ING Direct 2011 Annual Report Download - page 308

European Sovereign Debt Crisis
In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt in Greece,
Ireland, Italy, Portugal and Spain, which created concerns about the ability of these EU ‘peripheral’ states to continue to service their
sovereign debt obligations. These concerns impacted financial markets and resulted in high and volatile bond yields on the sovereign
debt of many EU nations. Despite assistance packages to Greece, Ireland and Portugal, the creation of a joint EU-IMF European Financial
Stability Facility in May 2010, and announced plans in the summer of 2011 to expand financial assistance to Greece, uncertainty over
the outcome of the EU governments’ financial support programs and worries about sovereign finances persisted and, notwithstanding
increased purchases of sovereign bonds by the European Central Bank and measures taken by other central banks to enhance global
liquidity, ultimately spread from ‘peripheral’ to ‘core’ European Union member states in the fall of 2011. Market concerns over the direct
and indirect exposure of European banks and insurers to the EU sovereign debt further resulted in a widening of credit spreads and
increased costs of funding for some European financial institutions. In December 2011, European leaders agreed to implement steps (and
continue to meet regularly to review, amend and supplement such steps) to encourage greater long-term fiscal responsibility on the part
of the individual member states and bolster market confidence in the Euro and European sovereign debt; however, such proposed steps
are subject to final agreement (and in some cases, ratification and/or other approvals) by the European Union member states that are party
to such arrangements and thus the implementation of such steps in their currently-contemplated form remains uncertain, and even if such
steps are implemented, there is no guarantee that they will ultimately and finally resolve uncertainties regarding the ability of Eurozone
states to continue to service their sovereign debt obligations. Further, even if such long-term structural adjustments are ultimately
implemented, the future of the Euro in its current form, and with its current membership, remains uncertain.
Risks and ongoing concerns about the debt crisis in Europe, as well as the possible default by, or exit from the Eurozone of one or more
European states and/or the replacement of the Euro by one or more successor currencies, could have a detrimental impact on the global
economic recovery, sovereign and non-sovereign debt in these European countries and the financial condition of European and other
financial institutions, including us. In the event of any default or similar event with respect to a sovereign issuer, some financial institutions
may suffer significant losses for which they would require additional capital, which may not be available. Market and economic disruptions
stemming from the crisis in Europe have affected, and may continue to affect, consumer confidence levels and spending, bankruptcy rates,
levels of incurrence of and default on consumer debt and home prices, among other factors. There can be no assurance that the market
disruptions in Europe, including the increased cost of funding for certain government and financial institutions, will not spread, nor can
there be any assurance that future assistance packages will be available or, even if provided, will be sufficient to stabilize the affected
countries and markets in Europe or elsewhere. To the extent uncertainty regarding the economic recovery continues to negatively impact
consumer confidence and consumer credit factors, our business and results of operations could be significantly and adversely impacted. In
addition, the possible exit from the Eurozone of one or more European states and/or the replacement of the Euro by one or more
successor currencies could create significant uncertainties regarding the enforceability and valuation of Euro denominated contracts to
which we (or our counterparties) are a party and thereby materially and adversely affect our and/or our counterparties’ liquidity, financial
condition and operations. Such uncertainties may include the risk that (i) an obligation that was expected to be paid in Euros is
redenominated into a new currency (which may not be easily converted into other currencies without significant cost), (ii) currencies in
some European Union member states may devalue relative to others, (iii) former Eurozone member states may impose capital controls that
would make it complicated or illegal to move capital out of such countries, and/or (iv) some courts (in particular, courts in countries that
have left the Eurozone) may not recognize and/or enforce claims denominated in Euros (and/or in any replacement currency). The possible
exit from the Eurozone of one or more European states and/or the replacement of the Euro by one or more successor currencies could also
cause other significant market dislocations and lead to other adverse economic and operational impacts that are inherently difficult to
predict or evaluate, and otherwise have potentially materially adverse impacts on us and our counterparties, including our depositors,
lenders, borrowers and other customers.
During the week of 5 December 2011, Standard & Poor’s Ratings Group, Inc., citing ongoing political and economic uncertainties related
to the European sovereign debt crisis, placed the credit ratings of the European Union, its member states included in the Eurozone (other
than Cyprus and Greece) and several European banks on ‘credit watch negative’, indicating that Standard & Poor’s Ratings Group, Inc.
might reduce the credit ratings of one or more such entities in the near term. On 13 January 2012, Standard & Poor’s Ratings Group, Inc.
proceeded to downgrade the credit ratings of France, Austria, Italy, Spain, Portugal and a handful of other EEA states (while reaffirming
the credit ratings of Germany, the Netherlands, Ireland and other EEA states). Further related downgrades of European sovereign ratings
and of corporate ratings have occurred since that date, including the downgrade of Greece’s sovereign credit rating to ‘selective default’ by
Standard & Poor’s Ratings Group, Inc. on 27 February 2012 as a result of a debt restructuring that is expected to impose significant losses
on private creditors (including ING). These announcements, as well as any further future downgrades, could negatively affect borrowing
costs of the affected entities, increase overall economic volatility, and affect the operation of our businesses.
Because we operate in highly competitive markets, including our home market, we may not be able to increase or maintain
our market share, which may have an adverse effect on our results of operations.
There is substantial competition in the Netherlands and the other countries in which we do business for the types of insurance, commercial
banking, investment banking, asset management and other products and services we provide. Customer loyalty and retention can be
influenced by a number of factors, including relative service levels, the prices and attributes of products and services, and actions taken by
competitors. If we are not able to match or compete with the products and services offered by our competitors, it could adversely impact
Risk factors continued
306 ING Group Annual Report 2011