ING Groep NV (ING) 2003 Q1 法說會逐字稿

Ladies and gentlemen. Thank you for standing by. Welcome to the ING Groupe first three months financial results 2003 conference call on the 16th of May, 2003. Throughout today's recorded presentation all participants will be in a listen only mode. After the presentation there will be an opportunity to ask questions.

If any participant has difficulty hearing the conference, please press the star key followed by zero on your push button phone for operator assistance.

I would now like to turn the conference over to Mr. William Holding (ph). Please go ahead sir.

Good morning. This is Bill Holding (ph) for ING welcoming you to the ING's conference call on the figures for the first three months of 2003. Before turning this over to Case Moss (ph), CFO and Executive board member in Amsterdam let me first say that any forward looking statements in today's comments are subject to a number of variables, including interest rates, foreign exchange rates, inflation rates, movements in securities markets, including equity markets, and underlying economic health and changes.

The realization to forward looking statements can be materially altered by unexpected movements in any or all of these and other variables. Case (ph) with that said good morning.

Good morning Bill (ph) and thank you for your kind introductory words as always and in particular this claim of course. Thank you.

Well ladies and gentlemen, good morning. Good afternoon, wherever you are in the world. Welcome to the conference call. Let me by way of introduction say a few words on the first quarter results and then all things around it.

Let me start by saying that the first quarter was satisfactory in terms of our commercial performance despite the difficult market circumstances that we operated in, low stock markets, low interest rate environment. And nevertheless if I abstain from currency effects, our total income went up by four percent. And again this was commercially speaking according to satisfactory results.

However financially the first quarter was a difficult quarter. For the first time I think in history we had to report a negative re-evaluation reserve of 735 million over the first quarter that according to our accounting rules has to show up in our profit and loss account.

By the way year-to-date, yesterday this 750 million loss, 735 million loss on balance minus 400 million because stock markets have improved compared to the 31st of March in 2003. But nevertheless despite, because of that net income dropped to 167 million Euros. It dropped compared to the first quarter of 2002 of 85 percent.

Operating net profits however was much better. We were able to manage our business in such a way that current net operating profits decreased by minus three percent and again this is quite a good result given the low stock markets, given low interest rate environments and given the strong appreciation of the Euro.

The bank performed very good. The first quarter was 14 percent up compared to the previous, to the same quarter in 2002. Interest rate results were up 11 percent. Ray Rock (ph) risk adjusted return on capital before tax was 18.8 percent, which and in any particular after effects comfortably met the hurdle rate.

Our efficiency ratio declined to 66.6 and is well below the maximum of 70 percent and dropped compared to last year of more than 3-1/2 percentage points.

Our insurance business on the whole life side we've seen a strong increase of 39 percent and not taking currency effects into account it was even an increase of 69 percent. So a strong improvement with a combined ratio overall of 97 percent, which is an excellent performance.

Overall insurance net profits, operating profit declined however by 13 percent. And that was mainly due to our life and that was because (inaudible) as well was completely due to our life insurance business, and in particular in the United States where we were hit by weak stock markets, low interest rate environments, and of course in Euro terms by a strong Euro.

Not only in the United States we were affected by the strong Euro, and Euro versus U.S. dollar, which we hatched as you know. But other currencies depreciated also like the Mexican peso, the Polish Lotti (ph) and the Korean Wong (ph) and as you know we have substantial operations in Dutch areas as well.

Our special activities like ING direct, our large (inaudible) operations in developing markets and our financing business did all very well, strong growth and improvement in performance and we were only affected here by as I said before, by the strong appreciation of the Euro.

Finally our outlook as you have seen in the press release and in the documentation, we still feel that economic circumstances are highly uncertain. Weak developments and uncertain developments in our home markets and in the rest of the world, still high volatility in financial markets and in stock markets. Still despite the fact that the Iraqi war seems to be over, now still high uncertainties in the new political arena. So we feel that because all of that we will not make a forecast for ING's 2003 full year profit.

What we repeat, what we have said before that we feel that we are well positioned for the future. We will continue to put emphasis on strengthening our capital base. We begun for profit and not for glory. As they always say that means profit is more important that market share in the market in which we operate. We will put an ongoing emphasis on cost reduction. We will continue to expand in our special skills, ING direct, life insurance business in Greenfield's and in developing markets. And in the pension business we will continue to re-allocate our businesses and to diminish into a list of under performing business image.

Having said that I'd like to open the floor for questions and I will try to answer them as best as I can. Thank you.

Thank you sir. Ladies and gentlemen at this time we will begin the question and answer session. If you have a question please press star followed by one on your pushbutton phone. If you wish to cancel your request, please press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. One moment please for the first question.

(inaudible)

Ladies and gentlemen one moment for the first question.

(inaudible)

The first question comes from Mr. Andrew Ritchie (ph). Please state your company name followed by your question.

Good afternoon. It's Andrew Ritchie (ph) from Foster Keltin (ph) here. Two questions, two areas; first of all on the U.S. Life result, I appreciate the main driver your saying for the year-on-year decline is spread pressure. Then if you go into some of the quarterly decline, the reasons for the quarterly decline, particularly in the life results. Is there anything other than spread pressure behind that? And also the outlook for Giks (ph) and to the losses you're making there in terms of over the rest of the year. So just sort of a flavor on what happened on the quarterly decline in the U.S. Life result so versus Q-4.

And the second area, can you just give some clarity on asset quality, current trends in asset quality in the core Dutch banking business.

Thank you Andrew (ph). Starting with the first one, there are two main drivers as I said for the U.S. life results. First it is the low stock markets. It affects highly our unit linked products or the variable products, the work site business. And as you know first quarter, first quarter there was a dramatic drop in stock prices even by the way on the first quarter as compared to the last quarter of last year if you look at average on average. I mean the DOW Jones or the S&P 500 dropped only three or four percent if you compare end of the year last year with end of the quarter. But if you compare averages in the fourth quarter last year and average in the first quarter that was a big difference as you know and around mid-November the S&P 500 was still above 910. And that has dropped somewhere in the end of January around the 850s and a little bit plus. So that's a big drop that has affected our unit linked products heavily.

So it's not only the spread but it's the stock market development as well. The good news is that starting early April stock markets picked up and as you know the S&P is now is in the range of, I haven't seen them this morning, in a range of 945 and I don't know what it is today, but around that area. So that has picked up.

As far as the picks is concerned and the CMO business, yes that is of course heavily dependant on the spread business. What do I expect? First of all what you can read on institutional markets, it is the spread business related to (inaudible) and to the (inaudible). It is the investment income as well. So on a 65-billion bond portfolio, if the interest rate drops then of course our investment income drops substantially. A decrease from 4-1/2 to 3-1/2 percent is one percentage point, but as you know that is 20 percent, more than 20 percent reduction. So that will affect our earnings. It's not only the spread but it is the level of the interest rate and the year of course as well.

To be honest and I do not see strong improvements for the remaining part of this year in the yield neither in the level of the interest rate, in particular not a problem again at the yield but on average for the remaining part of the year that doesn't help very much. So I think that on that thought, spreads and level of interest rate we have to for the remaining part of the year learn to live with relatively low levels. The good news is that the stock markets of course are picking up, so that helps.

On the asset quality of the Dutch portfolio I will say that it has, it is still very good. The overall risk, long loss provisions on the ING Bank Netherlands in the first quarter were 27 basis points higher than last year. The reason is small and medium size enterprises, what we see is less fallen angels as I will call it everywhere in the world including in the Netherlands. But other than that we didn't have that much of fallen angels if any. But we see a creeping up of worsening credit quality in Assemiche (ph) and that is in the Netherlands, in Belgium and in particular in Germany. So a little bit higher at Lomlos (ph) in the Netherlands but still on a very good and qualitative level. And the 27 basis points is, it's ING Bank Netherlands so that does not include the Polish bank or what have you or other smaller banks. So that's very, very - we are still very happy with the quality there.

The same applies by the rate in Belgium. In Belgium the loan loss provisions are 24 basis points, which is roughly the same as last year. So here too the quality, the bank portfolio in our own country is still very good. Thanks.

The next question comes from Mr. Nick Burn (ph). Please state your company name followed by your question sir.

Good afternoon. It's Nick Burn (ph) from J.P. Morgan. You partly answered my first question, which is really is to get some more clarity on the low investment income that you sight in the U.S. Really what I'm trying to understand here is and it follows on from your comment, is whether we should expect it to continue to deteriorate, i.e.; can you give us some feel for what the duration on the bond portfolio is, whether there are any other (inaudible) or bonds that are due for reinvestment and how quickly we will see a continued decline at the investment income line.

And then secondly just going back to the fix in your T business, you talk in your press release about 130 basis point spread, which I understand is post the corporate bond to folds. I just wondered if you could give about three corporate bonds to folds. Also how that ties in with your ten percent return, which you say your sighting on new business.

And then finally on the fixed annuity side also, can you also tell us perhaps more importantly what the average crediting rate is on the overall bucket fixed annuities and how quickly you anticipate that coming down to the new crediting rate.

I had one final question, which was on BHF Bank, which is really the following on from your comments on Belgium and the Netherlands. Can you give some feel for how the credit quality or the provisions are changing in VHS and perhaps the absolute level of loan loss provisions and as a basis point proportion of risk weighted assets. Thanks.

That's all?

That's all.

That's it. Great. The, I heard it on the third basis point spreads, spread from Geet (ph) that is after taking into accounting and (inaudible) losses. I know that some companies give it before. To be very honest I have not calculated it before. The only thing is that the value, the amount of the credit losses is 97 basis points. Probably before the end of this conference call I've made a calculation. I don't know if it's possible if one of your associates you probably can do that. And then I'll give it to you.

As far as the over return is concerned, the 130 basis points is in line and reflect the - it equals of all issues in line, it's 10.2 percent internal rate of return, which is close to the required, between 10-1/2 and 11. So we are happy with the 130 basis point spread given market circumstances after impairment.

Also the 97 million impairment by the way equals 59 basis points of the portfolio. Probably it's too easy to say that before that it is 130 plus 59 but at least I'm coming close to it. I don't think it's exactly the same number but I sort of roughly speaking one could argue that before impairment losses it is 190 basis points. I'm not, probably not precise but I'm not very far away from it.

Then the first question on the spread, and the lower investment in one way expect a further deterioration. I think in my first answer I said that I do not expect spectacular improvement in it because I do not expect in the United States for the remaining part of the year this particular increase in interest rates, probably near the end of the year. But as I said that doesn't help very much for the average and that seems to be working every day. It's the average discounts and not the year-end level of the interest rates.

But I do at the same time not expect a dramatic deterioration because that would mean a further decrease in interest rates or a flattening of the yield curve and I do not expect that. So that's your - then VHF.

Can I just come back on the fixed annuities, just before.

Oh. The fixed annuity? I'll right you.

Exactly. The operator across the book in terms of spreads rather than just on the new business.

That question was asked before and I don't have that figure available here with me and I have to get in touch with the U.S. in order to get that out of them and I was not able to do that between three o'clock my time here and 3:30. Now. So but we can come back on that later, in a later stage. If you can try to, you can get in touch with me or with him or (inaudible), he knows all the answers.

Then the VHF, the loan losses are still high. As you know we have restructured the portfolio. But beyond the process we're stuck in the credit portfolio and we have asked last November to come up - to be a change in management, which the CEO. We have replace the CEO and he's a well-experienced Dutchman now in the U.S., worked in many entities in ING and was involved in the large part of his life in the restricting operations. We've asked him to come up with a plan to restructure the whole business, including the portfolio, the credit portfolio. That will take two years to restructure the credit portfolio. We are well on track. As I've said before I expect that we have, that we will be faced with high loan loss provisions for 2003 and 2004. Nevertheless we are and the quality is improving. We lastly for the full year we made 145 basis points loan loss prevention VHS for the first quarter, which is in line with our plan. This is 93 basis points. So and by the way this is not that if you consider that the full worth, that the whole portfolio in the world is 54 basis points. You know that Germany is one of the shall I say heaviest under performance in terms of economic growth and in particular yes in the area compared to our peers I think we are - I know that we are on the better side if I compare myself with German banks in this loan loss prevention. But it's still too high and it is coming down, and it has to come down further.

Can you give us the Euro amounts based on the risk weighted assets just so that we can see the actual Euro improvements quarter-on-quarter.

Right. By heart the risk weighted assets are 16-1/2, now at 20.7 billion.

Thank you very much.

Sort of, yes. Average credit risk weighted assets, 27. So that's so then you can calculate the amount.

OK. Did you say 20.7?

20.7

Thank you very much.

You're welcome.

The next question comes from Mr. Matt Pickering (ph). Please state your company name followed by your question sir.

This is Matt Pickering (ph) from Institutional Capital and my questions have been answered. Thank you.

The next question comes from Mr. Mark Kapcart (ph). Please state your company name followed by your question.

Yes. Deutsche Bank. Got three questions. First in relation to the Dutch Life business, I think you show Q-1 about 240 million of profit pre-tax. If we knock off the real estate profit that gets down to about 200. We then multiply it by four for the four quarters you get to about 800 pre-tax. And if you divide it by your policyholder funds inclusive of unit linked you get to around 160 basis points pre-tax spread. I find that pre-tax spread incredibly high given the fact that I believe a proportion of your funds are invested in equities, but the return would have been zero.

So is there something else included in that 240 million not having stripped out. Is there some kind of internal debt payment or something going on? So that would be the first question. The second I think Mr. Hubbel (ph) mentioned earlier the share that the return on the invested capital in the U.S. was above 10 percent in '02, sorry '03.

I just wondered if we strip out things like DAK (ph) currency and GMDB if we're still at 10 percent or sub 10 percent. And the third point, ING Direct; your duration on your assets is three years. On your liability side it's unknown. But I just wondered why did you feel so confident that just because the average deposit is 10,000 Euros, it's not hot money and so therefore you've got a huge mismatch.

OK. First of all let me start with the last question. No. We indeed feel that is not hot money.

Just put hot money in because you just opened up in London haven't you.

Sure. Absolutely. Give it to Ty (ph). OK Mark (ph).

Anybody in London, it's a great rate. I won't keep it though if it goes down.

OK. Let me give you our experience because that's probably and I know that behavior in response is not a guarantee for future behavior but nevertheless. We have first of all behavior of Dutch clients since 1845 when we established the savings part of the Polish bank. And so we have quite some experience and we've copied that experience and the techniques to track that experience to ING Direct.

We started, as you know, ING Direct in Canada five years ago. We started it giving them a rate and that was then 50 basis points above money market rate of over five percent, I think 5.3 percent is the rate that we started it in Canada. We thought that during the course of those five years it decreased to just a little bit above two percent and it went back up and I don't know what it is today but I think a little bit over 2-1/2, close to three.

We have not seen during all these movements no outflow of money. And why, because we sell ING Direct product with two features. First of all we give you the highest rate in the market so 50 basis points above money market rate. And as the money market rate drops then everybody lowers its rate so we lower our rate also but you still get a very high rate compared to the rest of the market. And second what we sell is convenience and convenience is of course independent from the yield. And therefore we have not seen any at fault money in all the operations that we are working with in the entities. That's one.

Second we do not invest all. I mean you're making an average yield of three years, which is right. But we invest say on average 30 percent in money less than a year of duration and 70 percent longer than a year And longer than (inaudible) at X percent, in two years Y percent and three years et cetera, et cetera. So we from an economic so we do not look at the legal duration of the liability to the economic duration of the liabilities and on that basis we invest in our asset base. And we track that carefully. We monitor it carefully. And ALM committee of course that meets on a monthly basis, we have a risk department there that monitors it daily. So that's how we do it, it's how we did it over the last five years in our operations. And we see it hopeful to go with that.

But let's I mean give it a try in the United States as we did in the United Kingdom and see how it works. It's a challenge. Then the 30 percent return, how much is that after deck I think is roughly speaking still 10 percent because the deck unlocking was only 22 million and the GMDB provisions in the first quarter were only three million.

So you think that your return on invested capital in the states is above 10 percent.

Yes. Then your first question, the most complicated one. I hope that everybody could follow. If I did a calculation then I can do the same, roughly speaking the same as you, somewhere in between 150 and 155 basis points, a little bit lower. It doesn't matter that much, it's not key.

You think that's high. Well there are indeed, our inter-company is not important. There are a few other income parts in the Netherlands. For example other asset management activities like our venture capital business partner, there's a pretty constant flow of money so it's not very volatile but it is and it is a deal so to speak. And you have to bear in mind that we are on the insurance side, less dependent on volatility of the stock markets because not what it shows up on the capital base because of the (inaudible) but not in the yield.

In fact on the contrary the dividend yield today is very high on the insurance side. So we're less dependent there than in the United States. We are less dependent also of the spread issues according to the longer term because the duration, the Dutch bond portfolio is about 6-1/2 to seven years. So a decrease in interest rates is such at least in the short term less than in the U.S. and that's why I do not consider this as it is spread so high that I can't understand it as you say.

Well OK. Let's assume your generating either like six percent on your assets. What would you be paying out to your policyholders?

We re, the yield on our assets is a little bit higher. It's about 6-1/2 to seven, closer to seven than to 6-1/2 so that's still not very good because we have a real estate portfolio also in the Netherlands. And most of the policies that we have a profit sharing part of it but that is very limited to be honest. So the profit share does not play an important role.

Is he gone?

Sorry?

Sir I though you had gone. There was no noise. Sorry.

Oh yes. We're still there.

That's good.

So that's, so let me say out on the profit share about two percent a year or so.

Yes. So what would be, I'm still not clear. What is the say averaging average crediting rate inclusive of policy credit or whatever? What are you paying out overall to your policyholders on liabilities? Is it five percent?

Yes. Something like that.

Yes. So that means that you've got 200 basis point spread between what you get and what you pay out.

Yes.

Which means ...

And then you have to (inaudible) the two accounts of course.

Yes. So you've got gross spread of 200 but you think your net is actually 160.

Yes, 150, 165. Yes.

OK. If that's the case great.

Yes. That's what I think it was up.

OK. Thanks.

Yes. You're welcome.

The next question comes from Mr. Nick Watkins (ph). Please state your company name followed by your question.

Yes. It's Nick Watkins (ph) here from U.S. Warburg. I have two questions if I may. The first I'm afraid I'd like to return to the North American life business. And from your comments earlier a way to have seen the sort of circuit 62 million level of quarterly profitability is a good run rate for the rest of this year. This is an impairment profitability.

And then if we can return to a second question on the banking business.

Please go ahead.

Can you hear me OK?

I hear you but it sounded, sounded like you started to ask a second question.

OK. I'll ask the second question at the same time then. The banking business, not in just (inaudible) as you said, but in the quarter you saw the first quarterly sequential decline in that and just think the first meaningful decline for about 10 quarters. You've had, you know, a reasonably positive spread environment from your current positioning et cetera. But that seems to be coming to an end. Average interest in the asset growth seems to be slowing. I was just wondered if you could give us a picture of what you expect in terms of volume growth and in terms of, you know, the potential flaw to sustain these margins or for them to even increase further from here towards the end of the year.

OK. Thank you. Starting with the last one. The spread increased by seven basis points in the first quarter and it came down slightly gradually in the second compared to first quarter, fourth quarter. First of all this is always, the comparison to quarter-on-quarter on the interest margin is very tricky. Personally I don't look at it that way. I prefer to look at it on a basically on the top (inaudible) that's what you do.

The trend to be honest I don't, it's difficult to say that I see the trend upwards going to continue but what I see at least is that a present trend for the rest of the year is at least in my opinion sustainable. What we see is that there is a constant inflow of savings money so on the liability side we are growing strongly and normally speaking so to speak that's cheap money. The spreads are relatively good out there and that's one.

Second we see and I don't see for the rest of the year a glowing access to capital markets by corporate, and more on the equity markets, neither on the so strongly speaking on the bond market. That means that there is growing for bank credit. So the roll of the banks in the process of mediation so to speak of intermediation will remain strong. And then in the remaining part of the year that's comparable to the first quarter and therefore stronger than in 2002 and stronger than in 2001. And that is helpful for the spreads of course.

On the micro level I see, on the wholesale business I see an increase and it's strong on increase. Yes. I have seen an increase in spreads due to the increased risks, in particular the small and medium-size enterprises. And I don't see that fade away in the rest of the year. Of course it's difficult to predict whether there will be a further increase but I don't see a further decrease. I don't see a decrease in spreads in the remaining part of the year.

So that's on the spread. This is on the banking side. Then on the insurance side you asked if the same results, if that can be expected, the 61 in the remaining part of the year. Well as I said and don't misunderstand me I said on the spread yes I don't see a strong improvement on average for the remaining part of the year other than probably at the end but it's not only that it is of course that we are dependent also on the stock markets and here as I've said in the first quarter it was a very bad quarter, the worst of all and stock markets have picked up since then. They're up quite substantially so the year I could expect an improvement.

So it's too simple in my opinion that for more to correct to simply multiply the 61 by four and then saying that it's 244 and that will be, I expect a higher result by then.

Thank you.

The next question comes from Mr. Andrew Goodwin (ph). Please state your company name followed by your question.

Hi. Its here of Cullins (ph) Bank. Three questions; first on the impairment charges I think you go with the gross figure in the press release. I mean last year there was some back relief. I just wonder if you could give me the net figure and whether any of that charge was actually included in the non-operating result or whether it was included in the operating results.

Secondly returning to sort of Andrew Ritchie's (ph) question, which I don't think you fully answered really. But on the traditional life business there was quite a substantial deterioration on year-on-year but first quarter this year compared with last year, which really I wouldn't have thought could be explained totally by spreads compression. And I just wondered what other factors were hitting that result.

And finally just on the situation to as your A&P rating. I think when your ratings are downgraded in particular reference to the U.S. the S&P commented that they were expecting that your operating earnings should be growing by at least 10 percent a year. And I would have thought these results put some doubt whether you'll be able to achieve that for 2003 and I just wonder whether that is likely to have an impact on your ratings on U.S. Life operations.

Thank you Andrew (ph). Well fun with the last one. As we always say you shouldn't judge us on the one quarter, nevertheless you do of course but we continue to say that. And the same applies of course for Standard & Poors, the rating, they might be more active in adjusting the rating than they were in the past but they do not judge us on a quarterly basis, not at all. So that's my first remark and therefore I think that the results of today will have no impact at all on our rating today.

Of course we're being reviewed on an annual basis. I think it takes time mostly in November somewhere. And unless something spectacular happens I do not expect that Standard & Poors is in the process of reviewing us and if so they would have announced it. So it's an easy statement for me. But I think there is no reason to believe that the results of this quarter will have an impact on the rating by S&P.

Then the second looking, the 97 is gross so that is before sort of the (inaudible) from the impairments of 97 it's before an additional right back of that. And that amount is 32 million. So the affect on the P&L is 65; that's what it is. And there was asked by an analyst this morning whether it could not give that more systematically on a quarterly basis and we will do so. So that's ...

And is that all in the operating results?

Yes. It all is in the operating results. Yes, of course. Then I missed out your question on the, oh by the way on the rating S&P has reconfirmed our rating yesterday because I don't know if you have seen it. They said we've been receiving so many questions and they've issued a press release, at least I have seen the mail but apparently it was a press release that they have confirmed the rating, which is sort of the story around it. So if you'll look at IL and S&P then you can find the press release on ING.

I missed, isn't that your second question on the traditional life is it?

Yes. The traditional life, it's where if you just look at the first quarter profit was 62 million and in the fourth quarter it was 89 million. And all I'm suggesting is that, you know, the compression spread can't have been that great to cause that sort of demonition (ph) in profits. And I just wondered what, were there any other factors. I believe that you had seen some deterioration in mortality, in the quarter.

No. To be honest I not a bearer of at least not in spectacular change in mortality, a little bit but that is not the big impact. I would look at it that way. I will ask one of the associates whether there was a big, one dominant factor here but I don't think so. I think it is sort of normally the market. But I'll come back on it before the end of the conference call. Thank you.

OK. Thanks a lot.

OK Andrew (ph).

The next question comes from Mr. Tom Bennet (ph). Please state your company name followed by your question sir.

Hi. It's Tom Bennet (ph) from B&P Fairmont. It's three questions; can I start with the banking business. Overall the banking operations are brilliant. But you seem to have a particular problem in the area of foreign exchange trading. Why has that gone south at a time when everybody else seems to be making lots of money in that market?

That's your only question Tom (ph)?

I'll ask the others later.

All right, lets see. Oh well that's, you know, they'll hit you on a quarterly basis. Sometimes it goes better and sometimes it goes worse. But you're right, compared to the first quarter we ...

Well compared to the last decade's trading and the results in this quarter are close on appalling. What's happened?

Well not in particular, the results in currency trading in particular in Mexico. We are in the business in Mexico of course. It was negative and fairly positive last year. It was in Mexico that is the reason we have are that the hedge on foreign currency position in U.S. dollars in Mexico and that showed a negative result. But you know Mexican peso depreciated even stronger than the U.S. dollar so that hedge was reported in Mexico as a loss. And for the rest we have a very good result in the first quarter in Belgium and that was now a normal, rather a low profit in the first quarter this year. But it was not was infect the spread all over.

I don't know where you get the result from your fields but I see in my figures here across the board varying from Amsterdam, Warsaw, Mexico, Buenos Aires, and all the others, Belgium, BHF, substantial lower than what I'll accept in Buenos Aires, but a substantial lower result in currency trading than compared to the first quarter of 2002. So I don't know. I never looked at my peers that way as I look at my own figures for a period. It was not a very good first quarter as far as currency trading is concerned.

Secondly looking at ING Direct if you take the income number for the first quarter and divide it by the average balances you get a real squeeze and the net interest margin has come down about 30 basis points. Is that the case or is there something special in there?

Surely again ING Direct they tend to split, comes down to 30 basis points.

Comes down by ...

Oh. By the 30 (inaudible). Oh and well of course not because of the total spread it's still 100, a little bit over a hundred basis points in ING Direct.

It was much lower than that last year.

Yes. But I mean yes. Well you have times that it's better and times that it's worse. I mean it's still a good spread. The yield in the U.S. is the yield is a little bit lower than it was before. We did a lot of marketing, extra marketing in areas of course but it depends on where you start, where you prepare. There are costs in it, in starting up for the United Kingdom. Start up costs are already of course in the first quarter but, you know, I don't know if you've tried the Dommer (ph) already.

Yes but you know how it is if you announce on Sunday night that you start early in the morning then on Monday morning you have complete course center out there with trained people. And there were 80 people or something like that killing that morning there. They are fully trained and that training and et cetera is taking place during the first quarter and the last quarter even of last year. So there were a lot of costs involved, additional costs in particular therefore beginning in the United States. So spreads over a quarter are fluctuating.

And lastly can I revisit this U.S. Life profit, Conundrum (ph). And you talk about a sudden narrowing of spreads in the quarter. I don't understand why it should happen in one quarter.

Well if interest rates drop and particular on average, then you have. But if you have an interest rate of 4-1/2 percent and it drops to 3-1/2 percent that is a drop of more than 20 percent in your income. That's the disadvantage of low interest rates, a small drop in the rate. I mean if you spend it on the full income that is a sharp drop in the interest rates. I mean that's not as yet as certain but simple.

But if you strip out the impairments and the unlocking (inaudible), you're looking at a near halving of the underlying profitability of the business and second down sort of 60 percent. That's like 50 percent on Q-4 last year. It's really quite remarkable.

There is, yet you say it will improve as we go forward. It does look very odd indeed. Has there been some sort of mistake? Has there been some sort of problem in the investment department?

No. I mean that is the simplest answer I can give you. The answer is no. Not in the fourth quarter. Not in this quarter. Not in the first quarter of 2002. No. But it's, I mean come on Tom (ph). The profit is a balance of income and costs. And if your income, all the parts, being the interest income drops by 20 percent and you are able to reduce your costs in one quarter by five, six or seven ...

You can't. No. Your interest income can't drop by 20 percent in one quarter.

If interest rates as I've calculated, I haven't made a precise calculation. But if interest rates dropped from 4-1/2 as the long-term rate drops from 4-1/2 to 3-1/2 that's 20 percent lower. And I know only because the duration, anything like that.

I know because the duration of my portfolio, which is not six or seven, it's 6-1/2 years. In the U.S. it's lower. I think it's about, let me try to give you the right figure and look it up but it will be around probably four or 4-1/2 years or so we've grown by 20 percent. But I'm only saying that it is possible that you'd have a sharp drop in interest income and in spread income in one quarter ever. And you know a lot has happened in the first quarter compared to the fourth quarter. I mean there's no surprise.

I mean it is, I consider the results of the first quarter in the Americas as low but given the underlying drivers of my results out there it is not a surprise as such.

Those of us who have been listening to other companies. We've seen them not break sighting results but we haven't seen anything like this and this is really quite remarkable. You say it's not a warning. You don't see, I don't think there's any problems in the U.S. operation.

I don't say it's normal but I said that given the drivers behind the business I am not surprised. They are close to budget. To me that is considering they have a budget that is low. But if you take into account the level of the stock markets, the level of the interest rates, the drop in the stock market, the drop in interest rate, whatever you want. It's a drop in yield. Then this is the business.

OK. Thank you.

You're welcome.

The next question comes from Mr. Rob Proctor. Please state your company name followed by your question sir.

It's Rob Proctor (ph) from Morgan Stanley. I'm sorry I'm still going to stick with this U.S. Life business and come at the questions in a slightly different angle. You mention aggressive competitive actions as being responsible for this very (inaudible) and in your fix in annuity premiums. Can you just and obviously you can't give specifics, but can you just show there's any, you know, what you're seeing in terms of what competitors or doing in terms of their crediting rates and how that compares with what you're crediting. The backdrop I think is that you're saying you're basically struggling to make a 10 percent return on this business yet one of your competitors has held a conference call this afternoon is claiming to price this business for 13 percent minimum and has seen 75 percent positive growth in that U.S. premium and (inaudible). It's just very confusing versus for analysts and investors to reconcile this situation.

Are they as big as we are?

Probably, yes.

In the U.S. I mean.

Well rapidly becoming so.

I don't know. I think I know who you're talking about but OK. Well let them give it a try. No. What we think, I mean we don't have the precise figures of course yet for the first quarter but it's our impression that we have not lost market share in the fixed, well in the fixed annuities a little. But in the variable we have not and in the life we have not lost market share is our impression.

So in my opinion our competitors are doing the same and I can't expect that they don't do it because, you know, you can't continue to sell against the loss. I mean it's very difficult in this product. So yes we have done it. We have lowered the stretch. We think the ranking, you know, we lost in fixed annuities is our impression according to (inaudible) from the fourth position in 2002 to number five. So we lost one place in market share in fixed annuities.

Fine. I mean I've seen, obviously you've mentioned that you've seen an organic reduction in the cost base of nine percent in the U.S., which and clearly is quite an impressive number and I think there's a similar story for the full year '02. But is there still a cost issues against the still, normally would cost over well in the U.S. business. How quickly will that issue be solved?

No. In the U.S. I think the cost over run has been, it has been almost gone as if refer to reduce of course. And last year we had the large, the main reason for the cost over run were the integration costs while the integration is completed as we say. There are still some projects going on because of changing in systems. But the reduction of salaries have been reduced for example the cost of 150 million since September so that means that the cost over run if they're still there and I don't think that there. At least if they're there they're not substantial and at least they're substantially lower than last year.

So at the end you just think the competitors of HP offering customers crediting rates, which you believe it is not economic to offer those crediting rates.

Yes. I think there are still companies who offer the crediting rates that are indeed not sustainable for the long run.

OK. Thanks Case (ph).

The question on the life business, we made an extra provision by a ruling by the state of Colorado for a product that we have called Accelerator and that's about well they say between 15 and 20 million. And that's one of the reasons that the result is lower. And indeed as I thought there is a small change in the mortality assumptions, which causes a little bit lower result. So that's not very big but there is one as I said before. Thanks.

The next question comes from Mr. Robin Metra (ph). Please state your company name followed by your question sir.

That's CSFB. I'd like to weight in on the U.S. Life business as well. You spend a lot of money in acquiring a number of U.S. Life businesses. The profits you made in the first quarter are relatively small. You give the premiums. I'd like to get a little more color for the size of these businesses and the way I'd like to do that is if you could give us some idea of the assets of the technical reserves broken down by each of the major classes, life, annuity, work site, mutual fund, a reinsurance institution on all the other ones. That's the first question I'd like to ask.

The second question also is also not on the U.S. Life but the Dutch Life. You made a comment in your press release the degrees on your life business primary follows on the measures that spin from the capital base. Could you give us some closer, kind of some actual feel for what you're actually doing, which is what we were, which is why there was that reduction there.

And then going back to the U.S. business there's a non-operating item. There was a charge of 79 million. I wonder if you could give us some further color on what that was as well.

OK. Robin (ph) thank you. The assets, well say the assets in the United States for the general account are 65 billion, it's overall and I think we've given you that number before. So that's for the general accounts and not for separate and not for third parties.

Is it possible to get it broken down by the individual classes. I mean it should be a really quite large business that's generating over a staple, ultimately of generating some decent returns.

Let me give you, of course and not only ultimately. Let me give you a few details. The Life business, the Life retail business, 12 billion, the annuity business, 19 billion. The fine contribution business, a pension business, 15 billion, and the roll over payout and amply benefits together about, let's see that's sort of 4-1/2 billion, institutional market, eight billion, reinsurance business, 3-1/2 billion. And well then roughly that's it, Life of Georgia, 1-1/2 billion.

Well that's great.

Well then it adds up to more or less 65. You miss probably one or two billion but that's it.

Thank you.

And then the Dutch Life business, you said why is it going down.

No. What was the, what was I feel that you say that the decrease follows primarily from measures of strength in the capital base of ING Group. And what did that, what were you doing there? What are the operations, which created that fall there?

Sure. First of all we transferred 1.2 billion of real estate and non-Euro real estate, mainly in the United States from the insurance business to the banking. And that has to do with the deposition, the court deposition. And so that means that it's, so that's one. And that of course leads to a loss of income on the life insurance business.

And second the rebate, the Dutch operations rebate debt to ING insurance and/or to ING Groupe from the proceeds of the equity spin off. As you know we have at the end of the year and earlier this year we have sold some equities. And in particular of course last year we reduced our equity portfolio by two billion. And the rebate, the 2.1, the 1.6 that we sold at the end of the year and the 500 million that the original reinvest were the Pertha (ph) shares. We upstreamed the proceeds from that and we repaid core debt on ING Insurance. And at the group level and debt of course because you have lower dividend income led to a decline in earnings from the ING Life business in the Netherlands also.

The total impact in the P&L in the first quarter was about 30 million Euro. And you will see the same type of thing in the second quarter, over the third quarter whatever it is, since we have sold now 1.1 billion on AB and Embro (ph) shares and we're going to miss out and the proceeds there are being up streamed to ING for cycling as a ING insurance. And we also in order to repay the debt and of course that has an impact on the total income of ING, that is the dividend minus the cost of the debt. But that had the biggest impact for the Dutch Life operations because they to a large extent missed the dividend of only and that has of course the largest impact.

Then the non-operating item 79 and let's say I don't know where you refer to.

Oh well.

Where is that? I don't know where that is. I mean you ask me what it is but I don't know where you (inaudible). Let me see I see what you mean. Oh that is in financing cost in the United States and that is in the change. And we have to, and I know. We have recapitalized, not recapitalized, we have strength in the capital base in the United States and we have reduced the debt equity ratio I guess so we have rebates on that and therefore the financing, we have deducted the financing costs and that was 79.9 and we considered that as a non-operating item.

Sure. Thank you very much. Thanks Case (ph).

The next question comes from Mr. Lucas Valder (ph). Please state your company name followed by your question.

Good afternoon. This is Lucas Valder (ph) from Bank (inaudible). Most of my questions have been answered as well or at least you tried to answer them. And you have only one question left, which is the losses in the airline sector. Could you give some depth on that?

Let me first say what my exposure is in the airline industry, the exposure on the insurance side, under both authorities about 200 million. And if I exclude what is it, Southwest and the secured parts then my net exposure is 220 million dollars, that's in the (inaudible) authority in the U.S., which is very moderate.

Then on the banking industry I have a model exposure also. Of course the amounts are much bigger there because but if I compare myself to the rest of the industry. We have an overall exposure to the airline business I would say. So that includes lets say the aircraft operators not directly airline companies like the (inaudible) of this world and the overall exposure, 2.4 billion, widely spread. So about 950 billion exposure in Europe, about 400 million in Asia and about a billion in the Americas, overall spread over 55 oh different operators and all the big net.

We do not have one single exposure that is more than 150 million dollars or so on one operator. The portfolio is pretty healthy. We have made some provisions in this quarter for and so in the overall provision of 325 I think roughly speaking between 40 and 50 million is provisions on the airline industry.

OK. Thanks very much.

The next question comes from Mr. Riner Ospeld (ph). Please state your company name followed by your question sir.

Yes. Hello. Riner Ospeld (ph), Oppenheimer Research; three smaller questions a third of all. Can you give us the insurance states biggest rates in the United States? You have said that there is an upswing in the stock markets so it should have materialized in the sales figure of any equity based insurance product.

The second question is please could you give us and not look on the Ticks (ph) ratio, it was very low once again on the insurance side. So for how long do we have to count with such low tax ratios for the ING Groupe and for ING Insurance in special?

And the third question is about the bond gains at the banking side. We have seen some competitors from very high bond gains. This seems not a bit OK that ING could explain a little bit on this. Thanks a lot.

First of all the sales in April on the U.S., can I give that to you. The answer is no. We never give those figures for the second quarter over year-end. I think I get a problem with Bill (ph) holding because he will immediately restart reading the disclaimer and we won't get them.

Then the tax ratio of insurance, yes it was low. The reason is that we have created a tax provision in the Netherlands. Probably you'll remember that we had bought a company called Mobeer (ph). And Mobeer (ph) is a company that was to say the least highly under performing when we bought it. That was more or less that they had a problem. That is in the company that specialized in the disability insurance and for dentists offices, et cetera. We decided to buy and to restructure it. It was loss making when we bought it so we decided to restructure it first. It is now the make profit now, which gives us the opportunity to capitalize for tax reasons the losses. We didn't do that before because in fact you first have to be sure that you make a profit before you can capitalize the previous losses so therefore we created the tax asset and that is one of the reasons that and it gets about a couple tens of millions of Euros and that's the reason that the tax rate ratio is low this quarter.

More in general for those of you who follow ING ready for one time and many of you do I've always said that the tax rate of the banking business is between 26 and 29 percent for the longer term and on the insurance business that's about three percentage points lower, so between 23 and 26. I have to change that statement. The bank is still the same of course but the insurance we do not have the realized capital gains any longer, which are mostly free of tax because of the Dutch tax system. I think that roughly speaking the insurance will be between the same range 27 to 29, probably a little bit more on the lower side. And that's roughly speaking the long-term tax rate that you have to take into account if you fill your spreadsheet so to speak.

Then the gain on the bonds, we have in the Netherlands in the bank, the system that often that if we realize gains on selling bonds that we amortize the gains over the reaming life of the bonds. So if the remain in a lifetime, and that's why we're not only the bank that's on the insurance side also. So that means if the remaining counter is four years then we take only 25 percent of that gain in the first year and 25 in the second et cetera, et cetera. So there is less of a possibility to, what shall I say to manage our earnings by selling massively bonds? Thank you.

The next question comes from Mr. Ias Boya (ph). Please state your company name followed by your question sir.

(inaudible). Good afternoon. Of course a lot of questions have already been answered. Just two; could you provide with the missing figures for the risk provisioning, the other management centers as well. And can you make a statement on unrealized gains on bonds or bond gains to be amortized over the coming years.

No. The last one, unrealized gains are losses over the next year. That is fairly complicated to be very honest. I can't give them because first of all I don't know what the interest rate will be for the next coming years so that is a question that I can't answer. And there was a discussion I think for the last quarter that we had and what was it the nine billion unrealized capital gains in the bond portfolio and the question of course whether that will show up in the profit and loss. I think we had that discussion. I think that before I think it was Tom Bennet (ph) who started with that discussion.

That was the marked to market excess value of the bond portfolio. The question was raised three months ago, was that ending up in the P&L and so you can't say it that way because then you have to take that marked to market value of the liabilities also into account, whether that for the policy holder for the shareholder. And it very much depends of course to the future development of the interest rates.

So unfortunately I can't give you an answer. The only answer I can give you is that the realized gains on the bonds and of course in particular because of the system of amortizing has shown as we've seen a very constant factor over the last decade and of course one could argue that's because of the interest rates over the last decade only came down and that will end up and that's probably true. But that's the only answer that I can give you and it's impossible to give a forward-looking statement on this.

Then the risk provisions in other industries while we normally don't give them on a systematic basis. But let me say that, let me give you a few and once said they're not all that important. But in the Netherlands the overall long risk provisions are 29 basis points. Belgium I've said already said 24 and Germany 93, central and Eastern Europe that includes Vans Lonsky (ph), which is still very high, 130 basis points, United Kingdom 40 and I think those are the most important ones.

Thank you.

We have a follow-up question from Mr. Nick Watkins (ph). Please go ahead sir.

Yes Case (ph). I'd just like to ask a quick question on the embedded value of the U.S. Life business. If we look at the eight underlying impairments of U.S. profitability it seems to have declined by, you know, a reasonable percentage. Can we see a similar impairment in the embedded value of the U.S. Life business? And then just a second question on your previous guidance or best guess for bad debt cost in 2003. Given what you've been saying about a deterioration in asset quality in the SME business and bad lucks region and also the quite hefty provisioning against their lines in Q-1 and a pretty weak outlook. Do you feel like changing that debt guidance to 2003?

No I don't think I'm going to change the guidance. I've said between 50 and 55 percent of the first quarter is alignment debt. I said just disclose we have taken airline provisions in it. I don't see a further sharp deterioration in the airline business. I mean of course I don't exclude further provisionings but I do not see that it's going worse and worse and worse and worse and worse every quarter. I think the - I see less and I said that before, less fallen angels coming up but I see a small increase in SMEs as I've said. And of course you never know. Last year it was the car industry all of a sudden who was downgraded so to speak and they really survived. It was not as bad as people thought it at times.

The airlines are going through a difficult period but I do not see that really it would get worse. I think to some extent governments will step in because it will be the national carriers and many countries who will have a problem. So I don't, not that I want to bailed out as so, that's not what I mean. But I don't see that those carriers will go through the knees. So I still continue with my previous guestimate that it will be around 50, between 50 and 52 basis points.

As far as embedded value is concerned, you know, we have not; we don't calculate embedded value in a quarterly basis. But our embedded value calculations at the year-end included the high defaults. The defaults that we have today are not a surprise in terms of our embedded value calculations. In fact they are more or less explained. I mean they're higher than average but we had expected that. So I expect no reinvest in the first half-year or even the year if it stays this way on our embedded value calculation. Thank you.

And from declining spreads in the U.S. business. That's probably embedded value either.

That's possible of course because that was not anticipated this way in the last quarter of last year.

Thanks very much.

Ladies and gentlemen if you would like to ask a question please press star followed by one on your pushbutton phone. As a reminder if you're using speaker equipment please life the handset before making your selections.

May you ask for the last question, is that possible?

We have a follow up question from Mr. Tom Bennet (ph). Please go ahead sir.

Hi. Can you just, in your (inaudible) failure did you say there was a nine billion gain in the bond portfolio? It seems a bit large.

That was unrealized last year. In the 24 and 20-F (ph) bond I think that you will have raised that question.

Yes. I've never, the one thing I was trying to get at and is probably worth considering now. When you sell bonds in the insurance business you advertise a gain over the succeeding years. What's that bond create a reserve in the balance sheet? How large is that reserve at the moment and how do you treat that?

We never disclose that bond. We don't disclose it at the insurance side and we don't disclose it at the banking side.

Ah.

Oh well. Yes. You were in, well sure. No. We don't disclose it but you can find it in form 28.

OK. (inaudible) doesn't work.

The line is yield differences. And it's in the mid-75.

All right. Thank you.

We never disclose.

But you only throw that inside of equity.

Sorry.

The only conversions you hold is equity?

It's part of our capital.

Oh is it? All right. OK. Thanks so much.

OK. Well since this was the last question I'd like to thank all of you for your active contribution, your very good questions. And I hope to see you and to hear back next time and wish you all a very good weekend. Thank you very much indeed.

Ladies and gentlemen this concludes the ING Groupe first three months financial results 2003 conference call. Thank you for participating. You may now disconnect.