ING Direct 2008 Annual Report Download - page 38

ING Group Annual Report 2008
1.2 Report of the Executive Board
36
ING Real Estate
As a result of the financial market crisis, real estate markets
deteriorated during 2008, making it a tough year for ING Real
Estate. ING Real Estate incurred a loss before tax of EUR 297 million,
while maintaining the size of its total portfolio at EUR 106 billion.
This was largely a result of the impact of EUR 712 million of
unrealised fair value losses on its investment portfolio, from a total
exposure of approximately EUR 5 billion (including a 100% interest
in Summit: ING Real Estate owns 50% of Summit. However, in
results before tax Summit is fully consolidated and the remaining
50% is offset via third-party interest). The fair value losses were
somewhat compensated by EUR 49 million of positive revaluations
in ING Real Estate’s development activities. Excluding the revaluation
changes, profit before tax was slightly lower than the previous year
at EUR 366 million. Turn to the Asset Management section, page
43, for further details.
Winning a number of landmark deals
Wholesale Banking completed a number of high profile
transactions in 2008. ING served as adviser to Vedior, and
bookrunner on the public offer by Randstad to acquire Vedior,
creating the second-largest human resources services company in
the world. In a transaction in May valued at EUR 2.8 billion, ING’s
Corporate Finance was a joint underwriter of the bridge facility and
syndicated credit facilities for the acquisition of Vedior. ING also
served as adviser and bookrunner to the Nederlandse Gasunie for
a bridge facility for the acquisition of BEB Erdgas und Erdöl GmbH.
In Belgium, ING was a bookrunner and mandated lead arranger
to InBev for the underwriting and credit facilities for the
approximately EUR 32 billion acquisition of Anheuser-Busch in
the US. Furthermore, the Financial Markets team also provided
EUR 6.2 billion in IRS / FX swaps for the acquisition. ING also won
a mandate to help Leaseplan Corporation, the car leasing affiliate
of Volkswagen AG, raise up to EUR 1.5 billion with a two-year
bond. In December, ING also participated in the successful
completion of a EUR 7.2 billion rights issue by Santander.
CONCLUSIONS AND AMBITIONS
2008 was an unusually difficult year for the industry. Wholesale
Banking kept its focus on its customers, and despite the turmoil
managed to record solid commercial performance across most
of its businesses. ING continues to secure important mandates
and transactions. It is managing expenses carefully, in part to
compensate for higher risk costs and impairments, and has
adjusted its strategic focus to key markets and product areas
where it already has a competitive advantage. Wholesale Banking
is an essential part of the Group, and has a clearly defined focus
and ambition to be a full-service Benelux bank and a specialist
products provider globally.
In December, Leveraged Finance and Sponsor Coverage (LF&SC)
Asia-Pacific won Finance Asia’s award for the best leveraged
finance deal of 2008 and best private equity buyout for serving as
the mandated lead arrangers and bookrunners to KKR for facilities
used for its public-to-private buyout of Unisteel Technology.
Portfolio and income growth in Leasing & Factoring
In spite of the difficult market circumstances, Leasing & Factoring
saw increases in portfolio size and income levels throughout 2008.
ING also continued to seek out opportunities to cross-sell services
to corporate clients. Leasing growth was driven by higher volumes
in Belgium, Italy, the Netherlands, Poland, Hungary and Russia.
Gradual margin increases on new lease production progressively
compensated for rising funding costs. ING Car Lease income was
adversely impacted by lower prices on the used vehicle market.
As a result, the business actively sought new remarketing channels
for used cars. In the Netherlands, where ING Car Lease is the
market-leader, a new e-leasing tool was introduced, speeding up
the application and credit process.
Volumes in Factoring grew as the business benefited from being
viewed as an attractive alternative to general lending, although
margin pressure remained. There were higher factoring volumes
in all markets, with ING strengthening its leadership position in
the Netherlands and Poland. The short-term nature of these
transactions and Basel II implications make this an interesting
area for banks.
Strong Financial Markets operational performance
Financial Markets had an exceptionally strong first half and
continued to show robust operational performance during the rest
of 2008. Nevertheless, credit-related markdowns and impairments
in the second half negatively impacted 2008’s overall performance.
The client and product businesses held up well, in line with the
aim to diversify away from proprietary risk businesses, including
proprietary trading. Financial Markets continues to seek cross-
selling opportunities across product areas and client groups,
including a new strategy to target emerging markets, home
markets, strategic clients and global clients. ING aims to be a top-5
player in selected markets or products by taking advantage of our
geographic footprint, strong brand recognition and commercial
expertise and reputation. In developed markets, particularly in
home markets where ING remains uniquely positioned, ING
will continue to provide core products and explore selective
growth initiatives.
Declining markets
Already weak financial markets declined further towards the end of
2008, leading to unprecedented conditions around the world. The
failure of several major financial institutions triggered a rise in credit
spreads and general risk aversion, causing paralysis in the interbank
lending markets. The drastic deterioration of financial and corporate
asset prices resulted in material marked-to-market credit losses and
impairments on Lehman Brothers, Washington Mutual and one
specific CDO. Asset & Liability Management continued to perform
strongly in the face of interest rate volatility. The difficult market
conditions also negatively affected results in proprietary trading.
Wholesale Banking (continued)