ING Direct 2011 Annual Report Download - page 309

our ability to maintain or further increase our market share, which would adversely affect our results of operations. Such competition is
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 financial services companies 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.
Our main competitors in the banking sector in the Netherlands are ABN AMRO Bank and Rabobank. Our main competitors in the
insurance sector in the Netherlands are Achmea, ASR, Delta Lloyd 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.
Competition could also increase due to new entrants in the markets that may have new operating models that are not burdened by
potentially costly legacy operations. 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. 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
were required to agree 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 ‘Risks related to the Restructuring Plan — The limitations
required by 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 and guarantors (including sovereigns) of 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. Severe distress or 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 severe distress or 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 experiences with significant constraints on liquidity and high cost of funds in the interbank lending market, 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 sovereigns and 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.
With respect to secured transactions, our credit risk may be exacerbated when the collateral held by us cannot be realised, or is liquidated
at prices not sufficient to recover the full amount of the loan or derivative exposure due us. We also have exposure to a number of financial
institutions in the form of unsecured debt instruments, derivative transactions and equity investments. For example, we hold certain hybrid
regulatory capital instruments issued by financial institutions which permit the issuer to defer coupon payments on the occurrence of
certain events or at their option. The EC has indicated that, in certain circumstances, it may require these financial institutions to defer
payment. If this were to happen, we expect that such instruments may experience ratings downgrades and/or a drop in value and we
may have to treat them as impaired, which could result in significant losses. There is no assurance that losses on, or impairments to the
carrying value of, these assets would not materially and adversely affect our business or results of operations.
In addition, we are subject to the risk that our rights against third parties may not be enforceable in all circumstances. The deterioration
orperceived deterioration in the credit quality of third parties whose securities or obligations we hold could result in losses and/or
adversely affect our ability to rehypothecate or otherwise use those securities or obligations for liquidity purposes. A significant downgrade
in the credit ratings of our counterparties could also have a negative impact on our income and risk weighting, leading to increased capital
requirements. While in many cases we are permitted to require additional collateral from counterparties that experience financial difficulty,
disputes may arise as to the amount of collateral we are entitled to receive and the value of pledged assets. Our credit risk may also be
exacerbated when the collateral we hold cannot be realised or is liquidated at prices not sufficient to recover the full amount of the loan
orderivative exposure that is due to us, which is most likely to occur during periods of illiquidity and depressed asset valuations, such as
Risk factors continued
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
307ING Group Annual Report 2011