ING Direct 2009 Annual Report Download - page 199

Risk Management in 2009
Second, additional mitigation of the RWA migration was done by further reducing the RMBS portfolio, for example via the sale of US
Prime RMBS trades during the fourth quarter. ING Direct sold 27 US prime RMBS securities with an amortised cost value of EUR 0.8 billion.
The sale resulted in a pre-tax loss of EUR 83 million. The remaining US prime RMBS portfolio within ING Direct has a market value of
EUR 0.9 billion and is fully investment grade rated. These and other management actions resulted in a RWA reduction during 2009 of
EUR 11 billion, reducing them from EUR 343 billion at year end 2008 to EUR 332 billion at year end 2009.
During 2009, ING lowered, in its new production of Dutch mortgage loans the share of mortgages with non-standard debt capacity
calculations or high Loan to Value (LTV) ratios.
ING continued to de-risk its product offering in 2009. This was accomplished through the redesign of products, and by removing products
from our product range in line with the Back to Basics strategy. The re-design of products mainly relates to US and European Variable
Annuity products, and was done in stages, based on lower risk and more sustainable product design. The Single Premium Variable Annuity
product is no longer part of the product range in Japan.
ING also hedged the listed equity exposure of ING Insurance via put options on the Eurostoxx 50. The nominal hedged amount was
EUR 3.0 billion at 31 December 2009, partly via a collar structure.
A more detailed disclosure of outstanding risk factors facing ING and the financial industry is given in the Risk Factor section in the
Additional Information part of the Annual Report.
Impact of financial crisis
Impact on pressurised asset classes
As a result of the fact that some markets remained distressed throughout 2009 ING Group incurred negative revaluations on its
investment portfolio, which impacted shareholders’ equity. Furthermore, ING Group incurred impairments, fair value changes and trading
losses, which impacted its profit and loss account (P&L).
The table below shows the exposures and negative revaluations and losses taken on US sub-prime and US Alt-A residential mortgage
backed securities (RMBS), Collateralised Debt Obligations (CDOs) and Collateralised Loan Obligations (CLOs) and Commercial Mortgage
Backed Securities (CMBS) during 2009.
US Subprime RMBS, US Alt-A RMBS, CDOs/CLOs, CMBS exposures, revaluations and losses
31 December 2009 Change in 2009 31 December 2008
Fair value
Revaluation
through equity
(pre-tax)
Write-downs
through P&L
(pre-tax) Other changes Fair value
Revaluation
through equity
(pre-tax)
US Subprime RMBS 1,428 335 –350 –335 1,778 –1,146
US Alt-A RMBS 2,964 7,235 –1,405 –21,713 18,847 –7, 474
CDOs/CLOs 4,087 225 133 260 3,469 –352
CMBS 7,711 1,176 –25 –1,179 7,739 –3,010
Total 16,190 8,971 –1,647 –22,967 31,833 –11,982
ING Group’s total EUR 1.4 billion exposure to US sub-prime assets relates to non originated loans acquired as investments in RMBS and •
represents 0.1% of total assets. At 31 December 2009 approximately 50% of ING’s US sub-prime portfolio was rated A or higher. ING
Group does not originate sub-prime mortgages. (Residential) mortgages that are not classified as sub-prime are the vast majority of the
total mortgage backed securities (MBS).
ING Group’s total US Alt-A RMBS exposure at 31 December 2009 was EUR 3.0 billion. About 32% of this portfolio was A rated or •
higher. ING’s Available-for-Sale Alt-A investments are measured at fair value in the balance sheet. The significant reduction in exposure
as indicated by ‘Other changes’ is primarily due to the Illiquid Asset Back-Up Facility. The substantial amount of the negative pre-tax
revaluation reserve in equity is mainly a result of the decline of market prices in illiquid markets. Under applicable accounting standards,
impairments on debt securities are triggered by credit events only. Upon impairment, the full unrealised revaluation on the impaired
security (including the amount attributable to market illiquidity) is recognised in the profit and loss account. The amount of impairments
recognised in the profit and loss statement is principally a reflection of an illiquid market and occurred credit events.
Net investments in CDOs/CLOs at 31 December 2009 were 0.4% of total assets. The vast majority of the CDOs/CLOs has investment •
grade corporate credit as underlying assets. Other changes includes purchases and sales of CDOs/CLOs, as well as foreign currency
effects.
The CMBS portfolio had a market value of EUR 7.7 billion at 31 December 2009. The current fair value is 81% of original purchase price. •
Improvements in the portfolio were mainly visible in the super senior and AAA tranches; however, ING still had to book EUR 25 million
of impairments on the CMBS portfolio during 2009.
2.1 Consolidated annual accounts
ING Group Annual Report 2009 197
Risk management (continued)