ING Direct 2009 Annual Report Download - page 275

most pronounced in our more mature markets of the Netherlands, Belgium, the Rest of Western Europe, the United States, Canada and
Australia. In recent years, however, competition in emerging markets, such as Latin America, Asia and Central and Eastern Europe, has also
increased as large insurance and banking industry participants from more developed countries have sought to establish themselves in
markets which are perceived to offer higher growth potential, and as local institutions have become more sophisticated and competitive
and have sought alliances, mergers or strategic relationships with our competitors. The Netherlands and the United States are our largest
markets for both our banking and insurance operations. Our main competitors in the banking sector in the Netherlands are ABN AMRO
Bank/Fortis and Rabobank. Our main competitors in the insurance sector in the Netherlands are Achmea, ASR and Aegon. Our main
competitors in the United States are insurance companies such as Lincoln National, Hartford, Aegon Americas, AXA, Met Life, Prudential,
Nationwide and Principal Financial. Increasing competition in these or any of our other markets may significantly impact our results if we
are unable to match the products and services offered by our competitors. Over time, certain sectors of the financial services industry have
become more concentrated, as institutions involved in a broad range of financial services have been acquired by or merged into other firms
or have declared bankruptcy. In 2008 and 2009, this trend accelerated considerably, as several major financial institutions consolidated,
were forced to merge or received substantial government assistance, and this trend may continue in light of the EC’s scrutiny of state aid
transactions. These developments could result in our competitors gaining greater access to capital and liquidity, expanding their ranges of
products and services, or gaining geographic diversity. We may experience pricing pressures as a result of these factors in the event that
some of our competitors seek to increase market share by reducing prices. In addition, under the Restructuring Plan we have agreed to
certain restrictions imposed by the EC, including with respect to our price leadership in EU banking markets and our ability to make
acquisitions of financial institutions and other businesses. See - The limitations agreed with the EC on our ability to compete and to make
acquisitions or call certain debt instruments could materially impact the Group’.
Our agreements with the Dutch State impose certain restrictions regarding the issuance or repurchase of our shares and the
compensation of certain senior management positions.
For so long as the Dutch State holds at least 25% of the Core Tier 1 Securities, issued by us on 12 November 2008, for so long as the
Illiquid Assets Back-up Facility is in place, or for so long as any of the government guaranteed senior unsecured bonds issued by ING Bank
N.V. on 30 January 2009, 20 February 2009 and 12 March 2009 under the Credit Guarantee Scheme of the Netherlands (the ‘Government
Guaranteed Bonds’) are outstanding, we are prohibited from issuing or repurchasing any of our own shares (other than as part of regular
hedging operations and the issuance of shares according to employment schemes) without the consent of the Dutch State’s nominees on
the Supervisory Board. In addition, under the terms of the Core Tier 1 Securities and Illiquid Assets Back-up Facility, we have agreed to
institute certain restrictions on the compensation of the members of the Executive Board and senior management, including incentives or
performance-based compensation. These restrictions could hinder or prevent us from attracting or retaining the most qualified
management with the talent and experience to manage our business effectively. In connection with these transactions, the Dutch State
was granted the right to nominate two candidates for appointment to the Supervisory Board. The Dutch State’s nominees have veto rights
over certain material transactions. Our agreements with the Dutch State have also led to certain restrictions imposed by the EC as part of
the Restructuring Plan, including with respect to our price leadership in EU banking markets and our ability to make acquisitions of
financial institutions and other businesses. See ‘Risks Related to the Group - The limitations agreed with the EC on our ability to compete
and to make acquisitions or call certain debt instruments could materially impact the Group’.
Because we do business with many counterparties, the inability of these counterparties to meet their financial obligations
could have a material adverse effect on our results of operations.
General
Third-parties that owe us money, securities or other assets may not pay or perform under their obligations. These parties include the
issuers whose securities we hold, borrowers under loans originated, customers, trading counterparties, counterparties under swaps, credit
default and other derivative contracts, clearing agents, exchanges, clearing houses and other financial intermediaries. Defaults by one or
more of these parties on their obligations to us due to bankruptcy, lack of liquidity, downturns in the economy or real estate values,
operational failure, etc., or even rumours about potential defaults by one or more of these parties or regarding the financial services
industry generally, could lead to losses for us, and defaults by other institutions. In light of the significant constraints on liquidity and high
cost of funds in the interbank lending market, which arose in 2008 and early 2009, particularly following the collapse of Lehman Brothers
in September 2008, and given the high level of interdependence between financial institutions, we are and will continue to be subject to
the risk of deterioration of the commercial and financial soundness, or perceived soundness, of other financial services institutions. This is
particularly relevant to our franchise as an important and large counterparty in equity, fixed-income and foreign exchange markets,
including related derivatives, which exposes it to concentration risk.
We routinely execute a high volume of transactions with counterparties in the financial services industry, including brokers and dealers,
commercial banks, investment banks, mutual and hedge funds, insurance companies and other institutional clients, resulting in large daily
settlement amounts and significant credit exposure. As a result, we face concentration risk with respect to specific counterparties and
customers. We are exposed to increased counterparty risk as a result of recent financial institution failures and weakness and will continue
to be exposed to the risk of loss if counterparty financial institutions fail or are otherwise unable to meet their obligations. A default by, or
even concerns about the creditworthiness of, one or more financial services institutions could therefore lead to further significant systemic
liquidity problems, or losses or defaults by other financial institutions.
ING Group Annual Report 2009 273
2.4 Additional information
Risk factors (continued)