ING Direct 2008 Annual Report Download - page 37

ING Group Annual Report 2008
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compared with a profit of EUR 261 million in 2007. The after-tax
RAROC of ING Real Estate declined to -13.3% from 32.7% in 2007.
BUSINESS DEVELOPMENTS
Wholesale Banking plays a fundamentally important role within
ING Group. The essence of the Group’s business is to collect
customer deposits and redeploy these funds as investments.
Wholesale Banking complements the Group’s business model in
three ways: as a contributor of capital, as an important generator
of assets, and as a source of skills and expertise. The business line
generates capital that can be redeployed efficiently to high-growth
businesses. It also generates high-quality assets into which ING can
invest retail deposits, and provides the Group with many relevant
skills in financial markets, risk and specialist finance, as well as
access to the financial markets.
Wholesale Banking conducts operations for corporations –
from large companies to major multinationals – as well as for
governments and financial institutions. It also provides selected
products and services for mid-corporate clients, a segment
managed by ING Retail Banking from early 2008. Wholesale
Banking’s primary focus is on the Netherlands, Belgium, Poland
and Romania, where it offers a full range of products, from cash
management to corporate finance. Elsewhere, it takes a more
selective approach to clients and products. Wholesale Banking has
six business units: General Lending & PCM, Structured Finance,
Leasing & Factoring, Financial Markets, Other Wholesale Products,
and ING Real Estate.
Focused strategy
After years of improved capital efficiency, solid profit growth
and expense reduction, Wholesale Banking in 2008 launched
a ‘Fitter, Focused, Further’ strategy for 2008-2010, with the aim
of becoming a leader in several key markets and products.
The strategy includes becoming the market leader in the Benelux,
a top-5 wholesale bank in Central Europe, and a global or regional
leader in a number of key product areas, including Structured
Finance, Financial Markets, PCM and Leasing.
In the Dutch market, ING launched several campaigns to boost
recruiting and visibility. A recruitment campaign was launched at
the beginning of 2008 to hire new top talent and support ING’s
growth ambitions. An advertising campaign aimed at Dutch
corporations was also launched to reinforce ING’s position as a
leading bank in the corporate market. Central Europe, which
Wholesale Banking entered in the early 1990s, is now prominent
enough to be regarded as part of its home markets. Wholesale
Banking is already a market leader in Poland and Romania.
Operating expenses under control
ING continues to be vigilant about costs without impairing growth
opportunities. Expenses rose slightly in 2008 despite lower
compliance costs and favourable currency effects. The market
turmoil also resulted in additional risk costs. Wholesale Banking’s
cost/income ratio excluding impairments improved significantly,
putting it in line with the industry average.
The organisation has several cost containment initiatives in place
to reduce operating expenses and to stimulate growth. It has also
been working on re-engineering the lending process, reducing the
number of full-time equivalents and streamlining support services.
In 2008, Wholesale Banking reviewed and in some cases
selectively decreased its client coverage model in non-core
markets. ING reduced and exited certain volatile products and
activities, especially in equity markets and within Financial Markets
Strategic Trading. Core products have been prioritised and
optimised. Financial Markets has been re-evaluating its priorities.
In Operations & IT Banking (OIB), steps have been taken to contain
costs and a programme has been launched to reduce further
baseline costs.
Volume growth in General Lending & PCM
General Lending is used as an entry product across all regions
to attract customers and to cross-sell other high-value products.
Volumes increased in General Lending over the course of the year
as the turbulent market circumstances offered the possibility to
pursue selective asset growth, at higher margins and fee levels.
General Lending results were particularly strong in the Netherlands
and in Central Europe. The balance between loan portfolio growth
and margin increases continues to be strictly managed given the
market circumstances. The favourable trend in income for General
Lending was offset by high loan loss provisions, including EUR 83
million for Icelandic banks in the second half of 2008, compared
to net releases in 2007.
ING’s PCM business experienced volume growth due to new and
renewed mandates from institutional clients. Opportunities also
arose from the creation of the Single Euro Payments Area (SEPA)
on January 28, 2008, which removed the distinction between
national and intra-European cross-border payments. With an
already strong position in PCM, ING is recognised as one of the
most advanced providers of PCM in SEPA, resulting in cash service
mandates from institutional clients across Europe.
Strong demand for Structured Finance
Structured Finance helps companies finance large capital projects
and transfer risk through various products. Key segments of
expertise are Natural Resources, Telecommunications, Media,
Finance and Utilities. In 2008, Structured Finance held up well due
to strong demand from customers in a market where credit was
reduced significantly. Both margins and the relative market position
of Structured Finance continued to improve. ING continued to
support clients’ funding needs during 2008. The scarcity of
available financing further increased margins, especially benefiting
Structured Finance in the US, but also in Western Europe and Asia.
Deal flow was particularly robust in Natural Resources, where ING
extended its capabilities by adding advisory teams in London and
Singapore. International Trade & Export Finance again posted
strong results, particularly in the commodity finance area.
In Leveraged Finance, ING led a number of European transactions,
which were successfully syndicated. The number of transactions
was relatively low in 2008 compared to prior years. ING was
concerned about the overexpansion of the market and started to
decrease its exposure from the beginning of 2007, well ahead of
the summer 2007 turmoil. 2008 was much more moderate. A
bigger tendency emerged towards club deals that spread the risk,
and the income, over a larger group of partners. There was also
downward pressure on underwriting fees.