ING Direct 2011 Annual Report Download - page 19

1 Who we are 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information
SEPARATION PROCESS ON SCHEDULE
We continued to work towards the full physical and organisational
separation of the banking and insurance/investment management
activities. In 2011 we laid the groundwork for the original base case
of two IPOs (initial public offerings) of our insurance and investment
management activities: one for our US operations and one for our
European and Asian activities. However, on 12 January 2012 we
announced an update on the restructuring of the insurance and
investment management businesses. Due to the uncertain economic
outlook and volatile markets, especially in Europe, ING has decided
to review other strategic options for its Asian insurance and
investment management businesses. For the European insurance/
investment management businesses, ING is continuing preparations
for a stand-alone future, including the possibility of an IPO. And we
are continuing to prepare for the base case of an IPO for the US
insurance/investment management businesses. ING is committed
toconducting these processes with the utmost diligence in the
interests of all stakeholders, including customers, employees,
distribution partners and shareholders.
The separation process of ING Bank and ING Insurance/Investment
Management (IM) has been a massive undertaking, entailing
morethan 1,100 projects. It was set up as a four-year programme,
running from early 2010 through to the end of 2013. Operational
separation was achieved as of 1 January 2011; since then,
approximately 90% of the planned full separation projects have
been completed. The full separation of ING Insurance US and ING
Insurance Eurasia was well underway in 2011. Separation costs
for2011 were about EUR 200 million, well within the budgeted
amount of EUR 250 million after tax. This reflects the cost-efficient
way in which the separation was handled. Only a small number of
projects were carried over from 2011 to 2012 and are expected to
be resolved in the first quarter of 2012. In addition, ING will finalise
a couple of large longer-term IT projects.
As ING continued to prepare for the restructuring of its insurance/
investment management businesses, important steps were made in
2011 to realign the legal structure and governance of the insurance/
investment management operations. Regulatory approvals were
nearing completion at the end of 2011 to create one new holding
company for the European and Asian insurance and investment
management activities, called ING Insurance Eurasia, under ING
Verzekeringen N.V. We also created a management board for ING
Insurance Eurasia. These represent ‘no regrets’ steps to allow for
strategic flexibility on execution of the divestments of the European
and the Asian insurance and investment management businesses.
The announcement of a stand-alone future for the European
insurance/investment management businesses does not affect
governance. The US insurance and investment management
operations are expected to continue to be part of a separate,
already existing legal entity (ING America Insurance Holdings). We
believe that this change in the legal structure will allow ING Group
to optimise the capital structure of the separate entities and go
further with the disentanglement process in order to be able to
move quickly towards the IPO(s) or other options when market
conditions become favourable.
ING America Insurance Holdings is reviewing options to optimise its
funding structure independent from the Group and to repay its
remaining inter-company debt. After the divestments, ING
Verzekeringen N.V. will become a legacy entity and will be wound
down over time in an orderly manner, using the cash proceeds from
the sale of the Latin American insurance and investment
management business that was completed in the fourth quarter
of2011, and other divestments.
DECISIVE EXECUTION OF DIVESTMENTS
We took decisive steps to meet the other restructuring demands
which are part of the restructuring plan, which we submitted to
the European Commission (EC) in late 2009 in order to obtain
retroactive EC approval of state aid received. In June 2011 we
reached an agreement to sell ING Direct USA, meeting one of
theprincipal restructuring requirements. In February 2012 the
regulatory approval process was concluded and the sale was
closed. ING Direct USA was sold for approximately USD 9 billion
(consisting of a combination of cash and shares) to Capital One
Financial Corporation (Capital One), a leading US-based financial
holding company. In connection with this sale, ING reached an
agreement with the Dutch State to adjust the structure of the
Illiquid Assets Back-up Facility (IABF).
Divestment of ING Direct USA
ING Group and the Dutch State reached an agreement on
anIABF in 2009 in order to achieve a full risk transfer on 80% of
the portfolio of Alt-A mortgage securities at ING Direct USA and
Insurance Americas. In connection with the sale of ING Direct
USA the structure of theIABF was adjusted.
The amendment served to delink the IABF from ING Direct USA.
ING Bank became the new counterparty for the Dutch State.
Inreturn, ING Direct USA will receive on its balance sheet an
amount in cash from ING Bank. Also, after the sale of ING Direct
USA, ING Bank will receive the funding fee and management fee
from the Dutch State and pay the guarantee fee.
The 20% of the Alt-A portfolio not covered by the IABF will remain
on the balance sheet of ING Direct USA and will be transferred
toCapital One as part of the sale of ING Direct USA. In order to
ensure continued alignment between the interests of ING and the
Dutch State with regard to the Alt-A portfolio, ING will provide a
counter guarantee to the Dutch State covering 25% of the 80%
part of the Dutch State. This guarantee will cover realised cash
losses if these exceed the 35.5% that is implied by the market
value of the portfolio at the time the divestment of ING Direct
USAwas announced. This adjustment will therefore lower the risk
exposure for the Dutch State. The potential capital and P&L impact
of the alignment for ING Bank is expected to be limited.
ING’s commercial finance activities and ING’s insurance/
investment management operations in the US have been
unaffected by this transaction.
Furthermore, we reached an agreement in 2011 to sell our
LatinAmerican pensions, life insurance and investment
management operations to Grupo de Inversiones Suramericana
(GrupoSura) for approximately EUR 2.6 billion, thereby marking
thefirst major step in the divestment of the insurance and
investment management activities.
WestlandUtrecht Bank (WUB) became commercially independent
of ING in November 2010 after which options were further
explored in 2011 to divest WUB.
17ING Group Annual Report 2011
Strategy continued