ING Direct 2011 Annual Report Download - page 26

ING’s Group Capital Management department (Capital Management)
is responsible for ensuring sufficient capitalisation of ING Group
entities at all times in order to manage the risk associated with ING’s
business activities. This involves the management, planning and
allocation of capital within ING Group. ING’s Corporate Treasury is
part of Capital Management. It executes capital market transactions,
term (capital) funding and risk management transactions. Capital
Management monitors and plans capital adequacy on a consolidated
basis at three levels: ING Group, ING Insurance and ING Bank. Capital
Management takes into account the metrics and requirements of
regulators (EU Solvency, Tier 1 and BIS ratios and limits for hybrid
capital), rating agencies (leverage ratios, Adjusted Equity) and internal
models such as the economic capital models. It also makes sure that
ING will be able to comply with new regulatory capital requirements
coming from Basel III and Solvency II.
BALANCING DIFFERING REQUIREMENTS WHILE ENSURING
SUFFICIENT CAPITALISATION
ING’s capital position cannot be seen in isolation, but has to be
assessed in the context of the overall balance sheet development
aswell as the possibilities provided by the capital markets. Hence,
an important challenge for Capital Management, especially in the
current environment, is to balance the differing requirements of
regulators, rating agencies and shareholders.
As Capital Management is organised as a Group function, it is able
to bring together capital requirements from both the Bank as well as
the Insurer and helps to safeguard the fungibility of capital throughout
the Group. Another key objective for Capital Management is to create
financial flexibility for ING in the context of forthcoming regulatory
changes and the need to generate sufficient capital to repay
theremaining core Tier 1 securities issued to the Dutch State.
The strategic planning process takes into account both available
capital and the requirements from the different parts of the
Groupin many different jurisdictions each with their own specific
requirements. Capital Management continuously monitors and
analyses ING’s capital position, taking into consideration the
potential impact of changes in the regulatory environment and
assessments of ING’s capital targets in comparison with the rest
ofthe industry. The department also advises the Executive Board
and Supervisory Board on ING’s dividend policy.
MAINTAINING A WELL-DIVERSIFIED FUNDING BASE
Capital Management is also responsible for ING’s strategy on
long-term funding and other capital markets transactions. In order
to achieve a well-diversified funding base, these transactions can
take place in several currencies, jurisdictions, maturities and formats
(subordinated, senior unsecured, etc.) with either fixed or floating
interest rates. Other transactions include hybrid capital and,
ifexpedient, the issuance of contingent capital.
Moreover, Capital Management is involved in securitisations
executed for the corporate account with the purpose of improving
ING’s capital and liquidity position. In addition, Capital Management
manages the transactions with the Dutch State, such as the core
Tier 1 securities and the Illiquid Assets Back-up Facility.
Furthermore, Capital Management manages the different
corporatelines of Bank and Insurance. Within these corporate
lines,shareholders’ expenses are recorded that cannot be directly
allocated to ING’s different businesses. Capital Management takes
an active role in investing ING’s capital prudently and managing
foreign exchange risks in such a way that the solvency impact
ofcurrency movements is limited as much as possible, without
causing volatility on the profit and loss account. The main objective
in managing the corporate lines is to reduce expenses asmuch
aspossible, without increasing ING’s overall risk profile.
PREPARING FOR THE FULL SEPARATION OF ING BANK
ANDINSURANCE/IM
Finally, Capital Management plays an important role in ensuring
thecreation of strong stand-alone companies in preparation for
thefull separation of the Group’s banking and insurance/investment
management operations. Until completion of the restructuring
process, all operating entities need to remain adequately capitalised
according to all prevailing regulatory and rating agency
requirements. Another important priority is to reduce
interdependencies to a minimum, as the various entities of the
Group should be able to independently access capital markets.
DEVELOPMENTS IN 2011
In 2011, ING’s capital position improved, driven mainly by strong
capital generation at ING Bank. In December 2011, ING successfully
completed a liability management transaction (the exchange of
existing subordinated debt securities for new senior debt securities
or cash at a discount to nominal value), with an average
participation of 60%. This transaction proactively addressed
uncertainty regarding future call options on capital securities and
generated EUR 0.7 billion net profit for ING Group. The net impact
of this transaction on ING Group’s consolidated balance sheet was
a EUR 2 billion debt decrease.
A more detailed section in the annual accounts provides insight into
the capital management practices and the development of the
capital position of ING Group and its various business lines in 2011.
24 ING Group Annual Report 2011
Capital management