ING Direct 2013 Annual Report Download - page 232

Notes to the consolidated annual accounts of ING Group continued
The valuation method of the 20% Alt-A securities in the IFRS-EU balance sheet is not impacted by the IABF. The methodology used to
determine the fair value for these assets in the balance sheet under IFRS-EU is disclosed in Note 46 ‘Fair value of assets and liabilities’.
In connection with the sale of ING Direct USA as disclosed in Note 55 ‘Companies acquired and companies disposed’, ING has reached an
agreement with the Dutch State to adjust the structure of the Illiquid Assets Back-up Facility (IABF). This adjustment served to de-link the
IABF from ING Direct USA by putting ING Bank in its place as counterparty for the Dutch State and became effective at the closing of the
sale in February 2012. Under the terms of the original transaction ING Direct USA held on its balance the remaining 20% of the Alt-A
portfolio, ensuring an alignment of interests between ING and the Dutch state regarding the performance of the portfolio.
Upon closing of the sale ING provided a counter guarantee to the Dutch State covering 25% of the 80% part of the Dutch State. This
guarantee covered realised cash losses if they would exceed the 35% that is implied by the market value of the portfolio in June 2011. This
adjustment therefore lowered the risk exposure for the Dutch State. The impact on equity and result of the alignment for ING Bank was limited.
In November 2012, ING Insurance restructured the IABF to effectively delink ING Insurance US from the IABF. ING Insurance US transferred
its Dutch State receivable of approximately EUR 1.1 billion (USD 1.4 billion) to ING Bank, and at the same time transferred legal title to 80%
of the Alt-A portfolio to ING Bank. The securities were held in an ING Bank custody account for the benefit of the Dutch State (the portion
for which the investment risk has been transferred to the Dutch State). Following the restructuring, ING Insurance US continues to own
20% of the Alt-A portfolio (the portion for which the economic ownership and investment risk remains for the risk of ING), but will going
forward have the right to sell these securities, subject to a right of first refusal granted to ING Bank. ING has committed to the Dutch State
that it will not sell these securities to non-ING parties without the prior written consent of the Dutch state.
In 2013, ING reached a final agreement with the Dutch State on the unwinding of the IABF. The terms of the agreement were approved by
the EC. Under the agreement, the IABF in its current form was terminated, the regular guarantee fee payments were settled for an amount
of EUR 0.4 billion and the other restrictions as part of the IABF agreement are no longer applicable. Furthermore, under the agreement,
the Dutch State committed to sell the Alt-A securities in the market.
The total nominal value of the portfolio of securities held by the Dutch state decreased to EUR 4.6 billion at 31 December 2013 as a result
of regular repayments on the underlying mortgages by homeowners and the first tranche of the divestment of securities with a notional
outstanding amount of EUR 3.7 billion following the termination of the IABF. The remaining nominal value of the portfolio of securities
held by the Dutch state as at 31 December 2013 was sold in January and early February 2014.
The State used all repayments and net fees received to pay off the loan from ING, reducing the amount outstanding to EUR 2.7 billion at
31 December 2013 (2012: EUR 7.8 billion). This remaining amount was fully repaid in January 2014.
Unwinding the IABF also resulted in eliminating a counter-guarantee that ING extended to the Dutch state in connection with the
divestment of ING Direct USA in 2012.
As at 31 December 2013, the unwinding of the IABF added 10 basis points to ING Bank’s core Tier 1 ratio.
Non-voting equity securities (Core Tier 1 securities)
On 12 November 2008, ING Groep N.V. issued one billion non-voting equity securities to the Dutch State at EUR 10 per non-voting equity
security, resulting in an increase of ING Group’s core Tier 1 capital of EUR 10 billion. The nominal value of each security is EUR 0.24. The
non-voting equity securities do not form part of ING Group’s share capital; accordingly they do not carry voting rights in the General
Meeting of Shareholders.
These non-voting equity securities are deeply subordinated and rank pari-passu with ordinary shares in a winding up of ING Group. On
these non-voting equity securities a coupon is payable of the higher of EUR 0.85 per security and 125% of the dividend paid on each
ordinary share over 2011 onwards (payable in 2012 onwards).
Further coupons are to be paid on 12 May of each year (the coupon date) in cash if dividend on ordinary shares is paid in cash or to be
paid in scrip securities in the event of a scrip dividend on ordinary shares. Coupons are only due and payable, on a non-cumulative basis
and if a dividend is paid on ordinary shares over the financial year preceding the coupon date, either on an interim or a final dividend basis,
provided that ING Groep N.V.’s capital adequacy position is and remains satisfactory both before and immediately after payment in the
opinion of the Dutch Central Bank.
As of 12 November 2011, ING Groep N.V. has the right to repay all or some of the non-voting equity securities at EUR 15 per security at
any time, together with the pro-rata coupon accrued to such date. ING Groep N.V. and the Dutch State have agreed in October 2009 that
up to EUR 5 billion of the EUR 10 billion core Tier 1 securities could be repaid at any time until 31 January 2010 at the original issue price of
EUR 10 per non-voting equity security, plus a repurchase premium and accrued interest.
ING Groep N.V. also has the right to convert all or some of the non-voting equity securities into ordinary shares on the basis of one
non-voting equity security for 1.335 ordinary shares or bearer depositary receipts from three years after the issue date onwards, subject to
certain conditions. This equates to an exchange price of EUR 7.49. The Dutch State in that case has the right to demand a redemption
230 ING Group Annual Report 2013