ING Direct 2009 Annual Report Download - page 33

ING Direct
Key points
> Total client balances grew by EUR 34.2 billion
excluding currency and market performance
effects to EUR 353.8 billion at year-end
> Customer base grows to 22.9 million clients
> Impairments and high-risk costs led to an
underlying loss
> IABF reduced the impact of losses on
the Alt-A RMBS portfolio by 80%
> Underlying operating expenses down
3.3% despite a sharp increase in deposit
insurance premiums
ING Direct’s commercial performance was positive despite tough
competition, the challenging market circumstances and high
market volatility. However, impairments on the investment portfolio
and an increase in loan loss provisions in the US had a negative
impact, contributing to an underlying pre-tax loss of EUR 666
million. Commercial performance remained solid with a client
balances net production of EUR 34.2 billion, reaching EUR 353.8
billion at year-end.
FINANCIAL DEVELOPMENTS
ING Direct posted an underlying loss before tax of EUR 666 million
compared with a loss of EUR 1,125 million in 2008. The losses
were driven by the continued weak US housing market resulting in
additional impairments, albeit at a lower level than in 2008, and
increased risk costs, while interest results showed a strong increase.
In 2009, ING Direct actively reduced risks to preserve capital.
The Illiquid Assets Back-up Facility with the Dutch State reduced the
impact of losses on the Alt-A RMBS portfolio by 80%. Furthermore,
ING Direct sold part of its US prime RMBS portfolio in the fourth
quarter of 2009 to reduce risk-weighted assets. These management
actions largely offset the impact of credit rating migration and
model updates. In 2009, total risk-weighted assets rose by 2.2%
to EUR 69.3 billion.
Total client balances in 2009 grew by EUR 45.5 billion (or
EUR 34.2 billion excluding currency and market performance
effects) to EUR 353.8 billion at year-end.
Total underlying income rose by 100.7% to EUR 1,762 million,
driven by lower impairments on debt securities combined with a
strong increase in interest results. Impairments, primarily on the
Alt-A RMBS portfolio in the US, were EUR 1,395 million compared
to EUR 1,891 million in 2008. Excluding impairments, underlying
income increased 14.0% to EUR 3,156 million. The interest margin
of ING Direct increased to 1.10% in 2009 from 0.94% in 2008,
supported by lower central bank rates across the globe.
Underlying operating expenses decreased 3.3% to EUR 1,663
million despite a sharp increase in deposit insurance premiums in
the US and Germany. The decline reflects strong cost containment,
reduced marketing expenses and the cancellation of the Japan
start-up. Excluding impairments, the underlying cost/income ratio
improved to 52.7% from 62.1% in 2008.
The addition to the provision for loan losses increased to EUR 765
million from EUR 283 million in 2008, mainly driven by an increase
in the US reflecting higher delinquencies in the residential
mortgage market. In 2009, the addition was 124 basis points of
average credit-risk-weighted assets versus 63 basis points in 2008.
The underlying risk-adjusted return on capital (RAROC) after
tax improved to –1.0% from –18.2% in 2008, due to lower
impairments on the investment portfolio and improved interest
margins. Average economic capital rose 22% to EUR 4.2 billion,
reflecting the higher-risk environment.
Banking
Financial overview
in EUR million 2009 2008
Total underlying* income 1,762 878
Underlying* operating expenses 1,663 1,719
Underlying* additions to loan loss provisions 765 283
Underlying* result before tax –666 –1,125
Total result before tax –641 –1,155
Underlying* cost/income ratio 94.4% 195.9%
Client balances (EUR billion) 353.8 308.3
Net production client balances (EUR billion) 34.2 23.3
Risk-weighted assets (EUR billion) 69.3 67.9
Underlying* after-tax RAROC –1.0% –18.2%
Underlying* economic capital (EUR billion) 4.2 3.4
* Underlying numbers are derived from IFRS-EU numbers, excluding the
impact of divestments and special items.
Breakdown of underlying result before tax
in EUR million 2009 2008 change
Canada (1997)* 129 59 118 .6%
Spain (1999) 75 43 74.4%
Australia (1999) 174 72 141.7%
France (2000) 54 31 74.2%
United States (2000) –7 343 –102.0%
Italy (2001) 22 34 –35.3%
Germany (2002)/Austria (2004) 217 297 –26.9%
United Kingdom (2003) 66 –72 n.a.
Japan** – –40 n.a.
Subtotal 729 766 –4.8%
Impairments –1,395 –1,891 n.a.
Total –666 –1,125 n.a.
* Launch year in brackets.
** Early 2009, it was decided not to launch operations in Japan.
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ING Group Annual Report 2009 31