ING Direct 2009 Annual Report Download - page 178

Sensitivities of fair values in Level 3
Reasonably likely changes in the non observable assumptions used in the valuation of Level 3 assets and liabilities would not have a
significant impact on equity and net result, other than explained below for investments in asset backed securities in the United States.
Asset backed securities in the United States
Level 3 assets include EUR 6.4 billion at 31 December 2009 and EUR 25.2 billion at 31 December 2008 for investments in asset backed
securities in the United States. The decrease mainly relates to the transfer of Alt-A securities to the Dutch State as part of the Illiquid Asset
Back-Up Facility and a transfer to Level 2 as described above. These assets are valued using external price sources that are obtained from
third party pricing services and brokers.
During 2008, the trading volumes in the relevant markets reduced significantly and the market became inactive. The dispersion between
prices for the same security from different price sources increased significantly. In order to ensure that the most accurate and relevant
sources available are used in determining the fair value of these securities, the valuation process was further enhanced during 2008 by
using information from additional pricing sources and enhancing the process of selecting the most appropriate price.
Generally up to four different pricing services are utilised. Management carefully reviews the prices obtained in conjunction with other
information available, including, where relevant, trades in the market, quotes from brokers and internal evaluations. If the dispersion
between different prices for the same securities is limited, a hierarchy exists that ensures consistent selection of the most appropriate price.
If the dispersion between different prices for the same security is significant, additional processes are applied to select the most
appropriate price, including an internally developed price validation matrix and a process to challenge the external price source.
Valuation for these securities is inherently complex and subjective. Although each security in the portfolio is priced based on an external
price, without modification by ING Group, and management is confident that it has selected the most appropriate price in the current
market circumstances, the valuation of these portfolios would have been different had different prices been selected. The sensitivity of the
valuation in this respect is illustrated as follows:
had the valuation been based on the highest available market price for each security in these portfolios, the overall valuation would •
have been approximately 2.8% higher than the valuation applied by ING Group (31 December 2008: approximately 7.6% higher);
had the valuation been based on the lowest available market price for each security in these portfolios, the overall valuation would •
have been approximately 1.6% lower than the valuation applied by ING Group (31 December 2008: approximately 18.3% lower);
had the valuation been based on the weighted average available market price for these portfolios, the overall valuation would have •
been approximately 0.6% higher than the valuation applied by ING Group (31 December 2008: approximately 6.3% lower).
These are indicators of sensitivity and not alternatives for fair value under IFRS-EU. These sensitivities mainly relate to the banking
operations.
Reference is made to the ‘Risk management’ section with regard to the exposure of these asset backed securities as at 31 December 2009
and 2008 and the impact from these asset backed securities on net result in 2009 and 2008.
Furthermore, the ‘Risk management’ section provides under Impact of financial crisis a breakdown of the methods applied in determining
fair values of pressurised assets.
2.1 Consolidated annual accounts
ING Group Annual Report 2009
176
Additional information to the consolidated balance sheet of ING Group (continued)