ING Direct 2009 Annual Report Download - page 23

Capital management
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’.
REPURCHASE CORE TIER 1 SECURITIES
In conjunction with the restructuring plan, ING reached an
agreement with the Dutch State to facilitate early repayment
of half of the core Tier 1 securities issued in 2008. ING used the
opportunity to repurchase EUR 5 billion of core Tier 1 securities
in December 2009, financed by the successful executions of a
fully underwritten rights issue of EUR 7.5 billion.
DIVIDEND POLICY
It is ING’s policy to pay dividends in relation to the long-term
underlying development of cash earnings. Dividends can only
be declared by shareholders when the Executive Board considers
such dividends appropriate, taking into consideration the financial
conditions then prevailing and the longer-term outlook.
Given the uncertain financial environment, ING will not pay a
dividend over 2009.
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.
Shareholders’ equity improved due to the proceeds from the rights
issue of EUR 7.5 billion, net of EUR 0.9 billion of fees, expenses and
accrued interest on the core Tier 1 securities. Furthermore, the
increase is largely driven by higher fixed income revaluation reserves
and higher equity securities revaluation reserves.
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.
Capital base: ING Groep N.V.
in EUR million
Year-end
2009
Year-end
2008
Shareholders’ equity 33,863 17,33 4
+ Core Tier 1 securities 5,000 10,000
+ Group hybrid capital 11,478 11,655
+ Group leverage (core debt) 6,913 7,170
Total capitalisation (Bank + Insurance) 57,254 46,159
–/– Revaluation reserves fixed income and other –1,291 6,769
–/– Group leverage (core debt) (d) –6,913 –7,170
Adjusted equity (e) 49,050 45,758
Debt/equity ratio (d/(d+e)) 12.4% 13.5%
Capital base: ING Bank N.V.
in EUR million
Year-end
2009
Year-end
2008
Core Tier 1 25,958 24,934
Hybrid Tier 1 8,057 7,085
Available capital Tier 1 34,015 32,019
Other capital 10,716 11,870
BIS capital 44,731 43,889
Risk-weighted assets (1) 332,375 343,388
Required capital Basel II 26,590 27,471
Required capital floor based on Basel I (2) 28,709 34,369
Core Tier 1 ratio (1) 7.81% 7.26%
Tier 1 ratio (1) 10.23% 9.32%
BIS ratio (1) 13.46% 12.78%
(1) Based on Basel II
(2)
Using 80% and 90% of Basel I Risk-weighted assets in 2009 and 2008
respectively. In case a 80% floor would have been used, the required capital
would have been EUR 30,550 million at year-end 2008
Capital base: ING Verzekeringen N.V. (Insurance)
in EUR million
Year-end
2009
Year-end
2008
Adjusted equity (e) 23,954 23,903
Core debt (d) 2,586 2,301
Debt/equity ratio (d/(d+e)) 9.7% 8.8%
Available capital (a) 21,022 22,010
EU required regulatory capital (b) 7,774 8,582
Capital coverage ratio (a/b) 270% 256%
Maintaining a strong capital position
ING Group’s shareholders’ equity
movement in 2009
ING Group’s adjusted equity
movement in 2009
Adjusted equity
beginning of period
Shareholders’ equity
Group hybrid capital
Core Tier 1 securities
Revaluation reserves
Goodwill
Adjusted equity
end of period
Shareholders’ equity
beginning of period
Net result for the period
Fixed income revaluations
+ cash flow hedge
Equity revaluations
Net proceeds right issue
Shareholders’ equity
end of period
17. 3 0.9
8.1
2.8
6.6 33.9
45.8
16.6 0.2
0.0 49.1
5.0
8.1
0
5
10
15
20
25
30
35
40
0
10
20
30
40
50
60
70
ING Group Annual Report 2009 21