Key figures 3 ING at a glance 4 Chairman’s statement 6 ING share 8 1.2 Report of the Executive Board
ING and the financial environment 10 Strategy 15 Corporate responsibility 18 Capital management 21 Risk management 23 Banking overview 27 Retail Banking 28 ING Direct 31 Commercial Banking 34 Insurance overview 37 Insurance Europe 38 Insurance Americas 41 Insurance Asia/Pacific 44 Investment management 47 Human resources 49 1.3 Our governance
Report of the Supervisory Board 52 Corporate governance 56 Report of ING Trust Office 69 Report of ING Continuity Foundation 72 Conformity statement 73 Section 404 Sarbanes-Oxley Act 74 Remuneration report 76 Works councils 88 2.1 Consolidated annual accounts
Consolidated balance sheet 90 Consolidated profit and loss account 91 Consolidated statement of comprehensive income 92 Consolidated statement of cash flows 93 Consolidated statement of changes in equity 94 Accounting policies for the consolidated balance sheet and profit and loss account 96 Accounting policies for the consolidated statement of cash flows 112 Notes to the consolidated balance sheet 113 Additional information to the consolidated balance sheet 148 Notes to the consolidated profit and loss account 177 Segment reporting 189 Notes to the consolidated statement of cash flows 194 Risk management 195 Capital management 250 2.2 Parent company annual accounts
Group in accordance with IFRS-EU Total income (in EUR million) 47,765 66,291 –27.9% 76,586 Staff expenses and other operating expenses (in EUR million) 14,049 15,571 –9.8% 15,468 Net result (in EUR million) –935 –729 9,241 Basic earnings per ordinary share (in EUR) (1) –0.57 –0.27 3.31 Shareholders' equity per 31 December (in parent, in EUR million) 33,863 17,334 95.4% 37,208
Total underlying income (in EUR million) 13,312 11,731 13.5% 14,614 Underlying net interest result (in EUR million) 12,539 11,085 13.1% 9,061 Underlying operating expenses (in EUR million) 9,439 10,002 –5.6% 9,522 Underlying addition to loan loss provision (in EUR million) 2,973 1,280 132.3% 125 Underlying net result (in EUR million) 962 722 33.2% 3,982 Core Tier 1 capital ING Bank N.V. per 31 December 25,958 24,934 4.1% 23,375 Balance sheet total ING Bank N.V. per 31 December (in EUR billion) 882 1,035 –14.7% 994 Bank core Tier 1 ratio per 31 December (2) 7.8% 7.3% 5.8% Risk-Weighted Assets per 31 December (in EUR billion) (2) 332 343 –3.2% 403 Client balances per 31 December (in EUR billion) 1,108 1,074 3.2% 1,013 Net production client balances (in EUR billion) 21.5 89.2 –75.9% (3)
Underlying cost/income ratio 70.9% 85.3% 65.2% Underlying cost/income ratio, excl market impacts 54.4% 65.4% 66.9%
Value of new life business (in EUR million) 502 804 –37.6% (3)
To deliver financial products in the way our customers want them delivered: with exemplary service, convenience and at competitive prices. This is reflected in our mission statement: to set the standard in helping our customers manage their financial future.
We will focus on earning our customers’ trust through transparent products, value for money and superior service. This reflects our universal customer ideal: saving and investing for the future should be easier.
ExECUtIvE BOARd Jan h.M. hommen (66), CEO and chairman Patrick G. Flynn (49), CFO Koos (J.) v. timmermans (49), CRO
Remuneration Committee Jeroen van der Veer, chairman Peter Elverding Piet Klaver Joan Spero Karel Vuursteen Lodewijk de Waal
Nomination Committee Peter Elverding, chairman Piet Klaver Joan Spero Jeroen van der Veer Karel Vuursteen Lodewijk de Waal
INSURANCE EUROPE Operates in the Netherlands, Belgium, Luxembourg, Spain, Greece, Poland, Hungary, the Czech Republic, Slovakia, Turkey, Romania, Bulgaria and Russia. We tailor our insurance products, investment and pension services to our target markets and distribution channels and focus on optimising customer satisfaction, accelerating growth in Central Europe, efficient capital management and cost containment, while leveraging the opportunities created by an ageing population.
INSURANCE ASIA/PACIFIC Offers life insurance, wealth management and retail and institutional asset management services. We are the number two international life insurer, based on new sales, with operations in seven countries, and the fourth-largest investment manager, based on assets under management, with operations in 13 markets. Our distribution network of tied agents and financial advisers is complemented by alternative channels including brokers, worksite, direct marketing and online distribution.
REtAIl BANKING Provides retail and private banking services to individuals and small and medium-sized enterprises in the Netherlands, Belgium, Luxembourg, Poland, Romania, Turkey, India, Thailand and China (through a stake in Bank of Beijing) with a multi-product, multi-channel distribution approach. In mature markets, we focus on wealth accumulation, savings and mortgages, with an emphasis on operational excellence, cost leadership and customer satisfaction. In developing markets we aim to become a prominent local player by offering simple but high quality products.
2009 was a challenging year for financial markets, and for ING. Therefore, we are especially thankful for the continued loyalty of our customers, whose trust in our Company is our licence to operate. In the past year, we reviewed our portfolio in order to create a company with fewer, more coherent and stronger businesses. Several divestments were announced in 2009, the proceeds of which have been or will be used to fortify ING’s capital position. The good progress made on divestments reflects the momentum of our strategic transformation. There have only been divestments on attractive terms, a testament to the fact that we are carefully and diligently managing this divestment process and to the value inherent in our business.
At the same meeting our shareholders also approved a rights issue of up to EUR 7.5 billion. This rights issue was successfully completed on 21 December 2009. It has allowed us to repay half of the funds we received in 2008 from the Dutch State (plus accrued coupon of EUR 259 million and a premium of EUR 346 million) and to further strengthen our capital position. We will pursue the repayment of the remaining state capital from internal resources.
Looking ahead, we see a promising future for all of our businesses. We believe that the underlying fundamentals of the bank, the insurer and the investment management companies are solid. The bank has strong positions in retail and commercial banking in Western Europe, is the leading online bank worldwide and has growing market opportunities in Central and Eastern Europe and a number of Asian markets. The Insurance business has one of the largest footprints worldwide, is specialised in life and pension management services in the mature US and Netherlands markets, combined with strong positions in the emerging markets of Central and Eastern Europe, Asia and Latin America.
In 2010 we will work to further improve our operational and commercial performance, disentangle the banking and insurance operations, and decide on the best divestment route for our insurance and investment management businesses. We will approach this process with the utmost care and diligence to ensure an orderly and equitable separation taking into consideration the interests of all stakeholders.
Back to Basics has brought the traditional role of financial institutions, namely to collect deposits and then channel them back in to the economy through investment in loans to consumers and business, to the forefront of day-to-day business at ING. Consumers need simpler products and this requires greater transparency in the operations of banks and insurance companies, particularly in respect of risk diversification and product definition.
Board. On behalf of my colleagues in the Executive Board and Supervisory Board, I express our gratitude and appreciation for the contribution they have made to ING.
Patrick Flynn joined ING in the position of CFO in April 2009. Dick Harryvan and Jacques de Vaucleroy have decided to leave ING. I want to thank Dick for three decades of very dedicated service to ING, and Jacques for his important contribution to ING over the past 23 years.
2008 and 2009 were difficult for us and hurt our pride. ING employees deserve a great compliment for the way they have responded to the changes that were necessary. Their commitment and dedication will propel us forward again in 2010. On behalf of the Executive and Management Boards, I want to thank them deeply for their support, commitment and dedication.
In case a dividend is paid, the coupon on the core Tier 1 securities is also payable, subject to approval by DNB (the Dutch central bank).
In conjunction with the EC restructuring plan ING has reached an agreement with the Dutch State to facilitate early repayment of half of the core Tier 1 securities issued in 2008 plus accrued interest. ING used the opportunity to repurchase EUR 5 billion of core Tier 1 securities in December 2009, financed by a successfully completed underwritten rights issue of EUR 7.5 billion. For more information on the transactions with the Dutch State and the rights issue, please refer to the section ‘ING and the financial environment’ starting on page 10.
Prices depositary receipts for ordinary shares* Euronext Amsterdam by NYSE Euronext in EUR 2009 2008 2007
Interim dividend – 0.74 0.66 Final dividend – – 0.82 * 2009 figures, estimated on information provided by several large custodians.
United States 24 United Kingdom 17 Luxembourg 9 Belgium 6 Switzerland 5 Other 5 total 100 1.1 Who we are
IMPORtANt dAtES IN 2010* Annual General Meeting Tuesday, 27 April 2010
INvEStOR RElAtIONS To be kept informed of press releases and other ING news, you can subscribe to the email service through our Investor Relations section at www.ing.com.
* Still valid on 15 March 2010, the date of this Annual Report. ** All ratings on ING Group have a stable outlook.
Key points > Global economy recovering after steep downturn > Transactions with the Dutch State amidst market turmoil > Back to Basics programme has reduced complexity and increased focus > Restructuring Plan approved by European
After the unprecedented shockwave that hit financial markets in 2008, we initiated transactions with the Dutch State to strengthen our capital base and reduce our risk exposure, while redefining our strategic course. Hence, it was clear from the beginning that 2009 would be a difficult year for ING. Throughout the year, market conditions remained challenging, but the second half of 2009 also brought the first signs of recovery. ING’s first priorities were to stabilise the Company, restore credibility and regain trust. We thus introduced Back to Basics, a change programme comprising a series of measures to decrease costs, reduce risk and capital exposures, and deleverage the balance sheet, with the ultimate objective of increasing focus on the essence of financial services and creating a more coherent set of activities. We simplified the governance structure by operationally separating the Bank and the Insurer under the umbrella of the Group, and carried out a portfolio review, which led to a number of divestments.
ING ENtERING INtO tRANSACtIONS WIth thE dUtCh StAtE The rapidly worsening conditions following the summer of 2008 fuelled an internationally recognised belief that capital requirements for financial institutions had to be raised. In order to create a strong buffer to navigate the challenging environment, ING therefore decided to strengthen its capital position in October 2008 by issuing EUR 10 billion of core Tier 1 securities to the Dutch State. Under the terms of the agreement we obtained the right to buy back all or some of the securities at any time at 150% of the issue price. In addition, we obtained the right to convert all or some of the securities into (depositary receipts for) ordinary shares on a one-for-one basis, from three years after the issuance onwards. It was also agreed that should ING choose to do so, the Dutch State would be able to opt for repayment of the securities at EUR 10 each in cash. The coupon on the core Tier 1 securities will only be payable if a dividend – either interim or final – was paid on common shares over the financial year preceding the coupon date. This transaction enabled ING to strengthen its capital position significantly.
Under the terms of the IABF, a full risk transfer to the Dutch State was realised on 80% of our approximately EUR 30 billion par value portfolio of Alt-A RMBS at ING Direct USA and ING Insurance Americas. As a consequence, the Dutch State now participates in 80% of any results of the portfolio. The risk transfer took place at a discount of 10% of par value. In exchange, the Dutch State was to pay a funding fee and principal payments on two Government receivables to ING. The first receivable initially had a funding fee of 3.5%, the second receivable initially had a funding fee of Libor +50 basis points (please note that these fees were revised following discussions with the European Commission, which will be discussed below). ING remained the legal owner of 100% of the securities with an exposure of 20% to the portfolio’s results. The transaction significantly strengthened ING’s capital and balance sheet as it resulted in a reduction of equity volatility. Moreover, it had a positive impact on shareholders’ equity amounting to EUR 5 billion through a reduction of the negative revaluation reserve.
First, the implementation of the programme involved a series of measures to strengthen the Company’s financial position through cost containment, reductions of risk and capital exposures, and deleveraging the balance sheet by reducing asset exposures and preserving equity.
Over the course of 2009 we completed this first phase of our Back to Basics programme, exceeding each of the targets set. Operating expenses were reduced by EUR 1.5 billion, exceeding both the original target of EUR 1 billion as well as the increased target of EUR 1.3 billion on a comparable basis, of which approximately EUR 1.2 billion represent sustainable savings and EUR 0.3 million were one-off items. The expense figures have been adjusted for acquisitions and divestments, as well as impairments on real estate development projects and the charge for the Dutch deposit guarantee scheme related to DSB Bank. Headcount reductions totalled 11,331, including divestments, surpassing the expected reduction of 7,000 FTEs. Derisking measures progressed well and continued in the fourth quarter. ING Direct sold EUR 0.8 billion of its US prime RMBS portfolio, realising a loss of EUR 83 million, but releasing EUR 7 billion of risk-weighted assets. Deleveraging of the bank’s balance sheet also exceeded the original target, reaching EUR 194 billion, or 18.0%, compared with the end of September 2008 when the balance sheet reductions began.
ING has had to accept a number of commitments to obtain the EC’s approval for the transactions with the Dutch State. One of these involves the divestment of ING Direct US. It is anticipated that this divestment will take several years and be completed before the end of 2013. In the meantime, we will ensure that we continue to grow the value of the business and invest in a superior customer experience. We regard ING Direct US as a very strong franchise and the US market clearly offers potential for growth. The concession regarding ING Direct US has no impact on ING Direct in other countries. We remain committed to the ING Direct franchise as a strong contributor to our growth. Its unique customer proposition, simple transparent products and market-leading efficiency are core elements of our banking strategy.
Also as part of the Restructuring Plan, a new company will be created in the Dutch retail market out of part of our current operations, by combining the Interadvies banking division (including WestlandUtrecht Hypotheekbank and the mortgage activities of Nationale-Nederlanden) and the existing consumer lending portfolio of ING Retail. This business, once separated, will be divested. The combined business will be the number 5 financial institution in the Netherlands. It is profitable and currently has a balance sheet of EUR 37 billion, with around 200,000 mortgage contracts, 320,000 consumer lending accounts, 500,000 savings accounts and 76,000 securities contracts. The business has a mortgage portfolio amounting to approximately EUR 34 billion, which equates to a market share of around 6%.
ING had submitted the Restructuring Plan on the condition that the EC guarantees equal treatment of all state-supported financial institutions and safeguards the level playing field in the EU internal market. In January 2010, ING lodged an appeal with the General Court of the European Union against specific elements of the EC’s decision of 18 November 2009. The first element involves ING and the Dutch State’s agreement upon a reduction of the repayment premium for the first EUR 5 billion tranche of core Tier 1 securities. This agreement provided the Dutch State with an early repayment and at an attractive return. The Commission views this reduction as additional state aid of approximately EUR 2 billion. Both ING and the Dutch State contest this element of the decision, as it could hamper discussions between ING and the State on repayment terms of the remaining core Tier 1 securities.
ING also seeks a ruling on the price leadership restrictions and the proportionality of the restructuring requirements demanded by the EC. ING believes it is in the interest of all its stakeholders to use the opportunities provided by law to let the General Court review these elements of the EC’s decision. The appeal does not alter ING’s commitment to execute its Restructuring Plan as announced on 26 October 2009. ING stands firmly behind its strategic decision to separate Banking and Insurance operations and divest the latter. These processes are on track and will continue as planned.
result of the agreement, ING was able to repurchase EUR 5 billion of the core Tier 1 securities at the issue price (EUR 10 per security). The total payment amounted to EUR 5,605 million and consisted of a repayment of the EUR 5 billion principal amount plus accrued coupon from 12 May 2009 to 20 December 2009 of EUR 259 million and a premium of EUR 346 million.
Furthermore, in order to obtain approval from the EC on our restructuring plan, additional payments will be made to the Dutch State for the IABF, corresponding to a reduction of 50 basis points on the funding fee monthly received by ING and an increase of 82.6 basis points on the guarantee fee annually paid by ING. In total, these annual extra payments amounted to a net present value of EUR 1.3 billion, which was booked as a one-time pre-tax charge in the fourth quarter of 2009. Under the agreement, the IABF as announced in January 2009, including the transfer price of the securities of 90%, will remain unaltered.
Total net result of the Group decreased by EUR 206 million to EUR –935 million. This net loss reflects a one-time after tax charge due to an accrual of additional future payments to the Dutch state of EUR 930 million after tax for the IABF as part of the agreement with the EC announced in October 2009. On an underlying basis, ING posted a positive net result of EUR 748 million for the full-year 2009, compared with a loss of EUR 304 million in 2008, as financial markets began to stabilise and operating conditions improved. As a result of our Back to Basics programme, operating expenses, included in underlying result, were reduced by 6.9%, or EUR 987 million (pre-tax).
Underlying net result is derived from total net result by excluding the impact from divestments and special items. Special items were
Underlying result before tax, excluding market impact, risk costs and vA assumption changes 8,767 7,023 7,393 5,263 1,374 1,760 Subprime RMBS –350 –120 –160 –81 –190 –39 Alt-A RMBS –1,405 –2,063 –1,245 –1,823 –160 –240
Other ABS –37 –4 –37 –4 0 0 CDO/CLO 133 –394 –1 –122 134 –272
Real Estate / Private equity –2,100 –1,587 –1,687 –732 –413 –855 Capital gains on debt securities 33 –106 –19 0 52 –106 Other market impact 244 –220 –241 –206 485 –14 total market impacts –4,742 –6,674 –3,520 –3,534 –1,222 –3,140 Loan loss provisions Bank –2,973 –1,280 –2,973 –1,280 0 0 Variable annuity assumption changes –343 0 0 0 –343 0 total market volatility, risk costs and variable annuity assumption changes –8,058 –7,954 –6,493 –4,814 –1,565 –3,140 Underlying result before tax 709 –931 900 449 –191 –1,380 Tax and third party interests –38 –627 –61 –273 23 –354 Underlying net result 748 –304 961 722 –214 –1,026 Divestments and special items –1,683 –425 –1,261 –267 –422 –158 total net result –935 –729 –299 454 –636 –1,183 * Numbers may not add up due to rounding.
EUR –1,759 million after tax and included the aforementioned one-time charge due to an accrual for additional future payments to the Dutch state of EUR 930 million and a EUR 554 million restructuring provision, which was predominantly related to headcount reductions for ING’s Back to Basics programme. Furthermore, special items included a restructuring charge of EUR 165 million, as a result of the merger of ING’s retail banking activities in the Netherlands and a loss of EUR 110 million due to the IABF with the Dutch State in the first quarter 2009. The positive net impact of divestments was EUR 77 million in 2009 compared with a loss of EUR 98 million in 2008.
In addition to the market impact, the 2009 result reflected a EUR 343 million pre-tax charge related to changes in variable annuity assumptions in the Insurance operations. Additions to loan loss provisions for the Banking activities were up EUR 1,693 million to EUR 2,973 million, reflecting the distressed economy. Basic earnings per share decreased to EUR –0.57 from EUR –0.27 in 2008. Capital and leverage ratios remained sound. Shareholders’ equity almost doubled from EUR 17,334 million to EUR 33,863 million, driven by the net proceeds of the rights issue and the improvement of the revaluation reserve for debt securities. The debt/equity ratio of ING Group was 12.4%. The debt/equity ratio of Insurance ended the year at 9.7% while the Tier 1 ratio of ING Bank stood at 10.2%. ING Bank’s solvency ratio (BIS ratio) ended at 13.5%.
Also, we simplified the governance structure and made a number of divestments as a result of a preliminary portfolio review. Meanwhile, we worked closely with the Dutch authorities and obtained the EC’s approval for the support received from the Dutch State. This process acted as a catalyst for the next step in the Back to Basics programme, i.e. the full separation of the banking and insurance operations.
SEPARAtING BANKING ANd INSURANCE In October 2009, ING announced a clear course for the future. The Group is moving towards separation of its banking and its insurance operations. Thereby, we are taking the operational separation of the Bank and the Insurer/Investment Manager, that was initiated within the scope of the Back to Basics programme launched in April 2009, one step further (for more information about Back to Basics please refer to the section ‘ING and the financial environment’). The decision to separate is the right decision at the right time and was taken for the following reasons: Due to our rapid growth in recent years, managing the Group • was becoming increasingly complex, as Banking and Insurance (including investment management) not only have different drivers in their business models, but they also face different challenges in managing and pricing risk as well as in managing balance sheet exposures and capital needs. In the past, especially in a benign economic environment, we • enjoyed a material capital benefit, as our diversification allowed us to utilise double leverage at our holding company. However, under less favourable market circumstances, this element of ING’s capital structure has appeared to be less beneficial. There is insufficient geographic overlap of insurance • manufacturing capabilities with bank distribution capabilities. Hence, banks today do not need to manufacture in-house, the insurance products they distribute. Finally, we are seeing an increased demand for greater • simplicity, reliability and transparency.
In addition to these reasons, we also wanted to reach a timely resolution in the discussions with the European Commission (EC) about the support received from the Dutch State. Expediting the decision to separate our banking and insurance operations enabled us to meet EC demands to reduce our overall balance sheet, while maintaining as much as possible the strategic integrity of both parts of the business. For all these reasons, ING believes that the future of the Group will be best served by separating its banking and insurance operations. We will explore all options, including public offerings, sales or combinations thereof, taking into consideration all options to balance the interests of all stakeholders.
ING has a promising starting position. We are one of the largest savings banks in the world and our funding base is strong. We have a leading position in our home markets and our direct banking model is based on efficiency and innovative distribution, which are reflected in a low cost base and high customer satisfaction rates. On these strong foundations, we aim to build a leading retail, direct and commercial bank, anchored in the Benelux and predominantly focused on Europe with attractive growth options in Central Europe, Turkey and selected markets throughout Asia. ING will build on its global presence and international network and capitalise on its leadership position in gathering savings, multichannel distribution, simple propositions and marketing, in particular through ING Direct. Cost leadership, superior customer service, innovative distribution and good corporate citizenship will be the key levers for our future development.
Although the actions needed to ensure success will vary across regions and product lines, we can already determine the main features for each business line: • Retail Banking: The transformation programmes in The Netherlands and Belgium will be continued to enhance customer centricity, streamline the business, reduce costs in our branch networks, expand our distribution capabilities and enhance cross-selling of different products to retail customers. Accordingly, ING will further simplify its product lines in the rest of Europe and Asia and use its experience in direct banking to expand its innovative distribution platforms. ING Direct:• We will continue to serve the needs of our customers by delivering simple and transparent retail banking products at attractive prices and further strengthen our competitive advantage through excellent service and cutting edge distribution capabilities ensuring maximum convenience. We will further deepen customer relationships and offer an even more complete range of products and services. • Commercial Banking: We will serve large corporations in the Benelux and Central Europe by offering a full range of products, from cash management to corporate finance. Across our international network, we will pursue a more selective approach. We will concentrate on creating cost advantages by leveraging local scale and reducing costs through IT and process improvement. Cross-selling efforts will be increased and we will capitalise on our expertise in fixed-income products in emerging markets to further strengthen our financial markets business.
2010 will be a year of transition, and it will not be without challenges, as we work towards the operational separation of the banking and insurance businesses. We will approach this process with the utmost care and diligence to ensure an orderly and equitable separation. At the same time we will continue to work to improve the performance of both parts of the business for our customers and shareholders, by rationalising our product offering, simplifying our processes and investing in further improvements in customer service. Through this process we will create strong and independent companies that can go forward to forge their own futures.
While implementing the strategic changes, we will do our utmost to maintain the confidence of our stakeholders and be a good corporate citizen. Only by acting with professionalism and integrity will we be able to maintain our stakeholders’ trust and preserve our Company’s reputation. Our Business Principles play an important role in this respect, as they clearly prescribe the corporate values we pursue in both Banking and Insurance and the responsibilities we have towards society and the environment: we act with integrity, we are open and clear, we respect each other and we are socially and environmentally responsible. Throughout our entire organisation, we will promote people-oriented leadership and drive for excellence, as we are extremely proud of our highly skilled and engaged employees.
CONClUSIONS ANd AMBItIONS Without any doubt, 2009 was one of the most challenging years in the history of ING. In recognition of the increased demand for simplicity, reliability and transparency, we decided to start moving towards separation of our banking activities and insurance activities. This will help us simplify our organisation, enabling it to adapt itself more quickly, improve its efficiency and serve its customers better. On top of that, we took action to repay half of the capital we received from the Dutch State thanks to a successfully completed rights issue.
Our goal is to reinforce our position as a leading international retail, direct and commercial bank and to create an optimal base for a bright future of our insurance operations. While realising this ambition, we will do our utmost to maintain the confidence of our stakeholders and be a good corporate citizen. In the pursuit of our universal ideal of delivering an easier customer experience, we will continue to deliver financial products and services in the way that our customers want them delivered: with exemplary service and convenience provided at attractive prices.
CREAtING AN OPtIMAl BASE FOR A BRIGht FUtURE FOR INSURANCE Our strong position as a global insurer focused on life insurance and retirement services gives us a competitive advantage, especially in the current market environment. The substantial reduction in asset values which we have seen over the past two years has not only reinforced customer demand for wealth accumulation, but also raised consumer awareness of the need for financial protection. ING Insurance is very well positioned to capitalise on these socio-economic trends. We have promising positions in a number of large markets (China, Brazil), are a leader in the mature markets of the Benelux and the US, and we also have strong positions in Central Europe, Latin America, and Asia.
US: Operations are being refocused on three core businesses: • retirement services, rollover annuity and individual life insurance. Latin America: We plan to continue growth by leveraging our • strong presence in the life insurance and pensions markets (mandatory and voluntary). We will focus on operating efficiency, product diversification, and innovation. Asia: We will focus on fewer, coherent and strong businesses. • During 2009 we already put the SPVA business in Japan on run-off and sold our insurance business in Australia and New Zealand. Central and Eastern Europe: Our main priority will be to further • improve efficiency. We will establish one integrated regional platform and reduce the administrative costs. Investment Management: We will capitalise on the strong • investment performance in 2009 to strengthen our asset base and attract new customers. Further, we are reviewing synergies by creating a globally coordinated Investment Manager.
We have identified opportunities to further improve our CR policies. It is of the utmost importance that we fulfil our responsibilities towards society and constantly review them. To monitor global issues, understand sensitivities and receive feedback on our behaviour, we engage with our stakeholders in an open and honest dialogue and adapt our policies when necessary.
We have been measuring our CR performance since 1995 and today we use 10 key performance indicators. The results for 2009 are set out below: PROGRESS IN 2009 ING BUSINESS PRINCIPlES REFREShEd In 2009, ING launched a refreshed set of Business Principles and started a corresponding employee awareness campaign. ING first launched its Business Principles in 1999. Every five years the Principles are revised to ensure their relevance in a changing environment – the previous revision was in 2004. The 2009 employee engagement survey indicated that awareness of the principles had decreased, so we decided to take action. Only if all ING employees act with professionalism and integrity will we be able to maintain our stakeholders’ confidence and preserve our Company’s reputation. The principles play an important role in this respect, as they clearly prescribe the corporate values we pursue in both banking and insurance, and the responsibilities we have towards society and the environment.
In light of both international agreements banning anti-personnel landmines and cluster munitions and society’s general concern over depleted uranium ammunition, biological and chemical weapons, we consider these weapons to be controversial. ING will not provide financial services to companies involved in these kinds of weapons. ING will not invest its proprietary assets in controversial weapons companies and will, with the exception of discretionary mandates and trackers (ETFs), and wherever legally possible and independently enforceable by ING, ensure customer funds are not placed in such companies through ING managed funds.
In 2009, ING Retail in the Netherlands entered into a partnership with Igogreen to offer car insurance customers the opportunity to offset their car’s CO2 emission with investments in sustainable projects such as renewable wind and biomass energy. The amount of sustainable assets under management was EUR 2,524 million in 2009.
ClIMAtE ChANGE ACtION Environmental protection is a fundamental part of our commitment to responsible business and ING is doing what it can to help find solutions for climate change. For example, along with nine other Dutch banks, we issued a joint statement appealing to participants at the Copenhagen climate conference to reach clear agreements on sustainable energy. We also called on the Dutch government to create favourable investment conditions for a swift transition to sustainable energy sources. To focus greater attention on the financing of and investment in sustainable energy, we are evaluating our portfolio and assessing opportunities.
There was record participation and more funds were raised than in 2008. While the number of countries in which ING has operations declined in 2009 compared to 2008, the number involved in the Global Challenge actually rose, from 29 in 2008 to 33 in 2009.
MORAl ANd EthICAl StAtEMENt The renewed ING Business Principles more than cover the principles of the Dutch Banking Code with respect to moral and ethical conduct. Our Executive Board members have signed a statement with the promise to respect and enforce the ING Business Principles. In addition, the members of the Management Board Banking have signed the moral and ethical conduct declaration as defined in the Dutch Banking Code. For more information on ING and the Dutch Banking Code, please refer to www.ing.com.
FINANCIAl EdUCAtION INItIAtIvES We strive to enhance the financial capability of consumers of financial services in general and our own customers in particular. A first step in achieving this is to provide clear and transparent information that helps customers understand our products and services. We have developed a number of practical tools to help them get a better insight into their personal financial situation and simplify their financial decision-making.
FINANCE ANd INvEStMENt POlICIES: CONtROvERSIAl WEAPONS Our vision on ethical topics, the environment, people and society is translated into policies which we apply all over the world. We take into account the demands and concerns of our stakeholders, based on a continuous dialogue with customers, employees, and shareholders, as well as with organisations involved in issues concerning human rights or climate change. As a result, we are able to constantly evaluate our policies and adjust them when necessary.
A clear example of this is our Defence Policy. In 2008, we began evaluating the policy to meet the changing demands and expectations of our customers, employees and wider society with regard to financial institutions’ finance and investment decisions on controversial weapons. This led to a number of changes in 2009.
KEy PERFORMANCE INdICAtORS 2009 ING has identified 10 KPIs for its CR reporting. These KPIs relate directly to the ING CR strategy and are used by ING to measure CR performance within ING.
Equator Principles Number of projects reviewed 77 135 Sustainable assets under management (2)
Report. (3) Satisfaction scores are based on the American Customer Satisfaction Index
(4) ING engagement index is the percentage of ING employees that have indicated that they are proud to work for ING. The research was carried out by Kenexa.
Around 17,000 ING employees were involved – 16.2% of our global staff, up from 10% in 2008. They volunteered a total of 35,551 hours of their time, raised EUR 992,801 and made a difference to the lives of 51,470 children.
StAKEhOldER dIAlOGUE INtENSIFIEd We have taken a number of initiatives to be more transparent and open for feedback about our environmental, social and ethical standards. For example, we have started a series of dialogue sessions on ING’s role in society, the first of which was organised in 2009. Our CEO and top management engaged in dialogue with customers, social partners, non-governmental organisations (NGOs), media, policy makers, academia and investors. We also launched a new website (www.ingforsomethingbetter.com) to explain clearly what we do and why we make certain choices. ING employees around the world use it to share ideas with their colleagues and find opportunities to make a difference by joining one of our community investment projects on education and the environment.
GOAlS FOR 2010 To ensure that CR is an integral part of our corporate strategy, • our social, ethical and environmental objectives will be quantified and used as a measure of performance in the Remuneration policy of the Executive Board’s variable pay programme. We will set up a programme to support sustainable • entrepreneurship. We aim to ensure that all consumer deposits and savings in • the Netherlands are reinvested in such a way that they will have no negative social or environmental impact. We will set up a programme for top managers to develop • themselves by working on real-life cases at NGOs in developing countries. We will endeavour to increase our sustainable assets under • management by 5-10% more than our total assets under management and develop new sustainable products or services.
For more information on ING’s CR strategy and performance, see our Corporate Responsibility Performance Report 2009 to be published on 6 April 2010 and www.ingforsomethingbetter.com.
ING seeks to maintain a strong capital position and to allocate capital efficiently across the Group. The exceptional market conditions in 2008 and in early 2009 had a significant negative effect on Shareholders’ equity. ING took a number of steps to further strengthen its capital position throughout 2009.
MARKEt CONdItIONS Market conditions reached a low for the year at the end of the first quarter, but gradually improved over the remainder of the year. The European Central Bank (ECB) kept short-term interest rates low throughout the year. Equity, fixed income and real estate impairments negated underlying profitability.
IllIQUId ASSEtS BACK-UP FACIlIty In order to mitigate the impact of the crisis, ING Group negotiated an Illiquid Assets Back-up Facility with the Dutch State in January 2009. Through this facility ING Group transferred 80% of its Alt-A RMBS portfolio in ING Direct USA and ING Insurance US at a price of 90% of par in return for a government note. This reduced Risk Weighted Assets (RWAs) by approximately EUR 13 billion.
REStRUCtURING PlAN FIlEd WIth EUROPEAN COMMISSION Under European Commission rules, companies that received state support in the context of the financial crisis are required to submit a restructuring plan to demonstrate their long-term viability and prevent undue distortion of competition. In November, the European Commission formally approved the restructuring plan submitted by ING. For more information, please see the section ‘ING and the financial environment’.
GROUP EQUIty Adjusted equity of ING Group rose from EUR 46 billion to EUR 49 billion, while shareholders equity increased from EUR 17 billion to EUR 34 billion. The two graphs on the left explain these developments.
In adjusted equity, the fixed income revaluation reserve is added back, given the asymmetry of the accounting for assets and liabilities, where available-for-sale assets are marked-to-market through shareholders’ equity while most financial liabilities are booked on an amortised cost basis. Adjusted equity improved by EUR 3.3 billion of which EUR 1.7 billion as a result of the net proceeds of the rights issue exceeding the repayment of the core Tier 1 securities to the Dutch State.
Fi xe d in co m e re va lu at io ns ca sh fl ow h ed ge
Group did not raise hybrid Tier 1 capital during 2009. Due to the financial crisis, the markets attach less value to hybrids in general. To reduce the hybrid ratio at ING Insurance, the Group on-lent EUR 1 billion of hybrids to ING Bank, which were previously on-lent to ING Insurance.
Tier 1 capital at Bank increased from EUR 32 billion to EUR 34 billion, further strengthening the Bank’s Tier 1 ratio from 9.3% at the end of 2008 to 10.2%. The net profit of Bank was EUR 0.7 billion. RWAs decreased from EUR 343 billion at the start of the year to EUR 332 billion at the end of the year. Basel I RWAs also decreased from EUR 477 billion to EUR 448 billion. The nominal balance sheet of Bank decreased considerably from EUR 1,035 billion to EUR 882 billion (-15%) as part of our deleveraging program. The difference between nominal balance sheet growth and the growth of RWAs can be explained by the relative reduction of money market activities. Nominal lending by Bank declined from EUR 598 billion to EUR 552 billion, a decrease of 8%. The debt/ equity ratio of Insurance increased from 8.8% to 9.7%. The hybrid ratio of Insurance was brought back below the 25% target by moving excess hybrids to Bank.
ACQUISItIONS ANd dIvEStMENtS In 2009, ING divested several businesses as part of its Back to Basics strategy of focusing on fewer, but stronger businesses.
ING continued to take risk mitigating measures, but was still negatively impacted by markets that remain illiquid, even though some markets improved during 2009. Primarily markets for real estate, and assets with real estate underlying, remained impacted by continued turmoil. 2009 was also the year of proposed changes in regulations, many of which may impact risk management, risk measurement and the financial condition of ING going forward.
Next to the steps taken to reduce the risk profile via risk mitigation, ING also worked on applying lessons learned from events in previous years. These lessons applied primarily to risk governance, risk measurement and risk appetite. The risk governance was enhanced with a Risk Committee at Supervisory Board level. During 2009 ING worked on further improving and simplifying the risk measurement and appetite methodology.
ING’S RISK MANAGEMENt ORGANISAtION Taking measured risks is part of ING’s business. As a financial services company active in banking, investments, life insurance and retirement services, ING is naturally exposed to a variety of risks. To ensure measured risk-taking ING has integrated risk management in its daily business activities and strategic planning. Risk Management assists with the formulation of risk appetite, strategies, policies and limits and provides a review, oversight and support function throughout the Group on risk-related issues.
ING Risk Management’s mission is to build a sustainable competitive advantage by fully integrating risk management into daily business activities and strategic planning. The following principles support this objective: products and portfolios are structured, underwritten, priced, • approved and managed appropriately, and compliance with internal and external rules and guidelines is monitored; ING’s risk profile is transparent, managed to avoid surprises, • and consistent with delegated authorities; and transparent communications are maintained with internal and • external stakeholders on risk management and value creation.
In recent years, ING has systematically improved its risk management capabilities with investments in people, governance, processes, measurement tools and systems. This has become necessary as investor demands have increased, and regulation continues to evolve with market practices.
Pre-tax P&l impact impairments, fair value changes and trading losses in EUR million 2009 2008
US subprime RMBS –350 –120 Alt-A RMBS –1,405 –2,064 CDOs/CLOs 133 –394 CMBS –25 0 total –1,647 –2,578
US subprime RMBS 1,428 –811 Alt-A RMBS 2,964 –239 CDO/CLO 4,087 –127 CMBS 7,711 –1,834 total 16,190 –3,011
In 2009, as part of the lessons learned, ING has redefined its risk appetite framework. The updated framework is more closely aligned with Capital Management targets. The crisis also demonstrated that capital requirements and especially changes in capital requirements can become a bottleneck. In order to address the risk of changes to capital requirements as a result of changing market circumstances ING has developed some new metrics, such as ‘Risk-Weighted Assets at Risk’ (RWA@Risk) to improve the manageability of risk-weighted assets for ING Bank, and ‘local solvency at risk’ for ING Insurance. The revised framework has been implemented in 2010, and will be further rolled out.
ING’S ASSEt BASE ING primarily collects retail savings around the world and invests them in various assets. As one of the world’s largest savings banks, ING’s substantial and high-quality balance sheet was EUR 1,164 billion at the end of 2009. Apart from financial assets at fair value through the P&L, ING has two other main blocks of assets in its balance sheet. There is EUR 579 billion consisting of well-rated or collateralised corporate loans and mortgages. Another EUR 212 billion is in investments, 95.8% of which is invested in debt securities and 4.2% in equity securities. Finally, ING has EUR 233 billion in financial assets at fair value through profit and loss.
lIQUIdIty RISK MANAGEMENt At ING The availability of liquidity in the markets significantly improved over the course of 2009. Liquidity risk management remains a key issue. ING’s approach to liquidity management requires a surplus of liquid assets, liquidity contingency plans and close monitoring of market conditions. ING Bank benefits from a diversified funding base with customer deposits providing circa 60% of total funding. These customer deposits from retail and corporate clients are considered as relatively stable sources of funding.
As a consequence of the financial turmoil, bank regulators have increasingly consulted the financial industry on tighter liquidity regulations. Tighter regulations are expected to become operative in the coming years. In anticipation thereof ING increased its liquidity buffers.
CREdIt RISK MANAGEMENt Credit risk is the risk of loss from default by debtors (including bond issuers) or trading counterparties. Credit risks are split into five principal risk categories: • lending risk (including guarantees and letters of credit); • investments risk; • pre-settlement risk (derivatives, securities financing and foreign exchange trades); • money market risk; • settlement risk.
COMPlIANCE RISK MANAGEMENt ING believes that our compliance risk management practices are in the best interest of its customers, shareholders and staff, and is important for the way ING does business. Managing compliance with relevant laws, regulations and ethical/internal standards, in both letter and spirit, is essential for maintaining a good reputation. It also leads to lower operational risk costs and more stable business processes.
In 2009, updates to Financial Economic Crime-related Policies and Minimum Standards underpinned the importance of combating money-laundering and the funding of terrorist and criminal activities.
FURthER EMBEddING OF FINANCIAl ECONOMIC CRIME & ExtRAtERRItORIAl REGUlAtIONS ING’s commitment to prevent any involvement in criminal activity was reinforced by the review and updating of the Financial Economic Crime and Extraterritorial policies. In keeping with our obligation to provide consistent relevant education a series of specialised face to face training sessions were held for over 250 Money Laundering Reporting Officers. These global events not only provided information on the updated policies but also gave a valuable opportunity to share best practices.
ING INSURANCE – INSURANCE RISKS Actuarial and underwriting risks are risks such as mortality, longevity, morbidity, adverse motor or home claims development, etc., which result from the pricing and acceptance of insurance contracts. In general, these risks cannot be hedged directly in the financial markets and tend to be mitigated by diversification across large portfolios. They are therefore primarily managed at the contract level through product design requirements as set by ING’s Insurance Risk Management function, independent product approval processes, risk limitations and standard underwriting policies related to insurance policy terms and conditions agreed with the client.
For portfolio risks which are not mitigated by diversification, the risks are managed primarily through concentration and exposure limits and through reinsurance and/or securitisation. For non-life insurance, risk tolerance levels are set for catastrophic events (e.g. natural perils such as storms, earthquakes and floods) and for individual risks.
ING INSURANCE – MARKEt RISKS ING Insurance is exposed to market risk to the extent to which the market value of surplus can be adversely impacted due to movements in financial markets; these include interest rates, equity prices, implied volatilities of options, foreign exchange rates and real estate prices. Changes in financial market prices impact the market value of ING’s current asset portfolio and hedging derivatives directly as well as the calculated market value of ING’s insurance liabilities.
Underlying operating expenses declined 5.6% to EUR 9,439 million, driven by cost containment initiatives as part of the Back to Basics programme. This decline was realised despite higher impairments on real estate development projects, increased deposit insurance premiums at ING Direct, and the provision taken for the deposits guarantee scheme in the Netherlands following the bankruptcy of DSB Bank.
The underlying net addition to the provision for loan losses increased to EUR 2,973 million from EUR 1,280 million in 2008. Risk costs in 2009 were 102 basis points of average credit-risk- weighted assets (compared with 48 basis points in 2008).
Eric Boyer de la Giroday vice-chairman and CEO Commercial Banking hans van der Noordaa CEO Retail Banking Benelux
Underlying result before tax declined 9.3% to EUR 1,534 million in 2009, driven by a strong increase in risk costs, while a slight decline in income was more than offset by lower operating expenses. Total result before tax declined 18.0% to EUR 1,164 million, as 2009 included EUR 370 million of charges recognised as special items related to the merger of the retail operations (Postbank and ING Bank) in the Netherlands and the cost savings programme announced in April 2009.
Solid performer with a clear and consistent customer focus strategy 1.2 Report of the Executive Board
In February 2009, the Dutch retail bank ING (combining Postbank and ING Bank) was created. The new bank, based on the internetfirst model, serves over 8 million retail clients and 600,000 business customers. This large customer base offers room for growth and the opportunity to increase income by increasing cross-selling to clients. The significant reduction in the cost base derived from the integration puts ING in an excellent position to benefit from future market recovery.
By the end of the year, 200 branches had been converted into the new multi-channel service concept, which offers customers the options of banking – like in Belgium – from home via the internet, telephone or email, or by visiting branches for personal advice.
The economic slowdown meant there was less appetite for borrowing from businesses and individuals. However, ING remained committed to providing loans to businesses and by year-end the total outstanding portfolio (including consumers) had increased to EUR 242.7 billion. As part of the Illiquid Assets Back-up Facility with the Dutch State, ING agreed to support the growth of Dutch lending to businesses and consumers by making available EUR 25 billion for lending at market-conforming terms. ING exceeded the EUR 25 billion commitment and lent EUR 26.2 billion in 2009.
In 2009, clients opened 60,000 new online accounts. The business benefited from successful product innovations, and since the launch of the new model more than 340,000 online products have been sold. The increased focus on direct channels resulted in lower costs.
COUNtRy dEvElOPMENtS In the Netherlands, underlying result before tax declined 30.2% driven by a 10.6% decline in income due to lower interest margins while risk costs doubled, in part offset by 12.6% lower expenses. In Belgium, result before tax rose 76.6% due to 18.6% higher income and 6.7% lower expenses and despite substantially higher risk costs. In Central Europe, result before tax rose to EUR 88 million from EUR 17 million in 2008, driven by strongly improved results in Turkey while results in Poland declined. In Asia, a EUR 67 million loss before tax was realised compared with a profit of EUR 50 million in 2008, due to 8.1% lower income and a sharp increase in risk costs, mainly at Private Banking.
BUSINESS dEvElOPMENtS Though 2009 was characterised by high market volatility and an uncertain economic environment, consumer trends remained unchanged: clients were increasingly searching for simple products at a fair price and accessible through the channels of their choice. This meant the goal of improving products and processes to meet customer needs and regain their trust remained a priority. Reducing cost, balancing the product mix and putting a high priority on risk management were additional key elements of the strategy to weather the financial crisis.
In 2009, Retail Banking’s short-term emphasis was on cost reduction, derisking and deleveraging, without losing sight of long-term objectives. Good progress was made on all fronts. Of the targeted EUR 200 million in cost savings for Retail Banking, EUR 333 million was realised by year-end. On top of this, ING saved EUR 100 million by integrating its two Dutch retail banks, Postbank and ING Bank, and staffing was reduced by 907 FTEs as a result of the merger. Retail Banking also reduced staffing levels by 2,266 full-time equivalents by year-end.
Derisking measures progressed well. ING focused in particular on managing its mortgage risks and tightened its underwriting criteria in lending. Margins on lending rose, reflecting higher risk premiums. ING also decided to close its retail banking operations in Ukraine, a market it entered successfully in 2008.
BENElUx: NEW dIStRIBUtION MOdEl Changing market conditions and customer behaviour led to a shift in the business model of the retail banking operations in the Benelux. Two years ago, ING combined its strengths into a new distinctive ‘direct when possible, advice when needed’ model that became the basis of ING’s strategy. In its mature markets, ING’s long-term strategy is to concentrate on this model and consolidate branches to save costs. Also in other markets, ING is evolving to the same model.
The transformation initiatives in the Benelux progressed well and are giving ING a head-start on competitors.
In Thailand, ING has a 30% stake in TMB Bank, a universal banking platform with a nationwide network. TMB’s transformation towards becoming a leading bank with world-class financial solutions is progressing well. There was good momentum in building brand awareness, greater efficiency and a stronger customer service culture at branches.
PRIvAtE BANKING In October 2009, ING announced the sale of its private banking activities in Asia and Switzerland. These divestments are part of the transformation strategy to take the Group Back to Basics and to reduce complexity by having fewer businesses and markets. ING stays committed to private banking in domestic markets. Given the pressure on the growth of offshore private banking, ING decided to focus on acceleration of onshore private banking in core markets. ING wants to focus on creating a strong onshore private banking franchise, and so ING Private Banking in the Benelux and Central Eastern Europe remain integral parts of the Group.
ING Bank Slaski is the most internet-oriented bank in Poland and fast becoming the customer’s bank of choice. It is well-positioned to capture growth and, thanks to its prudent approach to lending, in a good position to reinforce those growth efforts and benefit from improved margins. The number of clients increased by 161,400 to 2.77 million.
Underlying operating expenses decreased 3.3% to EUR 1,663 million despite a sharp increase in deposit insurance premiums in the US and Germany. The decline reflects strong cost containment, reduced marketing expenses and the cancellation of the Japan start-up. Excluding impairments, the underlying cost/income ratio improved to 52.7% from 62.1% in 2008.
Total underlying* income 1,762 878 Underlying* operating expenses 1,663 1,719 Underlying* additions to loan loss provisions 765 283 Underlying* result before tax –666 –1,125 Total result before tax –641 –1,155 Underlying* cost/income ratio 94.4% 195.9% Client balances (EUR billion) 353.8 308.3 Net production client balances (EUR billion) 34.2 23.3 Risk-weighted assets (EUR billion) 69.3 67.9 Underlying* after-tax RAROC –1.0% –18.2% Underlying* economic capital (EUR billion) 4.2 3.4 * Underlying numbers are derived from IFRS-EU numbers, excluding the impact of divestments and special items.
* Launch year in brackets. ** Early 2009, it was decided not to launch operations in Japan.
Net production of total funds entrusted at ING Direct across all nine countries was EUR 22.2 billion. Including positive currency and market performance effects, funds entrusted amounted to EUR 217.1 billion at year-end.
Mortgages – controlled growth in mortgage lending A focal point in 2009 was the controlled growth in mortgage lending, as the bank continued to adhere to strict underwriting policies and acceptance standards. In all countries, new mortgage production remained moderate, falling compared with 2008, while margins increased.
BUSINESS dEvElOPMENtS ING Direct continued to focus on providing retail customers in nine major developed countries with five simple, competitive banking products: savings, mortgages, payment accounts, investments and consumer lending. These products are providing an increasingly diversified income stream, thereby reducing reliance on savings earnings and reducing earnings volatility.
Due to a strong increase in deposit insurance premiums, ING Direct did not fully achieve its ambition to lower expenses during the year by about EUR 150 million. The internal and external staff headcount was reduced by 836 FTEs. ING Direct reduced its cost base by lowering marketing expenses, reviewing supplier relations and further improving operational processes.
ING will build on its global presence and international network and capitalise on its leadership position in gathering savings, multi-channel distribution, simple propositions and marketing, in particular through ING Direct.
CUStOMER SAtISFACtION – CUStOMERS COME FIRSt Since it was first established, ING Direct has enjoyed high customer satisfaction levels. It is perceived as innovative, reliable, good value-for-money, easy-to-deal-with and fair. In 2009, ING Direct ranked first or second in all nine countries on the Net Promoter Score, a recognised measure of customer satisfaction. During the year, ING Direct built on the 2008 initiative of chief quality officers with a customer-perspective end-to-end review of all services and processes.
ING Direct continuously strives to increase transparency. ING-DiBa was praised in 2009 by the German government for being first to introduce product information sheets following the government’s call for greater transparency around financial products. In December, ING-DiBa won the 2009 Innovation Award for its clear and transparent online product information. The award recognises innovations in retail banking that restore customer confidence in the financial sector.
ING Direct’s total brand awareness ranges between 75% and 99% in all the markets in which it operates.
CONClUSIONS ANd AMBItIONS ING Direct achieved positive commercial results, despite the continued market challenges, thanks to its ability to adapt pricing structures and product features to the changed economic environment. It rigorously monitored expenses, risk and capital and will continue to do so in 2010.
ING Direct aims to increase the number of payment accounts among its savings customers in the next three years.
ING Direct continued its strategy of putting the customer first and will continue to do so in 2010, while gradually expanding its product offering and broadening customer relationships. In doing so, it will maintain outstanding levels of customer satisfaction supported by state-of-the-art IT systems.
ING Direct’s US-based ShareBuilder continued to grow with 130,000 new customers acquired in 2009. With these new customers it brings the total number of ShareBuilder customers to over one million. Of the new accounts, 35% resulted from cross-sell efforts into ING Direct’s customer base, evidencing the synergies between the two companies.
Following increasing demand from customers, ING Direct Italy launched an online trading platform where customers can trade stocks, government bonds and exchange-traded funds.
By the end of 2009, Germany’s total securities portfolio, which includes e-brokerage, reached EUR 13.8 billion. Compared to 2008, this means a record-growth of 37%, or EUR 3.7 billion, mainly on account of the friendly stock-market climate and an increase in the investment volume. In addition to this, new customers continued to transfer portfolios to ING-DiBa. In 2009, the bank opened more than 80,000 new deposits.
Consumer lending – a stable product The fifth product, consumer lending, is offered in Canada, Spain, the US and Germany. ING Direct does not charge fees and pursues a low-profile marketing strategy for this offering. At year-end, the volume amounted to EUR 3.2 billion.
Number of clients, total funds entrusted, residential mortgage portfolio, assets under management/mutual funds
Clients in thousands Funds entrusted, residential mortgage portfolio and assets under management/mutual funds in EUR billion
Markets as well as Structured Finance and General Lending > Result before tax impacted by negative impairments and revaluations in Real Estate > Strong market penetration, lead bank position and landmark deal participation in home markets > Significant cost reduction achieved in 2009, but an increase in risk costs
Commercial Banking achieved a very strong commercial performance in what was again an extremely challenging year for the industry. The business was boosted by strong income growth in Financial Markets, Structured Finance and General Lending. However, overall results were significantly affected by negative revaluations and impairments on real estate. ING succeeded in reducing costs in 2009 but loan loss provisions increased. Commercial Banking remained dedicated to its Fitter, Focused, Further strategy in 2009, with the aim of becoming a leader in several key markets and products by the end of 2010. The success of this strategy was underscored by solid market penetration, lead bank standing and landmark deal participation in its home markets.
In 2009, net production in client balances was EUR –23.7 billion, mainly driven by a lower demand for lending, bringing the total to EUR 256.5 billion at year-end. In the fourth quarter of 2009, net production in client balances was positive again.
ExECUtING lANdMARK dEAlS ING completed a number of high-profile deals during the year which showcased its commitment to cross-selling and offering client solutions across regions. This resulted in improved league table positions, including number one bank by volume for M&A in the Benelux, number one Mandated Lead Arranger (MLA) and Bookrunner in the Netherlands, number two MLA in Russia, number three by volume for M&A in Central and Eastern Europe, and number four for Lease in Europe.
vOlUME GROWth IN GENERAl lENdING & PCM General Lending is used as an entry product in all regions to attract customers and to cross-sell other high-value products. Volumes decreased in General Lending over the course of the year. However, income for General Lending increased due to repricing the portfolio and widening lending margins in the first half of the year. Additional income from landmark deals with AB InBev and Gas Natural also lifted returns. These types of deals helped ING move into the leading book runner spot in 2009 in the loans league tables for the Benelux and Central and Eastern Europe.
This was mainly due to very unfavourable market conditions, which led to EUR 1,076 million in negative fair value changes on the direct and indirect real estate investments and impairments to an amount of EUR 619 million compared with EUR 663 million and EUR 60 million respectively in 2008. Excluding revaluations and impairments, underlying result before tax decreased by EUR 120 million from EUR 426 million in 2008 to EUR 306 million in 2009. This lower result is mainly due to lower transaction volumes.
BUSINESS dEvElOPMENtS Commercial Banking, which was renamed from Wholesale Banking in 2009, continues to play a fundamental role in ING Group. One of the main functions of the Group is to collect customer deposits and redeploy these funds as investments. Commercial Banking generates high-quality assets into which ING can invest retail deposits, and provides the Group with many relevant skills in financial markets, risk and specialist finance.
It conducts operations for corporate clients – from large companies to major multinationals – as well as for governments and financial institutions, and is made up of five product groups: General Lending & Payments and Cash Management (PCM), Structured Finance, Leasing & Commercial Finance, Financial Markets, and ING Real Estate. Commercial Banking’s primary focus is on its home markets in the Benelux, as well as in Central and Eastern Europe, where it offers a full range of products. Elsewhere, it takes a more selective approach to clients and products.
FOCUSEd StRAtEGy In 2009, Commercial Banking continued to execute its Fitter, Focused, Further strategy for 2008-2010, the aim of which is to become a leader in several key markets and products by the end of 2010. The strategy includes becoming the market leader in the Benelux, a top-five wholesale bank in Central and Eastern Europe, a global leader for Structured Finance and Financial Markets, and a regional leader for PCM and Leasing. Throughout the year ING was committed to achieving these medium-term leadership goals, as well as delivering an improved cost structure, operational excellence and growing the key market and product positions. In light of the market circumstances Commercial Banking decided to put its Financial Markets Emerging Markets initiative on hold, though it is expected to be resumed in 2010 when the markets stabilise. Commercial Banking also significantly contributed to the Group’s overall balance sheet reduction.
Commercial Banking worked hard to reduce risks and contain costs in line with ING’s Back to Basics programme. It significantly reduced risk in its Financial Market business, reflected by lower Value-at-Risk, and significantly reduced its exposure to high-risk industries such as automotive and construction. In October 2009, ING announced that it would move towards a complete separation of its banking and insurance operations as part of its review of the Group’s strategy and as a logical next step in its Back to Basics programme. ING’s banking activities will be based on its proven strengths of gathering savings, distribution leadership, simple propositions and strong marketing. The bank will be predominantly focused on Europe with selective growth options elsewhere, with Commercial Banking especially focused on the Benelux and Central and Eastern Europe, as well as key product areas and growth markets. Turn to the Strategy section, page 15, for further details.
ING REAl EStAtE ING Real Estate includes the Finance, Development and Investment Management businesses, which report to ING Commercial Banking.
The fee business of Real Estate Investment Management saw a decrease in its result before tax of EUR 7 million to EUR 73 million due to lower market activity. The result before tax of the Real Estate Investment Portfolio decreased from a loss of EUR 695 million in 2008 to a loss of EUR 1,173 million in 2009. This is almost completely related to the much higher negative fair value changes in 2009.
Real Estate Finance’s underlying result decreased from EUR 240 million in 2008 to EUR 181 million. Underlying income was higher, operating expenses were lower, but these were offset by substantially higher risk costs. The Finance portfolio was EUR 35.2 billion, down from EUR 37.0 billion by year-end 2008, due to limited market activity.
Real Estate Development reported a loss of EUR 470 million compared to a profit of EUR 78 million a year earlier. This was largely due to impairments and to a lesser extent to fair value changes. Excluding fair value changes and impairments the result decreased from EUR 66 million in 2008 to EUR 14 million in 2009. Operating expenses, excluding impairments, fell 29% following a significant headcount reduction. Total assets under management for Real Estate (Real Estate Investment Management and Real Estate Development) decreased slightly from EUR 69.5 billion to EUR 66.8 billion.
CONClUSIONS ANd AMBItIONS Commercial Banking made good progress in 2009 towards realising its Fitter, Focused, Further strategy and achieved strong results, despite negative impairments and fair value changes in Real Estate and higher risks costs. ING will continue on its course to becoming a leading European commercial bank with selective growth options in other regions. It will do so through continuing to secure important mandates and transactions, and by building on its expertise and international network to meet client needs globally. Risk and expenses will be managed carefully and the strategic focus will continue on key markets and product areas where it has a competitive advantage. In 2010, the bank will strengthen its Financial Markets platform and PCM capacity, and expand its coverage of financial institutions and clients in Belgium. Commercial Banking is a very important part of ING and will play an essential role in the formation of the new bank.
StRONG dEMANd FOR StRUCtUREd FINANCE Structured Finance, ING’s specialised finance arm, helps companies finance large capital projects and transfer risk through various products. Key segments of expertise are natural resources, telecommunications, media, finance and utilities. In 2009, solid income growth and declining costs at Structured Finance were more than offset by an increase in risk costs. Interest margins strongly increased since 2008 due to continued portfolio repricing. Commission income increased thanks to fees earned on waivers and restructuring.
lEASING & COMMERCIAl FINANCE IMPACtEd Leasing & Commercial Finance experienced a decline in earnings due to weak economic conditions that resulted in lower profits on the sale of leased assets and increased residual value provisioning, and an increase in risk costs. Expenses decreased as a result of cost-containment measures, including a decline in staff due to the integration of the Car Lease activities in Spain and the reorganisation of General Lease activities in Germany and France.
Income for ING Car Lease was adversely impacted by lower prices in the used vehicle market, resulting in lower returns from the sale of leased assets following contract termination and lapses. However, the market for second-hand cars in the Netherlands and the UK did show an improvement in the second half of the year. Risk costs rose over 2009 but were in line with the general market trend.
ING is diversifying away from higher risk businesses, including proprietary trading. The fixed income market was extremely buoyant due to the continued disruption of the loan syndication market. This resulted in a marked improvement in ING’s league table position in Euro sovereign bonds and Benelux corporate bonds. Financial Markets also saw strong results in interest rate related products, including government bonds, credit bonds and interest rate derivatives.
ING Insurance ranks as the number three life insurance company in the world based on premiums. It is a global leader in retirement services and has an attractive mix of mature businesses and strong market positions in growth markets.
Around the world, ING is the number one insurer in the Netherlands, is ranked as the third largest in defined contribution retirement savings plans in the US, is the second largest pension provider in Latin America, the largest life insurance and pensions provider in Central and Eastern Europe and the third largest foreign insurer in the Asia/Pacific region. Few other insurers have as strong a position in all three regions – Europe, Asia and the Americas.
Insurance results improved in 2009, bolstered by improved equity returns, narrower credit spreads and lower expenses. Insurance recorded an underlying loss before tax of EUR 191 million versus a loss of EUR 1,380 million in the same period in 2008. Total result before tax (including the impact of divestments and special items) was EUR 699 million in 2009 versus a loss of EUR 1,635 million in 2008.
The underlying pre-tax result for life insurance was a loss of EUR 458 million compared to a loss of EUR 1,814 million in 2008. The result was negatively affected by changes in variable annuities assumptions in the US and Japan. Underlying profit before tax from non-life insurance declined 38.6% to EUR 267 million from EUR 435 million in 2008.
Underlying gross premium income decreased by 20.1%, or 20.9% excluding currency effects, to EUR 30,179 million in 2009 from EUR 37,760 million in 2008 as a result of lower sales of investmentoriented products in the US, Japan and Central Europe.
Underlying operating expenses from Insurance operations declined 9.9% on a same-store basis, or 9.4% excluding the impact of currency movements, to EUR 3,849 million from EUR 4,273 million in 2008, as a result of cost-containment measures. In 2009, ING Insurance reduced the number of full-time equivalent positions by 5,151, exceeding the 2009 year-end target of 4,200.
Key points > Several new products launched across Europe > Single operating model introduced for Central and Rest of Europe > Focus on derisking, capital preservation and improved efficiency as part of Group’s Back to Basics programme
FINANCIAl dEvElOPMENtS Underlying profit before tax in 2009 slightly decreased to EUR 650 million from EUR 651 million in 2008, despite the recovery of financial markets over the course of the year. Positive 2009 result items included EUR 420 million higher private equity revaluations, EUR 261 million in lower operating expenses and a EUR 190 million improvement in the change in the provision for guarantees on separate account pension contracts (net of hedging). These positive elements were offset by lower public equity income of EUR 499 million due to lower corporate profits as well as ING’s derisking policy through equity securities divestments. Also, the (net) losses and impairments on fixed income investments increased by EUR 154 million compared with 2008. Profit sharing for policyholders in the Netherlands increased by EUR 88 million. The result on equity index options to hedge equity investments fell by EUR 56 million. Lastly, the Non-life underwriting result decreased EUR 97 million.
The weak economy had an increasingly negative impact on insurance premiums in Europe, especially in Central and Rest of Europe. Total premiums declined by EUR 444 million to EUR 9,750 million, as Life premiums decreased by EUR 480 million to EUR 8,025 million and Non-life premiums increased by EUR 36 million to EUR 1,725 million, in line with moderate inflation. Premium income in the Netherlands decreased by EUR 207 million and in Central and Rest of Europe by EUR 457 million, whereas premiums in Belgium and Luxembourg grew by EUR 220 million. In the Netherlands, premiums declined despite the one-time favourable impact of EUR 127 million from a change in group pension premium recognition, due to lower salary indexation on group contracts and fierce competition in the market for retail immediate annuities. Premium income in Belgium increased by EUR 73 million in 2009 to EUR 1,068 million due to sales of a variable annuity product introduced in early 2009. Premium income in Luxembourg increased by EUR 148 million to EUR 274 million driven by the introduction of a variable annuity product sold in Italy through the private banking arm of UniCredit and proprietary sales of a new whole life insurance product targeting affluent individuals in Belgium and Luxembourg. In Central and Rest of Europe, premiums decreased by EUR 457 million to EUR 2,029 million, including a EUR 147 million reduction caused by lower exchange rates of Central European currencies against the euro. The premium decline was concentrated in Hungary, Poland and Spain and was mainly due to lower retail single premium sales as well as a EUR 70 million group contract signed in Spain in 2008.
Central and Rest of Europe* 21% 2,029 * Bulgaria, the Czech Republic, Greece, Hungary, Poland, Romania, Russia, the Slovak Republic, Spain and Turkey.
BENElUx INSURANCE OPERAtIONS In the Benelux, the economic downturn negatively affected key insurance market drivers such as consumer confidence, employment and wage growth. In addition, competition increased in the Dutch retail life market, as banks are now allowed to sell certain savings products with tax benefits in the pension and long- term savings field as well. In this mature market, ING focused on increasing margins through efficiency improvements and rigorous cost containment to offset declining premiums. ING experienced volume growth in life products, especially annuities which are attractive to customers wanting guarantees. VNB was negatively impacted by changes in yield curves and the discount rate as a result of the economic climate.
funds in Poland, Hungary, Slovakia and Romania, yet the number of ING pension fund customers continued to grow.
In line with current market circumstances, life sales in Central and Rest of Europe fell 20% excluding currency effects. However, this had little impact on profit because expenses were reduced. Moreover, in the key markets of Hungary and Poland, ING’s market share in life insurance as well as its total number of policyholders continued to grow. In addition, Insurance Europe’s cooperation with ING Direct Spain and with bancassurance distributors, in countries like Greece, proved successful.
Single operating model Insurance Central Europe started work on creating a single operating model in 2009. The new model includes, among other things, a regional general ledger, a regional product framework and a harmonised IT platform. Furthermore, a region-wide operating Shared Services Centre in Cluj-Napoca, Romania, will begin operating for the entire Central European region in the course of 2010. Over time, a significant number of the region’s back-office activities will be concentrated at that centre. Once implemented, the single operating model will provide a solid foundation for future growth, enabling the business to increase its focus on customer service, brand and distribution.
PROdUCt dEvElOPMENt ANd INNOvAtIONS IN dIStRIBUtION The changed economic environment requires new product characteristics, increased efficiency and cost-effectiveness in distribution. In the Benelux, the shift in distribution mix from traditional intermediaries towards bank, internet players and mandated agents will allow ING to leverage its unique multichannel distribution network (internet, bank, independent brokers, captive brokers, own sales force).
In line with ING’s strategy of focusing on its core businesses, ING announced the sale of its non-state pension fund and discontinued its life insurance activities in Russia. In June, ING Greece announced it would withdraw from underwriting health insurance risks to focus on its core business of life insurance and retirement services.
In light of the decision to split ING Group and separate the insurance and investment management business from the banking activities, the short-term goal is to strengthen the profitability of the insurance and investment management businesses by continuing to reduce costs, investing in top-line growth and making the best use of our talent. Our long-term goal is to strengthen our insurance and investment management businesses further as world-class players.
FINANCIAl dEvElOPMENtS Insurance Americas’ improved profitability in 2009, posting underlying results before tax of EUR 61 million, up EUR 1,019 million from the loss reported in 2008. Underlying loss before tax in the US was EUR 219 million in 2009, a substantial improvement on EUR –1,117 million in 2008, mainly due to lower negative deferred acquisition cost (DAC) unlocking, lower investment losses and impairments, and lower operating expenses. In Latin America, underlying profit before tax improved 76.1% to EUR 280 million, led by strong results in the pension businesses.
Life sales (APE) decreased 28.7% to EUR 2,450 million in 2009, a decline which was concentrated in the US. The decrease was primarily caused by lower demand for investment-oriented products and the decision to limit variable annuity sales in the United States.
The net liability provisions remain sufficient by EUR 1.8 billion at the 50% confidence level.
Underlying* premium income 13,973 18,935 Underlying* operating expenses 1,611 1,753 Underlying* result before tax 61 –958 Total result before tax –246 –589 Value of new life business** 190 229 Internal rate of return (IRR) 11.9% 11.8% New sales 2,450 3,438 ** Underlying numbers are derived from IFRS-EU numbers, excluding the impact of divestments and special items.
** The Value of new life business and IRR for 2008 have been restated to reflect the corrected application of capital factors for the variable annuity business and modest adjustments to expense factors for both the variable and fixed annuity business.
Latin America* 1% 161 * Excludes ING’s joint venture in Brazil because it is a minority interest.
2009 marked the sixth consecutive year in which ING maintained its rank as both number one in sales for kindergarten through to 12th grade education markets and number two in small corporate plan sales.
COUNtRy dEvElOPMENtS UNItEd StAtES Premium income decreased 26.3% to EUR 13,812 million in 2009. The decrease was mainly due to lower variable annuity sales, where sales were intentionally reduced as fees were increased and benefit guarantees reduced. Operating expenses declined 7.0%, or 7.4% excluding currency impacts, due to lower staff cost, reflecting 12% reduction in FTEs since year-end 2008, and lower sales-related expenses. On a same-store basis and excluding currency impact, operating expenses decreased 20.7%. Underlying loss before tax was EUR 219 million in 2009, representing a substantial improvement from the EUR 1,117 million loss reported in 2008.
Lower negative DAC unlocking, lower investment losses and impairments, and lower operating expenses led the recovery.
The Americas businesses will remain focused on customers’ needs, providing retirement and life insurance products through a broad set of distribution channels in a transparent manner. Emphasis will remain firmly on product innovation with a focus on simplicity, lower costs, operational efficiency and outstanding customer service.
ING will build on work done in 2009 to broaden its commitment to the multicultural retirement services market. At the end of the year, ING expanded its multicultural sales team, particularly in retirement services. The multicultural markets are integral to the Company’s growth in the core businesses of retirement services, life insurance and financial solutions, given the strong growth rates in the Latino, African American, Asian and other diverse segments in the US and Latin American markets.
The legacy annuity business contains all annuities that were sold up until the beginning of 2010. ING substantially derisked its variable annuity products during the year, by repricing the products, reducing living benefit features, increasing hedging and adding a significant number of passive funds among other measures. This business is effectively being managed as a closed block of business, which will run off over the course of the next 20 years or so.
US INdIvIdUAl lIFE INSURANCE US Individual Life Insurance continued to benefit from its diversified product offering and broad distribution capacity. The business provides universal life policies as well as variable and term life products, and sells them through more than 80,000 independent insurance salespeople nationwide. During 2009, ING Life sold 159,000 policies, an eight-fold increase on the 17,000 policies ING sold in 2005, when a new life insurance strategy came into effect.
Total underlying income was 33.4% down from EUR 11,437 million to EUR 7,618 million, primarily due to the SPVA business in Japan. Fair value changes on derivatives used to hedge Japan’s guaranteed variable annuity benefits are reflected in ‘Total investment and other income,’ offset by a reduced increase in benefit reserves reflected in the underwriting expenditure.
New sales declined by 31.6% to EUR 1,024 million in 2009 compared with EUR 1,496 million in 2008. Excluding the discontinued SPVA business in Japan, new sales declined 24.2% to EUR 929 million from EUR 1,226 million in 2008. The decline was primarily due to 34.6% lower new sales in South Korea, resulting from continued pressure on investment-linked product sales for most of 2009 and a restructuring of the tied agency force. In Japan, new sales for our COLI business declined by 19.3%. The decline in South Korea and Japan was partly offset by doubledigit growth in Malaysia and Thailand, up 14.8% and 14.1%, respectively, thanks to continued strong sales through Public Bank in Malaysia and TMB Bank in Thailand.
Underlying* premium income 6,422 8,591 Underlying* operating expenses 599 702 Underlying* result before tax 220 –1 Total result before tax 543 –213 Value of new life business 127 177 Internal rate of return 13.3% 13.3%
BUSINESS dEvElOPMENtS Asia was hit hard by the global economic downturn. Export volumes contracted by 20-40% across the region, which triggered large cutbacks in production, employment and investment. Even so, economic performance in Asia outpaced that in other regions of the world, largely due to continued strong growth in China. ING is well-positioned to benefit as the life insurance sector regains momentum.
On 30 November 2009, ING closed the sale of its stakes in its life insurance and wealth management businesses in Australia and New Zealand. The transaction generated a net profit of EUR 339 million. The results of the divested units are excluded from the underlying results in 2008 and 2009. The total result before tax was EUR 543 million up EUR 756 million in 2009 from a loss of EUR 213 million in 2008.
COUNtRy dEvElOPMENtS In South Korea, underlying result before tax increased by 40.5% to EUR 229 million in 2009 from EUR 163 million in 2008. 2009 results were mainly affected by market related impacts, comprising negative revaluations on an equity derivative fund and credit linked securities and impairments on fixed income securities. Premium income decreased by 17.0% to EUR 2,731 million in 2009 from EUR 3,291 million in 2008 due to a decline in new sales that was partly offset by favourable in-force persistency. Operating expenses decreased by 25.3%, due to restructuring and other cost containment measures implemented throughout the year.
In Japan, the underlying loss before tax was EUR 46 million in 2009 from a loss of EUR 167 million in 2008. The SPVA business posted a loss of EUR 154 million in 2009 compared to a loss of EUR 238 million in 2008. The 2009 result was negatively impacted by a EUR 191 million adjustment on technical reserves in the fourth quarter due to changes in variable annuity lapse assumptions. Excluding the SPVA business, the underlying profit before tax for our COLI business rose 52.1% to EUR 108 million from EUR 71 million in 2008 on higher premium income, up 5.3% from a year ago, as well as improved investment results. Operating expenses fell 19.2% on a 27.9% decline in operating expenses for SPVA business. Operating expenses for our COLI business declined by 9.6% compared with a year ago.
In the Rest of Asia, the underlying loss before tax was EUR 27 million in 2009 compared with a loss of EUR 54 million in 2008. All major business units contributed to this growth. In 2009, our operations in Thailand broke even with an underlying result before tax of EUR 1 million, compared with a loss of EUR 12 million in 2008, on strong new business growth which led to 26% higher premium income coupled with strict expense control. In China, India and Hong Kong, the underlying results before tax rose on improved investment results and lower expenses.
CONClUSIONS ANd AMBItIONS Insurance Asia/Pacific continues to look to increase its sales and profit margins and build on its existing customer base of nearly five million. 2010 is expected to be a year of solid economic growth in Asia. ING retains a strong footprint in Asia in life insurance and retirement services, which is a valued franchise, and intends to take full advantage of its opportunities in some of the most attractive growth markets in the region to achieve its longer-term ambitions.
ING Life Japan stopped selling its existing range of SPVA products as a derisking measure. It remains committed to the COLI business where it has consistently maintained a market leading position with a strong product line-up and extensive network of valuable distribution partners. ING will continue to invest and support growth of the COLI business in Japan as this is an attractive business which generates a stable stream of profits. ING will explore opportunities to expand its product offering in this market and plans to revive its distribution relationships with the Japanese financial institutions.
In China, ING conducted a strategic review of its insurance activities and decided to focus on the growth of ING Capital Life Insurance Company, its joint-venture with Beijing Capital Group. ING therefore agreed to sell its 50% stake in Pacific Antai Life Insurance Company Ltd (PALIC) to China Construction Bank (CCB).
OPERAtIONAl StANdARdISAtION As part of ING’s ongoing commitment to invest in the insurance businesses as if it were the long-term owner, Insurance Asia/Pacific continued the roll-out of its regional operations strategy to standardise operations in order to reduce the costs per policy. This standardisation will enable the business units to increase efficiency and offer the opportunity to launch product offerings across multiple channels and markets.
On 25 September 2009, ING announced the sale of its 51% equity stakes in ING Australia and ING New Zealand to ANZ, its joint venture partner, for EUR 1.1 billion. The transaction was completed on 30 November 2009 generating a net profit for ING of EUR 339 million and freeing up EUR 950 million of capital. The sale of ING Life Taiwan to Fubon Financial Holding Co. Ltd. which was announced on 20 October 2008, was completed on 11 February 2009, releasing EUR 5.7 billion in Economic Capital.
FINANCIAl dEvElOPMENtS Assets under management (AuM) were EUR 343.2 billion at year-end 2009. Higher asset prices for equity and fixed-income securities resulted in a EUR 42.2 billion increase in the period together with a positive EUR 6.0 billion foreign exchange impact. However, net outflows of EUR 13.3 billion and outflows of EUR 6.5 billion related to divestments subtracted from overall AuM.
A UNIFIEd INvEStMENt MANAGEMENt StRAtEGy In 2009, as part of the Back to Basics programme, ING began work on bringing together the three regional IM businesses under one global leadership team.
Combining all three businesses in such a way allows for an enhanced, unified strategy across the three regions and provides further synergy opportunities in distribution and sales as well as in the areas of manufacturing, operations and administration. (More information in the Conclusions and Ambitions section at the end of this section).
General account assets 36.1% 124.0 Life insurance policyholders 10.5% 36.0 Third party 53.4% 183.2
ING IM Asia/Pacific Despite the uncertain economic climate, ING IM Asia/Pacific was successful in booking significant new and prestigious institutional mandates regionally and locally in markets such as Taiwan, Australia, Malaysia, the Philippines and Japan. These wins included ING IM’s first offshore equity mandate from a local government pension fund in Taiwan, and a EUR 67.9 million mandate for a Shariah compliant global equity portfolio from a key client in Malaysia. Institutional AuM in Asia Pacific rose by 7.1% over 2009.
In 2010, ING IM will focus on further developing its offshore funds sales throughout Asia, bringing the company’s global capabilities to local markets. This will complement retail market development in targeted countries including Hong Kong and Singapore.
The leadership team will principally focus on improving performance across all asset classes, enhancing risk management, exploiting synergies between the regional ING IM businesses, and upgrading systems and infrastructure.
ING IM Europe ING IM Europe continued to implement a multi-year investment programme in its business. The focus on 2009 was on creating extra capacity to take on new business and to boost its existing investment management operations. In order to create this extra capacity, the investment management operations for the Benelux were centralised in the Netherlands. Additionally, further measures were taken to increase the efficiency of the organisation. The business development programme has allowed ING IM to invest in significantly improving its investment performance, enhancing the IT & Operations infrastructure and most importantly, Risk Management.
As part of this focus ING IM Europe transformed to a skill-based, multi-boutique structure. These specialist investment teams help produce an accountable and entrepreneurial culture in the pursuit of top quartile, consistent returns. There was a significant improvement in investment performance and an increase in the number of funds awarded with 4 or 5 star ratings by Morningstar.
ING IM Americas A pick-up in US economic activity and positive corporate earnings, particularly in the second half of of 2009, improved the market outlook and helped to increase both retail and institutional sales. On the investment front, the equity investment team produced stronger longer-term performance, which resulted in increased search inquiries from asset management consultants, especially later in the year. The fixed income teams produced strong returns for ING’s insurance affiliates and continued to make good progress in boosting track records in mutual fund and institutional fixed portfolios.
The retail business saw improved AuM and fee income with the recovery in the markets. A major new distribution partner was added, which has the potential to significantly boost future sales. In addition, there were a number of new product placements during the year, involving the Alternative Beta Fund, the Global Real Estate Fund, and US REIT SMA.
The institutional business increased its focus on new business development in addition to ongoing client-retention efforts. This strategy worked well, with inflows improving as the year progressed, and with notable flows into emerging market debt, senior loan and stable value strategies. ING IM Americas continued to work closely with ING’s US retirement services business, and as a result the partnership won a significant Index Target Date mandate from the Oklahoma Teachers Retirement System.
NAvIGAtING thE tRANSFORMAtION Working under the banner of the Back to Basics transformation programme, we worked closely with the business to reduce cost, decrease people-related risks, and help the organisation reduce complexity and, later in the year, prepare for the separation of our banking and insurance operations. Work streams were established to support the transformation programme, focusing on organisational design and divestments, employee engagement, performance, remuneration, leadership skills and culture. Given the magnitude of the transformation programme, the work streams ensured that related processes ran efficiently.
CUltIvAtING thE RIGht CUltURE HR is closely aligned with ING’s business focus on what matters most to our customers and continuously works to strengthen our performance culture based on our Business Principles. Integrity and trust became hallmarks of debate, both in society and internally, which was reflected in our work on performance management and international remuneration. Run by the Business School and divisional HR training academies, development and training programmes contributed to advance value-based leadership and our performance culture.
In the challenging environment of 2009, ING’s human resources and business departments forged stronger bonds by aligning our people agenda with the Back to Basics transformation programme and the strategic decision to move towards a full separation of our banking and insurance operations. We increased our focus on engagement of employees and implemented a new performance management approach for leaders. In addition, we evaluated international compensation standards while developing a new compensation policy and set targets for more women in senior positions. We continued building a diverse and inclusive working environment with the support of senior executives and employee networks.
CONClUSIONS ANd AMBItIONS 2009 was a unique year in many respects. We prepared for the separation process by laying a solid foundation for the people issues involved in any major organisational change process covering components such as relations with Works Councils, employee communication and executive leadership support. The global HR function will carefully manage the separation in a way that will support the success of our businesses in the interests of our employees and our leaders. We will continue to instill peopleoriented leadership, as the organisational changes we face can only be achieved through our people.
In 2010, development and alignment of new people strategies for the banking and insurance organisations is a priority where talent management plays a significant role in ensuring that key positions are staffed by our best people and the number of women in leadership positions is increased. Moreover, employee and leadership engagement as well as strengthening our diverse and inclusive culture in addition to the new remuneration policy and the implementation of the new performance management approach will be significant focal areas.
dIvERSIty Diversity is about creating an inclusive culture that embraces the differences of our employees. We believe that a diverse and inclusive working environment where an employee is valued for who he/she is, where one’s diverse perspective is recognised, makes our employees feel more engaged and gives them the possibility to be better at what they do. This leads to better business results and, ultimately, helps us to better connect with our current and potential customers.
The Corporate governance section starting on page 56 and the paragraphs of the Remuneration report ‘Proposed new remuneration policy for senior management’ on page 80 and ‘Current general policy senior management remuneration’ on page 81 are incorporated by reference in this Report of the Executive Board.
In January, the Supervisory Board also held its annual full-day meeting on ING’s strategy and medium-term plan (MTP), including the related risks. The medium-term plan addresses the plans of the business lines and the financial targets for each of them and for the Group as a whole. The Supervisory Board discussed and approved the plan and ING’s strategic direction while acknowledging that the ongoing financial crisis and the discussions with the Dutch government on the IABF may impact the plan and the strategy. A proposal to reduce the overall bonus pool was also approved. Following the assessment of the effects of the financial crisis on ING it was decided to set up a separate Risk Committee of the Supervisory Board to focus more on risk management. The Supervisory Board took note of investor feedback on ING’s performance over 2008.
In January 2009, the Supervisory Board extensively discussed and finally approved an agreement between ING and the Dutch State on an IABF covering 80% of ING’s Alt-A mortgage securities. This transaction significantly reduced the uncertainty about the accounting impact on ING of any future losses in the portfolio. In connection with this agreement, the government-nominated members of the ING Supervisory Board obtained some additional approval rights. Furthermore, several other measures to reduce risk and costs were approved by the Supervisory Board, including a 6% reduction of the workforce.
The Supervisory Board and the Executive Board had a number of regular and additional meetings in 2009. Strategy and the financial crisis continued to be important subjects on the agenda as well as remuneration and the discussions with the European Commission on the Restructuring Plan for ING. Committees of the Supervisory Board discussed a range of subjects and provided the Supervisory Board with advice on a number of issues, the main ones being the quarterly results, the financial crisis, risk management, corporate governance, the remuneration policy and human resources.
During the internal meetings of the Supervisory Board (Supervisory Board meetings with the CEO present) the stepping down of Michel Tilmant as CEO, the succession of the CEO position by Jan Hommen as well as the succession of the CFO position were discussed. Patrick Flynn was nominated as a CFO candidate for appointment in the 2009 annual General Meeting. The peer group selection for assessing Executive Board remuneration and the performance assessments of the individual Executive Board members were reviewed in February. In its internal meeting in May the Supervisory Board appointed Jan Hommen as chairman of the Executive Board and Peter Elverding as chairman of the Supervisory Board. In addition to the Supervisory Board members nominated by the Dutch State, other potential Supervisory Board candidates and the membership of the various Supervisory Board committees were discussed. A new governance structure for ING was approved, including a Management Board Banking and a Management Board Insurance, both reporting to the Executive Board. The Supervisory Board was regularly updated by the Remuneration Committee on the development of the new Remuneration policy for the Executive Board and senior management. The Supervisory Board appointed Jeroen van der Veer as vice-chairman of the Supervisory Board as of 1 October 2009. At the internal meeting of the Supervisory Board in November, the functioning of the Supervisory Board, its committees and its individual members and the conclusions to be drawn from it were discussed. This was carried out in the light of the Supervisory Board Profile, the size and composition of the Supervisory Board. Furthermore, the functioning of the Executive Board and the performance of the individual Executive Board members were discussed.
RISK COMMIttEE MEEtINGS A Supervisory Board Risk Committee started in August. Two meetings were held in 2009 with all members present. Group risk, financial risk and non-financial risk, previously discussed in the Audit Committee, are now discussed in separate Risk Committee meetings. The adjusted risk appetite statements for the ING banking business as well as the insurance business were specifically discussed in the Risk Committee meetings.
The 2008 annual figures were discussed in February, including the related reports from internal and external auditors and the assessment of the Executive Board of the adequacy and effectiveness of ING’s risk management and control systems as well as the significant changes made. The effect of the financial crisis was evident in the fourth quarter of 2008 and resulted in a first time negative result in the fourth quarter of 2008 as well as a loss for the full year 2008. The draft agenda of the annual General Meeting was discussed and approved.
The successive quarterly figures of 2009 were discussed in May, August and November respectively. The 2009 annual General Meeting was evaluated in May and in August the capital position of ING Insurance US was discussed. The strategy of Insurance Netherlands was presented in September. In September, the new Supervisory Board members followed an extensive induction course giving insight in the ING strategy, the six business lines as well as the activities of the Group staff departments in relation to the Supervisory Board responsibilities.
The Supervisory Board also met to discuss and approve the Back to Basic strategy to transform ING into a predominantly European bank as well as a global insurer in life and retirement services, including a global investment manager, with an increased focus on customers. The strategy also focused on cost savings and various deleveraging activities. The Back to Basics strategy was externally communicated on 9 April 2009.
In October several formal decisions regarding the extraordinary General Meeting in November were taken and the agenda for the meeting in November was approved. The annual update of the ING Regulation on Financial Instruments was approved in the November meeting. Due to the economic crisis and the cost containment programme, the Supervisory Board did not visit any ING operations abroad in 2009.
Following the annual General Meeting, Peter Elverding succeeded Jan Hommen as chairman of the Supervisory Board and became chairman of the Nomination Committee, the Corporate Governance Committee and the Risk Committee. Jackson Tai succeeded Wim Kok as chairman of the Audit Committee. In September Jeroen van der Veer was appointed vice-chairman of the Supervisory Board.
Peter Elverding, Piet Klaver, Karel Vuursteen, Joan Spero and Lodewijk de Waal became members of the Nomination Committee when it started meeting at the beginning of 2009. Peter Elverding, Jackson Tai, Godfried van der Lugt, Claus Dieter Hoffmann, Piet Klaver and Tineke Bahlmann joined the new Risk Committee. Tineke Bahlmann also joined the Audit Committee. Jeroen van der Veer joined the Audit Committee and the Remuneration Committee, taking over the chair of the Remuneration Committee from Peter Elverding, who had temporarily chaired this committee. Lodewijk de Waal also became a member of the Remuneration Committee and the Corporate Governance Committee. Henk Breukink joined the Audit Committee.
Karel Vuursteen will retire from the Supervisory Board after the annual General Meeting in April 2010, as will Piet Hoogendoorn and Harish Manwani. Considering his ING experience and the requirement of the Code Banken to have sufficient banking experience represented in the Supervisory Board, Godfried van der Lugt was asked to stay on the Supervisory Board although he was due to retire in April 2010, having reached the age of 70 in 2010. Taking into account ING’s new strategy and the evaluation of its functioning, the Supervisory Board wishes to reduce its size and therefore the Supervisory Board has nominated no new candidates for appointment and will consist of 11 members.
Currently, only one Supervisory Board member, Piet Hoogendoorn qualifies as ‘non-independent’ as defined in best-practice provision III.2.1 of the Dutch Corporate Governance Code. Mr. Hoogendoorn is considered to be not independent, because of his position with Deloitte Touche Tohmatsu until 1 June 2007, considering the important relationship between Deloitte Touche Thomatsu and ING.
Information on the members of the Supervisory Board is provided on pages 65-67.
well as the succession planning of the Executive Board and the Management Boards. The Nomination Committee specifically discussed various CFO candidates for appointment in the 2009 annual General Meeting.
CORPORAtE GOvERNANCE COMMIttEE MEEtINGS The Corporate Governance Committee discussed the agenda for the 2009 annual General Meeting, which included the appointment of Jan Hommen and Patrick Flynn to the Executive Board. The Committee continued its discussions on the position of the ING Trust Office.
Karel Vuursteen will retire from the Supervisory Board taking into account that he will reach the age of 70 in 2011 and the wish of the Supervisory Board to reduce its size. Mr. Vuursteen joined the Supervisory Board in 2002. He became a member of the Remuneration and Nomination Committee in 2007. Mr. Vuursteen was very committed to the Company’s interests. He was of great value to the Supervisory Board and to the Remuneration and Nomination Committee due to his vast experience and insight in the international business community. Both the Supervisory Board and the Executive Board are very grateful for his strong personal contribution through the years.
Piet Hoogendoorn will step down from the Supervisory Board one year earlier than originally planned. Mr. Hoogendoorn was appointed a member of the Supervisory Board in 2007 and brought with him valuable insight into accounting practices due to his former position with Deloitte Touche Tohmatsu until 1 June 2007. He was a devoted member of the Audit Committee. Both the Supervisory Board and the Executive Board would like to thank Mr. Hoogendoorn for his commitment and contribution to ING.
In view of his relocation from London to Singapore and increasing commitments both within Unilever and outside, Mr. Manwani has decided to step down from the Supervisory Board of ING Group. Mr. Manwani was appointed a member of the Supervisory Board in 2008. His insight into developing and emerging markets and international marketing practices, along with his experience as an acting executive director of an international company was of great value in the Supervisory Board. Both the Supervisory Board and the Executive Board thank Mr. Manwani for his commitment and contribution to ING.
AddItIONAl INFORMAtION For additional information, see the Corporate governance section (pages 56-68) and the Remuneration report (pages 76-87), which are deemed to be incorporated by reference here.
RECENt dEvElOPMENtS lEGISlAtIvE ANd REGUlAtORy dEvElOPMENtS In December 2008, the Monitoring Committee of the Dutch Corporate Governance Code (‘Frijns Committee’) published an updated version of the Dutch Corporate Governance Code (‘Corporate Governance Code’). The Corporate Governance Code became effective on 1 January 2009. Dutch listed companies are required to report, on the basis of “apply or explain” on their application of the principles and best-practice provisions of the Corporate Governance Code for the first time in their annual report for the financial year 2009.
On 9 September 2009 the Dutch Banking Association adopted the Banking Code (Code Banken), which became effective on 1 January 2010. As from the 2010 financial year ING Bank N.V. will report on the implementation of the Banking Code. On the application of the principles regarding remuneration, the Annual Report of ING Group will report as from the 2010 financial year.
In addition, several legislative proposals are under discussion in the Lower House of the Dutch Parliament or were adopted by it in 2009. If enacted, these legislative proposals may affect ING Group.
tRANSACtIONS WIth thE dUtCh StAtE On 12 November 2008, ING Group issued 1 billion core Tier 1 securities (‘Securities’) to the Dutch State against payment of EUR 10 per Security resulting in an increase of ING Group’s core Tier 1 capital of EUR 10 billion. The Securities do not form part of ING Group’s share capital; accordingly they do not carry voting rights in the general meeting. The financial entitlements of the Securities are described in the Annual Accounts on page 90.
On 26 January 2009, ING Group reached an agreement with the Dutch State regarding the IABF, as further described on page 11. During 2009, ING Bank N.V. issued various series of debt instruments under the 2008 Credit Guarantee Scheme of the Dutch State (‘Bonds’), for the first time on 30 January 2009.
Furthermore, the Executive Board and the Supervisory Board have established that the depositary-receipt structure as applied by ING Group, supports “good governance”. Although ING Trust Office, when determining its voting, puts the interests of shareholders and holders of depositary receipts first, it also takes into account the interests of other stakeholders. In this way it ensures a balanced decision-making.
The depositary-receipt structure thus provides the Executive Board and the Supervisory Board the room which is necessary to do justice to the long-term interests and the interests of the other stakeholders.
The issue of the Securities and the IABF were temporarily approved by the European Commission on 12 November 2008 and 31 March 2009 respectively. In order to obtain definitive approval, ING Group presented a plan on 26 October 2009 (‘Restructuring Plan’) that will enable it to pay back the Dutch State, address the requirements of the European Commission for viability and fair competition and return its focus to the business and what matters most to customers. The Restructuring Plan includes a separation of the banking and insurance operations (including ING Investment Management), divestment of ING Direct USA and the creation of a new company in the Dutch retail market out of its current operations by combining the Interadvies banking division (including WestlandUtrecht Hypotheekbank and the mortgage activities of Nationale-Nederlanden) and the existing consumer credit portfolio of ING Retail Banking. This business, once separated, will be divested. The Restructuring Plan also provides for a reduction by ING Group of the outstanding Securities by EUR 5 billion (nominal amount), the conditions of which were adjusted in mutual agreement between ING Group and the Dutch State. On 18 November 2009, the European Commission approved the Restructuring Plan and gave final clearance for the issue of the Securities and the IABF.
ING Group believes the following to be the significant differences between its corporate governance practices and NYSE corporate governance rules applicable to US companies: ING Group has a two-tier board structure, in contrast to the • one-tier board structure used by most US companies. In the Netherlands, a public limited liability company (naamloze vennootschap) has an Executive Board as its management body and a Supervisory Board which advises and supervises the Executive Board. In general, members of the Executive Board are employees of the company while members of the Supervisory Board are often former state or business leaders and sometimes former members of the Executive Board. Members of the Executive Board and other officers and employees cannot simultaneously be a member of the Supervisory Board. The Supervisory Board must approve specified decisions of the Executive Board. Under the Corporate Governance Code, all members of the Supervisory Board with the exception of not more than one person, must be independent. The present members of ING Group’s Supervisory Board with the exception of one member, are independent within the meaning of the Corporate Governance Code. The definitions of independence under the Corporate Governance Code, however, differ in their details from the definitions of independence under the NYSE listing standards. In some cases the Dutch requirements are stricter and in other cases the NYSE listing standards are the stricter of the two. The Audit Committee, Risk Committee, Remuneration Committee, Nomination Committee and Corporate Governance Committee of ING Group are comprised of members of the Supervisory Board. In contrast to the Sarbanes-Oxley Act of 2002, the Corporate • Governance Code contains an ‘apply-or-explain’ principle, offering the possibility to deviate from the Corporate Governance Code as long as any such deviations are explained. To the extent that such deviations are approved by the general meeting, the company is deemed to be in full compliance with the Corporate Governance Code. Dutch law requires that the company’s external auditors • be appointed at the general meeting and not by the Audit Committee.
The articles of association of ING Group (‘Articles of • Association’) provide that there are no quorum requirements to hold a general meeting, although certain shareholder actions and certain resolutions may require a quorum. The shareholder approval requirements for equity compensation • plans under Dutch law and the Corporate Governance Code differ from those applicable to US companies which are subject to the NYSE’s listing rules. Under Dutch company law and the Corporate Governance Code, shareholder approval is only required for equity compensation plans (or changes thereto) for members of the Executive Board and Supervisory Board, and not for equity compensation plans for other groups of employees.
RISK COMMIttEE, REMUNERAtION COMMIttEE ANd NOMINAtION COMMIttEE On 1 January 2009, the Remuneration and Nomination Committee of the Supervisory Board was split into a separate Remuneration Committee and Nomination Committee. As recommended in section III.5.11 of the Corporate Governance Code, the Remuneration Committee will not be chaired by the chairman of the Supervisory Board. On 1 June 2009, a separate Risk Committee was set up.
ING Group also considers the principles of the Banking Code with respect to remuneration as a reference and will, in accordance with the Banking Code, report on their application as of the financial year 2010. The remaining principles of the Banking Code are not considered as a reference for ING Group’s own corporate governance, although the application thereof by ING Group’s banking subsidiaries will be reflected to a certain extent in ING Group’s own corporate governance structure and corporate governance practices.
dIFFERENCES BEtWEEN dUtCh ANd US CORPORAtE GOvERNANCE PRACtICES In conformity with regulation from the US Securities and Exchange Commission, ING Group as a foreign private issuer, whose securities are listed on the New York Stock Exchange (‘NYSE’) must disclose in its Annual Report on Form 20-F any significant differences between its corporate governance practices and those applicable to US domestic companies under the NYSE listing standards.
The Articles of Association and the trust conditions for registered shares in the share capital of ING Group (‘Trust Conditions’) do not restrict the transfer of depositary receipts for shares. ING Group is not aware of the existence of any agreement pursuant to which the transfer of ordinary shares or depositary receipts for such shares is restricted.
When repurchasing shares the Executive Board is to observe the price ranges prescribed in the authorisation. For the ordinary shares and depositary receipts for such shares, the authorisation currently in force stipulates a minimum price of one eurocent and a maximum price equal to the highest stock price on Euronext Amsterdam by NYSE Euronext on the date on which the purchase agreement is concluded or on the preceding day of stock market trading.
ShAREhOldERS’ StRUCtURE Details of investors who have reported their interest in ING Group pursuant to the Dutch Financial Supervision Act (Wet op het financieel toezicht) (or the predecessor of this legislation) are shown on page 8. ING Group is not aware of investors with an interest of 10% or more in ING Group.
dEPOSItARy RECEIPtS More than 99.9% of the issued ordinary shares are held by ING Trust Office. In exchange for these shares, ING Trust Office has issued depositary receipts in bearer form for these shares. The depositary receipts are listed on various stock exchanges (see page 8 for an overview of the listings). Depositary receipts can be exchanged upon request of the holders of depositary receipts for non-listed ordinary shares, without any restriction, other than payment of an administrative fee of one euro cent (EUR 0.01) per depositary receipt with a minimum of twenty-five euros (EUR 25.00) per exchange transaction.
ISSUE OF ShARES ING Group’s authorised capital is the maximum amount of capital allowed to be issued under the terms of the Articles of Association. New shares in excess of this amount can only be issued if the Articles of Association are amended. For reasons of flexibility, ING Group seeks to set the authorised capital in the Articles of Association of ING Group at the highest level permitted by law again in the future.
AttENdING GENERAl MEEtINGS For logistical reasons, attendance at a general meeting by shareholders and holders of depositary receipts, either in person or by proxy, is subject to the requirement that ING Group is notified in advance. Instructions to that effect are included in the notice for the general meeting.
Shareholders and holders of depositary receipts who do not attend the general meeting in person, may nevertheless follow the course of affairs in the meeting by internet webcast.
vOtING RIGhtS ON ShARES Each share entitles the holder to cast one vote at the general meeting. The Articles of Association do not restrict the voting rights on any class of shares. ING Group is not aware of any agreement pursuant to which voting rights on any class of its shares are restricted.
vOtING ON thE ORdINARy ShARES By hOldERS OF dEPOSItARy RECEIPtS AS PROxy OF ING tRUSt OFFICE Although the depositary receipts for shares do not formally carry any voting rights, holders of depositary receipts, in practice, rank equally with shareholders with regard to voting. ING Trust Office will, subject to certain restrictions, grant a proxy to a holder of depositary receipts allowing such holder, in the name of ING Trust Office, exercise the voting rights attached to the number of its ordinary shares that corresponds to the number of depositary receipts held by such holder of depositary receipts. On the basis of such a proxy, the holder of depositary receipts may vote at his or her own discretion.
The following restrictions apply in respect of granting a voting proxy to holders of depositary receipts: the relevant holder of depositary receipts must have announced • his or her intention to attend the general meeting observing the provisions laid down in the Articles of Association; and the relevant holder of depositary receipts may delegate the • powers conferred upon him or her by means of the voting proxy, provided that the relevant holder of depositary receipts has announced his or her intention to do so to ING Trust Office observing a term before the commencement of the general meeting, which term will be determined by ING Trust Office.
vOtING INStRUCtIONS OF hOldERS OF dEPOSItARy RECEIPtS tO ING tRUSt OFFICE Holders of depositary receipts not attending a general meeting are entitled to give binding instructions to ING Trust Office, concerning ING Trust Office’s exercise of the voting rights attached to the ordinary shares. ING Trust Office will follow such instructions for such number of ordinary shares equal to the number of depositary receipts for shares held by the relevant holder of depositary receipts. ING Trust Office has made it easier for votes to be cast this way by putting arrangements in place for proxy voting and e-voting.
This information includes the notice for the general meeting, the agenda, the verbatim text of the proposals with an explanation and instructions on how to participate in the meeting (either in person or by proxy vote), as well as the reports of the Executive Board and the Supervisory Board. More complex proposals such as amendments to the Articles of Association are normally not included in the notice but are made available separately on the website of ING Group and at the ING Group head office.
dIAlOGUE WIth ShAREhOldERS ANd hOldERS OF dEPOSItARy RECEIPtS In 2009, shareholders and holders of depositary receipts were allowed to ask questions about items on the agenda for the annual General Meeting and the extraordinary General Meeting, and they will be allowed to do so in 2010. Shareholders and holders of depositary receipts can visit the website of ING Group (www.ing.com) to submit their questions.
greatly change the identity or nature of ING Group or its enterprise. This includes resolutions to transfer or assign otherwise all or virtually all of the enterprise of ING Group or its subsidiaries as a consequence of which ING Group or the group over which ING Group exercises central control ceases to engage in either insurance or banking activities.
REPORtING Resolutions adopted at a general meeting shall also be published on the website of ING Group (www.ing.com) within one week after the meeting. The draft minutes of the general meeting are, in accordance with the Corporate Governance Code, made available to shareholders and holders of depositary receipts on the website of ING Group (www.ing.com) no later than three months after the meeting. Shareholders and holders of depositary receipts may react to the draft minutes in the following three months, after which the final minutes will be adopted by the chairman of the meeting in question and by a shareholder or holder of depositary receipts appointed by that meeting. The final minutes are made available on the website of ING Group (www.ing.com). In deviation of the Corporate Governance Code shareholders and holders of depositary receipts will not have the opportunity to react to the minutes of a general meeting if a notarial report is drawn up of the meeting, as this would be in conflict with the laws applicable to such notarial report.
PAtRICK G. FlyNN, ChIEF FINANCIAl OFFICER (Born 1960, Irish nationality, male; appointed in 2009, term expires in 2013) Patrick Flynn is a Chartered Accountant and a member of the Association of Corporate Treasurers in the UK. He also holds a bachelor’s degree in Business Studies from Trinity College Dublin. He was appointed a member of the Executive Board of ING Group on 27 April 2009. From 2007 to 2009, he was the chief financial officer of HSBC Insurance Holdings Ltd. Patrick Flynn is responsible for ING’s finance departments.
ChANGES IN thE COMPOSItION Michel Tilmant stepped down from the Executive Board on 26 January 2009. He has been succeeded as chairman of the Executive Board by Jan Hommen, who was appointed to the Executive Board on 27 April 2009. In the intervening months, Eric Boyer de la Giroday was acting chairman of the Executive Board.
The intended separation of the banking and insurance operations has led to changes in the structure and composition of the Executive Board. Eric Boyer de la Giroday, Dick Harryvan, Eli Leenaars, Tom McInerney, Hans van der Noordaa and Jacques de Vaucleroy stepped down from the Executive Board as of 1 June 2009, but retained their position as a member of either the Management Board of ING Bank N.V. or the Management Board of ING Verzekeringen N.V. Dick Harryvan decided to take early retirement as chief executive officer of ING Direct and member of the Management Board of ING Bank N.V. as of 1 January 2010. Jacques de Vaucleroy decided to leave ING on 26 October 2009. He stepped down from the Management Board of ING
REMUNERAtION ANd ShARE OWNERShIP Details of the remuneration of members of the Executive Board, including shares and/or option rights granted to them, together with information pertaining to such decisions, are provided in the Remuneration report, starting on page 76. Members of the Executive Board are permitted to hold shares and depositary receipts for shares in the share capital of ING Group for long-term investment purposes. Transactions by members of the Executive Board in these shares and these depositary receipts for shares are subject to the ING regulations for insiders. These regulations are available on the website of ING Group (www.ing.com).
ANCIllARy POSItIONS/CONFlICtING INtEREStS No member of the Executive Board has corporate directorships at listed companies outside ING. This is in accordance with ING Group’s policy to avoid conflicts of interest.
Significant conflicting interests are considered to be absent and are not reported if a member of the Executive Board obtains financial products and services, other than loans, which are provided by ING Group subsidiaries in the ordinary course of their business on terms that apply to all employees. In connection with the foregoing, ‘loans’ does not include financial products in which the granting of credit is of a subordinated nature, e.g. credit cards and overdrafts in current account, because of a lack of materiality.
Certain resolutions of the Executive Board, specified in the Articles of Association of ING Group and in the Supervisory Board Charter, are subject to the approval of the Supervisory Board.
Candidates recommended by the Dutch State will be nominated, by way of a binding nomination, for appointment, unless one or more specified situations would occur. These include that: the candidate is not fit and proper to discharge his duties as • a Supervisory Board member; upon appointment the composition of the Supervisory Board • would not be appropriate and/or not be in accordance with the Supervisory Board Profile; appointment would be incompatible with any provision of the • Articles of Association, the Supervisory Board Charter, any principle or best-practice provision of the Dutch Corporate Governance Code as applied by ING Group and/or any other
COMPANy SECREtARy ING Group’s company secretary is Jan-Willem Vink, general counsel of ING Group.
PROFIlE OF MEMBERS OF thE SUPERvISORy BOARd The Supervisory Board has drawn up a profile to be used as a basis for its composition. The profile was submitted for discussion to the General Meeting in 2005. It is available on the website of ING Group (www.ing.com) and at the ING Group head office.
tERM OF APPOINtMENt OF MEMBERS OF thE SUPERvISORy BOARd A member of the Supervisory Board retires no later than at the end of the first general meeting held four years after his or her last appointment or reappointment. In accordance with the Corporate Governance Code, members of the Supervisory Board may as a general rule be reappointed for two additional four-year terms. Under special circumstances however, the Supervisory Board may deviate from this general rule, among others in order to maintain a balanced composition of the Supervisory Board and/or to preserve valuable expertise and experience. As a general rule, members of the Supervisory Board shall also resign at the end of the annual general meeting in the year in which they attain the age of 70 and shall not be reappointed. The schedule for resignation by rotation is available on the website of ING Group (www.ing.com).
ANCIllARy POSItIONS/CONFlICtING INtEREStS Members of the Supervisory Board are asked to provide details on any other directorships, paid positions and ancillary positions they may hold. Such positions may not conflict with the interests of ING Group. It is the responsibility of the individual member of the Supervisory Board and the Corporate Governance Committee to ensure that the directorship duties are performed properly and are not affected by any other positions that the individual may hold outside the Group.
and Executive Board. On 31 December 2009, the members of the Nomination Committee were: Peter Elverding (chairman), Piet Klaver, Joan Spero, Jeroen van der Veer, Karel Vuursteen and Lodewijk de Waal.
REMUNERAtION ANd ShARE OWNERShIP The remuneration of the members of the Supervisory Board is determined by the General Meeting and is not dependent on the results of ING Group. Details of the remuneration are provided in the Remuneration report on pages 86-87. Members of the Supervisory Board are permitted to hold shares and depositary receipts for shares in the share capital of ING Group for long-term investment purposes. Details are given on page 87. Transactions by members of the Supervisory Board in these shares and these depositary receipts for shares are subject to the ING regulations for insiders. These regulations are available on the website of ING Group (www.ing.com).
INFORMAtION ON MEMBERS OF thE SUPERvISORy BOARd PEtER A.F.W. ElvERdING (ChAIRMAN FROM 27 APRIl 2009) (Born 1948, Dutch nationality, male; appointed in 2007, term expires in 2011) Former chairman of the Managing Board of Directors of Koninklijke DSM N.V. Former vice-chairman of the Supervisory Board of De Nederlandsche Bank N.V. (Dutch central bank). Other business activities: chairman of the Supervisory Board of Océ N.V. (listed company). Member of the Supervisory Board of SHV Holdings N.V. Vice-chairman of the Supervisory Board of Q-Park N.V. Member of the Supervisory Board of Koninklijke FrieslandCampina N.V. Chairman of the Supervisory Board of Oostwegel Holding BV. Member of the Board of Stichting Instituut GAK.
COMMIttEES OF thE SUPERvISORy BOARd On 31 December 2009, the Supervisory Board had five standing committees: the Audit Committee, the Risk Committee (as of 1 June 2009), the Remuneration Committee, the Nomination Committee (created from the split of the Remuneration and Nomination Committee on 1 January 2009) and the Corporate Governance Committee.
The Risk Committee assists and advises the Supervisory Board in monitoring the risk profile of ING Group as well as the structure and operation of the internal risk management and control systems. On 31 December 2009, the members of the Risk Committee were: Peter Elverding (chairman), Tineke Bahlmann, Claus Dieter Hoffmann, Piet Klaver, Godfried van der Lugt and Jackson Tai.
The Remuneration Committee advises the Supervisory Board, among other things, on the terms and conditions of employment (including remuneration) of the members of the Executive Board and on the policies and general principles on which the terms and conditions of employment of the members of the Executive Board and of senior managers of ING and its subsidiaries are based. On 31 December 2009, the members of the Remuneration Committee were: Jeroen van der Veer (chairman), Peter Elverding, Piet Klaver, Joan Spero, Karel Vuursteen and Lodewijk de Waal.
The Nomination Committee advises the Supervisory Board, among other things, on the composition of the Supervisory Board
GOdFRIEd J.A. vAN dER lUGt (Born 1940, Dutch nationality, male; appointed in 2001, term expires in 2012) Former chairman of the Executive Board of ING Group (retired in May 2000). Other business activities: chairman of the Supervisory Board of Stadsherstel Amsterdam N.V. Chairman of the Advisory Board of Kasteel De Haar and R.C. Oude Armenkantoor. Member of Investment Advisory Committee of Stichting Instituut GAK.
hARISh MANWANI (UNtIl 27 APRIl 2010) (Born 1953, Indian nationality, male; appointed in 2008, retirement in 2010) President Unilever Asia, Africa, Central & Eastern Europe. Other business activities: non-executive chairman of Hindustan Unilever Ltd. Member of the Executive Board of Indian School of Business.
AMAN MEhtA (Born 1946, Indian nationality, male; appointed in 2008, term expires in 2012) Former chief executive officer of Hong Kong & Shanghai Banking Corporation (HSBC) in Hong Kong. Other business activities: non-executive director of each of Tata Consultancy Services, Jet Airways Ltd., PCCW Ltd., Vedanta Resources Plc, Wockhardt Ltd., Godrej Consumer Products Ltd., Cairn India Ltd., Emaar MGF Land Ltd. and Max India Ltd. Member of the governing board of Indian School of Business. Member of the International Advisory Council of INSEAD.
JOAN E. SPERO (Born 1944, American nationality, female; appointed in 2008, term expires in 2012) Former executive vice-president Corporate Affairs and Communications of American Express Company. Former Under Secretary Economic Business & Agricultural Affairs, US State Department. Former president Doris Duke Charitable Foundation. Other business activities: non-executive director of IBM Corporation. Trustee of Columbia University, Council on Foreign Relations. Trustee of Wisconsin Alumni Research Foundation.
PIEt hOOGENdOORN (UNtIl 27 APRIl 2010) (Born 1945, Dutch nationality, male; appointed in 2007, retirement in 2010) Former chairman of the Board of Directors of Deloitte Touche Tohmatsu and former chief executive officer of Deloitte in the Netherlands. Former chairman of Koninklijke NIVRA (Netherlands Institute of Chartered Accountants). Other business activities: member of the Supervisory Board of Conquaestor Holding B.V. Member of the Supervisory Board of Bodegraven B.V. Chairman of the Supervisory Board of De Zevenster (nursing and care). Member of the Supervisory Board of Groene Hart Ziekenhuis Gouda (hospital).
SEvERANCE PAyMENtS tO MEMBERS OF thE ExECUtIvE BOARd The employment contracts with the members of the Executive Board provide for severance payments, which become due on termination of the contract in connection with a public bid as defined in section 5:70 of the Dutch Financial Supervision Act. For the amounts due, it is not relevant whether or not termination of the contract is related to a public bid. In accordance with the terms of the issuance of the Securities, severance payments to the members of the Executive Board have been limited to a maximum of one year’s fixed salary, in line with the Corporate Governance Code.
The external auditor attended the meetings of the Audit Committee and the 2009 annual General Meeting.
lOdEWIJK J. dE WAAl (Born 1950, Dutch nationality, male; appointed in 2009, term expires in 2013) General manager of Humanitas. Other business activities: member of the Supervisory Board of PGGM N.V. Member of the Advisory Board of Zorgverzekeraars Nederland. Chairman of the Supervisory Council of SNV. Member of the Advisory Board of Stichting Nationaal Fonds Kunstbezit. President of the Hay Group Vision Society.
In addition, Eric Bourdais de Charbonnière and Wim Kok retired from the Supervisory Board, reaching or having reached the age of 70.
More information can be found in the convocation for the 2010 annual General Meeting, available on the website of ING Group (www.ing.com).
FINANCIAl REPORtING A description of the main features of ING Group’s internal control and risk management systems in relation to the financial reporting process is included in the statement with respect to Section 404 Sarbanes-Oxley Act on page 74, which is deemed to be incorporated by reference here.
ChANGE OF CONtROl PROvISIONS lEGAl PROvISIONS Pursuant to the terms of the Dutch Financial Supervision Act a declaration of no objection from the Dutch Minister of Finance must be obtained by anyone wishing to obtain or hold a participating interest of at least 10% in ING Group and to exercise control attached to such a participating interest. Similarly, on the basis of indirect change of control statutes in the various jurisdictions where subsidiaries of ING Group are operating, permission from or notification to local regulatory authorities may be required for the acquisition of a substantial interest in ING Group.
these replacements based, among other things, on an annual evaluation of the provided services. In line with this requirement, the lead audit partner of Ernst & Young was succeeded after the year-end audit 2006. The rotation of other partners involved with the audit of the financial statements of ING is subject to applicable independence legislation.
Pursuant to its articles of association (the ‘Articles of Association’), the object of Stichting ING Aandelen, a foundation organised under the laws of the Netherlands, established in Amsterdam (‘ING Trust Office’) is: a. to promote the interests of the holders of depositary receipts for shares in the capital of ING Groep N.V. (‘ING Group’), while having regard for the interests of (i) ING Group itself, (ii) the enterprises carried on by ING Group and companies associated with it in a group and (iii) all other stakeholders in ING Group, such that all those interests are balanced and safeguarded as effectively as possible; b. to acquire and administer for the purpose of management registered shares in the capital of ING Group and any bonus shares which may be distributed thereon or shares acquired as stock dividend or by the exercise of subscription rights and to issue exchangeable depositary receipts for these shares to exercise voting rights and all other rights attaching to the shares, to exercise subscription rights and to receive dividends and other distributions, including proceeds of liquidation, subject to the obligation to distribute the income to the holders of depositary receipts, save that depositary receipts shall be issued for bonus shares, shares acquired as stock dividend and shares acquired on behalf of depositary receipt holders by virtue of the exercise of subscription rights; c. to promote the exchange of information between ING Group on the one hand and the holders of depositary receipts and shareholders in ING Group on the other; d. to promote and organise the solicitation of proxies of shareholders other than the foundation itself and of specific proxies and/or voting instructions of holders of depositary receipts, and further to engage in any activity which may be related to the foregoing in the widest sense, whereby all activities which entail commercial risk shall be excluded from the foundation’s object.
On 3 March 2009, the Board met to discuss the agreement ING Group reached with the Dutch State regarding the Illiquid Assets Back-up Facility covering 80% of ING’s Alt-A residential mortgagebacked securities, as well as a purported class litigation filed in the United States alleging violations of the federal securities laws with respect to disclosures made in connection with the 2007 and 2008 offerings of ING’s Perpetual Hybrid Capital Securities (the ‘Class Litigation’). The general counsel of ING Group was invited to the meeting to give an explanation of these subjects and answer various questions of the Board. During the same meeting, without the presence of the general counsel, the Board discussed, among other things, the composition of the Board and the position of ING Trust Office in general and prepared for the annual General Meeting of ING Group of 27 April 2009 (the ‘AGM’).
In accordance with the Articles of Association and the Trust Conditions, ING Trust Office voted at its own discretion on the shares for which it did not issue voting proxies and did not receive voting instructions, representing 64.4% and 68.9% of the total votes that might be cast at the AGM and the EGM respectively. In voting such shares, ING Trust Office primarily promoted the interests of all holders of depositary receipts, while having regard for the interests of ING Group itself, the enterprises carried on by ING Group and companies associated with it in a group and all other stakeholders in ING Group.
ING Trust Office organises the solicitation of proxies of shareholders of ING Group other than ING Trust Office itself and of specific proxies or voting instructions of holders of depositary receipts. ING Trust Office encourages the greatest possible participation of shareholders and holders of depositary receipts and promotes the execution of voting rights in a transparent way. At the same time it prevents that a minority of shareholders and holders of depositary receipts could use a chance majority of votes to the disadvantage of the shareholders and holders of depositary receipts present nor represented at a general meeting of ING Group.
At the AGM, ING Group announced that it would consider the steps to be taken with respect to the position of ING Trust Office. In connection therewith it was communicated that, in particular against the backdrop of the financial crisis, more time is needed to consider the position of ING Trust Office, as the trust structure can be important to proper decision making in the near future and also to the long-term interest of ING Group. At the AGM, ING Trust Office indicated that it understands these considerations of ING Group. ING Trust Office asked ING Group to state its position in respect of ING Trust Office and depositary receipts again before the annual General Meeting of ING Group in 2010.
Before this meeting the Board discussed with the chairman of the Executive Board and the chairman of the Supervisory Board of ING Group the activities and performance of ING Group over 2008 on the basis of the press release of 18 February 2009 and the 2008 figures.
On 12 May 2009, the Board met, among other things, to evaluate the AGM.
After this meeting, the Board met with the chairman of the Executive Board and the chairman of the Supervisory Board of ING Group to obtain further clarification on the Restructuring Plan and the Rights Issue.
In addition, the Board had a meeting with the chairman of the Executive Board and the chairman of the Supervisory Board of ING Group on 2 December 2009 to discuss the activities and performance of ING Group over the first nine months of 2009 on the basis of the press releases of 26 October 2009 and 11 November 2009.
ING Trust Office attended the AGM and the EGM. During those meetings ING Trust Office asked the Executive Board and the Supervisory Board of ING Group various questions, answered questions of shareholders and holders of depositary receipts 1.3 Our governance
On 31 December 2009, the nominal value of administered ordinary shares amounted to EUR 919,347,298.56 for which 3,830,613,744 depositary receipts were issued, each with a nominal value of EUR 0.24. During the reporting year, the net number of depositary receipts increased with 1,768,433,481.
The members of the Board are appointed by the Board itself. According to the Dutch Corporate Governance Code holders of depositary receipts may make recommendations to the board of the trust office for the appointment of board members. The Articles of Association give interpretation to this rule by requiring that any proposed appointment is announced in a national daily newspaper at least thirty days before the date of the proposed appointment, so holders of depositary receipts can react to that. In the decision-making process, the Board will consider recommendations of holders of depositary receipts. In 2009, there were no appointments or reappointments to the Board.
As required by section 5:25c paragraph 2(c) of the Dutch Financial Supervision Act, each of the signatories hereby confirms that to the best of his or her knowledge: the ING Groep N.V. 2009 Annual Accounts give a true and fair • view of the assets, liabilities, financial position and profit or loss of ING Groep N.V. and the enterprises included in the consolidation taken as a whole; the ING Groep N.V. 2009 Annual Report gives a true and fair • view of the position at the balance sheet date, the development and performance of the business during the financial year 2009 of ING Groep N.V. and the enterprises included in the consolidation taken as a whole, together with a description of the principal risks ING Groep N.V. is being confronted with.
ING Group has long-established Business Principles and a strong internal control culture, which all staff must adhere to. SOX 404 activities are organised along the lines of the governance structure, and involve the participation of senior management across ING. Following the SOX 404 process, ING is in the position to publish an unqualified statement which denotes that the Company’s internal control over financial reporting is effective as of 31 December 2009. The SOX 404 statement by the Executive Board is included below, followed by the report of the external auditor.
total direct compensation: moderation and reduced emphasis on variable remuneration Total direct compensation levels will be based on market data that include peers both inside and outside the financial sector in the international context in which ING operates. Total direct compensation will be benchmarked against a peer group of companies that, in the opinion of the Supervisory Board, are comparable with ING in terms of size and scope. In line with the foregoing, the Supervisory Board has determined that the peer group consists of the companies in the Dow Jones EURO STOXX 50 index. These are 50 companies, in a range of financial and nonfinancial industries, that are based in countries within the economic and monetary union of the European Union. In accordance with the Dutch Banking Code, ING’s new remuneration policy for the Executive Board now aims for total direct compensation levels at slightly-below market median levels for comparable positions in the relevant markets.
Increased focus on risk and non-financial performance Variable compensation will increasingly be linked to risk and non-financial performance and will take into consideration both individual and company performance criteria. Performance measurement will increasingly account for estimated risks and costs of capital. In addition to financial indicators, performance will also be assessed based on non-financial drivers, by means of a number of targets regarding economic, environmental, customer satisfaction and social criteria.
Pensions Executive Board members As part of the new remuneration policy for Executive Board members two new pension plans will be offered: a new plan similar to the plan applicable to staff covered under the Dutch Collective Labour Agreement (N.B. this plan will only be introduced following a positive outcome of the pension study, which is currently taking place) and a new individual defined contribution plan. Both these pension plans provide for a lower contribution by ING than the existing Executive Board pension plan.
Other items for Supervisory Board discretion Claw back and adjustments The Supervisory Board will have the authority to reclaim variable remuneration allocated to a member of the Executive Board based on inaccurate data and/or behaviour that led to significant harm to the company. The Supervisory Board will also have the authority to adjust variable remuneration if application of the predetermined performance criteria results in undesired outcomes. Accordingly, the Supervisory Board will have decision authority in situations not addressed in the policy.
ExECUtIvE BOARd REMUNERAtION StRUCtURE 2010 ExECUtIvE BOARd BASE SAlARy 2010 An important objective of the new remuneration policy is to design a more balanced and moderate compensation package for the future. Immediate implementation of some of the amendments proposed to achieve this would however lead to a conflicting outcome. The proposed change of the ratio between fixed and variable compensation would require a significant increase in the fixed component (of more than 50%) in 2010 in order for total compensation levels for the Executive Board to be slightly below market median, in line with the new policy.
ExECUtIvE BOARd vARIABlE COMPENSAtION 2010 The target variable compensation is set at 80% of base salary. The actual payout may vary between 0% and 125% of the target level (i.e. between 0% and 100% of base salary). In connection herewith, the Supervisory Board performed an analysis of various scenarios which were considered relevant. Financial and nonfinancial performance indicators will be individually set for each Executive Board member and agreed by the Supervisory Board.
There will be financial parameters for each Executive Board member to measure the performance at Group, Bank and Insurance levels. These financial parameters are underlying net result ING Group, ROE ING Group, core Tier 1 for ING Bank, debt/ equity ratio ING Insurance, underlying cost/income ratio ING Bank and administration costs ING Insurance. The quantitative elements of the targets are considered stock price sensitive and competition sensitive; accordingly these are not disclosed.
For 2010, at least 40% of total variable compensation will be based on pre-defined non-financial performance indicators. The incorporation of non-financial indicators in the overall assessment is particularly aimed at improving business performances within ING. These indicators depend on the specific responsibilities of the individual Executive Board member. For each Executive Board member a number of performance objectives are formulated relating to customer satisfaction, improve sustainable business practices, the diversity of the workforce, employee engagement and corporate responsibility.
Variable compensation for members of the Executive Board and the CEO will only be awarded as long as ING Group has a positive net underlying profit in 2010. The Supervisory Board will review the remuneration paid over time, in line with the policy.
Comparison current and proposed 2010 compensation The total remuneration of ING’s Executive Board members and its CEO in 2010 is outlined in the following two tables.
Type of variable compensation cash + shares/options cash + shares Allows for discretionary adjustment of variable remuneration no yes Allows for ‘claw back’ of variable remuneration no yes
(1) The current base salary is listed as the previous CEO’s last base salary before departure. Jan Hommen’s base salary applies from his appointment date in 2009. (2) Jan Hommen is not contractually entitled to a severance payment.
Comparison of current and new 2010 remuneration other Executive Board members in EUR Current New policy Change
Variable remuneration – at target 200% 1,331,000 80% 600,000 –55% Variable remuneration – at maximum 350% 2,329,250 100% 750,000 –68% Total remuneration – at target 1,996,500 1,350,000 –32% Total remuneration – at maximum 2,994,750 1,500,000 –50%
The tables below compare the new remuneration for ING with the market median of the Dow Jones EURO STOXX 50. They indicate that ING’s new total remuneration for 2010 is significantly below the market median.
Comparison of target 2010 remuneration with median of the peer group in EUR ING 2010 Market median ING compared to market median
Variable remuneration – at target 1,082,800 2,970,000 –64% total remuneration – at target 2,436,300 4,070,000 –40% Other Executive Board members
Variable remuneration – at target 600,000 1,373,500 –56% total remuneration – at target 1,350,000 2,045,500 –34%
PROPOSEd NEW REMUNERAtION POlICy FOR SENIOR MANAGEMENt As much as possible for a global financial institution of this size, ING aims to take account of all the differences and standards applied within similar financial institutions in the various countries in which it operates. The remuneration of members of the Management Boards and senior management will be in line with the general principles of the new remuneration structure for the Executive Board, taking into account international and local practices.
Increased focus on long-term value creation, risk and non-financial performance Variable compensation will increasingly be linked to long term value creation and risk. It will be determined based on individual, business and company performance criteria. Performance measurement will increasingly account for estimated risks and costs of capital. There will be increased emphasis on long term value creation by means of long term incentives, deferral and claw-back mechanisms.
Furthermore, and in addition to financial indicators, performance will also be assessed based on non-financial drivers. The incorporation of non-financial indicators in the overall assessment is particularly aimed at further improving sustainable business practices within ING. Therefore, a number of action targets are being formulated regarding ING’s performance in the area of e.g. workforce diversity, customer satisfaction, stakeholder engagement and sustainable product development.
SENIOR MANAGEMENt REMUNERAtION StRUCtURE 2010 Given the differences in the regulatory requirements for banking and insurance and the upcoming separation of ING’s banking and insurance activities, the remuneration structures for senior management in ING’s banking and insurance operations were determined separately.
REMUNERAtION ExECUtIvE BOARd 2009 With regard to the remuneration for 2009, the Supervisory Board continued to build upon the remuneration policy initiated in 2003. In January 2009, ING and the Dutch State reached an agreement on an Illiquid Assets Back-up Facility. Under the terms of this agreement the members of the Executive Board will not receive any bonuses until a reviewed remuneration policy has been completed.
Performance shares are conditionally granted. The number of ING depositary receipts that is ultimately granted at the end of a three-year performance period depends on ING’s Total Shareholder Return (TSR) performance over three years (return in the form of capital gains and reinvested dividends that shareholders receive in that period) relative to the TSR performance of a predefined peer group.
vest in 2010. The actual results of 43% are based upon ING’s TSR ranking of 15th within the designated peer group. The results were determined by an independent third party. ING’s external auditor has reviewed the calculations performed. For members of the Executive Board who received an award as an Executive Board member in 2007, such award will vest in the final number of performance shares in May 2010. For the other senior leaders who participated in the 2007–2009 performance share award, such award vested in March 2010.
Compensation in cash of the individual members of the Executive Board amounts in thousands of euros 2009 2008 2007
(2) Patrick Flynn was appointed to the Executive Board on 27 April 2009. The figure for this member reflects compensation earned in the capacity as Executive Board member. Thus, the figure for 2009 reflects the partial year as Executive Board member.
(4) Eric Boyer de la Giroday, Dick Harryvan, Eli Leenaars, Tom McInerney, Hans van der Noordaa and Jacques de Vaucleroy no longer serve on the Executive Board of ING Groep N.V. as of 1 June 2009. The figures for these members reflect compensation earned in their capacity as Executive Board members. Thus, the figures for 2009 reflect the partial year as Executive Board members.
(5) Tom McInerney and John Hele receive their compensation in US dollars. For each year the compensation in US dollars was converted to euros at the average exchange rate for that year.
Short-term performance related bonus 0 0 956 Total cash compensation 277 665 1,590
Short-term performance related bonus 0 0 1,425 Total cash compensation 404 879 2,371 hans van der Noordaa (4)
Compensation in cash of the individual members of the Executive Board (continued) amounts in thousands of euros 2009 2008 2007
Short-term performance related bonus 0 0 621 Total cash compensation 169 603 1,033
long-term incentives of the individual members of the Executive Board (1, 2)
Jan hommen (1) Long-term incentives are granted in the year following the reporting year. The long-term incentive plan provides for a combination of share options and provisional performance shares based on a 50/50 split in value. The ratio of options to performance shares varies each year as a result of the fair value calculation and the 50/50 split in value. The fair value calculation for the performance year 2009 resulted in a ratio of options to performance shares of 2.55 :1 (2008: 2.36 : 1, 2007: 4.22 : 1).
(2) The number of options and performance shares awarded reflect the adjustments for the effects of the rights issue of December 2009.
(3) The fair market value of a long-term incentive award reflects the estimated fair market value of the long-term incentive award based on a fair value calculation. The valuation is calculated on the last trading day of the year for grants made to the Executive Board members for performance over the specified year and is not updated for current market values.
(5) Koos Timmermans and John Hele were appointed to the Executive Board on 24 April 2007. The figures for these members reflect compensation earned in their capacity as Executive Board members.
(6) Tom McInerney is entitled to receive conditional shares on the same grant date as the other long-term incentive awards. The conditional shares will be 100% vested four years after the grant date with the condition being an active employment contract. The conditional shares are provided to align Tom McInerney’s total remuneration with US market practice. Tom McInerney will not receive his conditional share award for the 2009 performance year.
Number of options 0 0 56,405 Number of performance shares 0 0 13,367 Fair market value of long-term incentive (3) 0 0 499
Eric Boyer de la Giroday Number of options 0 0 113,385 Number of performance shares 0 0 26,869 Fair market value of long-term incentive (3) 0 0 1,003 dick harryvan Number of options 0 0 84,606 Number of performance shares 0 0 20,050
Number of options 0 0 54,993 Number of performance shares 0 0 13,032 Fair market value of long-term incentive (3) 0 0 486
Jan Hommen (2) 0 (1) For reasons of comparison, the Company pension expenses are recalculated under IAS 19 with general assumption setting for 2007 to 2009.
(4) Koos Timmermans and John Hele were appointed to the Executive Board on 24 April 2007. The figures for these members reflect pension costs in their capacity as Executive Board members. Thus, the figures for 2007 reflect the partial year as Executive Board members.
(6) Tom McInerney’s and John Hele’s pension costs have been translated from US dollars to euros at the average exchange rate for that year.
loans and advances to Executive Board members The table below presents the loans and advances provided to Executive Board members and outstanding on 31 December 2009, 2008 and 2007. These loans were concluded in the normal course of business and on terms generally applicable to Company personnel as a whole and were approved by the Supervisory Board.
The remuneration for the membership of committees is as follows: chairman of the Audit Committee EUR 8,000, members of the Audit Committee EUR 6,000, chairmen of other Supervisory Board committees EUR 7,500 and members of other Supervisory Board committees EUR 5,000. In addition to the fixed remuneration, committee members receive a fee for each meeting they attend. For the Audit Committee chairman this fee is EUR 2,000 per
Peter Elverding (1) 79 68 20 (1) Peter Elverding is a member of the Supervisory Board as of August 2007. The compensation figure for 2007 reflects the partial year as member of the Supervisory Board. Peter Elverding has been chairman of the Supervisory Board since April 2009.
(7) Lodewijk de Waal is a member of the Supervisory Board as of April 2009. He has been acting as an observer on the Supervisory Board as of November 2008. The compensation figure for 2009 reflects the partial year as member of the Supervisory Board. Up to the appointment date Lodewijk de Waal has received remuneration, expense allowances and attendance fees in line with the Remuneration policy of the Supervisory Board.
(9) Eric Bourdais de Charbonnière retired in April 2009. He was vice-chairman as of February 2005. The compensation figure for 2009 reflects the partial year as member of the Supervisory Board.
Compensation of former members of the Supervisory Board who are not included in the above table amounted to nil in 2009, EUR 16 thousand in 2008, and to EUR 162 thousand in 2007.
ING depositary receipts for shares and options held by Supervisory Board members Supervisory Board members are permitted to hold ING depositary receipts for shares as a long-term investment. The table below shows the holdings by members of the Supervisory Board. Supervisory Board members did not hold ING options at year-end 2009.
Piet Klaver 13,796 7,430 7,430 (1) The numbers of depositary receipts for shares reflect the shares held by the member of the Supervisory Board and their partners. (2) Jeroen van der Veer is a member of the Supervisory Board as of
Rob Eijt, chairman René van der Linden, secretary Bernard Wempe, deputy chairman Rudie van Doorn, deputy secretary Goof Bode, Bernardt Bodt, Hans de Boer, Ron Brands, Robert Coleridge, Anneke Dalger, Gerard Dekkers, Petra Delhez, Petra Hartendorp, Winie den Hartog, Thea van der Heide, Piet Hoekstra, Alex Hoogendoorn, Aad Kant, Maarten Kramer, Gerrit Riphagen, Frans Rose, Sunil Tahloe, Michel Vonk, Edwin de Weij.
Addition to loan loss provision Banking operations (in EUR million) 2,973 1,280 125 103 88
Result before tax (in EUR million) Banking result before tax –826 148 4,510 5,005 4,916 Insurance result before tax –699 –1,635 6,533 4,935 3,978 total result before tax –1,525 –1,487 11,043 9,940 8,894
Figures per ordinary share (in EUR) Net result –0.44 –0.36 4.32 3.57 3.32
Shareholders’ equity (in parent) per 31 December 34 17 37 38 37 Core Tier 1 securities per 31 December 5 10
ASSEtS Cash and balances with central banks 1 15,390 22,045 Amounts due from banks 2 43,397 48,447 Financial assets at fair value through profit and loss 3 – trading assets 111,444 160,378 – investments for risk of policyholders 104,597 95,366 – non-trading derivatives 11,632 16,484 – designated as at fair value through profit and loss 5,517 8,277 Investments 4 – available-for-sale 197,703 242,852 – held-to-maturity 14,409 15,440 Loans and advances to customers 5 578,946 619,791
Investments in associates 6 3,699 4,355 Real estate investments 7 3,638 4,300 Property and equipment 8 6,119 6,396
Net result on disposals of group companies 38 264 17 430 Gross commission income 6,790 7,504 7,693 Commission expense –2,177 –2,539 –2,866
Attributable to: Equityholders of the parent –935 –729 9,241 Minority interests –118 –37 267
Net result per ordinary share 49 –0.44 –0.36 4.32 Basic earnings per ordinary share 49 –0.57 –0.27 3.31 Diluted earnings per ordinary share 49 –0.57 –0.27 3.29 Dividend per ordinary share 50 0.00 0.74 1.48
Consolidated profit and loss account of ING Group for the years ended 31 December
Unrealised revaluations after taxation 11,867 –18,485 –1,244 Realised gains/losses transferred to profit and loss 1,554 2,476 –3,186 Changes in cash flow hedge reserve –805 746 –925 Transfer to insurance liabilities/DAC –2,079 2,193 1,137 Exchange rate differences 59 –1,086 –1,358 Other revaluations –9 –23 31 Total amount recognised directly in equity (other comprehensive income) 10,587 –14,179 –5,545
The Exchange rate differences comprises EUR 131 million (2008: EUR –214 million; 2007: EUR –112 million) related to the share of other comprehensive income of associates.
– non-trading derivatives 864 –2,020 261 – other financial assets at fair value through profit and loss 2,196 3,174 –4,878 – loans and advances to customers 11,552 –76,215 –75,501 – other assets 6,948 –11,847 –6,534 – amounts due to banks, not payable on demand –67,410 13,210 15,414 – customer deposits and other funds on deposit 21,073 6,831 28,640 – trading liabilities –54,366 3,501 20,916 – other financial liabilities at fair value through profit and loss –5,798 13,016 44 – other liabilities –10,483 –485 6,577 Net cash flow from operating activities –27,400 12,823 11,708
Proceeds from issuance of subordinated loans 2,721 1,764 Proceeds from borrowed funds and debt securities 437,772 391,915 455,629 Repayments of borrowed funds and debt securities –425,182 –354,015 –464,982 Issuance of ordinary shares 7,276 448 397 Issuance of non-voting equity securities 10,000 Repayment of non-voting equity securities –5,000 Payments to acquire treasury shares –101 –2,388 –3,446 Sales of treasury shares 118 252 846 Dividends paid (1) –1,030 –3,207 –3,039 Net cash flow from financing activities 13,853 45,726 –12,831
Cash and cash equivalents at beginning of year 31,271 –16,811 –1,795 Effect of exchange rate changes on cash and cash equivalents –4 –464 40 Cash and cash equivalents at end of year 55 20,959 31,271 –16,811
As at 31 December 2009 Cash and cash equivalents includes cash and balances with central banks of EUR 15,390 million (2008: EUR 22,045 million; 2007: EUR 12,406 million). Reference is made to Note 55 ‘Cash and Cash equivalents’.
Unrealised revaluations after taxation –1,135 –1,135 –109 –1,244 Realised gains/losses transferred to profit and loss –3,186 –3,186 –3,186 Changes in cash flow hedge reserve –925 –925 –925 Transfer to insurance liabilities/DAC 1,132 1,132 5 1,137 Exchange rate differences (1) –1,381 –1,381 23 –1,358 Other revaluations 31 31 Total amount recognised directly in equity –5,495 –5,495 –50 –5,545
Employee stock option and share plans 104 104 104 Changes in the composition of the group –745 –745 Dividends (2) –2,999 –2,999 –40 –3,039 Purchase/sale of treasury shares –2,304 –2,304 –2,304 Exercise of warrants and options 4 391 395 395 Change in minority interest shareholdings –58 –58
Unrealised revaluations after taxation –18,437 –18,437 –48 –18,485 Realised gains/losses transferred to profit and loss 2,476 2,476 2,476 Changes in cash flow hedge reserve 746 746 746 Transfer to insurance liabilities/DAC 2,193 2,193 2,193 Exchange rate differences –952 –952 –134 –1,086 Other revaluations –23 –23 Total amount recognised directly in equity –13,974 –13,974 –205 –14,179
Issuance costs incurred –20 –20 –20 Employee stock option and share plans 31 31 31 Issue of non-voting equity securities 10,000 10,000 Changes in the composition of the group –455 –455 Dividends (3) –3,600 –3,600 –32 –3,632 Purchase/sale of treasury shares –44 –1,986 –2,030 –2,030 Exercise of warrants and options 5 443 448 448
(1) In 2007 Exchange rate differences include Exchange rate differences for the year of EUR –1,153 million and Realised gains/losses transferred to profit and loss of EUR –228 million. Reference is made to Note 13 ‘Shareholders’ equity (parent)/non-voting equity securities’. (2) 2006 final dividend of EUR 0.73 per ordinary share and 2007 interim dividend of EUR 0.66 per ordinary share. (3) 2007 final dividend of EUR 0.82 per ordinary share, 2008 interim dividend of EUR 0.74 per ordinary share and final dividend of EUR 0.425 per non-voting equity security.
amounts in millions of euros Share capital Share premium Reserves total shareholders’
In 2009, deferred taxes for the year with regard to unrealised revaluations amounted to EUR –3,520 million (2008: EUR 5,381 million; 2007: EUR 1,451 million). For details on deferred tax see Note 21 ‘Other liabilities’.
Reserves include Revaluation reserve of EUR 2,466 million (2008: EUR –8,502 million; 2007: EUR 4,937 million), Currency translation reserve of EUR –2,008 million (2008: EUR –1,918 million; 2007: EUR –1,354 million) and Other reserves of EUR 16,452 million (2008: EUR 18,077 million; 2007: EUR 24,352 million). Changes in individual components are presented in Note 13 ‘Shareholders’ equity (parent)/non-voting equity securities’.
AUthORISAtION OF ANNUAl ACCOUNtS The consolidated annual accounts of ING Groep N.V. (‘ING Group’) for the year ended 31 December 2009 were authorised for issue in accordance with a resolution of the Executive Board on 15 March 2010. ING Groep N.V. is incorporated and domiciled in Amsterdam, the Netherlands. The principal activities of ING Group are described in the section ‘ING at a glance’ in section 1.1.
The following new or revised standards and interpretations were issued by the IASB, which become effective for ING Group as of 2010 (unless otherwise indicated) if and when endorsed by the EU: Amendment to IFRS 1 ‘First-time adoption of IFRS’;• IFRS 3 ‘Business Combinations’ (revised) and IAS 27 ‘Consolidated and Separate Financial Statements’ (amended);• Amendment to IAS 39 ‘Financial Instruments: Recognition and Measurement – Eligible Hedged Items’;• IFRIC 17 ‘Distributions of Non-cash Assets to Owners’;• IFRIC 18 ‘Transfers of Assets from Customers’;• 2009 Annual improvements to IFRS;• Amendment to IFRS 2 ‘Group Cash-settled Share-based Payment Transactions’;• Amendments to IFRS 1 ‘Additional Exemptions for First-time Adopters’;• Classification of Rights Issues (Amendment to IAS 32), effective as of 2011;• Amendment to IAS 24 ‘Related Party Disclosures’, effective as of 2011;• Amendment to IFRIC 14 ’Prepayments of a Minimum Funding Requirement’, effective as of 2011;• IFRIC 19 ‘Extinguishing Financial Liabilities with Equity Instruments’, effective as of 2011;• Amendment to IFRS 1 ‘Limited Exemption from Comparative IFRS 7 Disclosure for First-time Adopters’, effective as of 2011. •
Accounting policies for the consolidated balance sheet and profit and loss account of ING Group
Insurance provisions also include the impact of minimum guarantees which are contained within certain variable annuity products. This impact is dependent upon the difference between the potential minimum benefits payable and the total account balance, expected mortality and surrender rates. The determination of the potential minimum benefits payable also involves the use of assumptions about factors such as inflation, investment returns, policyholder behaviour, and mortality and morbidity trends. The use of different assumptions about these factors could have a material effect on insurance provisions and underwriting expenditure.
lOAN lOSS PROvISIONS Loan loss provisions are recognised based on an incurred loss model. Considerable judgement is exercised in determining the extent of the loan loss provision (impairment) and is based on the management’s evaluation of the risk in the portfolio, current economic conditions, loss experience in recent years and credit, industry and geographical concentration trends. Changes in such judgements and analyses may lead to changes in the loan loss provisions over time.
FAIR vAlUES OF REAl EStAtE Real estate investments are reported at fair value; all changes in fair value are recognised directly in the profit and loss account. The fair value of real estate investments is based on regular appraisals by independent qualified valuers. The fair values represent the estimated amount for which the property could be exchanged on the date of valuation between a willing buyer and willing seller in an at-arm’s-length transaction after proper marketing wherein the parties each acted knowledgeably, prudently and without compulsion. The valuations are based on the assumption that the properties are let and sold to third parties based on the actual letting status. The valuations are based on a discounted cash flow analysis of each property. The discounted cash flow analyses are based on calculations of the future rental income in accordance with the terms in existing leases and estimations of the rental values when leases expire.
IMPAIRMENtS Impairment evaluation is a complex process that inherently involves significant judgements and uncertainties that may have a material impact on ING Group’s consolidated financial statements. Impairments are especially relevant in two areas: Available-for-sale debt and equity securities and Goodwill/Intangible assets.
All debt and equity securities (other than those carried at fair value through profit and loss) are subject to impairment testing every reporting period. The carrying value is reviewed in order to determine whether an impairment loss has been incurred. Evaluation for impairment includes both quantitative and qualitative considerations. For debt securities, such considerations include actual and estimated incurred credit losses indicated by payment default, market data on (estimated) incurred losses and other current evidence that the issuer may be unlikely to pay amounts when due. Equity securities are impaired when management believes that, based on (the combination of) a significant or prolonged decline of fair value below the acquisition price, there is sufficient reason to believe that the acquisition cost may not be recovered. ‘Significant’ and ‘prolonged’ are interpreted on a case-by-case basis for specific equity securities; generally 25% and 6 months are used as triggers.
The identification of impairment is an inherently uncertain process involving various assumptions and factors, including financial condition of the counterparty, expected future cash flows, statistical loss data, discount rates, observable market prices, etc. Estimates and assumptions are based on management’s judgement and other information available prior to the issuance of the financial statements. Materially different results can occur as circumstances change and additional information becomes known.
The actuarial assumptions may differ significantly from the actual results due to changes in market conditions, economic and mortality trends, and other assumptions. Any changes in these assumptions could have a significant impact on the defined benefit plan liabilities and future pension costs. The effects of changes in actuarial assumptions and experience adjustments are not recognised in the profit and loss account unless the accumulated changes exceed 10% of the greater of the defined benefit obligation and the fair value of the plan assets. If such is the case the excess is then amortised over the employees’ expected average remaining working lives. Reference is made to Note 21 ‘Other liabilities’ for the weighted averages of basic actuarial assumptions in connection with pension and other postemployment benefits.
PRINCIPlES OF vAlUAtION ANd dEtERMINAtION OF RESUltS CONSOlIdAtION ING Group (‘the Group’) comprises ING Groep N.V. (‘the Company’), ING Verzekeringen N.V., ING Bank N.V. and all other subsidiaries. The consolidated financial statements of ING Group comprise the accounts of ING Groep N.V. and all entities in which it either owns, directly or indirectly, more than half of the voting power or over which it has control of their operating and financial policies through situations including, but not limited to: Ability to appoint or remove the majority of the board of directors;• Power to govern such policies under statute or agreement; and• Power over more than half of the voting rights through an agreement with other investors.•
A subsidiary which ING Group has agreed to sell but is still legally owned by ING Group may still be controlled by ING Group at the balance sheet date and, therefore, still be included in the consolidation. Such a subsidiary may be presented as a held for sale disposal group if certain conditions are met. Disposal groups (and Non-current assets) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the disposal group (or asset) is available for immediate sale in its present condition; management must be committed to the sale, which should be expected to occur within one year from the date of classification as held for sale.
held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity for which the Group has the positive intent and ability to hold to maturity and which are designated as held-to-maturity assets are initially recognised at fair value plus transaction costs. Subsequently, they are carried at amortised cost using the effective interest method less any impairment losses. Interest income from debt securities classified as held-to-maturity is recognised in Interest income in the profit and loss account using the effective interest method. Held-to-maturity investments include only debt securities.
dERIvAtIvES ANd hEdGE ACCOUNtING Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques (such as discounted cash flow models and option pricing models), as appropriate. All derivatives are carried as assets when their fair value is positive and as liabilities when their fair values are negative.
OFFSEttING OF FINANCIAl ASSEtS ANd FINANCIAl lIABIlItIES Financial assets and financial liabilities are offset, and the net amount reported, in the balance sheet when the Group has a legally enforceable right to set off the recognised amounts and intends to either settle on a net basis or to realise the asset and settle the liability simultaneously.
REPURChASE tRANSACtIONS ANd REvERSE REPURChASE tRANSACtIONS Securities sold subject to repurchase agreements (‘repos’) are retained in the consolidated financial statements. The counterparty liability is included in Amounts due to banks, Other borrowed funds or Customer deposits and other funds on deposit, as appropriate.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the provision. The amount of the reversal is recognised in the profit and loss account.
IMPAIRMENt OF OthER FINANCIAl ASSEtS At each balance sheet date, the Group assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the specific case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. ‘Significant’ and ‘prolonged’ are interpreted on a case-by-case basis for specific equity securities; generally 25% and 6 months are used as triggers. If any objective evidence exists for available-for-sale debt and equity investments, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in net result – is removed from equity and recognised in the profit and loss account. Impairment losses recognised on equity instruments can never be reversed. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the profit and loss account, the impairment loss is reversed through the profit and loss account.
REAl EStAtE INvEStMENtS Real estate investments are stated at fair value at the balance sheet date. Changes in the carrying amount resulting from revaluations are recognised in the profit and loss account. On disposal the difference between the sale proceeds and book value is recognised in the profit and loss account.
Property under development for which ING Group has the intention to sell the property under development after its completion and where there is not yet a specifically negotiated contract is measured at direct construction cost incurred up to the balance sheet date, including borrowing costs incurred during construction and ING Group’s own directly attributable development and supervision expenses less any impairment losses. Profit is recognised using the completed contract method (on sale date of the property). Impairment is recognised if the estimated selling price in the ordinary course of business, less applicable variable selling expenses is lower than bookvalue.
Equipment Equipment is stated at cost less accumulated depreciation and any impairment losses. The cost of the assets is depreciated on a straight line basis over their estimated useful lives, which are generally as follows: for data processing equipment two to five years, and four to ten years for fixtures and fittings. Expenditure incurred on maintenance and repairs is charged to the profit and loss account as incurred. Expenditure incurred on major improvements is capitalised and depreciated.
the Group as the lessee The leases entered into by ING Group are primarily operating leases. The total payments made under operating leases are charged to the profit and loss account on a straight-line basis over the period of the lease.
value of business acquired (vOBA) VOBA is an asset that reflects the present value of estimated net cash flows embedded in the insurance contracts of an acquired company, which existed at the time the company was acquired. It represents the difference between the fair value of insurance liabilities and their book value. VOBA is amortised in a similar manner to the amortisation of deferred acquisition costs as described in the section ‘Deferred acquisition costs’.
tAxAtION Income tax on the net result for the year comprises current and deferred tax. Income tax is recognised in the profit and loss account but it is charged or credited directly to equity if the tax relates to items that are credited or charged directly to equity.
In 2009 the methodology for determining the liability for insurance contracts in Japan was revised. The liability for certain guarantees is now measured at the fair value. The impact of this change in accounting policy (at 1 January 2009 and on prior year comparatives) was not material to shareholders’ equity and the net result of ING Group.
Claims provision The Claims provision is calculated either on a case-by-case basis or by approximation on the basis of experience. Provisions have also been made for claims incurred but not reported (IBNR) and for future claims handling expenses. The adequacy of the Claims provision is evaluated each year using standard actuarial techniques. In addition, IBNR reserves are set to recognise the estimated cost of losses that have occurred but which have not yet been notified to the Group.
deferred profit sharing liability For insurance contracts with discretionary participation features a deferred profit sharing amount is recognised for the full amount of the unrealised revaluation on allocated investments. Upon realisation, the profit sharing on unrealised revaluation is reversed and a deferred profit sharing amount is recognised for the share of realised results on allocated investments that is expected to be shared with policyholders. The deferred profit sharing amount is reduced by the actual allocation of profit sharing to individual policyholders.
If, for any business unit, the net insurance liabilities are not adequate using a prudent (90%) confidence level, but there are offsetting amounts within other Group business units, then the business unit is allowed to take measures to strengthen the net insurance liabilities over a period no longer than the expected life of the policies. To the extent that there are no offsetting amounts within other Group business units, any shortfall at the 90% confidence level is recognised immediately in the profit and loss account.
INCOME RECOGNItION Gross premium income Premiums from life insurance policies are recognised as income when due from the policyholder. For non-life insurance policies, gross premium income is recognised on a pro-rata basis over the term of the related policy coverage. Receipts under investment contracts are not recognised as gross premium income.
ExPENSE RECOGNItION Expenses are recognised in the profit and loss account as incurred or when a decrease in future economic benefits related to a decrease in an asset or an increase in a liability has arisen that can be measured reliably.
Share-based payments Share-based payment expenses are recognised as the employees provide the service. A corresponding increase in equity is recognised if the services are received in an equity-settled share-based payment transaction. A liability is recognised if the services are acquired in a cash-settled share-based payment transaction. The cost of acquiring the services is expensed as a staff expense. Prior to 2007, ING Group generally provided equity-settled share-based payment transactions. However, since 2007, ING Group has generally provided cash-settled share-based payment transactions. The fair value of equity-settled share-based payment transactions is measured at the grant date and the fair value of cash-settled share-based payment transactions is measured at each balance sheet date.
GOvERNMENt GRANtS Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, the grant is recognised over the period necessary to match the grant on a systematic basis to the expense that it is intended to compensate. In such case, the grant is deducted from the related expense in the profit and loss account.
FIdUCIARy ACtIvItIES The Group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Group.
Accounting policies for the consolidated statement of cash flows of ING Group
Amounts held at central banks 10,989 16,432 Cash and bank balances 3,965 5,052 Short term deposits insurance operations 436 561 2 AMOUNtS dUE FROM BANKS
As at 31 December 2009, the non-subordinated receivables amounted to EUR 43,396 million (2008: EUR 48,443 million) and the subordinated receivables amounted to EUR 1 million (2008: EUR 4 million).
Trading assets 111,444 160,378 Investments for risk of policyholders 104,597 95,366 Non-trading derivatives 11,632 16,484 Designated as at fair value through profit and loss 5,517 8,277 trading assets by type 2009 2008
Derivatives used in: – fair value hedges 2,727 3,862 – cash flow hedges 5,521 5,771 – hedges of net investments in foreign operations 38 670 Other non-trading derivatives 3,346 6,181
Other non-trading derivatives include mainly interest rate swaps for which no hedge accounting is applied.
designated as at fair value through profit and loss by type
Equity securities 392 313 Debt securities 3,478 5,445 Loans and receivables 524 637
The change in the fair value of the loans and receivables designated as at fair value through profit and loss attributable to changes in the credit risk of the financial assets during 2009 was nil (2008: nil),and nil (2008: nil) on a cumulative basis.
Changes in investments – available-for-sale and held-to-maturity Available-for-sale equity securities Available-for-sale debt securities Held-to-maturity Total
Included in transfers and reclassifications of available-for-sale and held-to-maturity investments Available-for-sale equity securities Available-for-sale debt securities Held-to-maturity Total
Reclassifications to investments held to maturity In 2009 ING Group reclassified EUR 0.7 billion of available-for-sale investments to held-to-maturity. The reclassification resulted from reduction in market liquidity for these assets; ING Group has the intent and ability to hold these assets until maturity.
Effective interest rate (weighted average) 1.4%–24.8% 2.1%–11.7% 4.1%–21% Expected recoverable cash flows 7,118 24,052 1,646 Unrealised fair value losses in shareholders’ equity (before tax) –896 –1,224 –69 Recognised fair value gains (losses) in shareholders’ equity (before tax) between the beginning of the year in which the reclassification took place and the reclassification date 173 nil –79 Recognised impairment (before tax) between the beginning of the year in which the reclassification took place and the reclassification date nil nil nil
derecognition of Available-for-sale debt securities – transaction with the dutch State ING Group and the Dutch government (‘State’) reached an agreement on an Illiquid Assets Back-Up Facility (‘IABF’) on 26 January 2009; the transaction closed on 31 March 2009. Under the Facility, ING has transferred 80% of the economic ownership of its Alt-A portfolio to the Dutch State. This portfolio was included in Available-for-sale debt securities. Reference is made to Note 33 ‘Related parties’ for more details.
Available-for-sale equity securities by banking and insurance operations Listed Unlisted Total debt securities by banking and insurance operations Available-for-sale Held-to-maturity Total
Borrowed equity securities and convertible bonds are not recognised in the balance sheet and amounted to nil as at 31 December 2009 (2008: nil).
Borrowed debt securities are not recognised in the balance sheet and amounted to EUR 1,842 million as at 31 December 2009 (2008: EUR 166 million).
Investments in connection with the insurance operations with a combined carrying value of EUR 26 million (2008: EUR 47 million) were non-income-producing for the year ended 31 December 2009.
Loan loss provisions –1,461 –761 –2,892 –1,765 –4,353 –2,526 loans and advances to customers analysed by subordination – banking operations
loans and advances to customers by type – insurance operations Netherlands International Total
As at 31 December 2009, Loans and advances to customers included receivables with regard to securities which have been acquired in reverse repurchase transactions related to the banking operations amounting to EUR 2,409 million (2008: EUR 964 million).
– more than 1 year but less than 5 years 9,739 9,766 – more than 5 years 6,041 4,836
Unearned future finance income on finance leases –3,783 –3,614 Net investment in finance leases 17,160 17,351
The closing balance is included in – Amounts due from banks 46 85 46 85 – Loans and advances to customers 1,461 761 2,892 1,765 4,353 2,526
Balance sheet value total assets total liabilities total income total expenses
ING Retail Property Fund Australia 29 107 886 479 20 65
ING Real Estate Asia Retail Fund 28 99 723 417 –46 140
Retail Property Fund France Belgium (RPFFB) 15 71 1,381 909 2 87 ING Re French Residential Fund 45 67 233 83 –1 8
ING Re Nordic Property Fund 16 56 940 588 –7 52 Steadfast Capital Fund II LP 68 56 83 2 6 ING Retail Property Partnership Southern Europe 21 55 1,001 745 –27 69 ING Logistics Property Fund Europe 25 51 467 263 –22 23 Other investments in associates 886
For the above associates in which the interest held is below 20%, significant influence exists based on the combination of ING Group’s financial interest for own risk and its role as investment manager.
Changes in the composition of the group –96 46 Transfers to and from Investments –9 –154
Share of results –458 –375 Dividends received –126 –212 Disposals –294 –972 Impairments –3 –29 Exchange rate differences 131 –214 Closing balance 3,699 4,355
Most recent appraisal in 2009 98 Most recent appraisal in 2008 1 Most recent appraisal in 2005 1 2.1 Consolidated annual accounts
Most recent appraisal in 2009 39 Most recent appraisal in 2008 28 Most recent appraisal in 2007 18 Most recent appraisal in 2006 7 Most recent appraisal in 2005 8 2.1 Consolidated annual accounts
Gross carrying amount as at 31 December 1,582 1,562 3,084 2,935 4,666 4,497 Accumulated depreciation as at 31 December –1,238 –1,231 –1,986 –1,840 –3,224 –3,071 Accumulated impairments as at 31 December –11 –8 –19
Changes in the composition of the group 172 –2 170 Disposals –93 –123 –93 –123 Depreciation –789 –764 –3 –2 –792 –766 Impairments –3 –3 Exchange rate differences 28 –116 28 –116 Transfer and other changes –334 –313 –334 –313
Gross carrying amount as at 31 December 4,516 4,466 27 28 4,543 4,494 Accumulated depreciation as at 31 December –1,530 –1,324 –22 –20 –1,552 –1,344 Accumulated impairments as at 31 December –2 –2
Depreciation of assets under operating leases is included in the profit and loss account in Other income as a deduction from operating lease income.
No individual operating lease has terms and conditions that materially affect the amount, timing or certainty of the consolidated cash flows of the Group.
Gross carrying amount as at 31 December 2,518 2,980 3,136 3,225 2,217 1,988 1,007 1,125 8,878 9,318 Accumulated amortisation as at 31 December –1,016 –896 –1,393 –1,051 –308 –200 –2,717 –2,147 Accumulated impairments as at 31 December –65 –155 –21 –56 –54 –45 –140 –256
Retail Banking – Central Europe 834 839 Retail Banking – South West Europe 49 49 Retail Banking – Netherlands 1 1 ING Direct 460 456 Commercial Banking Leasing & Factoring 66 61 Commercial Banking Real Estate 39 11 Commercial Banking Other 14 15 Insurance Europe – Benelux 48 49 Insurance Europe – Rest of Europe 122 124 Insurance Americas – Latin America 591 543 Insurance Americas – United States 483 501 Insurance Americas – Canada 71 Insurance Asia/Pacific – South Korea 171 164 Insurance Asia/Pacific – Rest of Asia 193 186
Amortisation and unlocking –11 –12 –435 –1,884 –12 –130 –458 –2,026 Effect of unrealised revaluations in equity –1,140 1,523 –1,140 1,523 Changes in the composition of the group –104 –34 58 –1,289 –231 –104 –277 –1,427