser. This new company will comprise the business of the WUH/Interadvies banking division, which is currently part of the Dutch insurance operations, and the Consumer Credit Portfolio of ING Bank. WUH/Interadvies is an ING business unit under the umbrella of Nationale Nederlanden Insurance unit. It is (predominantly) a mortgage bank operating on the basis of its own banking licenses. It is a viable standalone player, having its own sales force for customer service and an independent organisation with a solid underlying income.
ING is committed to ensuring optimal divestment conditions by making a business plan, creating an internet platform and dedicating sales capabilities. Also, it will make payment capability available (on commercial terms) if the buyer requests so. In addition, ING will assist in creating a Treasury function and ensure funding for 2 years post-divestment, whereas INGs funding support will gradually decline in those two years. INGs funding support to the WUH business will be based on internal funding transfer prices. ING intends to apply to the Dutch State for state-guaranteed funding [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] for the funding of the Divestment business. Moreover, ING will refrain for an interim period [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] after the sale of the WUH business from actively soliciting customers of the WUH business for products that the WUH-business is supplying to these customers on the date of the Commissions decision.
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ING will seek to carve-out the WUH business within a period of 12 months following the date of the decision of the Commission. After the carve-out period of 12 months, ING will hold-separate the WUH business and seek to divest this business [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] to a buyer that is acceptable for both the Commission and ING. If ING has not entered into a final binding sale agreement at the end of the initial [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] period, the Dutch State shall appoint without delay a Divestiture Trustee5 [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION].
The Commission may, whenever appropriate or due to exceptional circumstances, in response to a request from the Dutch State showing good cause (i) grant an extension of the time periods or (ii) waive, modify or substitute one or more of the aspects of this commitment. Whenever the Dutch State seeks an extension of a time period, it shall submit a request to the Commission no later than one month before the expiry of that period, showing good cause. In exceptional circumstances, the Dutch State shall be entitled to request an extension within the last month of any period.
A monitoring trustee and hold separate manager will be appointed within two weeks after the date of the Commission decision and a Divestiture trustee will be appointed one month before the expire of the above mentioned [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] months. All trustees will be appointed by the Dutch State and preselected by proposed by ING. The trustees are subject to the Commissions approval.
The carve-out will be carried out under the supervision of the Monitoring Trustee in cooperation with the Hold-separate Manager. In this context, during the carve-out period, the Monitoring Trustee may recommend to ING such inclusions into the Divestment Business of tangible and intangible assets (related to the Divestment Business) as he considers objectively required to ensure full compliance with INGs above-mentioned result oriented obligations and in particular the viability and competitiveness of the Divestment Business. In case ING disagrees with the Monitoring Trustee about the objective requirement to include such tangible or intangible assets to ensure the viability and competitiveness of the Divestment Business, ING shall inform the Monitoring Trustee in writing. In such a case, INGs executive management and the Monitoring Trustee shall, within one week, hold a meeting with a view to reaching a consensus. If no consensus is reached, ING and the Monitoring Trustee shall jointly appoint, without undue delay, an independent third party with expertise in the financial sector (the Expert) to hear the parties arguments and mediate a solution. If no such solution is reached, the Expert shall decide [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION], on the objective requirement to include the relevant related tangible or intangible assets into the Divestment Business to ensure its viability and competitiveness, and the parties shall accept the Experts decision in this respect and will act accordingly. Issues relating to a disagreement shall be mentioned in the report of the Monitoring Trustee to the Commission.
5 | It is accepted that this Divestment Trustee may be different from he trustees referred to in the first section of point 2.5 above. |
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Acquisition ban
ING will refrain from acquisitions of financial institutions for a certain period as described below. ING will moreover refrain, for the same period, from any (other) acquisition of businesses that would slow down the repayment of the core- Tier 1 Securities to the Dutch State. These commitments will apply for the shorter period of three years starting from the date of the Commission decision or up to the date on which ING has fully repaid the core-Tier 1 securities to the Dutch State (including the relevant accrued interest of core Tier-1 coupons and exit premium fees).
Notwithstanding this prohibition, ING may, after obtaining the Commissions approval, acquire businesses, in particular if this is essential in order to safeguard financial stability or competition in the relevant markets
Price leadership ban
Without prior authorisation of the Commission, ING will not offer more favourable prices on standardised ING products (on markets as defined below) than its three best priced direct competitors with respect to EU-markets in which ING has a market share of more than 5%.
This condition is limited to INGs standardised products on the following product markets: (i) retail savings market, (ii) retail mortgage market, (iii) private banking insofar it involves mortgage products or saving products or (iv) deposits for SMEs6. As soon as ING becomes aware of the fact that it offers more favourable prices for its products than its three best priced competitors, ING will as soon as possible adjust, without any undue delay, its price to a level which is in accordance with the commitment listed in the first paragraph.
This condition will apply for the shorter period of three years starting from the date of the Commissions decision or up to the date on which ING has fully repaid the core-Tier 1 securities to the Dutch State (including the relevant accrued interest of core Tier-1 coupons and exit premium fees). A monitoring trustee preselected and proposed by ING, will be appointed by the Dutch State to monitor this condition. The monitoring trustee is subject to the Commissions approval.
6 | SME defined according to SME definition as customarily/currently operated by ING in its business in the relevant country |
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Moreover, to support INGs long term viability, ING Direct will refrain, without prior authorisation of the Commission, from price-leadership with respect to standardised ING products on the retail mortgage and retail savings markets within the EU, for the shorter period of three years from the date of the Commissions decisions or up to the date on which ING has fully repaid the core-Tier 1 securities to the Dutch State (including the relevant accrued interest of core Tier-1 coupons and exit premium fees). As soon as ING becomes aware of the fact that it has become the price leader on a retail mortgage or retail savings markets within the EU, ING will adjust its price to a level which is in accordance with this commitment as soon as possible without any undue delay.
A monitoring trustee preselected and proposed by ING, will be appointed by the Dutch State to monitor this price leadership commitment. The monitoring trustee is subject to the Commissions approval.
Costs of Trustees
The costs of all trustees, which will be appointed during the restructuring process, will be born by ING.
Long-term funding
ING commits to orientate its non-deposit funding long term once markets revert to less stressed conditions by issuing more debt instruments with a maturity than 1 year. This will imply that the relative share of outstanding long term funding (with maturity of more than 1 year) in the non deposit part of its balance sheet will continue to increase.
ING endeavours to eliminate its double leverage (using core debt as equity capital) as soon as possible, at the latest at [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]. The double leverage is automatically eliminated if and when ING Group converts to being a regulated bank as the banking capital regime gives no credit for such double leverage in the capital structure.
Remuneration policies
ING will maintain the restrictions on its remuneration policies and marketing activities as previously committed to under the agreements concerning the core Tier-1 securities and Illiquid Assets Back-up Facility.
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Marketing restrictions
ING commits to refrain from mass marketing invoking the recapitalisation measure as an advantage in competitive terms.
Further conditions
Exit terms Agreement on core Tier-1 securities
The exit terms for 50% of the core Tier-1 securities have been changed in a separate agreement between ING and the Dutch State. For further information reference is made to section 5.1.
Execution time
The full execution time of INGs restructuring will take until the end of 2013 (see section 6 below for more details on the envisaged timeline for divestments). [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
Sale of US businesses
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
Deferral of coupon payments
In case of a rights issue of more than what is needed to repay 50% of the core Tier-1 securities, including the relevant accrued interest and the exit premium fee, ING will not be obliged to defer coupon payments on hybrids on 8 and 15 December 20097 and any coupon payments on hybrids in the future.
In case such a rights issue does not take place and ING was loss-making in the preceding year, ING will be obliged to defer hybrid coupons, insofar as it has the discretion to do so, for the shorter period of three years starting from the date of the Commission decision or up to the date on which ING has fully repaid the core Tier-1 securities to the Dutch State (including the relevant accrued interest of core Tier-1 coupons and exit premium fees).
ING understands that the Commission is against state aid recipients remunerating own funds (equity and subordinated debt) when their activities do not generate sufficient profits8 and that the Commission is in this context in principle against the calling of Tier-2 capital and Tier-1 hybrids. ING regrets the misunderstanding regarding the calling of a lower Tier-2 bond on 14 October 2009. The calling of Tier-2 capital and Tier-1 hybrids will in the future be proposed case by case to the Commission for authorisation, for the shorter period of three years starting from the date of the Commission decision or up to the date on which ING has fully repaid the core-Tier 1 securities to the Dutch State (including the relevant accrued interest of core Tier-1 coupons and exit premium fees).
7 | Provided that it is clear that part of the proceeds of the rights issue will be used for the coupon payments |
8 | See par. 26 Restructuring Communication |
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Declaration of no objection
De Nederlandsche Bank (DNB) is to grant a framework-decision with respect to INGs entire restructuring plan. Also, ING will request a Decision of No Objection (DNO) to DNB at the time of each individual divestment.
Monitoring of the implementation of the Restructuring Plan
ING and the Dutch State commit that a progress report about the implementation of the restructuring plan will be provided every six months to the Commission as of the date of the approval decision.
Trustee arrangements for the carve- out
ING agrees to the commitment regarding the divestiture of the WUH business accompanied by a Divestiture Trustee, a Hold Separate Manager and Monitoring Trustee arrangement in order to ensure the sale of the WUH business. It agrees with the following arrangements.
The Dutch State commits that ING shall:
Divest a stand alone competitive business
1) procure that ING divests, as a going concern, the Interadvies business, a summary description of which is included in Annex A (Divestment Business) [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
- procure that ING carves out the Divestment Business from the remaining ING businesses within 12 months from the date of the Commissions approval decision.
Find a suitable Purchaser in an adequate time-frame
2) - procure that ING finds a suitable purchaser (subject to Commissions approval) [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] If ING has not entered into [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] at the end of the initial [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] months period, the Dutch State shall appoint without delay a Divestiture Trustee, preselected and proposed by ING, [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
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- [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
- [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
- [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
- appoint a hold separate manager no later than two weeks from the date of the Commissions approval decision [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
The Hold-separate Manager and the Monitoring Trustee will be responsible for preserving, defending and protecting all exiting to-be-carved out assets as of the date of the Commissions decision.
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All trustees will be appointed by the Dutch State and preselected by proposed by ING. The trustees are subject to the Commissions approval. [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
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The carve-out will be carried out under the supervision of the Monitoring Trustee in cooperation with the Hold-separate Manager. In this context, during the carve-out period, the Monitoring Trustee may recommend to ING such inclusions into the Divestment Business of tangible and intangible assets (related to the Divestment Business) as he considers objectively required to ensure full compliance with INGs above-mentioned result oriented obligations and in particular the viability and competitiveness of the Divestment Business. In case ING disagrees with the Monitoring Trustee about the objective requirement to include such tangible or intangible assets to ensure the viability and competitiveness of the Divestment Business, ING shall inform the Monitoring Trustee in writing. In such a case, INGs executive management and the Monitoring Trustee shall [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] hold a meeting with a view to reaching a consensus. If no consensus is reached, ING and the Monitoring Trustee shall jointly appoint, without undue delay, an independent third party with expertise in the financial sector (the Expert) to hear the parties arguments and mediate a solution. If no such solution is reached, the Expert shall decide, [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] on the objective requirement to include the relevant related tangible or intangible assets into the Divestment Business to ensure its viability and competitiveness, and the parties shall accept the Experts decision in this respect and will act accordingly. Issues relating to a disagreement shall be mentioned in the report of the Monitoring Trustee to the Commission.
Review clause
5) - the Commission may, whenever appropriate, in response to a request from the Dutch State showing good cause and accompanied by a report from the Monitoring Trustee:
(i) grant, in exceptional circumstances, an extension of the time periods foreseen in this commitment, or
(ii) waive, modify or substitute, in exceptional circumstances, one or more of the aspects of this commitment.
- Whenever the Dutch State seeks an extension of a time period, it shall submit a request to the Commission no later than one month before the expiry of that period, showing good cause. Only in exceptional circumstances shall the Dutch State be entitled to request an extension within the last month of any period.
Trustee arrangements for other divestments
With respect to other units ING commits to sell (as listed in section 2.1), if a divestment of any such unit has not taken place by 31 December 2013 (for example on the basis of a final binding sale agreement having been entered into), the Commission may whenever appropriate or due to exceptional circumstances, in response to a request from the Dutch State, grant an extension of this time period.9 Alternatively, the Commission may in such a case (i) request that the Dutch State appoints [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] one or more (divestiture) trustee(s) 10, preselected and proposed by ING (and subject to the Commissions approval) [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
9 | In particular , where a divestment is being undertaken by an IPO process which has commenced and significant (30% or more) share placements have been made prior to the end of the divestment period, the Commission (in consultation with the Dutch State, ING and the Trustee) shall actively consider allowing the entity more time to place remaining shares. |
10 | It is accepted that different trustees may be appointed with respect to different regions and/or business. |
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Whenever the Dutch State seeks an extension of a time period, it shall submit a request to the Commission no later than one month before the expiry of that period, showing good cause. In exceptional circumstances, the Dutch State shall be entitled to request an extension within the last month of the time period. The Commission may, after receiving a request from the Dutch State showing good cause, waive, modify or substitute one or more of the aspects of any commitment to sell the above units.
2.8 Continued behavioural commitments agreed with the Dutch State
In addition to the measures outlined before and those described in INGs previous Restructuring Plan as communicated to the Commission11, ING has also made several commitments in the context of the transactions with the Dutch State, which it continues to respect. These commitments include:
| ING Supervisory Board to develop a sustainable remuneration policy for the Executive Board and Senior Management that is aligned to new international standards. These incentive schemes will be linked to long-term value creation, taking account of risk and restricting the potential for rewards for failure. |
| ING Executive Board to forego all bonuses for 2008 (cash as well as options and share rewards). |
| ING Executive Board to limit exit schemes or statutory compensation for dismissal to one years fixed salary. |
| ING Executive Board to forego all bonuses for 2009 (cash as well as options and share rewards) and for subsequent years as the Supervisory Board of ING has not adopted and/or approved a remuneration policy in accordance with the core Tier-1 Securities transaction. |
| ING will continue to pro-actively cooperate to deliver positive communication on the foregoing of bonuses. The new remuneration policy will amongst others include objectives relating to corporate and social responsibility. |
| ING undertakes to support the growth of the lending to corporates and consumers (including mortgages) for an amount of EUR 25 bn, on market conforming terms. |
| ING will pro-actively use EUR 10 bn of the Dutch Guarantee Scheme over 2009. |
| INGs top 200 managers will in principle not receive a bonus over 2009 unless ING Groups net underlying profit is positive. It should be noted that this commitment was not imposed by the Dutch State, but mandated by ING management itself. |
11 | Addendum to the Restructuring Plan, Update of Sections 5.5 and 7, submitted on 7 July 2009. |
Page 24
| It is noted that INGs commitment to the Dutch State with respect to the limitation of the balance sheet growth, which had been agreed under the terms of the initial agreement on the core Tier-1 securities is no longer applicable under the terms of the amendment, given the package of divestments ING is now proposing. |
It can be noted that these additional commitments, which have been imposed upon ING by the Dutch State, constitute an additional burden on ING which other banks - that have not entered into similar transaction do not incur.
2.9 Envisaged end state after restructuring
In order to achieve simplification of the Group, the following measures will be taken:
| ING Bank and ING Insurance are organised separately under the ING umbrella, while the Insurance operations will be run off via public offerings or divestments |
| ING Bank will be managed with one management team and an integrated balance sheet |
| Real Estate Finance & Development will be part of Commercial Banking (formerly Wholesale Banking). |
As such, INGs banking activities will be focused on: gathering savings, distribution leadership, simple propositions and strong marketing and generating assets. ING Bank will focus primarily on Europe with selective growth options elsewhere and will be operated as one bank with one management team and one balance sheet. In the end state, it will be a mid-size Bank, predominantly retail-oriented and anchored in the Benelux. It will comprise 6 activity blocks:
1. | Benelux Retail & Commercial Banking |
2. | CEE Retail & Commercial Banking |
3. | Direct Banking |
4. | Financial Markets |
5. | European Specialised Finance |
6. | Selected positions in Asian markets |
INGs ambition is to deliver a superior customer experience and cost leadership in the markets in which it competes, reflecting the companys underlying strengths and the evolving needs of the customers it targets. It has a viable starting position, especially through ING Direct, multi-channel distribution and marketing, and its solid position in the Benelux. The ability to meet organic growth opportunities and provide for customer requirements, in particular in providing lending, is critical to the business model. ING has set a 2013 financial ambition of [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] a post-tax return on equity of approximately 15%, based on a 7.5% core Tier-1 ratio.
Page 25
Furthermore, ING has developed and started to implement an action plan that should enable accomplishment of its financial and commercial ambitions through:
| A stable cash flow generation in the Benelux by means of a set of actions that will structurally reduce the cost base and increase the income generated on risk weighted assets |
| Sustainable growth by broadening the products offered via ING Direct and in selected growth markets, expanding multi-channel distribution and translating growth into profit by strengthening client relationships |
| Preserving sustainable franchises in the fields of Specialised Finance and Financial Markets by investing in talent and infrastructure. |
A new organisation structure been put in place to reduce complexity (finding the right balance geographies, clients, services), facilitate implementation and enable the exchange of best practices.
Page 26
3.1 Financial projections and the repayment of state-aid
ING Group
ING Group financials
EUR mn unless indicated |
2008A | 2009F |
2010F |
2011F |
2012F |
2013F | ||||||||
Total net result including impact of divestments |
-0.5 | |||||||||||||
Net gain (loss) from divestments |
0.0 | |||||||||||||
Shareholders IFRS equity |
17.3 | |||||||||||||
Core tier 1 securities |
10.0 | |||||||||||||
Hybrids (Group) |
11.7 | [***CONFIDENTIAL INFORMATION HAS | ||||||||||||
Adjusted equity |
45.8 | BEEN OMITTED AND FURNISHED | ||||||||||||
Group core debt (double leverage) |
7.2 | SEPARATELY TO THE SECURITIES AND | ||||||||||||
Group D/E ratio |
13.5 | % | EXCHANGE COMMISSION] | |||||||||||
Dividend from (capital injections) Bank and Insurance |
||||||||||||||
Dividend on ordinary shares |
||||||||||||||
Core tier 1 principal repurchased |
||||||||||||||
Capital impact repurchase core tier 1 securities |
||||||||||||||
Equity raise (net of transaction costs) |
||||||||||||||
Total assets (trillion) |
1,388 | |||||||||||||
Return on Equity (RoE)* |
* | RoE: average IFRS equity and the net result before divestments are used for calculations |
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| In terms of repurchasing the core Tier-1 securities from the Dutch state, the base case projection assumes the following |
| A first tranche presenting EUR 5.0 bn of notional amount will be repurchased in December 2009 at an assumed price of EUR 5.5 bn. [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| These are best estimate assumptions for the base case financial projections. The actual timing and amount of core Tier-1 repurchase depends on a number of variables including market conditions, possible future changes in regulatory capital requirements, the amount and timing of any equity raise and the timing and structure of the divestments of the Insurance business. To be clear, ING retains the right to exercise its conversion option per the original terms of the core Tier-1 securities, hence the above scenario should not be interpreted as a commitment in terms of timing or structure |
Page 27
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| The base case projections assume that ING will raise EUR 6.0 bn from a rights offering during 4Q of 2009. This should not be interpreted as a commitment as the actual amount of the equity raise could be in a range from EUR 5 8 bn and the timing could be delayed into 2010. |
| There will be no deferral of hybrid coupons in the coming months, as an equity right issue cannot take place with a hybrid coupon deferred in place. |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
ING Bank
Scenario analysis: Base case Banking
EUR bn |
2008A | 2009F |
2010F |
2011F |
2012F |
2013F | ||||||||
Net result |
0.5 | |||||||||||||
Opex* |
10.0 | |||||||||||||
RWA |
343 | |||||||||||||
Total assets |
1,035 | [***CONFIDENTIAL INFORMATION | ||||||||||||
IFRS equity |
22.9 | HAS BEEN OMITED AND | ||||||||||||
Simple leverage ratio |
47 | FURNISHED SEPARATELY TO THE | ||||||||||||
Tier 1 Capital |
32.0 | SECURITIES AND EXCHANGE | ||||||||||||
Core Tier 1 Capital |
24.9 | COMMISSION] | ||||||||||||
Hybrid Capital |
7.1 | |||||||||||||
Injection from (+) /Dividend to (-) ING Group |
3.0 | |||||||||||||
BIS ratio |
12.8 | % | ||||||||||||
Tier- 1 ratio |
9.3 | % | ||||||||||||
Core Tier-1 ratio |
7.3 | % | ||||||||||||
Hybrid ratio |
22.1 | % | ||||||||||||
Return on Equity (RoE)** |
Note: figures are including divestments
* | Excluding impairments in costs |
** | RoE: average IFRS equity and the net result before divestments are used for calculations |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
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| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
Insurance
Scenario analysis : base case Insurance
EUR bn |
2008A | 2009F |
2010F |
2011F |
2012F |
2013F | ||||||||
Net income |
-1.2 | |||||||||||||
Operating expenses |
4.5 | |||||||||||||
Proceeds from divestments |
0.0 | [***CONFIDENTIAL INFORMATION | ||||||||||||
Client balances |
381 | HAS BEEN OMITTED AND FURNISHED | ||||||||||||
Total assets |
312 | SEPARATELY TO THE SECURITIES | ||||||||||||
IFRS shareholders equity |
11.9 | AND EXCHANGE COMMISSION] | ||||||||||||
Adjusted equity |
23.9 | |||||||||||||
Hybrid capital |
6.8 | |||||||||||||
Core debt |
2.3 | |||||||||||||
Injection from (+) / Dividend to (-) ING Group |
||||||||||||||
D/E ratio Insurance |
8.8 | % | ||||||||||||
Hybrid ratio |
28.5 | % |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| In terms of divestments, there are many possible scenarios that will be evaluated by ING. ING reserves the right to optimise the timing and structure (IPO/secondary offerings versus trade sale to single buyers) of the divestments. The base case scenario should not be seen as a commitment in terms of the timing and structure of these divestments. Rather it should be viewed as one of many possible divestment scenarios. |
Page 29
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
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ING Bank
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| Expected new liquidity rules (minimum level of liquid assets to be maintained) as well as reformed deposit guarantee schemes could lower income / trigger higher costs, which are currently difficult to estimate and are not included in the abovementioned business assumptions. |
ING Insurance
Business assumptions insurance base case |
2008 | 2009 | 2010 | 2011 | 2012 | 2013 | ||||||||
Commercial result before tax comparable growth (%) |
||||||||||||||
Real estate revaluations (EUR billion) |
-0.4 | [***CONFIDENTIAL INFORMATION HAS | ||||||||||||
Private equity / alternatives revaluations (EUR billion) |
-0.4 | BEEN OMITTED AND FURNISHED | ||||||||||||
Public equity gains/losses and impairments (EUR billion) |
-0.2 | SEPARATELY TO THE SECURITIES AND | ||||||||||||
Debt securities / fixed income gains/losses & impairments |
-1.1 | EXCHANGE COMMISSION] |
| In general, ING Insurances base case is conservative due to de-risking efforts taken in 2008 and 2009, reducing its earnings potential |
| ING Investment Management is part of ING Insurance in the financial projections. |
| Negative revaluations on real estate and private equity /alternatives investments are expected to gradually improve over the period. |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
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| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
3.3 Capital -specific concerns raised by the Commission
ING constantly seeks to optimise its capital structure to balance the differing views of rating agencies, shareholders and regulators. INGs current capital structure is similar to other major global banks and insurance companies. A major source of future uncertainty that applies to all banks and insurance companies is the future direction of Basel II and Solvency II, particularly in regards to what constitutes available capital.
During the crisis, for banks the focus shifted much more to core capital (which excludes hybrids in Tier-1 capital) and away from total (BIS) level capital (which includes Tier-2 and Tier-3 as well). Recent developments under Basel II, Solvency II and in our discussions with regulators show that, as the crisis fades, the focus is returning to total BIS capital.
The Capital Requirements Directive (CRD) is also to be amended to clarify more precisely what criteria are required for hybrids to fully qualify as Tier-1 capital. Furthermore, rating agencies continue to refine their views and criteria for Tier-1 and Tier-2 capital. While it is too early to say exactly how the requirements will change in the future, ING will continue to comply with all requirements and will continue to balance the competing views of rating agencies, shareholders and regulators.
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
Compared to INGs 7.2% Tier-1 capital target pre-crisis, ING is currently already carrying 2.2% of additional capital of EUR 7.6 bn of excess capital on RWA of 345 bn compared to capital levels pre-crisis.
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
There is also likely to be a simple leverage ratio introduced as a regulatory tool to monitor banks capital adequacy. However, it is too early to predict where the rules will end up. Key outstanding issues are whether derivatives can be netted on the balance sheet as is the practice for US banks under US GAAP. Additionally, it is not clear if holdings of government bonds will be excluded from the assets to motivate prudent risk management. In any event, ING believes it will compare favourably to peers on this metric and our planned de-leveraging of the balance sheet will improve the ratio over time.
Page 32
ING uses leverage (core debt) in each of the Group, Bank and Insurance holding companies. In all cases, ING uses leverage in a holding company to down stream equity into operating subsidiaries. The degree to which ING allows such leverage is based on the diversification of risks between the operating subs that is not reflected in their stand alone capital measurement. Hence, leverage is used to fund redundant capital that is not required when one takes a higher level, consolidated view. Hence, the leverage at ING Insurance holding company reflects the diversification of risks amongst all the global insurance operating entities. The leverage at ING Group reflects the diversification between ING Bank and ING Insurance that is not reflected in their stand alone capital positions. Only for ING Group and ING Insurance do we manage to explicit limits because for ING Bank, the consolidated capital ratios give no credit for leverage and already reflect diversification of all risks. Once Solvency II is fully implemented, a similar approach for ING Insurance will be possible.
ING also manages its capital ratios based an internal market value balance sheet framework that compares Available Financial Resources (AFR) to Economic Capital (EC). ING targets to have an AFR/EC ratio for Bank and Insurance that is greater than 100%. ING retains flexibility by managing to the AFR/EC > 120% for the Group overall so it is acceptable to have some surplus at ING Bank offset a small deficit at ING Insurance. Also, as the AFR/EC ratio is still relatively new and volatile especially for very long duration Insurance business, ING does not manage the volatility related to illiquidity spreads and does not take immediate corrective action should the AFR/EC ratio fall below 100%. Rather, ING will take action over a longer period to improve the ratio.
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
Certain insurance entities (mainly the US and Japan / ING Re) that sold / reinsured riskier types of variable annuities over the years, experienced significant variability in their local capital requirements throughout the crisis. ING has successfully met all those capital requirements and as a result of the crisis has improved its hedging strategies to focus more on the capital requirements versus simply hedging the guarantees on an economic basis. To the extent, equity markets again take sharp downturns in the future, INGs hedging programs are in a much better position to respond and hedge the downside risk compared to pre-crisis. However, this will continue to be a source of capital variability as hedging programs are not perfect. Additionally, ING has discontinued sales of variable annuities in Japan and has ceased sales of riskier variable annuity products in the US.
Page 33
The ING adverse scenario has been taken as the scenario to assess INGs viability.
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
The outcome of the viability assessment, including the impact of an adverse scenario on INGs financial projections, will be outlined below. In addition, answers will be given to several specific questions posed by the Commission.
The table below shows the impact on key capital ratios [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION].
Capital Ratios | ||||||||||||||
2008A | 2009F | 2010F | 2011F | 2012F | 2013F | |||||||||
Bank |
||||||||||||||
Tier-1 ratio |
9.3 | % | [*** CONFIDENTIAL INFORMATION HAS | |||||||||||
Core tier-1 ratio |
7.3 | % | BEEN OMITTED AND FURNISHED | |||||||||||
BIS ratio |
12.8 | % | SEPARATELY TO THE SECURITIES AND | |||||||||||
Hybrid ratio |
22.1 | % | EXCHANGE COMMISSION] | |||||||||||
Insurance |
||||||||||||||
D/E ratio |
8.8 | % | ||||||||||||
Group |
||||||||||||||
Group D/E ratio |
13.6 | % |
Stress scenario end of 2010
| The stress scenario covers the entire balance sheet and P&L of ING Group. |
| After 2 years of severe stress, the end of 2010 will be the pivotal point in terms of viability. After 2010 markets are assumed to improve. |
| Capital ratios at year-end 2010 show that ING remains viable. |
In comparison with the base case scenario no additional derisking measures are assumed in the stress scenario. However, in case such a stress scenario materialises, ING would consider taking additional capital strengthening measures. Those are not reflected in this document.
Stress scenario beyond 2010 and repurchase of core Tier-1 Securities
In addition to examining the key capital ratios at the end of 2010 (the expected low point), ING extended the stress scenario through the end of 2013 to test that the core Tier-1 securities could still be repurchased [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION].
Page 34
ING made the following key assumptions in extending the stress scenario:
| The equity raise and repurchase of 50% of core Tier-1 securities that is currently planned for 4Q 2009 continues on the same terms assumed in the base case |
| No dividends would be paid on ordinary shares in the stress scenario |
| Credit migration adds EUR 35 bn RWA by the end of 2010 and thereafter the annual increase in RWA is assumed to be equal to the base case. Insurance entities require an additional [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] of capital to meet local regulatory needs. Thereby, it should be noted that this RWA increase as well as the [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] of additional capital for Insurance are already taken into account in the stress scenario in 2010 (i.e. they are not additional amounts on top of what has already been assumed in 2010). |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
Under these assumptions, ING achieves a [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] core Tier-1 ratio for the Bank at the end of 2013 and also eliminates all Group double leverage and Insurance debt and hybrids just as in the base case.
| In terms of the repurchase of the final 50% core Tier-1 securities, ING would have sufficient capital buffer at the end of 2013 - [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] - to repurchase the remaining core Tier-1 securities. Alternatively ING could also use its right to exercise the conversion option in the core Tier-1 securities after 2011. Paying the full [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] capital buffer would provide the Dutch state with an IRR of [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] , which is potentially better than the return that would be delivered if the remaining core Tier-1 securities were instead converted to equity at 10 EUR per share. |
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The tables below show the stress case assumptions that have been agreed with the EC:
Market assumptions Eurozone - Stress scenario
Cumulative 2009-2010 | ||||||||
Real GDP (% over two years) |
% | (5.3 | )% | |||||
Inflation (CPI %pver two years) |
% | 1.1 | % | |||||
3M rates (eop) |
% | 2.2 | % | |||||
10Y yield (eop) |
% | 3.5 | % | |||||
Equity Markets Total Return |
% | -50 | % | |||||
Commercial Real Estate Revaluations |
% | (40.0 | )% | |||||
Residential Real Estate Prices |
% | (30.0 | )% |
Market assumptions United States - Stress scenario
Cumulative 2009-2010 | ||||||||
Real GDP (% over two years) |
% | (6.4 | )% | |||||
Inflation (CPI %pver two years) |
% | 0.4 | % | |||||
3M rates (eop) |
% | 1.6 | % | |||||
10Y yield (eop) |
% | 2.3 | % | |||||
Equity Markets Total Return |
% | -50 | % | |||||
Commercial Real Estate Revaluations |
% | (30.0 | )% | |||||
Residential Real Estate Prices |
% | (25.0 | )% |
Credit assumptions - Stress scenario
Cumulative 2009-2010 | ||||||||
Credit spreads |
||||||||
AAA |
bp | +50 | ||||||
AA |
bp | +70 | ||||||
A |
bp | +120 | ||||||
BBB |
bp | +200 | ||||||
BB |
bp | +320 | ||||||
B or below |
bp | +480 | ||||||
Credit defaults (increase in PD) |
||||||||
Corporates |
% | 300 | % | |||||
Residential mortgages |
% | 289 | % | |||||
Sovereigns |
% | 267 | % | |||||
Financial institutions |
% | 162 | % | |||||
Securitizations |
% | 468 | % |
The stress scenario12 assumes severe economic contraction in both the Eurozone and the Unites States. The shocks in equity markets, property prices and credit spreads represent relative shocks on the levels at the end of 2008 over the next two years. It is worth noting that financial markets generally recovered since the levels at the end of 2008, which means that the relative shocks going forward from this point in time must be significantly higher to lead to the same impact estimated in this stress viability scenario. For example, the shock to INGs equity positions was assumed -50% whereas year to date in 2009 the AEX index gained more than 25% compared to its year end 2008 levels.
12 | Note that this scenario was originally defined earlier this year, specifying both 2009 and 2010 separately. To avoid inconsistencies between the 2009 scenario and the 2009 actuals (given that 3/4 of the year has passed) we now present the cumulative impact over 2 years (e.g. the assumption that stock markets decline with 50% in 2009 and 0% in 2010 then becomes that stock markets drop by 50% by the end of 2010). The end result in terms of stress is the same. |
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Concerning the credit portfolio, downgrades in ratings and shocks to the probability of default (PD) levels of year-end 2008 were applied. For example, the PD of the global corporate portfolio was increased by 300% over two years and the similar PD increase was applied to the residential mortgages. Next to the PD shocks, the shocks in property prices have indirect effect in the credit portfolio by increasing the loss given default (LGD) in for instance the residential mortgages.
4.3. Impact of stress scenario on financial projections
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
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4.4. Risk for long term viability
The chapters above demonstrate that, despite the important level of stress in the adverse scenario, INGs capitalisation remains solid and viable.
The de-risking chapter and the Investment Portfolio Review show that ING has carried out maximum risk reduction efforts, i.e. to the extent that these do not conflict with capital preservation. This means that ING has reduced risk whenever market conditions were favourable to do so (eg. equity risk). ING holds on to positions if the cost of hedging or exiting outweighs the capital required to hold the position on its books (eg. real estate risk).
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In addition to the Investment Portfolio Review the following should be noted:
CMBS
| ING did reclassify EUR 22.8 bn of CMBS from Available for Sale (AfS) to Loans & Receivables (LaR). Re-booking assets from AFS to Loans & Receivables doesnt address a potential RWA increase. The rationale for rebooking is to freeze a negative revaluation reserve. A total amount of EUR 1.7 bn was rebooked in order to freeze the revaluation reserve (and therefore any potential future impairments on this portfolio) at EUR -185 mn. Total portfolio is EUR 7.7 bn with a negative revaluation of EUR -2.0 bn. |
| Please note that the majority of US CMBSs are held by ING Insurance, for which rating migration will lead to an increase in required capital but less exponential than if held on the bank balance sheet. Next to this, the portfolio is still highly rated: More than 90% of the portfolio is AAA rated. The RWA amount for the bank portfolio is 284 mn EUR. |
| Since year-end 2008 the revaluation reserve for this asset class has not deteriorated. No impairments were experienced to date. RWAs are roughly flat. |
| INGs current policy is not to increase its overall exposure in ABS. |
| ING acknowledges the potential for adverse impact from this portfolio. Yet, exiting the portfolio would destroy more capital than it would cost to hold on to it. The outcome of the stress test shows that ING withstand important levels of stress in this portfolio. |
Real Estate
| Real Estate exposure revalued through P&L has come down from EUR 9.8 bn at year-end to EUR 8.8 bn at end of the second quarter of 2009. |
| ING Bank has taken negative fair value changes of EUR 0.675 bn and ING Insurance EUR -0.270bn in the first half of 2009. |
| [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] |
| INGs current risk management policy is not increasing its real estate exposure, excluding fair value changes. ING already has existing limits for seed and bridge capital for its Real Estate Investment business. ING is active in Real Estate Development and Real Estate Fund Management. Therefore, a complete ban on Real Estate is not feasible in practice |
| ING acknowledges the potential for adverse impact from this portfolio. Exiting the portfolio would destroy more capital than it would cost to hold on to it. The outcome of the stress test shows that ING can bear with important levels of stress in this portfolio. |
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Corporate Bonds
| ING has not fundamentally changed its risk policy with respect to corporate bonds. We did however restrict external investments in general (in order to achieve balance sheet reduction) and more specifically in financials. |
| So far, ING has not experienced material performance issues with its corporate bond portfolio which it does not classify as pressurised assets. |
| The revaluation reserve relief received from tightening credit spreads by far offsets the impact from slight long term interest rate increases. This is due to the fact that the credit spread duration outweighs the interest rate duration (some of the bonds are floaters) and because the move in credit spreads was much higher than the move in interest rates. |
| As for financials and covered bonds, ING has always indicated the main risk to be in the revaluation reserve sensitivity related to these portfolios. Since year-end the revaluation reserve for this asset class has improved from EUR -5.0bn to EUR -3.2bn by the end of the second quarter of 2009. |
| Furthermore, likely accounting changes (and the disappearance of the AfS accounting category and therefore debs security revaluation reserve) will provide important relief (also with respect to INGs simple asset leverage ratio). |
ABS : RWA increase
| The Q2 2009 RWA amount for ABS is EUR 14.5bn down from EUR 26.5 bn at year-end 2008. |
| The ABS portfolio is held for approximately 1/3 at the Insurance balance sheet, for which rating migration is a less important issue. |
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Professional Funding
| Compared to peers ING has a very large and relatively stable customer funding (savings) base. In times of stress much less account movements are seen than assumed in liquidity stress tests. This explains the relative absence of ING in the long term debt market for the period before 2007. |
| Since 2007 ING has been very active on the LT debt market with issuance of senior unsecured and covered bonds. |
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4.5. Answers to specific concerns raised by the Commission
The Commission agreed to the use of the stress scenario described above for assessing viability under adverse circumstances. The Commission requested clarification of the level of the loss given default (LGD) parameters in INGs portfolio, notably for residential mortgage loans and corporate loans13. More specifically, the limited impact of house price declines triggered questions. This section briefly elaborates on this.
Residential Mortgages
Firstly, it should be noted that the LGD is not only a function of recovery rates on house prices. Secondary collateral should also be taken into account (e.g. savings and investment portfolio etc.). A portion of the mortgage portfolio is government guaranteed. ING applies a segmented approach to delinquencies. Clients with sufficient debt servicing capacity will benefit from loan modifications to avoid losses for both parties (payment schedule adaptations, interest pause, budget counselling). Clients with limited debt servicing capacity will go through the foreclosure process after which ING retains a legal claim on the remaining debt from the customer.
Secondly, it is important to consider Loan-to-Value (LTV) distribution. A large part of INGs Dutch mortgage portfolio has an LTV below 100%, resulting in very secure financing and therefore low LGD. For this part of the portfolio, house price declines will not lead to unsecured exposures and therefore have limited impact on the LGD.
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The table shows that a 15% house price decline will only have a limited impact on the LGD % (if exposures are shifted one LTV-bucket up, the LGD is estimated to increase from 3.2 to 4.2). Note that the property value that is used in the LTV calculation is an execution value and therefore already takes into account a discount due to unfavourable selling conditions.
Corporate Loans
ING has a conservative underwriting policy. For clients with a high risk rating INGs appetite for unsecured lending is higher and lower rated clients will engage more in collateralised lending. This pattern can be seen from the table below (taken from INGs public Pillar 3 disclosures). For lower risk ratings the LGD percentages are smaller.
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Compared to peer banks, ING is more active in the mid corporate and SME segment, for which collateralised lending is relatively more important. ING is relatively less concentrated in large blue chip corporates which typically have higher LGD percentages.
13 | ECB benchmark LGDs are at 25% for residential mortgages whereas ING is at 7% and for corporate loans the benchmark LGD is at 33% whereas ING is at 26%. |
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The fact that LGD decreases (i.e. collateral improves) for lower risk ratings is quite common: one could easily draw similar conclusions for many other European Banks.
The relatively lower LGD percentages for ING are the result of its relatively strong position in collateralised lending (and the relatively lower importance of large highly rated corporates).
Applying a standardised LGD parameter ignores the collateral structure of any given lending portfolio.
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5. Amendments to transactions with the Dutch state (core Tier-1 and IABF)
Core Tier-1 securities
On 12 November 2008 ING issued EUR 10 bn core Tier-1 securities ranking pari passu with ordinary shares (the Securities) to the Dutch State pursuant to a Subscription Agreement between ING and the State dated 11 November 2008 (the Subscription Agreement).
According to the conditions of these securities, ING has the right to either repay the securities at 150% at any time, or to convert the securities into ordinary shares on a one for one basis after 3 years. These exit terms constitute a significantly higher burden on ING, than for other banks that have received state aid via similar transactions in the Netherlands and / or the EU.
ING and the Dutch State have agreed to amend the exit terms of the securities, which will be laid down in a separate repurchase agreement in order to enable ING to repay the securities faster.
According to the amended terms ING is able to repurchase up to 50% of the core Tier- 1 securities at par (EUR 10) plus the accrued coupon of 8.5% plus an early repayment penalty when the ING share price trades above EUR 10 upon repayment. The early redemption penalty increases with the ING share price, but is capped at a share price of EUR 12.50. At that level the penalty is equal to 13%, [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]. These exit terms are similar to the exit that SNS and Aegon had on the capital injections that they received from the Dutch State.
ING may elect to make use of this repurchase option prior to 31 January 2010, but this date can be extended by the Dutch State, after approval from the Commission, until 1 April 2010 in case of exceptional circumstances, such as if ING can demonstrate that it was not economically feasible to raise sufficient core Tier-1 capital necessary to repurchase EUR 5 bn (including the relevant accrued interest and the exit premium fee) earlier, or if the Commission approval decision on this Restructuring Plan is not taken before 20 November 2009.
ING aims to make use of the repurchase option prior to 31 January 2010. Repayment and conversion options on the remaining 50% are unaltered.
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Illiquid Asset Back-up Facility
On 31 March 2009, the Commission decided to approve the IABF for six months. In its decision, the Commission indicated that it accepted the cash flow swap arrangement between the State and ING and its affiliates and that it would not request changes regarding the transfer of risk from ING to the State and the States payment obligations in the context of the cash flow swap. At the same time it indicated that in its final decision it could request changes to the burden sharing of the measure by way of claw-back, adjustments of the fees or any other form of the remuneration of the State if such changes result from the Commission coming to the conclusion (taking the view) that the valuation at 26 January 2009 of the portfolio underlying the IABF or its burden sharing proved to be materially in contradiction with the EC State aid rules laid down in the IAC.
On 15 September 2009 the Commission announced that it had extended its temporary clearance under relevant state aid rules for the IABF between ING Group and the Dutch State of March 2009 (the IABF), until it will have taken a final decision.
At the same time, the Commission announced that it was continuing its previously announced in-depth investigation of the terms and conditions of the IABF for compatibility with the Commissions Impaired Assets Communication (IAC), which provides guidelines for the assessment of financial sector support arrangements in light of Commission state aid rules. In particular, the Commission stated that it had doubts as to the compatibility of the IABF with the IAC with respect to valuation and, as a consequence, burden sharing.
During the discussions on INGs restructuring plan, the EC has expressed as its opinion that the transfer value of the assets under the IABF exceeds the real economic value of the assets, which in their view calls for additional burden sharing and remuneration.
ING has expressed to the Commission that it does not concur with Commissions interpretation of the valuation methodology of the IABF and with the interpretation and analysis in relation to the IABF set out in the Commissions decisions concerning the IABF. As regards the nature of the IABF transaction, ING has indicated that in order to properly assess the valuation of the IABF, it is important to acknowledge that the transaction is a total return swap (and not a guarantee scheme), which means that the transaction involves downside and upside potential for both parties in the transaction. Furthermore, a proper assessment also necessitates that all cash flows, from the total return swap, are taken into account, regardless of the way they are labelled and structured in the transaction.
Although ING and the Dutch State remain of the opinion that the IABF was priced fairly at arms length, in order to reach a quick and overall approval from the Commission on the restructuring plan and the core Tier-1- & IABF transactions, ING has agreed to a series of additional payments to be made by ING Group to the Dutch state, effectively resulting in a significant increase of the States remuneration for the IABF.
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| Starting 25 October 2009, ING Group will make additional payments to the Dutch State, corresponding with an adjustment of the Alt-A remuneration of -50 basis points on the funding fee received by ING and of +82.6 basis points on the guarantee fee paid by ING. The guarantee fee related adjustment includes 15.6 basis points representing an adjustment for the period from 26 January 2009 - the start of the IABF - until 25 October 2009. The additional payments will be applied to the extent and duration that the IABF agreement is in place. |
| The additional payments will be implemented in the form of a separate agreement between ING Group and the Dutch State, in order to keep the original IABF intact. The additional payments will not be passed on to US entities. |
| The additional payments, excluding the part related to the period between 26 January 2009 and 25 October 2009 (i.e. the 15.6 basis points included in the guarantee fee related adjustment) have no residual settlement in case of an early unwinding of the IABF. The amount of the unpaid additional payments that relates to the period between 26 January 2009 and 25 Oct 2009 (i.e. the 15.6 basis points included in the guarantee fee related adjustment) will become payable in case of partially or wholly unwinding of the original transaction. If the IABF is partially unwound, this early redemption settlement would be applied proportionally. |
The Dutch State commits to notify any measures of early full or partial unwinding of the IABF to the Commission.
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6. Summary roadmap / timetable of overall process
Timetable for the implementation of the various measures
The realisation of the restructuring measures described in this report will lead to a more viable organisation and realisation of INGs strategic goals. It will also enable ING to repay the core Tier-1 capital injection by the Dutch government and eliminate the double leverage.
Therefore, swift and effective execution of the measures described is of the highest importance. Market conditions may however slow down certain measures, especially with regard to divestments and de-leveraging:
All de-leveraging and de-risking initiatives are intended to be realised before year-end 2009.
All cost containment measures can be influenced directly by ING itself and will therefore be realised in the current year (2009).
Completion of the divestment of Private Banking Asia & Switzerland is expected to occur around year end.
[***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] However, this timeline is indicative, as ING remains in the position to divest units if market conditions permit / require.
ING will carve out the WUH business within a period of 12 months following the Commission decision. ING will seek to divest the WUH business within [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION] months to a suitable buyer that is acceptable for both the Commission and ING. A Divestment Trustee preselected and proposed by ING [***CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION]
ING Direct US is to be divested no later than year-end 2013.
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Divestment of businesses on Dutch Retail banking market
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