Ing 3 Q 2008 Earnings Presentation

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Ing 3 Q 2008 Earnings Presentation

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Ing 3 Q 2008 Earnings Presentation

  1. 1. Third Quarter 2008 Results Analyst Presentation Amsterdam – 12 November 2008 www.ing.com
  2. 2. Third Quarter 2008: Agenda Overview Michel Tilmant, CEO Financial Highlights John Hele, CFO Risk Management Koos Timmermans, CRO Closing Remarks Michel Tilmant, CEO Third Quarter 2008 Results 2
  3. 3. Key Messages • ING’s third-quarter results were impacted by the market turmoil, resulting in our first ever quarterly loss, however the commercial performance of the business was resilient • ING acted to reinforce its capital base to bring ratios into line with increased international expectations. Our capital position is strong and ratios are in line with current international standards • The current crisis has raised fundamental questions for the financial industry, and ING will focus on reducing risk and volatility, while tightly managing expenses for a leaner environment Third Quarter 2008 Results 3
  4. 4. Market circumstances deteriorated sharply at the end of 3Q Stock markets Credit spreads 3,500 1,600 300 3,000 1,400 200 2,500 1,200 100 2,000 1,000 0 1,500 800 1/01/2008 1/04/2008 1/07/2008 1/10/2008 1/01/2008 1/04/2008 1/07/2008 1/10/2008 CDIX 5yr ITRAXX Europe FTSE E100 S&P 500, rhs, inverted Yield curve* Real estate %-points 400 2.00 200 300 1.00 0.00 200 150 -1.00 100 -2.00 0 100 1/01/2008 1/04/2008 1/07/2008 1/10/2008 1/01/2008 1/04/2008 1/07/2008 1/10/2008 US Eurozone MSCI Real Estate US MSCI Real Estate Europe *10yr -/- 3m US S&P Case-Shiller Comp. 20 rhs Graphs represent market data through November 7, 2008, except US S&P Case- Shiller Comp. 20 Third Quarter 2008 Results 4
  5. 5. Commercial result 1,713 before risk costs -373 Risk costs Bank Third Quarter 2008 Results Result before 1,340 market impact Impairments, 3Q 2008 result (In EUR mln) revaluations -1,505 and write-offs Revaluations real -333 estate & private equity Other market -265 impacts* in the financial markets 5 Underlying result -763 before tax Tax 185 * Includes DAC unlocking, hedges on equities, equity capital gains, FX hedges and Other mark to market -8 Minority interests Underlying net result -585 Gains on divestments and 108 special items ING’s earnings were affected by the volatility Net result -478
  6. 6. 3Q impairments, revaluations and other market impacts Impairments, revaluations and write-offs (In EUR mln) -30 -198 -181 -628 1,505 -416 -52 Impairments, Subprime Alt-A CDOs/CLOs Impairments Impairments Other debt revaluations on equities on financials securities and write-offs Other market impacts (In EUR mln) -130 204 -292 160 265 -207 Other market Equity capital Equity hedge Equity DAC FX hedges Other* impacts gains unlocking * Includes ING’s share in guarantee for Iceland banks, NN account shortfall, Japan hedging Third Quarter 2008 Results 6
  7. 7. Revaluations of Real Estate and Private Equity add to volatility under IFRS since 2004 Private Equity (in EUR mln) Real Estate (in EUR mln) EUR 1.8 billion in EUR 560 million in EUR 1 billion in EUR 132 million in positive revaluations negative revaluations positive results negative results 358 497 560 468 291 252 120 298 25 -69 -204 -38 -119 -285 2004 2005 2006 2007 1Q08 2Q08 3Q08 2004 2005 2006 2007 1Q08 2Q08 3Q08 Third Quarter 2008 Results 7
  8. 8. Excluding market impacts, commercial results before risk costs were stable Total ING Group 3Q08 3Q07 9M08 9M07 in EUR million Commercial result before risk costs 1,713 1,779 6,167 5,802 Impairments, etc on pressurised assets -409 -61 -549 -61 Impairments on equity securities -628 0 -1,021 -21 Impairments on financial institutions -416 0 -416 0 Impairments on other debts securities -52 -20 -90 -19 Impairments and losses -1,505 -81 -2,076 -101 Revaluations on real estate* -214 127 -571 456 Revaluations on private equity -119 56 -132 321 Revaluations -333 183 -703 777 Equity capital gains 160 599 1,018 1,858 Equity hedge 204 -2 433 -26 Equity DAC unlocking -130 -1 -188 34 FX hedge -292 0 -107 0 Other** -207 -11 -248 -127 Other market impacts -265 585 908 1,739 Risk costs Bank -373 -69 -705 -94 Underlying result before tax -763 2,397 3,591 8,123 * Includes EUR 10 mln impairments on real estate development ** Includes hedges and other mark-to-market valuations Third Quarter 2008 Results 8
  9. 9. Resilient commercial growth: EUR 38 billion net production of client balances Client balances, ING Group (in EUR billion) Net production (in EUR bln) 19.6 Wholesale Banking -18 28 38 9.8 Retail Banking 1,528 1,480 8.7 ING Direct 0.4 Insurance Americas -0.4 Insurance Asia/Pacific -0.5 Insurance Europe 30 June 2008 Net production FX Market Performance 30 September 2008 and Acq/Div • Net production of client balances was EUR 38 billion, driven by EUR 12.9 billion in client savings and deposits, including EUR 6.7 billion from retail customers • Lending growth in the banking operations totalled EUR 22.9 billion • Total client balances increased by EUR 48 billion to EUR 1,528 billion including FX and market impacts Third Quarter 2008 Results 9
  10. 10. Retail deposits increase despite competition for savings ING Direct and ING Retail Banking savings and deposits (EUR billion)* Retail deposits 357.0 347.0 339.2 336.0 339.3 • Retail deposits increased by EUR 10.0 bln in 3Q, or EUR 6.7 bln excluding FX 199.2 193.0 189.0 194.6 191.5 • Volume growth in retail banking was sustained through product innovation • Ongoing shift to term deposits puts pressure on margins 157.8 154.0 150.3 144.6 144.5 • ING Direct funds entrusted increased by EUR 2.1 billion at constant FX 3Q07 4Q07 1Q08 2Q08 3Q08 ING Direct ING Retail Banking * = ING Retail Banking excludes Mid-Corporates and is affected by acquisitions/divestments (acquisition ING Bank Turkey in 4Q 07 and divestment Regio Bank in 3Q 07), while ING Direct benefited from fx-effects Third Quarter 2008 Results 10
  11. 11. ING Direct attracted new customers in October • In late September and the beginning of October, consumers worldwide were re-allocating their account balances among multiple financial institutions to maximise protection from government guarantees, which led to both outflows of high balances and increases in new customers • The rebalancing resulted in about 200,000 new clients in September (about 30% above the monthly average up to August 08), and 164,000 new clients in October • This supports ING Direct’s continued focus on broadening its client base, aiming at a larger number of accounts with medium sized balances • Active rebalancing slowed after the increase of deposit guarantee limits by governments. ING Direct is back to normal growth patterns in clients and net inflows, and funds entrusted were flat at the end of October • Overall, ING Direct’s customer base has proven to be stable, and customers continue to put their trust in our financial solidity and strong brand Third Quarter 2008 Results 11
  12. 12. New life sales stable from previous quarter despite reduced demand for investment products Value new business (in EUR million) New sales (APE, in EUR million) 440 2,018 1,940 1,871 116 1,651 1,627 320 298 267 266 47 34 3Q07 4Q07 1Q08 2Q08 3Q08 3Q07 4Q07 1Q08 2Q08 3Q08 VNB Romania second-pillar pension fund • Relative to 2Q08, sales were down 1.5% primarily due • VNB decreased 10.7% (3.3% on a constant to lower sales of investment-linked products currency basis) from 3Q07 but was flat excluding the Romanian pension fund launched in 3Q07. • New life sales (APE) declined 16.1% (8.5% on a constant currency basis) relative to 3Q07 • In Asia/Pacific, VNB down with decline in sales • Due to weakened demand for investment-linked • VNB up 22.7% (excluding currencies) in Americas products in Asia/Pacific • Increase in Central Europe, driven by pension sales • Net flows in retirement services in US remained strong in Poland Third Quarter 2008 Results 12
  13. 13. Expenses under control Recurring operating expenses (EUR million) 3,832 3,678 3,641 3,580 3,487 1,353 1,319 1,269 1,267 1,198 Recurring operating expenses (3Q08 vs 3Q07): • Up 5.5% ING Group • Up 3.1% in mature 2,479 businesses 2,372 2,360 2,313 2,289 • Up 10.1% in growth businesses 3Q07 4Q07 1Q08 2Q08 3Q08 Growth businesses = Insurance Central & Rest of Europe; US Wealth Management; Insurance Asia/Pacific; ING Real Estate; ING Direct; Retail Banking (outside Benelux) Mature businesses = Insurance Europe (Benelux); Insurance Americas (excl. US Wealth Management); Corporate Line Insurance; Wholesale Banking (excl. ING Real Estate); Retail Banking (Benelux); Corporate Line Banking Third Quarter 2008 Results 13
  14. 14. Key Messages • ING’s third-quarter results were impacted by the market turmoil, resulting in our first ever quarterly loss, however the commercial performance of the business was resilient • ING acted to reinforce its capital base to bring ratios into line with increased international expectations. Our capital position is strong and ratios are in line with current international standards • The current crisis has raised fundamental questions for the financial industry, and ING will focus on reducing risk and volatility, while tightly managing expenses for a leaner environment Third Quarter 2008 Results 14
  15. 15. Recapitalisation and government support raised expected capital levels for financial institutions Total capital raised: EUR 549 billion RBS, Lloyds TSB, HBOS have total French of USD 64 bn injection govt injects EUR 10.5 USD 85 bn The US House of German govt saves Dutch govt bn into 6 rescue Representatives passes the Hypo Real Estate injects EUR banks package for USD 700 bn rescue plan 10 bn into ING AIG UK government Dexia bailed out announces GBP 50 r by governments bn rescue package be er em ob pt ct 16 30 3 6 8 13 19 20 Se O 7 15 28 7 9 14 17 28 Lehman Landsbanki Dutch government Swiss Dutch govt Brothers (Icesave) makes EUR 20 bn government injects collapses is nationalised available for buys EUR 3 bn recapitalisation EUR 3.9 bn into AEGON; stake in Belgian KBC Fortis is nationalised; UBS gets EUR 3.5 Fannie Mae and US announces USD US government announces bn govt Freddie Mac bailed 700 bn rescue USD 250 bn plan to support out by US govt package purchase bank stakes Third Quarter 2008 Results 15
  16. 16. ING considered various options to increase capital into line with new international standards Share price performance of ING Rebased at ING share Considerations in capital raising price (in EUR) • The ‘bar was raised’ as government (mln) injections lifted Tier-1 ratios in UK, US 90.0 20 Volume Share price • ING’s share price came under pressure 18 80.0 in October as the crisis deepened and 16 70.0 banks were forced to recapitalise 14 60.0 12 • ING considered various options to 50.0 10 increase capital, but any transaction 40.0 8 would have to be large, quick, and 30.0 6 possible to complete in one transaction 20.0 12-mth avg volume: 19.0 mln 4 • An accelerated equity offering or rights 10.0 2 issue were not pursued because: 0.0 0 • A transaction of this size would have 03-Oct 07-Oct 09-Oct 13-Oct 15-Oct 17-Oct been difficult to complete given the Volume market dislocation ING DJ EuroStoxx Banks • A rights issue would have taken DJ EuroStoxx Insurance much longer to complete AEX • It would have been very dilutive for existing shareholders at the existing stock price Third Quarter 2008 Results 16
  17. 17. ING’s capital injection from the Dutch state prevented dilution of existing share capital • ING announced on Sunday, 19th October that it had reached an agreement with the Dutch State to issue non-voting Core Tier-1 securities of EUR 10 bln to the Dutch State Key merits Qualifies as Core Capital for Dutch Central Bank No dilution of existing share capital Rapid execution Flexibility as to coupon payment and security redemption Simplicity vs. dual (equity + core capital) structure and no government ownership The instrument • ING issues non-voting perpetual Core Tier-1 securities for a total consideration of EUR 10 bln • The securities rank pari passu with common equity, have no voting rights and are non-tax deductible • The coupon is non-cumulative and is only payable if a dividend is paid on common shares • The instrument is dilutive of earnings for existing shareholders but does not dilute share capital • ING has the right at its sole discretion, only with prior DNB approval, to buy back all or some of the securities at any time at 150% of their issue price • The securities are convertible at any time after 3 years at ING’s option on a 1 for 1 basis into common shares. When and if this option is exercised by ING, the Dutch State can then opt for redemption at EUR 10 per security in cash Third Quarter 2008 Results 17
  18. 18. After EUR 10 billion injection, capital ratios meet current international standards ING Group D/E ratio • Ultimate capital 25% targets will be 20% assessed going 14.4% forward in 15% cooperation with the 8.4% 10% rating agencies to 5% maintain an AA rating 0% 2003 2004 2005 2006 2007 3Q08 3Q08 target maximum ING Insurance D/E ratio ING Bank Tier-1 ratio 25% 10.03% 10% 8.51% 20% 8% Dutch GAAP 15% 6% IFRS 10% pro forma after 4% 8.0% EUR 10 bln injection 5% 2% -2.0% 0% 0% 2003 2004 2005 2006 2007 3Q08 3Q08 2003 2004 2005 2006 2007 3Q08 3Q08 Maximum/target Target ≥ 7.2% Third Quarter 2008 Results 18
  19. 19. Dividend outlook • Final dividend waived for 2008, leaving total dividend over this year at EUR 0.74 per share • Following the capital injection from the Dutch state, ING maintains full discretion to determine its dividend on ordinary shares • A first payment of interest in 2009 of EUR 0.425 per security • If ING pays any future dividends, the state will receive the highest of: EUR 0.85 (8.5%) coupon, or • 110% of dividend paid on ordinary shares over 2009 • 120% of dividend paid on ordinary shares over 2010 • 125% of dividend paid on ordinary shares over 2011 and afterwards • ING will take a balanced and prudent approach, weighing the market conditions, ING’s capital position and cash generation • We will maintain flexibility and weigh the interests of shareholders for an attractive dividend as well as the interest to buy back the securities from the Dutch state Third Quarter 2008 Results 19
  20. 20. Key Messages • ING’s third-quarter results were impacted by the market turmoil, resulting in our first ever quarterly loss, however the commercial performance of the business was resilient • ING acted to reinforce its capital base to bring ratios into line with increased international expectations. Our capital position is strong and ratios are in line with current international standards • The current crisis has raised fundamental questions for the financial industry, and ING will focus on reducing risk and volatility, while tightly managing expenses for a leaner environment Third Quarter 2008 Results 20
  21. 21. The crisis has raised some fundamental questions for the financial industry… Customers’ basic need to save has been reinforced by the crisis More than ever, customers want a financial partner they can trust Volatility Capital Profit Growth • Markets have become • The perceived capital • Profit growth for the increasingly volatile requirements for financial financial industry has institutions has increased outpaced GDP and other • This is exacerbated by substantially industries since the 1980s asymmetric accounting for assets vs. liabilities • At the same time ING • Following the current sees a return to a more market pressure, growth • At the same time national approach to for the industry is likely to customers want stability capital requirements be more in line with GDP and guarantees growth Managing this earnings This will put pressure on This requires a sharper volatility while shielding our returns going forward, and attention to cost customers from market raises the need for a containment to sustain risks has implications for renewed international earnings growth going both products and approach from regulators forward accounting Third Quarter 2008 Results 21
  22. 22. …leading to the following priorities • Comfort customers and adapt products to meet their needs Customers • Reduce complexity: simplify and focus on the fundamentals Focus Capital • Strengthen capital: EUR 10 billion injection from Dutch state Risk • Reduce risk: sale of Taiwan reduces interest rate exposure Volatility • Reduce dependency on financial markets: equity, real estate Costs • Tightly manage costs in leaner operating environment Third Quarter 2008 Results 22
  23. 23. Insurance: priorities for managing through the current environment Insurance Europe Insurance Americas Insurance Asia/Pacific Evolving product portfolio to • Manage capital consumption • Proactively manage equity risk meet shifts in customer exposure in the Netherlands • Purchase credit protection preferences, through conservative portfolio Focus on distribution: • Increased focus on risk- management and hedging strengthening the bank channel protection products and fixed • Continue to focus on expense and growing tied agency force annuities reduction Proactive expense • Expense containment management • Slowdown investments in new Continuing focus on risk Greenfields • Capitalise on the IT management & talent capabilities of CitiStreet and • In Central Europe, focus on development integrate with existing distribution efficiency and the Managing transition of ING Life Retirement Services business pension business Taiwan • Focus on customers and • Focus on customers and Focus on customers and protect market share protecting market share protect market share Third Quarter 2008 Results 23
  24. 24. Bank: priorities for managing through the current environment Wholesale Banking Retail Banking ING Direct • Accelerating restructuring in the • Increased focus on core • Increased promotional Netherlands and Belgium franchise such as activities to fuel savings Netherlands and Belgium growth • Focus on increasing savings deposits in the Netherlands and • Heightened vigilance on • Growing savings and Belgium counterparty/corporate risk mortgages in balance • Protecting margins in mortgages • Increase margins further and over market share • Controlled expansion of lock in high-value product product range to retain and • Repricing Mid Corporates mandates with clients attract customers • Combining of ING Bank and • Steps taken to limit growth in Postbank well on track for lending assets • Shortening duration of assets external launch in 1Q09 where appropriate to increase • Reducing cost base in • Visibility is increasing as the repricing flexibility disrupted markets rebranding has started • Focus on customers and • Focus on customers and • Focus on customers and protect protect market share protect market share market share Third Quarter 2008 Results 24
  25. 25. Looking forward • The third quarter was extremely challenging for financial institutions • Financial markets deteriorated rapidly toward the end of the quarter, with steep declines in equity markets, widening credit spreads, declining property prices and the failure of several banks • In these increasingly turbulent times, ING acted proactively to reinforce its capital base after the Dutch government made funds available to help stabilise the financial system and create a level playing field internationally • The financial services industry is about trust, and as our customers face uncertain times it is essential that they have no reason to be concerned about the strength of ING as their financial partner As we approach the end of 2008, markets continue to be turbulent, so we expect pressure on asset prices to continue to impact results in the fourth quarter, while weakening economic conditions will put pressure on results into 2009 Our priority is to sustain commercial momentum by remaining focused on our customers, while managing our risks, capital and expense base with the discipline that these exceptional times require Third Quarter 2008 Results 25
  26. 26. Third Quarter 2008: Agenda Overview Michel Tilmant, CEO Financial Highlights John Hele, CFO Risk Management Koos Timmermans, CRO Closing Remarks Michel Tilmant, CEO Third Quarter 2008 Results 26
  27. 27. Financial Highlights Third Quarter 2008 • Key Performance Indicators • Market environment and impact on results • Variable annuity hedging & guarantees Third Quarter 2008 Results 27
  28. 28. ING Group KPIs: Sound increase in Client Balances, but income and result impacted by financial crisis 6,567 5,015 6,640 6,433 6,271 Operating Income (EUR mln) Client balances (in EUR bln) • Operating income decreased mainly due to 5,836 6,001 5,839 5,517 lower technical margins, and lower investment 4,354 margins as asset balances decreased • Operating income Banking decreased mainly 3Q07 4Q07 1Q08 2Q08 3Q08 1,528 due to impairments & negative revaluations 1,480 1,455 1,455 n/a n/a 121 160 150 114 1,446 3,857 3,757 3,709 3,689 3,626 Operating Expenses (EUR mln) • Operating expenses Bank and Life in bps of 3Q07 4Q07 1Q08 2Q08 3Q08 Client balances was equal to the previous 3,563 3,452 3,424 3,503 3,337 quarter • Net production of client balances 3Q07 4Q07 1Q08 2Q08 3Q08 EUR 38 bln in 3Q 98 97 96 95 95 93 • Including FX and market 2,957 Underlying Result before tax (EUR mln) 2,397 impacts, total client balances up 2,107 2,246 • Underlying result before tax is trending EUR 48 bln downwards due to the impact of deteriorating 2,590 2,085 2,068 1,930 financial markets and higher capital gains on • Production driven by banking -763 equities in 2007 (EUR 12.9 bln savings and -947 -947 3Q07 4Q07 1Q08 2Q08 3Q08 deposits, EUR 22.9 bln lending) 68 70 67 60 38 -25 • Net inflows insurance flat as growth in Insurance Americas Economic Capital (EUR bln) 35.2 36.7 36.0 34.8 33.1 was offset by outflows in • ROEC declined sharply due to a loss in Insurance Europe and Insurance 3Q2008 and the diminishing positive influence Asia/Pacific of the capital gains in 2007 in the rolling four- quarter trend Ratios are based on clients balances (rolling 4 3Q07 4Q07 1Q08 2Q08 3Q08 quarter basis) except ROEC which is based on 26% 27% 26% 24% 16% -6.5% average Economic Capital Ratio for the current quarter bps Non-life Banking, Investments, Life insurance, Retirement Services Third Quarter 2008 Results 28
  29. 29. Insurance: Financial markets downturn reduces investment income Underlying result before tax (in EUR million) Insurance Europe Insurance Americas Insurance Asia/Pacific 490 439 182 374 151 397 297 362 358 339 124 113 101 19 3Q07 4Q07 1Q08 2Q08 3Q08 -214 3Q07 4Q07 1Q08 2Q08 3Q08 3Q07 4Q07 1Q08 2Q08 3Q08 • Underlying result before tax • Market turmoil triggers • Result before tax declined down 72.1% due to asset underlying loss of EUR 214 87.4% to EUR 19 million, revaluations (EUR 181 mln) million primarily due to faltering financial markets • Pension flows in Central & Rest • Net credit- and interest-related of Europe increase 48.9% losses of EUR 365 million • Sales decline 28.7% as market declines reduce demand for • Operating expenses decline • Equity-related DAC unlocking of investment products 6.5% on cost containment EUR -130 million measures, particularly in the • Agreement to sell ING Life • VNB up 22.7% excluding Netherlands Taiwan currencies Third Quarter 2008 Results 29
  30. 30. Insurance: Margin analysis for Total Life Insurance Insurance Total (in EUR mln) 3Q08 2Q08 1Q08 4Q07 3Q07 569 569 624 698 609 Investment margin 1,229 1,202 1,239 1,282 1,210 Fees and premium-based revenue 83 281 208 89 190 Technical margin -153 23 11 75 15 Income non-modelled business* 1,729 2,074 2,081 2,144 2,024 Operating income -1,561 -1,442 -1,526 -1,535 -1,437 Expenses 167 632 556 609 586 Operating result before tax -898 353 -31 831 379 Investment variances -730 985 524 1,439 966 Underlying result before tax * = Insurance Europe: Netherlands servicing & brokerage (including AZL, IPS, NN Assurantiekantoren, NN HB), Luxembourg, Bulgaria and Russia; Insurance Americas: Brazil; Insurance Asia Pacific: Japan SPVA, KB Life, Taiwan, New Zealand, Thailand, China and India Third Quarter 2008 Results 30
  31. 31. Banking: Commercial growth despite increased competition Underlying result before tax (in EUR million) Wholesale Banking Retail Banking ING Direct 179 155 638 651 570 120 512 558 522 420 365 73 279 40 3Q07 4Q07 1Q08 2Q08 3Q08 -47 3Q07 4Q07 1Q08 2Q08 3Q08 3Q07 4Q07 1Q08 2Q08 3Q08 • Result before tax down 85.7% • Growth of savings/deposits in • Client retail balances up due to credit related the Benelux EUR 7.0 billion and 455,000 markdowns and impairments new clients (EUR 211 mln), real estate • Continued pressure on margins revaluations (EUR 88 mln) as a result of liquidity crisis • Impairments of EUR 217 million due to unprecedented events in • General Lending and Structured • ING Bank Turkey negatively the quarter Finance benefited from higher affected by fair value changes demand for credit on derivatives (EUR 41 mln) • Excluding impairments, result • Risk costs increase to EUR 195 before tax up 42% on 3Q2007 • Risk costs increase to EUR 93 million, including EUR 72 million million on inclusion of Turkey • Risk costs increase to EUR 85 related to Icelandic Banks and mid-corporates in Benelux million on US and Germany Third Quarter 2008 Results 31
  32. 32. Interest rates: interest margin healthy at 1.00% ING Interest margins by quarter 1.2% Total Bank 1.1% 1.0% 0.9% 0.8% ING Direct 0.7% 0.6% 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 • Compared with 3Q07 total interest margin improved 9 bps to 1.00% mainly due to higher margin at ING Direct and inclusion of ING Bank Turkey • The total interest margin was down 5 bps compared with 2Q08 as higher margins at ING Direct and on new lending were offset by pressure on retail margins • Improvement in the US interest rate environment drives recovery in interest margin at ING Direct to 0.96% from 0.74% in 3Q07 and 0.93% in 2Q08 Third Quarter 2008 Results 32
  33. 33. Financial Highlights Third Quarter 2008 • Key Performance Indicators • Market environment and impact on results • Variable annuity hedging & guarantees Third Quarter 2008 Results 33
  34. 34. Equity markets: sustained equity market declines trigger impairments Pre-tax P&L impact (in EUR mln) • ING realised EUR 160 million in pre-tax capital gains in 3Q08 • That was offset by EUR 628 1,391 897 729 million of impairments on equities 600 as markets sustained their 362 129 160 325 307 204 declines 176 170 137 142 -11 -10 -30 -1 -44 -349 -628 • 3Q07 included EUR 600 million in 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 equity capital gains including Dividend Income Capital Gains Impairments EUR 455 million on part of ING’s stake in ABN Amro Market value shares at 30 Sep 2008 • Equity markets at Oct. 15 levels would trigger a further EUR 303 In EUR million Insurance Bank Total Shares with direct public 6,538 2,033 8,571 million of equity impairments equity exposure Hedged 2,450 0 2,450 Net exposure shares 4,088 2,033 6,121 Revaluation reserve pre-tax 449 901 1,350 Third Quarter 2008 Results 34
  35. 35. Equity markets: P&L impact from DAC unlocking in the US • In 3Q08, US results included EUR -130 million equity-related DAC unlocking as markets DAC unlocking declined and fund performance lagged EUR million, constant currency • In 3Q08, other DAC unlocking was mainly due to higher hedging costs in the annuity business • DAC is charged to underwriting expenditures in 2.0% 0 68 proportion to the actual and future Estimated Gross Profits (EGP) over the life of the block of -26 -5 -35 business -7 -101 • Current (actual) and future separate-account -130 fund performance are critical inputs to EGP -2.7% -3.3% • Equity-related DAC unlocking arises when fund -1 performance differs from long-term equity market growth assumption of 2.25% per quarter -66 • ING does not apply a “corridor”, ING US uses Equity-related DAC unlocking -8.4% full DAC unlocking, with adjustments through the Other DAC unlocking P&L each quarter -9.5% S&P Index Total Return • S&P 500 index performance is a good indicator 3Q07 4Q07 1Q08 2Q08 3Q08 of the P&L volatility caused by equity-related DAC unlocking • At October 15th levels, when the S&P was at 908 points, equity-related DAC unlocking would be EUR -273 million Third Quarter 2008 Results 35
  36. 36. Fair values of RMBS shifted to “Level C” pricing due to lack of market prices IFRS “ABC” fair value hierarchy: • ING has EUR 550 billion of financial assets measured at fair value. The vast A = reference to published price majority of which is based on published quotations in an active market price quotations B = valuation technique supported by • In the third quarter there was a shift for observable market data Alt-A and subprime RMBS to Level C C = valuation technique not supported • To a large extent, ING still bases RMBS by observable market inputs prices on independent vendor pricing services IFRS fair value hierarchy – ING Group 3Q08 (in EUR mln) • Illiquid market conditions have led to A B C Total more dependence by these vendors on Total, 367,710 153,700 28,658 550,068 models to determine the fair value due to of which: lack of observable market prices Subprime RMBS 44 15 2,154 2,213 • ING did not apply any accounting change Alt-A RMBS 435 71 20,208 20,714 on Alt-A or Subprime portfolios in 3Q08 CDOs 4,447 287 0 4,734 Third Quarter 2008 Results 36
  37. 37. Financial Highlights Third Quarter 2008 • Key Performance Indicators • Market environment and impact on results • Variable annuity hedging & guarantees Third Quarter 2008 Results 37
  38. 38. Despite market volatility, ING’s SPVA hedge programs have been largely effective • The US and Japan have the major blocks of SPVAs with guarantees. There are small blocks in the Netherlands, Hungary, Poland and Spain • Dynamic hedging programs in the US and in Japan hedge a substantial portion of the risk posed by the guaranteed benefits due to movements in the equity markets. Japan also hedges interest rate and currency risks • The hedge programs have proven to be effective, even in volatile markets • The risk of unhedged equity volatility lies primarily in the cost of dynamically rebalancing the portfolio. As actual volatility increases, the cost of rebalancing the hedges increases • Poor equity performance is a risk to profitability as future fee income is reduced • Reported new business profitability above ING’s hurdles while reflecting current, higher volatility and low interest rates Third Quarter 2008 Results 38
  39. 39. The majority of ING’s exposure to equity movements in the US VA business are hedged USFS SPVA Guaranteed Benefits (As of 9/30, USD Millions) Net Amount at NAR Externally Statutory Account Value Risk Reinsured NAR Retained NAR Hedged Reserves Guaranteed Living Benefits 10-year Accumulation Benefits 496 25 0 25 25 15 72 14 0 14 14 19 20-Year Accumulation Benefits 1,325 55 0 55 55 46 Withdrawal Benefit (GMWB) 16,000 4,369 0 4,369 4,369 511 Income Benefit (GMIB) 10,088 1,919 0 1,919 1,919 146 Life Pay/Life Pay Plus Guaranteed Minimum Death Benefits Return of Premium 18,885 1,975 41 1,934 1,915 70 Ratchet 9,583 2,328 477 1,851 1,720 86 Roll-up 3,290 2,041 1,088 953 175 345 Combo 12,805 4,148 25 4,123 1,214 465 Total USFS Guaranteed Benefits 44,563 16,874 1,631 15,243 11,406 1,705 • The Net Amount at Risk (NAR) represents the difference between the current benefit base and the account value. Over time, lapses, partial withdrawals, mortality, interest and equity growth will determine the eventual cash benefits • Statutory reserves, prescribed by local authorities are USD 1.7 billion. The Market Consistent Value of these potential future benefits less future fees is USD 2.7 billion. The difference is largely attributable to a market consistent assumption that limits equity growth to the current swap rates whereas the statutory view allows consideration of equity risk premia • Dynamic delta hedge of equity exposure using S&P and other market Index futures. Hedge payoffs offset any increase/decrease in liability. The costs associated with rebalancing the portfolio are reflected in product pricing • A portion of the GMDB guarantees are left unhedged because hedge costs as calculated exceed capital costs • Interest rate and equity volatility are not hedged because of the high cost of hedging • Profitability, as measured by IRR, is 14.6% in the third quarter. This reflects current higher volatility and lower interest rates, grading into long-term volatility of 17.8% and interest rates of 4.5% Third Quarter 2008 Results 39
  40. 40. Hedges in the US dynamic hedging program, launched in 2000, has successfully tracked liabilities Weekly Hedge Programme Performance 1000 2,000 S&P 500 Level Gains/(Losses) in USD Millions 900 S&P 500 Index The programme success is demonstrated 800 by the high degree to which hedge programme payoffs track changes in 700 guaranteed benefit liabilities 1,500 600 500 400 300 1,000 200 100 0 -100 500 -200 changes in guaranteed -300 benefit liabilities hedge programme -400 payoffs -500 0 0 4 8 2 6 2 6 1 1 7 3 05 03 5 07 -0 -0 l-0 l-0 l-0 -0 -0 -0 -0 0 -0 0 g- b- - p- - ar ar ct ct n ay ay ec ec Ju Ju Ju Au Ja Fe Se O O M M M M D D Asset Incr/(Decr) Liability Incr/(Decr) S&P 500 Third Quarter 2008 Results 40
  41. 41. Fall in equity markets has manageable impact on required capital and IFRS earnings Capital Injection IFRS Earnings 4Q Impact (EUR bln) (EUR mln, Pre-Tax) Date S&P 500 Index 30 September 2008 1,166 n/a n/a 31 October 2008 (-16.9%) 969 0.4 (180) 30 September less 30% 815 0.6 (310) Capital Injections • ING Insurance can downstream capital to the Americas while staying within 15% Debt/Equity ratio limit. A EUR 770 million capital injection from ING Insurance to Insurance Americas at 30 September would have increased the D/E ratio for ING Insurance from 8.05% to 10.50% • As the S&P 500 declines, an injected capital amount is determined to restore the capital to the level required by rating agencies, equal to the greater of the S&P required capital and 325% Risk Based Capital IFRS earnings impact • Variable Annuity equity-related DAC unlocking is the primary earnings sensitivity • IFRS liabilities for guarantees more than offset by the equity hedges, partially offsetting the impact of the DAC unlocking • Actual tracking error and losses due to volatility will have potential other impacts on IFRS earnings Third Quarter 2008 Results 41
  42. 42. Japan hedges vast majority of exposure to changes in equities, interest rates and currency Japan SPVA Guaranteed Benefits (in EUR million) % NAR Net Amount at Account Value Externally % NAR Hedged Reserve Risk Reinsured Guaranteed Living Benefits Accumulation Benefits 9,657 1,352 0% More than 95% 836 Withdrawal Benefits 23 6 0% More than 95% Nil Income Benefits 161 21 0% 0% Nil Guaranteed Minimum Death Benefits Return of Premium 2,429 146 0% More than 95% 131 Ratchet 1,272 204 0% More than 95% 30 Total Japan Guaranteed Benefits 13,542 1,729 997 • Reserves held on the guaranteed benefits of EUR 1.0 billion compares to the Market Consistent Value of future benefits associated with the Net Amount at Risk, less future fees, of EUR 1.2 billion at 30 September • Dynamic delta hedge of equity, fixed income and FX risk using market Index futures. Interest rate risk (“rho”) is fully hedged using swaps and forward contracts • Equity and FX delta hedges are rebalanced daily with intra-day trades if assets and liabilities move outside a pre-prescribed range. Fixed income delta and rho are rebalanced weekly with intra-week trades if assets and liabilities move outside a pre- prescribed range • Implied volatility and asset-based fee income are not hedged • Counter-party risk is managed in accordance with ING’s guidelines and limits. Only transactions with qualified counterparties are entered into • Profitability of Smart Design 1-2-3 sold in the quarter was 54bp of single premium, reflecting 30 September implied equity volatility of 20-25% and 10 year spot rate of 1.73% Third Quarter 2008 Results 42
  43. 43. Japan’s hedge programme has been largely effective through volatile markets Financial markets have been volatile and …and the hedge programme has been effective declining in the recent past… in smoothing the economic gains and losses 0% 600 -5% 500 -10% 400 300 -15% Result (EUR Million) 200 -20% 100 -25% 0 -100 -30% -200 -35% -300 a -40% -400 -500 -45% -600 -50% 20 03 20 04 20 05 20 06 20 07 20 08 09 20 08 20 09 20 10 20 11 20 12 20 01 20 02 20 01 20 02 20 03 20 04 20 05 20 06 20 07 26 n 10 n 24 l 7- l 4- g 3- r 24 n 7- n 2 9 ay 12 y 21 g 20 ar 1- r 15 ay 6- b 17 r ep 10 c 21 b 18 p u u a p Ap 08 08 08 08 08 08 08 07 07 08 08 07 07 07 07 07 07 07 07 07 07 u u a u a a e Au e Fe Se -J -J -M M -A -J -J -M -M M -J -J -A -D -F -S 20 27 Topix S&P500 DJ EUROSTOXX 50 FTSE100 Change in value guarantee Hedge gains & losses¹ The hedging programme has gone a long way in smoothing out the amplitude of volatility While the hedge programme was 82% effective in the quarter, extraordinary market volatility resulted in direct hedge losses of EUR 93 million * = reflects hedge programme performance relative to the hedge objective Third Quarter 2008 Results 43
  44. 44. Third Quarter 2008: Agenda Overview Michel Tilmant, CEO Financial Highlights John Hele, CFO Risk Management Koos Timmermans, CRO Closing Remarks Michel Tilmant, CEO Third Quarter 2008 Results 44
  45. 45. Risk Management • The balance sheet • Originated loans • Investment portfolio: corporate bonds, Alt-A RMBS, other • Liquidity • Key messages Third Quarter 2008 Results 45

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