ING Direct 2009 Annual Report Download - page 269

Any of the risks described below could have a material adverse effect on the business activities, financial condition, results of operations
and prospects of ING. The market price of ING shares could decline due to any of these risks, and investors could lose all or part of their
investments. Additional risks of which the Company is not presently aware could also affect the business operations of ING and have a
material adverse effect on ING’s business activities, financial condition, results of operations and prospects. In addition, the business of a
multinational, broad-based financial services firm such as ING is inherently exposed to risks that only become apparent with the benefit of
hindsight. The sequence in which the risk factors are presented below is not indicative of their likelihood of occurrence or the potential
magnitude of their financial consequences.
RISKS RELATED TO THE FINANCIAL SERVICES INDUSTRY
Because we are an integrated financial services company conducting business on a global basis, our revenues and earnings
are affected by the volatility and strength of the economic, business and capital markets environments specific to the
geographic regions in which we conduct business. The ongoing turbulence and volatility of such factors have adversely
affected, and may continue to adversely affect, the profitability of our insurance, banking and asset management business.
Factors such as interest rates, securities prices, credit (including liquidity) spreads, exchange rates, consumer spending, business investment,
real estate and private equity valuations, government spending, inflation, the volatility and strength of the capital markets, and terrorism all
impact the business and economic environment and, ultimately, the amount and profitability of business we conduct in a specific
geographic region. For example, in an economic downturn, such as the one that has affected world economies since mid-2007,
characterised by higher unemployment, lower family income, lower corporate earnings, higher corporate and private debt defaults, lower
business investment and consumer spending, the demand for banking and insurance products is adversely affected and our reserves and
provisions are likely to increase, resulting in lower earnings. Securities prices, real estate valuations and private equity valuations may be
adversely impacted, and any such losses would be realised through profit and loss and shareholders’ equity. Some insurance products
contain minimum return or accumulation guarantees. If returns do not meet or exceed the guarantee levels we may need to set up
additional reserves to fund these future guaranteed benefits. In addition, we may experience an elevated incidence of claims and lapses or
surrenders of policies. Our policyholders may choose to defer paying insurance premiums or stop paying insurance premiums altogether.
Similarly, a downturn in the equity markets causes a reduction in commission income we earn from managing portfolios for third parties,
income generated from our own proprietary portfolios, asset-based fee income on certain insurance products, and our capital base. We
also offer a number of insurance and financial products that expose us to risks associated with fluctuations in interest rates, securities
prices, corporate and private default rates, the value of real estate assets, exchange rates and credit spreads. See also ‘Risks Related to the
Group - Interest rate volatility may adversely affect our profitability’ below.
In case one or more of the factors mentioned above adversely affects the profitability of our business this might also result, among others,
in the following:
•theunlockingofdeferredacquisitioncostsimpactingearnings;and/or
•reserveinadequacieswhichcouldultimatelyberealisedthroughprotandlossandshareholders’equity;and/or
•thewritedownoftaxassetsimpactingnetresults;and/or
•impairmentexpensesrelatedtogoodwillandotherintangibleassets,impactingnetresults.
In 2008 and 2009, shareholders’ equity and our net result were significantly impacted by the turmoil and the extreme volatility in the
worldwide financial markets. Further negative developments in financial markets and/or economies may have a material adverse impact on
shareholders’ equity and net result in future periods, including as a result of the potential consequences listed above. We are currently
recalibrating our economic capital models to reflect the extreme market conditions experienced over recent quarters in order to align them
more closely with regulatory measures. This may have a material impact on our economic capital for credit risk. See ‘Risks Related to the
Group - Ongoing turbulence and volatility in the financial markets have adversely affected us, and may continue to do so’.
Adverse capital and credit market conditions may impact our ability to access liquidity and capital, as well as the cost of
credit and capital.
The capital and credit markets have been experiencing extreme volatility and disruption for more than two years. In the second half of
2008, the volatility and disruption reached unprecedented levels. In some cases, market developments have resulted in restrictions on the
availability of liquidity and credit capacity for certain issuers.
We need liquidity in our day-to-day business activities to pay our operating expenses, interest on our debt and dividends on our capital
stock; maintain our securities lending activities; and replace certain maturing liabilities. The principal sources of our liquidity are deposit
funds, insurance premiums, annuity considerations, cash flow from our investment portfolio and assets, consisting mainly of cash or assets
that are readily convertible into cash. Sources of liquidity in normal markets also include a variety of short- and long-term instruments,
including repurchase agreements, commercial paper, medium-and long-term debt, junior subordinated debt securities, capital securities
and stockholders’ equity.
In the event current resources do not satisfy our needs, we may have to seek additional financing. The availability of additional financing
will depend on a variety of factors such as market conditions, the general availability of credit, the volume of trading activities, the overall
availability of credit to the financial services industry, our credit ratings and credit capacity, as well as the possibility that customers or
ING Group Annual Report 2009 267
2.4 Additional information
Risk factors