ING Direct 2011 Annual Report Download - page 136

Goodwill impairment testing
Goodwill is tested for impairment at the lowest level at which it is monitored for internal management purposes. This level is defined as
the so called ‘reporting units’ as set out above. Goodwill is tested for impairment by comparing the carrying value of the reporting unit
tothe best estimate of the recoverable amount of that reporting unit. The carrying value is determined as the IFRS-EU net asset value
including goodwill. The recoverable amount is estimated as the higher of fair value less cost to sell and value in use. Several methodologies
are applied to arrive at the best estimate of the recoverable amount.
As a first step of the impairment test, the best estimate of the recoverable amount of reporting units to which goodwill is allocated is
determined separately for each relevant reporting unit based on Price to Earnings, Price to Book, and Price to Assets under management
ratios. The main assumptions in this valuation are the multiples for Price to Earnings, Price to Book and Price to Assets under management;
these are developed internally but are either derived from or corroborated against market information that is related to observable transaction
in the market for comparable businesses. Earnings and carrying values are equal to or derived from the relevant measure under IFRS-EU. If the
outcome of this first step indicates that the difference between recoverable amount and carrying value may not be sufficient to support the
amount of goodwill allocated to the reporting unit, an additional analysis is performed in order to determine a recoverable amount in a
manner that better addresses the specific characteristics of the relevant reporting unit.
More details on this additional analysis and the outcome thereof are presented below for each of the relevant reporting units. For other
reporting units, the goodwill allocated to these reporting units was fully supported in the first step.
ING Real Estate
During 2011 the ING Real Estate business changed significantly. The Real Estate Development business was reduced by selling/closing
development projects and ING sold REIM (the ING Real Estate Investment Management business). As a consequence, there were indications
in the fourth quarter of 2011 that the recoverable amount of the reporting unit ING Real Estate had fallen below book value. A full goodwill
impairment review was performed for the reporting unit ING Real Estate in the fourth quarter of 2011. The reporting unit Real Estate equals
the segment ING Real Estate as disclosed in Note 51 ‘Operating segments’. The 2010 impairment test for ING Real Estate showed that the
recoverable amount based on fair value using market multiples for Price/Book was at least equal to book value. The outcome of the
impairment test performed in the fourth quarter of 2011 indicated that the fair value has become less than book value by an amount that
exceeded the goodwill of ING Real Estate, indicating that the full amount of goodwill relating to ING Real Estate is impaired. As a result, the
goodwill of EUR 32 million (pre-tax) was written down. The related charge is included in the profit and loss account in the line Intangibles
amortisation and other impairments. Goodwill is recognised in the Corporate Line segment and, therefore, this charge is included in the
segment reporting in the Corporate Line Bank segment.
Retail Central Europe
For the reporting unit Retail Central Europe the recoverable amount is determined as the sum of the recoverable amounts of the most
important components. For certain components, a market price is available based on listed equity securities. In such case, the listed market
price is used to determine the recoverable amount. For certain other components, the recoverable amount is determined by a cash flow
model taking into account recent market related developments. The most important assumptions in the model are the estimated expected
profit based on internal financial budgets/forecasts (4 years medium term plan plus additional 2 years longer term forecast), the terminal
growth rate thereafter (approximately 3.5%), the required capital level (ultimately migrating to approximately 10%) and the discount rate
(between approximately 10% and 13%). It was concluded that the goodwill allocated to Retail Central Europe is not impaired.
Insurance US
Due to the unfavourable market circumstances for Insurance, including the low interest rate environment, there were indications in the
third quarter of 2010 that the recoverable amount of the reporting unit Insurance US had fallen below carrying value. As a result, a full
goodwill impairment review was performed for the reporting unit Insurance US in the third quarter of 2010. The reporting unit Insurance
US equals the segment Insurance US as disclosed in Note 51 ‘Operating segments’. The 2009 impairment test for Insurance US showed
that the recoverable amount based on fair value (using market multiples for Price/Book and Price/Earnings of listed peer companies) was
atleast equal to carrying value. The outcome of the impairment test performed in the third quarter of 2010 indicated that the fair value
has become less than carrying value by an amount that exceeded the goodwill of Insurance US, indicating that the full amount of goodwill
relating to Insurance US is impaired. Further analysis of the recoverable amount confirmed the impairment. As a result, the goodwill of
EUR540 million (pre-tax) was written down. The related charge is included in the profit and loss account in the line ‘Intangibles amortisation
and other impairments’. Goodwill is recognised in the Corporate Line segment and, therefore, this charge is included in the segment
reporting in the Corporate Line Insurance segment.
Notes to the consolidated annual accounts of ING Group continued
134 ING Group Annual Report 2011