ING Direct 2011 Annual Report Download - page 176

Notes to the consolidated annual accounts of ING Group continued
There are no significant provisions for doubtful debts or individually significant bad debt expenses recognised on outstanding balances
with related parties.
Transactions with the Dutch State
Illiquid Assets Back-up Facility
ING Group and the Dutch State reached an agreement on an Illiquid Assets Back-up Facility (‘IABF’) on 26 January 2009. The transaction
closed on 31 March 2009. The IABF covers the Alt-A portfolios of both ING Direct USA and ING Insurance US, with a par value of
approximately EUR 30 billion. Under the IABF, ING transferred 80% of the economic ownership of its Alt-A portfolio to the Dutch State.
Asa result, an undivided 80% interest in the risk and rewards on the portfolio was transferred to the Dutch State. ING retained 100%
ofthe legal ownership of its Alt-A portfolio. The transaction price was 90% of the par value with respect to the 80% proportion of the
portfolio of which the Dutch State had become the economic owner. The transaction price remains payable by the Dutch State to ING
andwill be redeemed over the remaining life. Furthermore, under the IABF ING pays a guarantee fee to the State and receives a funding
fee and a management fee. As a result of the transaction ING derecognised 80% of the Alt-A portfolio from its balance sheet and
recognised a receivable from the Dutch State. The transferred Alt-A portfolio was previously included in Available-for-sale debt securities.
The Dutch State also acquired certain consent rights with respect to the sale or transfer of the 20% proportion of the Alt-A portfolio
thatis retained by ING.
Under the terms of the transaction as agreed on 26 January 2009, the overall sales proceeds amounted to EUR 22.4 billion at the
transaction date. The amortised cost (after prior impairments) at the transaction date was also approximately EUR 22.4 billion. The
transaction resulted in a loss in the first quarter of 2009 of EUR 109 million after tax (the difference between the sales proceeds
andtheamortised cost). The fair value under IFRS-EU at the date of the transaction was EUR 15.2 billion.
In order to obtain approval from the European Commission on ING Group’s Restructuring Plan (see below), ING agreed to make additional
Illiquid Assets Back-up Facility payments as part of the overall agreement with the European Commission to the Dutch State corresponding
to an adjustment of the fees for the Illiquid Assets Back-up Facility. In total, these additional Illiquid Assets Back-up Facility payments as
part of the overall agreement with the European Commission amounted to a net present value of EUR 1.3 billion pre-tax, which was
recognised as a one-off charge in the fourth quarter of 2009. The remainder of the IABF as agreed in January 2009, including the transfer
price of the securities of 90%, remained unaltered.
The difference between the total sales proceeds of EUR 21.1 billion (EUR 22.4 billion -/- adjustment of EUR 1.3 billion) and the fair value
under IFRS-EU of EUR 15.2 billion represents a ‘Government grant’ under IAS 20. This government grant is considered to be an integral
part of the transaction and is therefore accounted for as part of the result on the transaction.
The transaction resulted in a reduction of the negative revaluation – and therefore an increase in equity – of EUR 4.6 billion (after tax).
The valuation method of the 20% Alt-A securities in the IFRS-EU balance sheet is not impacted by the IABF. The methodology used
todetermine the fair value for these assets in the balance sheet under IFRS-EU is disclosed in Note 34 ‘Fair value of financial assets
andliabilities’.
As at 31 December 2011, the remaining outstanding amount from the transaction price that remained payable by the Dutch State is
EUR10.3 billion (2010: EUR 13.1 billion). The net amount of other unamortised components of the total sales proceeds, as explained
above, amounts to EUR 0.6 billion payable (2010: EUR 0.7 billion).
In connection with the sale of ING Direct USA as disclosed in Note 30 ‘Companies acquired and companies disposed’, ING has reached an
agreement with the Dutch State to adjust the structure of the Illiquid Assets Back-up Facility (IABF). This adjustment served to de-link the
IABF from ING Direct USA by putting ING Bank in its place as counterparty for the Dutch State and became effective at the closing of the
sale in February 2012. Under the terms of the original transaction ING Direct USA held on its balance the remaining 20% of the Alt-A
portfolio, ensuring an alignment of interests between ING and the Dutch state regarding the performance of the portfolio.
Upon closing of the sale ING provided a counter guarantee to the Dutch State covering 25% of the 80% part of the Dutch State.
Thisguarantee covered realised cash losses if they would exceed the 35% that is implied by the market value of the portfolio in June 2011.
Thisadjustment therefore lowered the risk exposure for the Dutch State. The impact on equity and result of the alignment for ING Bank
waslimited.
Only the part covering ING Direct USA, which currently covers approximately 85% of the total portfolio, is adjusted in the agreement
andthe guarantee only relates to the portfolio of ING Direct USA. The ING Insurance US and Bancorp part of the IABF remains unaltered.
Non-voting equity securities (Core Tier 1 securities)
On 12 November 2008, ING Groep N.V. issued one billion non-voting equity securities to the Dutch State at EUR 10 per non-voting equity
security, resulting in an increase of ING Group’s core Tier 1 capital of EUR 10 billion. The nominal value of each security is EUR 0.24.
Thenon-voting equity securities do not form part of ING Group’s share capital; accordingly they do not carry voting rights in the General
Meeting of Shareholders.
174 ING Group Annual Report 2011