ING Groep NV (ING) 2004 Q2 法說會逐字稿

Ladies and gentlemen thank you for standing by. Welcome to the ING half year results conference call on Thursday August 5th 2004.

[OPERATOR INSTRUCTIONS].

I would now like to turn the conference over to Ms. (inaudible). Please go ahead.

This is Jama Fox (ph) for ING, welcoming you to ING conference call on the figures for the first six months of 2004. Before turning this over to Cees Maas, CFO and Vice Chairman to the Executive Board in Amsterdam and Tom McInerney, Chairman and CEO of ING US financial services 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 of forward-looking statement could be materially altered by unexpected movements in any or all these and other variables. That said, good afternoon Cees, Tom and Jonathan. Over to you, Cees.

Thank you Jama, for this kind introduction and good morning or good afternoon ladies and gentlemen wherever you are in the world or good evening. Let me by the way of very short introduction say a few words because I assume that most of you have read the press release probably the way rated press comments manually or through television or through wire, so, I can be brief, but I think the main - the most important message today is that ING has posted strong results in the first half-year. Increase of our net profit of 35%, net profit per share of 32% and operating profit before tax up 39% to a level. Operating profit before tax is 4 billion in the first half year.

The banking business continues to drive the strong profit growth operating net profit went up by 65% in the first half year driven by higher income in all three business lines and in almost all the activities that we have so interest income up, commission income up, lower risk cost finally resulting financial transaction was slightly lower. Operating net profit from insurance was up 16% driven by very strong results of our non-life results and a strong improvement in ING's life business in particular in dollar terms and a continued growth in our Asian business up 33% in their own currencies. So, the strong growth in our earnings had a very broad base in products and in regional distributions.

Another important thing to mention here is that ING has changed its dividend policy in order to limit the dilution in earnings per share. As you know over the last two years our dividend policy was to give an optional dividend in which we financed the cash components by selling afterwards the stock in the market. We have decided to back to normal optional dividend that means that if the shareholders ask for the cash., he gets the cash and the cash goes out of the company without financing it by issuing new stocks.

Why did we do that? We feel comfortable with our capital position in ING bank. You know we have an target to have our ratio of at least 7.3% in order to safeguard of our AA rating to the stable outlook, which it as you have seen we have in the first half year our Q1 ratio is well above that, its about 7.6%. Our capitalization on ING insurance and fees 184% of EU regulatory requires capital, which make us one of the strongest capitalizing insurance companies. Today, we have an although we do not have a AA rating yet over all in ING group, ING insurance and we nevertheless feel comfortable with our capital position.

As you all know the blocking factor so far was directly real ratio in ING group, we wanted to be close to 10% and have a debt equity ratio before we would go back to normal optional dividend. Today we have announced that there is a view to getting into this 10% at year-end. We should consider what the executive board feels comfortable that we can achieve that target before year-end and therefore we have announced the day to change their dividend policy -- interim dividend by the way is 49 cents, which is half of the 2003 dividend inline with ING's policies and of course it gives no indication or expectation for full year profits.

Second one -- the last one to remind you here is that ING has decided that we will not give more full year quantitative forecast. We do that because we feel that is more important to manage our business than to manage the forecast given earlier. We've learned also from analyst and investors around the world that is it not as important as we sometime felt in the past and we have realized also that IFRS, the introduction of IFRS in the first January 2005 would probably get more volatile results and therefore that will be more difficult to forecast. What we will do and what we have done is to give you an indication of the major drivers, but feel that the trend of the major drivers of our business going forward. We have said in our press release that we are optimistic about the results for the full year 2004. The positive trends that we have seen in the first quarter will be continued in the second quarter. Risk cost and credit losses have been inclined sharply to well below long-term average levels and there are no indications that these trends will be reversed significantly. Of course stock market remain volatile and in particular in the United States, we are vulnerable to that in terms of better -- market as you all know in terms of fee income and of course, we have also to remain alert for swift changes in interest rate.

We will continue to focus on value based management and increasing shareholders return. We have an accelerated program of portfolio management, as you all know in order to reallocate capital and to focus on superior returns on growth. We have sold our Australian new life insurance business, we have sold our Asian cash equity business and we have sold our Dutch and healthcare business. Argentina unit is put in to one off, we have an agreement to sell CenE Bankiers in the Netherlands and as you all know we are in talks with Commerzbank regarding the sale of ING BHF-Bank in Germany. This is a very big summary of the results and the drivers behind the results of the first half-year. And we said is -- I would like to open the floor for questions that I myself and Tom would like to answer and just Michel Tilmant, our Chairman and CEO just joined this conference call also. The floor is yours.

Thank you.

OPERATOR INSTRUCTIONS].

The first question comes from Mr. Kevin Kolumbus (ph). Please state you full name and company name followed by your question.

Hi, this is Kevin Kolumbus from HSBC. Two questions if I may. First on new business profit margins in the US, we see some improvement there and I wonder if it's just the inclusion of Latin America or if you could give some indication on the type of products that drive margins up? please. And the second question is - do you intend to hedge the dollar exposure on equity portfolio going forward, particularly in light of the reduction of the group's volatility mentioned in slide number 20 of the presentation? Thanks.

Thank you let me start, sorry let me start by answering the second question and then I will give the floor to Tom for the USA question. (Inaudible) there are two different components and first your precise question was whether we want to hedge the dollar -- the US dollar versus the euro on our equity portfolio to be honest --.

No, no, no sorry, it is not on the equity portfolio. Its the dollar earnings going forward to reduce the risk of a group.

Sorry I misunderstood your question. As you know we have hedged our expected US dollar earnings for 2003 and 2004. And we did hedge in this product; we did hedge in June 2002. At that movement in time we had had a very firm due on the US dollar that is we saw that it could only depreciate, which was uncharitably we were successful because it did. We hedged our expected earnings at the level of 92 cents the US dollars is now around 120 as you know and so we were successful in that.

Early January, we had the same feeling for 2005 and we decided to hedge the US dollar expected for 2005 in a level of 125. Since then however, the US interest rate increased, the anticipation on the expected increase by the Federal Reserve was in the market faster than we had expected ourselves. Interest rate went up so the weakening of the dollar stopped and we decided to unwind our dollar hedge for 2005 at that movement. Because we feel that the dollar could move in 2005 on levels around 120 and 130 and it means that there is as much as a good risk is done that -- then it does make very much sense to hedge our expected dollar earnings.

So, the answer to your question is no, we will not hedge our US dollar euro risk at least under the circumstances that they are today as we see it today. Tom the answer to the interest margin in to margin.

Thanks, Cees. I would say the value of new business was up in the US as well as Latin America due to the pensions business. So, Latin America pensions was about 15 million euros, but in the US new business and the IRR's were up from 9.9 to 10.2% because of good sales in our life variable annuity, fixed annuity and retirement service business. We also have been working, as you know on lowering our expense GAAP we've made some progress on that particularly in our life business.

Thanks.

Before we turn over to the next question may be an additional word on hedging, our equity portfolio. So just as you know we had hedge in place on roughly half of the value of our equity portfolio in the Netherlands the value of our equity portfolio in Netherlands is around 8 billion euro and we had a hedge in place about 4 billion nominal value. That hedge is still in place. The hedge today is such that we are protected for an amount of 4 billion at a level of around 20% below the existing level.

So, roughly at a level of 20% minus 330 is around 270 to 275 that is the value -- that is the hedge that we have today on our equity portfolio. And indeed we do that in order to avoid major shocks if something would happen seriously in the equity markets for example as a consequence of the terrorist attacks some where in the world. Thank you

Our next question comes from Mr. Watson (ph). Please state your name and company name followed by your question

Hi this is Watson. Well, thank you very much, first for reinstating the proper cash dividend. I am sure really like that and as a suggestion may be at the next AGM next year you could do another share holder friendly thing and remove some of these poison thoughts that you got in your last AGM.

And only in equity portfolio -- can you just say how much you have reduced that this year and what -- how do you think about holding equities and the 5% plus stakes giving you the tax advantage versus you know the high capital requirements that comes with these equity holdings. What is your current thinking about these two opposite trends?

Well, let me first of all say that the -- our view, our vision of having an equity portfolio is two things. First of all, from an ALM perspective-Asset and Liability Management perspective, the implied duration is long, which means that given the long nature of our liabilities in the insurance business. It is a very good hedge towards long time liabilities and in particular in emerging market in which we operate where we don't have long-term liabilities it is helpful in our asset and liability management. That's my first observation.

The second one is that in order to improve yield of the of the investment portfolio, our insurance company has long term tradition in having substantial equity -- investment in an equity portfolio. In particular in the Netherlands because as you all know I assume that there is a favorable tax regime in the Netherlands, you have more than 5% in a Dutch company then the capital gains and the dividend is free of tax, which improves the yield of core substantial. The disadvantage of this policy is that you need more capital, not only Dutch ING or ING insurance and the it were always conservative in its capitalization policy.

Today going more towards an economical capital model you see the same of course you need more economic capital and when you have a large equity portfolio then if you don't have one. Having said all that, we are going more to an economic capital based model and if the return is higher and economic capital are higher then it depends of course on the total return on economic capital whether it is still attractive to have the equity investment yes or no. And you should do that after tax and again it then it's not difficult to say that this it is still attractive to have quite a substantial equity portfolio in deed in particular in the Netherlands, of course you should add to that since you should avoid concentration risk concentration risk in bond legal entity, concentration risk in your investments in the Netherlands. So that will all play a roll.

Having said all that, I do not exclude that we might reduce our equity portfolio in the second half of this year a little bit not substantially, but a little bit partly in favor of more equity investments in Asia, where from an ALM-Asset Liability Management perspective, it is desirable to have a little bit more equity in our portfolios over there. The same reason by the way that we want to have a little bit more real estate in our portfolio and that is why we bought Rodamco Asia. In order to improve our asset and liability management, in order to reduce the mismatch between asset and liabilities and therefore to reduce the need of economic capital. By the way thanks for the complement of sort of for the dividend policy.

Thank you. Now, are you going to remove the poison pills as well?

There is not - I don't realize that we have poison pills in our structure and not all in fact we don't have poison pills and so far was it is not my impression that it leads to a higher yields right away.

OK, we can talk about it another time. Thank you very much.

The next question comes from Mr. Rob Procter. Please state your name and company name followed by your question.

Hello, good afternoon it's Rob Procter from Morgan Stanley, I had a few questions, number one, on the banking side obviously the provisioning that 21 basis points looks very low. I think you have pointed to san expectation of 35 over the credit cycle and I just wonder if you can give us some feel as to how quickly we may return to that normalized sort of level. And may be you can expand as to whether the 21 basis points that you saw in the first half is a net number with effectively lights packs of provisions or recoveries of provisions in any way that you take it in the past.

Your second question is regarding the US life business where clearly you had very strong growth in some product segments and you talk in the press release about enhanced product design. I just wonder if you can expand a little bit on some of the features that you might have added to the key products and if they may have helped sales there and how you are charging for those features.

And the third question perhaps when I look at the US supplement, I see couple of things, but firstly a sharp fall in sales of stable value in the second quarter. I have to wonder if there is any specific explanation for that or whether its just a volatile line of business and also when I look at that supplement and I just calculate a very simple pre tax return, I am coming to 10.6%, which obviously it doesn't look a great return and I guess there is some light out of some on going light out of the Voiba over in that business, which is not immediately apparent and I just wondered if you could quantify how much that is? Thanks.

OK, thank you, Rob, let me handle the first question and will then hand it over to Tom. The first question the 30 to 35 basis points. Let me say as this first, the 30, 35, sorry the 35 basis points roughly expected loss in the bankbook is for an - lets an average universal bank. So a combination of a wholesale bank and a retail bank and because of retail bank normally has lower loan loss provisions over the cycle, mortgage portfolio or consumer loan portfolio has say 25 basis points normalized. I say this because as you have seen probably in the retail loan loss provisioning, for example also for ING Direct it is 26 basis points and that is not based on actual losses like we calculate, at least before we apply for IAS 39 on basis of individual assessment of loans that's how we do it in the wholesale lending business.

On the retail lending we do the loan loss provisioning on expected losses. I say this because there is a strong growth in our ING Direct, so that brings the average of our loan loss provisioning down any how because the component of ING Direct becomes bigger and therefore the 26 basis points becomes guess a higher weight. That's my first remark, my second remark is that even when you look at the break down of wholesale groups as retail you see a relatively strong performance and of the wholesale loan loss provisions across the board report. So not only in the Netherlands, not only in Belgium but also in Germany, where the BHF for example, where the absolute level is still high with a strong decrease from more than 130 to an 80 basis points decrease.

Going forward, well I to be honest I see no signs, no signals in for the second half year over a specific turn around and that means that I said that this year I would to expect to be 30 and 35 basis points, its fair to say that I will be certainly at the lower end and it would not surprise me at all if we will be below the 30 basis points this year. I would be surprised of course there can be surprises in this one big company going valued up then the lower you are the more, the more volatile service it will more difficult it is.

Your other question was when do we expect that it goes up to the 30, 35 basis points? That is very difficult for the longer term to predict, the paradox is that this low level of provisioning occurs in an environment where for example in Europe we are below average GDP growth in fact you could have expected that we would be at the high end side of the loan loss provisioning, which we are not. So it is difficult to predict. On top of that I must say that the 30, 35 basis points average loan loss provisions is based on the historical figures and it does not take into account and we have improved, which we did. The risk management systems in the organization the databases basis on risk et cetera. You don't see that's reflected in the last seven years average expected loan losses. So and since we have done that, it's very well possible that the average looking forward will be below the 35 as we normally expect.

Rob Procter Can I just ask you to expand the one point you mentioned in your provision on the basis of expected losses. Sorry, can I just to add on that. I am not sure I understand entirely what you made and how does that actually compare with actual credit losses?

ING Direct for example if you look at slide 17, or well probably you have it on the analyst presentation but I can give it to you. That the risk cost for ING Direct are 26 basis points. The actual losses in ING Direct are zero or close to zero. There is no loss in ING Direct assets of 126 billion. But we make provisioning there on the basis of expected loss of the portfolio of course you don't run a risk on the liability sides and you don't run a risk on the asset side on the governments bonds. But you can run a risk on your mortgage portfolio and on your consumer loans. The mortgage portfolio now on ING Direct is above 60 billion of which more than 25 billion self generated and we do loan loss provisioning there on the basis of expected loss of figures known in the market. Because we don't have a long experience ourselves and on our own experience as far as we have the long enough track record and this is every one is doing it and this is the way it should be done today.

OK.

Tom.

Thanks Cees, good afternoon Rob let me try -- I hope like I remember your points in terms of the first question was on the enhanced product design, and there I would say we have done a lot of work in both our, particularly our life and annuity businesses making sure we had a competitive revamped products on the life side. We have refreshed both our variable life and our universal life. A line up and we think those are going quite well. On the annuity side I think you are aware that we launched a updated version of our DMWB the withdrawal benefit annuity and that is beginning to have some reception in the market place accounted for about 8% of the sales in the second quarter.

And we also on the other guaranteed benefits have a refreshed and for our line up. In terms of pricing I would and the withdrawal benefit and the living benefit first I want to point out that the core chafe that we put those two provisions on has a piece of a 140 basis points. So that's by a little bit higher than for some of the competitors in the market places and for the W benefit we then charged 35 basis points for that and living benefit 75 basis points. So if you look at the overall pricing I think it's competitive with where the market places.

In terms your second question was on the stable value sales. In general if you look at our retirement service business in the accumulation outside there or our core focuses on small corporate market, the education market. They tend to be a less lumpy although there is an seasonality particularly in the first quarter on the corporate side. They will vale their, the clients are middle and larger and therefore you do have some more lumpiness depending on when those contracts are sold and we did have major one in the first quarter starting that account for lot of that, I'd also that the stable value is a good product line for us that tends be lower profit margins because its more a investment management type product. I think your last area of question was on the pre tax returns, the 10.6 and I guess you are getting that from first half pretax earnings, right about the equity shareholders show and the supplement?

Yes.

I do know that Fred Hubble in April, talked about it clearly our pretax returns are improving, we have more work to be done, we are not where we want to be a significant drag on that pretax return if you look at referring to what you might expect is because of the acquisitions about two thirds of our US business in effect was acquired in 2000 at higher levels and when we did the gaping on those acquisitions.

They were GAAP at much different levels about the equity market, the interest rates and that ended up meaning that we rode up above Voiba at that time and we are now amortizing a significant amount of Voiba and that I think accounts for part of what you I guess to described as a somewhat a low pretax return. (Inaudible) on that we are obviously selling new products that has good returns and also are looking to manage the expenses and Fred I think covered it in someway in April, we also in the September Symposium expect to have a fuller explanation. So you can get into a little bit more of the detail then.

You obviously you had an increase in-- you had a quite visible increase in operating pretax earnings. Is there any - is this variable light of any explanation f that or should we just to see them out sort a basically a flat amortization could be in each quarter.

Well, I mean compared to the Voiba we did right up in 2000 and but there is nothing in there and in fact in the second quarter we did because on the VA, if you look at the VA earnings line, we did unlock in the second quarter in the VA and by about a 11 million, and we had possible unlock in the first quarter by 2/3, actually we had more Voiba unlocking or more debt Voiba unlocking in the second quarter then in and also in the second quarter of last year.

Thank you, Rob I forgot to answer one question on the loan loss provision where it is closed on net, traditionally in the industry it is net. So the gross provisioning for loan losses is higher and how is it this time and how is it normally. Normally, in the industry and that's same in ING, the releases are about 45%, 50% of the gross provisioning level, that's normal and why is that normal? Think it the other way around, it would be very bad, as you will never have releases then you are not conservative enough in provisioning or say other way around. Your Voiba department is not effective enough because they never get money back as the after that you have started the provisioning.

OK.

The industry average is about 45, 50 basis points represent of the gross. This time it's the same for the ING for the first half year, it's about 50, its about in the higher rather -- high insight of the average, which means that their growth provisioning is although we never look at that number is about 31, 32 basis points this time.

OK, thank you very much.

The next question comes from Mr. Nick Byrne. Please state your name and company name followed by your question.

Good afternoon everyone, its Nick Byrne from JP Morgan. I have two questions. Firstly, I was looking for little bit of extra detail on part of the banking operation in particular in your results from financial transactions. There is a line called 'other' results from financial transactions and within here there was a significant swing from minus 28 in the first quarter to 226 in the second quarter. Looking back over the quarters it does appear very volatile and I wondered if you could give some feeling for A), what it is and B), how it might develop? And then secondly turning to the Asia insurance operations. In your break down you have a line called rest of Asia, which increased from 1 million in profits in the first quarter to over 30 in the second quarter. I was curious whether that represented a strong recovery in some of the other markets or whether that was where they provision released on the wage contract has been booked and whether that's actually one off or whether there is more to come please?

Nick, thank you Nick on the other transactions. Others are normally the results of the hedges and the claim positions there in the line Other and therefore they are difficult to explain some times you make a profit on a currency block profit of an interest rate result and you make a loss on your hedge position provided that the balance is positive you did a good job. But this is how it works I know this is not an answer but that you probably like that this is the way it looks in the financial results, there is a trade off between other results. On the Other this time is also in the Q1 results the 48 million loss we have disclosed in what we call the unit link mortgage product sold by the post rank where we had an potential reputation on risk and the risk provision for that and it was 48 million. So that explains mainly the large fluctuation at this time.

Can you actually just.

2000 -- 48 million.

Can you give -- for what's in the 226 in the second quarter just because that's such a large number I haven't seen anything so large in previous quarters. It looks to be perhaps one specific contracts or a series of unwinds of contracts or hedges you have? Then can you just give some indication of exactly of what that it is?

Well, as I said it was partly also the unwinding of the US dollar hedge for 2005 that we have to unwind and let's take a small last few years. We started at the 125 and we unwind at a little bit lower amount, but that's not on big amount, but it was and for the rest of this as you said the hedge and the trading positions, which were higher in terms of losses but it was reflected in higher profits in the other lines of currency trading financial markets interest rates trading et cetera. I mean that's as simple as it is, I cannot explain it better than I did it now.

OK.

The second question related to the Asian business and yes we there was a release of a provision in Asia that was mainly related to taxes in one of the Asian countries and so that was one off item around 30 million in one of the countries.

And that's booked in rest of Asia or is it booked to one of the other countries?

That is booked in to other.

OK that's clear. Thank you.

You are welcome.

The next question comes from Mr. Nick Holmes. Please state your name and company name followed by your question.

Hi, it's Nick Holmes from Lehman. I have just a couple of questions on the Benelux insurance operations. The first one is you took a restructuring provision of 21 million euros in Dutch insurance in H1, I wonder if you could give us a bit of guidance about your expectations for H2. Secondly in Belgium, the IRR on new business sell quite sharply in Q2 from 35% from 22% for the whole of the first half. I wonder if you could tell us what is happening to Belgium in new business place.

OK, Nick first of all the restructuring and the seldom of the -- backlog in the Netherlands. Let me give you a few figures. We spend additional of course, that is management accounting, of course because there is lot of existing working in their and others are try to calculate because it was asked already in last quarter. To give you an indication of what the cost of this all backlog sold and restructuring going on. We spend in 2003, 20 million additional cost on this solvency in the backlog. In 2004, we expect to spend about 75 million and that include in the 21 million restructuring provision that we have disclosed and we expect to spend about 20 to 25 million in 2005. The question was the second half, if you exclude the 21 million restructuring position, the total cost of them is 53, 54, as you can calculate roughly half of that was spend in the first half year. So for backlogs they would rise but roughly half. So then you have an indication of what the additional cost are in the second half of this year. The IRR of the new business in Belgium, went down as you say from 35 million in terms with Europe in the second half were down --.

Which is this Belgium now?

Yes, Belgium, in term of rate of return was only down from 19.1 to 18.4, so from 27 to 30.2. I don't exactly see where you have your numbers. The internal revenue basically decreased as I said from 90.1 to 80.4 and that was due to the amply benefit results in Belgium that was not included before. So the amply benefits program effected the refinement of our calculation and this has a relatively low return. It is a small business by the way so far to start sup and there is wider cost of relatively high and that is why the internal rate of return is relatively low.

Right, understand that. Thank you very much.

the next question comes from Mr. Andrew Richie, please state your name and company name followed by your question.

Hi, good afternoon, this is Andrew Richie from Citigroup, couple of questions. And first of all looking at the asset growth and lending growth of the bank. Both year-on-year and quarter-on-quarter, appreciate lot of it was with ING Direct, there appears to be very strong underlying growth of the core bank. Just give a bit of color in terms of where you are seeing lending growth excluding ING Direct. Other questions related to the U.S life business, could you give a bit of color on the mortality issue you became of the reinsurance business and the timing when you review that. And finally, what sort of pipeline is there on the accumulation business and you peers are suggesting there is quite a lot of 401-K pipelines comes through second half, what was your experience there?

OK, thank you bank lending, we feel quite comfortable in bank lending. In the Netherlands, bank lending increased by 4%. So that is for mature markets but very low GDP growth, but is not - is not better at all. Total profits increased by 3.6%, mortgages by 5.4%, other personal loans by 3.2% and overall personal lending increased by 5.2%. So given and that is the first, during the 1st December 2003. So that's on the half-year basis, which is given the market of which you operate is rather good. The international where -- the majority of the international lending is of course dominated by ING Direct but nevertheless, the total corporate lending in our international wholesale banking division increased by 8.1% on a half year basis. So that is including in the Netherlands international also, in Belgium that includes the small amount (inaudible) enterprises, because our definition of wholesale banking is little bit different and sometimes it is used in the international arena. But we are pretty happy with the development which means that out top line growth in our wholesale banking activities in the Netherlands and internationally and you know retail business in the Netherlands also.

But - the increase of growth rates is a lot, was last year, just reflecting your view of lending conditions have been improved?

Not so much lending conditions, I think they were on a micro level the interest margin is roughly stay at the same, has not deteriorated, increased a little bit even, but it is just the slow but nevertheless existing pickup in GDP and pick up in activities in the Netherlands, in Belgium, there is a strong GDP growth of 3% in Belgium today. And the international environment we see an increase flow of money of course and in particular to Asia, in particular to China, so it is to be flexing of higher business activities. On the mortality study, gong to be finalized while we have to finalize, we will finalize this in the quarter for this year. Tom.

I think, question on the accumulation business, I think you asked about pipeline, I would say this Andrew, if you look at the second quarter, I think we are focused on the accumulation line, you really have to work it out at quarter-by-quarter because some seasonality particularly in the 401-K business in the first quarter. But in second quarter quarter-over-quarter quarter, the sales were up 18%, certainly yes we think the pipeline similar to I think the time as you heard from others is in good shape, and you know we would certainly expect the momentum that we have seen in accumulation business and the last two or three quarters that to continue, but you have to look at a quarter-over-quarter actually.

OK, thank you.

The next question comes from Mr. Duncan Russell, please state your name and company name followed by your question.

Hi, it is Duncan Russell from Fox-Pitt Kelton. I have got three questions. The first one is on ING Direct U.K, which is growing very fast and also huge average account balance but it is not yet profitable despite having all these scale. Can you just talk about when the operation will be profitable? And the second question is on the dividend policy and your policy restored the cash dividend, just wondering how you sort of pay out ratio going forward. I think it is roughly about 44%, now 36% in back of very strong claim profitability. And then the third question is just going back to the life insurance operation obviously in the 40 to 54 million charge. I am just wondering what a change since then.

OK first thanks Duncan. First in ING Direct ING U.K and well as you see in ING Direct, strong increase in its profitability, very strong increase in profitability. In fact there were only two countries now who are most profitable, that is Italy but there is only a loss of minus 1 million. And in the second quarter it was a turn around in the second quarter it is solid with 40%.

The only one left is United Kingdom, which is not profitable yet. The question when is it profitable? That is always difficult to say, it depends of course on future development, how fast it is growing but I can say to you is thanks to the fact that the average balances are much higher than the business model when we started. We are ahead of plans with the U.K sale the most of today are lower than we had expected.

And if circumstances stay the same and we never know of course, the circumstances stay same there we might be even profitable during the course of next year or the end of next year let me put it carefully, which is very fast because that means that we are profitable within two years and normally it takes three to four years before country is profitable on ING Direct. And if it is true and if circumstances won't change then we might be profitable around two years in United Kingdom, which could be a huge achievement. Then the cash - the change in dividend policy again it's not a full cash dividend policy, it is return to the optional dividend, where we do not finance the cash any longer by issuing the new stock. But the question was on the pay out ratio, well, it's a (inaudible) where we are looking before the dividend policy - dividend policies as long as it does not change and then it is dividend policy and that means we have pay out ratio of 44%.

Even a certain year our profit would be lower than the year before, which is not the case this year. Then it will be at most to keep it on the level of the dividend the same. That's why we paid out more than 44% last year. I think I don't know where our profit will end up, if it is an hidden questions where our profit will - what the profit forecast is but I must disappoint you. But I only can say that of course it will be a pay out ratio of 44% provided that our distributor income is not lower than the year before and then we will do a more strategic dividend on the same level. That's in fact simple as simple it is and it is predictable as ING always is.

Then the third question is yours, Tom.

Yes, I think Duncan you asked on the U.S. on life reinsurance, we did see in the third quarter of 2003, we had normal increase in mortality, I think it was about 12% over the expectation. In the quarter, since then we have seen a more generally inline although perhaps slightly worse than the long-term.

As the result of the mortality experienced in 2003 particularly in the third quarter, we did review process of the life reinsurance business for mortality. I think you can pretty appreciate Duncan, that it is a fairly granular process, we are going to review going to all the individual fees and its a fairly granular process to get through that and that's what is underway at this point.

Just a follow up on that I suppose the 55 million charge, what proportional the group did 10% sale, the 54 million charges are 20% are the book you received or - what?

Duncan it was really excess mortality because of mortality that we saw particularly in the month of September 2000. Are all related to mortality we saw on the individual life insurance business and then particularly related business that was returned in mid 90's.

Sure, but the 55 million charges you took from the third quarter, and you said the fourth quarters is very stable. So the 55 million charges you took related to review the life reinsurance business and now this review is additional for that.

In the third quarter, we had not - that was not part of the study. We are now during the study at this point. There we saw particularly in September of '03 increased mortality in the life reinsurance again the large risk the business returned in the mid 90's. Because of that mortality we increased mortality reserves versus that mortality that we saw in the third quarter but particularly in the month of September.

OK, thanks.

Next question comes from Mr. Paul Goodwin, please tell your name and company name followed by your question.

Paul Goodwin from Bear Stearns. I had 3 areas I would like to take this one as if I can, first is back to the dividend policy in that you said limited to dilution but not you moved it completely. I'm wondering what are you think from the share element of the dividend by buying shares in the market, rather than issuing new shares. I mean you say that several years ago so what you call that this partial dilution policy. And the second question ING RE, could you give me the traditional result ING RE. Please give me a feel for the scale of reserves that we are taking about. And thirdly, the ING Direct, could you tell me roughly what proportion of the cost related marketing expenses of acquisition cost. Thanks.

Thank you, first of all the dividend policy, while we are going back to full number. Well it is clear and that's behind your question that you understand rather we still give optional dividend because a lot of share holders want that for tax reasons but the question is why don't you buyback the shares like some of our peers are doing.

Well, for those of you who are very long -- following ING for long, remember that our Jacobs our former CEO, who said that issues stop dividend is not diluted at all as long as you can reinvest the retained earnings in business that gives you return on equity that you have for your average business, that was clearly that he was very firm in his belief and of course to some extent he is right.

So that's another way of saying that we see a very good opportunities, we have top line growth, we have not only bottom line growth but top line growth also. So we see great opportunities to reinvest our retained earnings in a profitable way. That is to speak what ING Direct see, that ING Direct making a return on economic capital now 19.4%. We see that whole sale business in the Netherlands, which is still expanding is making return above the hurdle of 18.5% you see that the internal rate of return of the new production of the businesses is above the hurdle.

So we have plenty of opportunities to invest profitably in top line growth and therefore we feel that this is that we can justify towards shareholder to retain roughly half of the dividend income in order to finance our growth that is the background of it.

Then ING Direct roughly today and is the marketing cost of 35% of the total cost of ING Direct. But notably this figure of course is going down gradually in the total cost and when ING Direct starts the majority of the cost, it is marketing cost and one inclines as it is in, your only -- spend this small amount of course the in maintenance -- changes in its balances, unless the marketing cost is the bigger ING Direct comes to lower the portion of marketing cost in the total cost that is for today it is about roughly 35%. Then ING RE I will give the floor of course to Tom.

But let me correct one thing because I read on Bloomberg which is not 100% correct that Bloomberg stated at a favorably date that came from either the analyst meeting or the press conference today but I would have said that ING RE would be never for sale ever I haven't say that. I only said that in ING a company is only for sale when it is for sale and I made it clear that ING reinsurance is a company where we never said that it belong to the core business of ING. We have always said continuously, repeatedly and consistently that if the United States would not have ING reinsurance, the character of ING insurance in United States would not be fundamentally different and then the question, therefore you are going to sell it we said that -- amount if you are going sell it of property to sell it. So again I didn't say it was for sale but I did not say I did not also say that ING RE is never for sale I just said what I said I would like to repeat it, the total reserves of ING RE.

I don't have the number before you but I believe the number is in about the $4 billion range but we will confirm that.

Thank you.

The next question comes from Mr. Robin Mitra. Please state your name and company name, followed by your question.

Hi, it's Robin Mitra from CSFB. Just a few question, first why the Asian profit of follow-up from a prior question, why was the Asian profit up so much? Is there some sense of materials stopping making interest rate provisions in Asia? That's the first and the second question is why the North American property and casualty results so high?

Could you give us some color at it, if I can subtract properly the second quarter profit from the USP and CE operations of 177 million about double any previous quarters' profit level or even higher than that and the third and the final question on statement really is thank you very much for the extra disclosure on the banks, but could you offer a little more on that, can you - perhaps some full year numbers broken down by segment that's wholesale and retail in ING Direct?

Well first of all on the non-life in Canada, I think that you know Tom you do - I will do it. There is a strong improvement in the results in motor mainly due to changes in regulation out there including that -- for example that amount of claims -the amount of the claim is now limited to a certain amount, which lots of claims for insurance of course. At least the amount of the claim is lower than it was before, which as lowest is kept, so with lowest total amount of claims. So what you see in Canada is that claim ratio is extremely low compared to what it was before. And there is another change in regulation and that is insurance companies can refuse bad risks if they can make a clear decline that there is a bad risk they can refuse it, which means that of course which lowers the claims ratios also.

Third there was a very soft winter, there were no heavy snowstorms, no bad circumstances in Canada last half year, which lowers the claims ratio also. We issuing that the higher oil price and therefore the higher gas price have a certain influence on lower number of miles driven by car, which lowers the claims ratio. So do we expect this continues most probably the regulator requires from us that we are lower on the basis of the new measures of the premiums because if you reduce the maximum amount of the claims then and if you - you might expect that premiums might go down you know Canada is a highly regulated country, as far the financial services industry country is concerned banking and insurance. So this therefore we have said that this is very low combined ratio relate to I think, 1% it is not sustainable for the full year. It has remained low because we are very well out there but on that level probably not but this the back ground of the very good results in non-life in Canada.

On banking this split in wholesale and retail for 2003, wholesale profit before tax 1272, retail 1058, and direct 151 and the line Others and this is cost of hedging this is more allocated interest cost minus 110. So total preferred tax profit 2.371 billion. Then the question on Asia why there is a strong increase in earnings? The main contributors here are Korea, Japan and Taiwan. Korea mainly due to a strong growth in the business volume with a high persistency and high mortality and mobility margins, so the margins on mortality we believe are high. Japan mainly because of the strong coded business sort of profit on life insurance business primarily high annual sales, Federal expenses, commission coverage, favorable claims experience and those are the things and in Taiwan lower expenses and probably for the lower premium tax rate reduction, higher sales and those. So all just ordinary business sales, cost et cetera are very favorable in as you said Korea, Japan and Taiwan and of course I mentioned already the provision for tax is to release in the others.

Sure. Thanks guys for that. Just one additional question on the Asian - have you stopped making interest rate provisions for low interest rates?

No, 50 million is still - still 100 million -

That's due to the 50 million I thought was what you did in the first quarter?

No I did 25 million. We increased it from 50 million on an annual basis in 2003 to a 100 million on annual basis in 2004 starting with 25 in the first quarter and then again 25 in second quarters. No let us be very clear on this, the interest rate environment in Taiwan has improved a little bit and the interest has gone up, I think, close to 3%, but it still it still has many contracts with guarantees of 6.5 and we look for 7%- 8%. So in each line, I mean, overall we are adequately positioned on the level of same US GAAP basis we are 50% confident - 50% confidence level.

We are adequately provisioned as you can see from Form 20-F, on the ING rules where we normally use a 90% confidence level. We have a shortage year on the Taiwan level, we have shortage of our reserves and therefore we pledge additional reserves and it goes on the level of 100 million, I think we have reached and given the fact that there is a model of assumption of future interest rates. I think we are bridged the gap in 70 or 80's, but again the region is such as even on our very conservative 90% confidence level is adequately provisioned and on that same level ING as a whole is adequately provisioned also. So again on a 50% confidence level US GAAP, everything is more than adequately provisioned and it is only Taiwan where we -- if we apply our conservative levels of 90% confidence level we have a shortage in provision and we have decided to pledge additional provisions there.

Fantastic, thank you very much.

The next question comes from Mr. Vias Boje Please state your name and company name, followed by your question.

Hi it's Vias Boje, West LB good afternoon. And I have got three - two questions with regard to your banking results. You explained quite well, there is a loss in the income line in the first half but if I referred to your press release of page 20 the second paragraph does explain the loss in the first quarter but it actually doesn't give any argument for the loss of the second quarter with a minus 28 and second question relates to your commission income, if I look at the split figures for commission, it suggests that this is mainly coming from the security business and perhaps it puts leverage a little bit. Whether this is more related to primary and secondary business and whether this is more bond or equity behind that drawback in the securities commission?

Thank you. Starting with the last question. The commission income increased comes from securities business, it comes from insurance booking and it comes from many things, the bulk of the increase is out there. Security business well higher levels in the stock markets mainly Belgium and Netherlands, which have strong mutual funds are picking up in Belgium strongly and in the Netherlands it always-there is also a pick but in particular in Belgium. Insurance brokerage, mainly to the newly matures non-residence life insurance products in the Netherlands are very good.

The management fees is little bit affected by transfer from ING real estate investment managing companies from the insurance through bank and the other way around permanent sales of insurance business. Such of these terms in definitions slightly positive effect and but adjusted for these changes, the fees rose by 63 million or almost a 20% an effect of across of the board in all our business unit.

On retail banking Other income minus 28 that was due to amongst others loss in loan portfolio in ING Vysya bank due to an increase in interest rate in the second quarter in India. It is a quite sharp increase out there and we have to recognize almost a 28 million in ING of course a lot in ING Vysya bank, which caused the 28 million.

Sorry, perhaps I was not precise enough in putting the question, if I look at the securities business commission line and compare the first of second quarter and the figures is 219 for the first quarter and 171 for the second quarter. Is this mainly related to permanent sales or the Asian business in general or is there any underlying trend beyond that?

I misunderstood your question also, I looked at the half annual figures, first half annual figure.

Yes, sorry for that.

No, no it doesn't matter so let me look at the line as you are looking at on a quarter-to-quarter basis. So you looked at the 322 to 353 on page17?

No I looked at -

Which page are you at?

I am looking at actually I am looking at the figures of the - on the appendix on page 32 and I was splitting these to commission figures between the first and the second quarter, which is actually not part of your press release. I was choosing that the commission break down 5.6.

OK, I don't have the answer at present here. I will answer you in a minute and when I (inaudible) find out.

OK, fair enough.

Thank you.

May I continue with the next question?

Yes please.

OK, the next question comes from Mr. Reino Osbit, please state your name and company name followed by your question sir.

Reino Osbit, Oppenheimer Research. Mr. Cees my questions, the first is you are using an equity return of 8.5% for calculating the risk of that unlocking contrary to that you are disclosing your embedded value, as I guess at the beginning of the year at 9.5 assumption of US equity return. Does that mean that you use different assumptions for these two different calculations?

Second question is could you give us an update on the crediting rate in the United States? And the third question is if I understood correctly, you told your health insurance business or part of your health insurance in the Netherlands. Does that mean that you are moving out of the newly developing visibility and sickness pay insurance business?

Tom do you cover this first two questions.

Yes, let me Reino, on the around the debt unlocking, the long-term equity assumption is the 9.5% that you talked about in regard to our variable annuity business because there is some fixed budget within the variable annuity products, the actual separate account growths, the growth of the variable annuity overall is 8.5%, that's landed in 9.5% equity plus, the portion that is allocated to sales.

But those are congruent assumptions 9.5 for equity growth and 8.5 for the separate account growth. In terms of the crediting rate I think, if you look in the US look at those specific supplement, we have been reducing the crediting rate you see in the first quarter a significant reduction, a little under half of the fixed rate products or in the requirement of this and there we reduce rates on January 1 and to a lesser degree on April 1st.

Then within the fixed annuity the individual annuity business that we have about 25% and both the year guarantee, though we can adjust crediting rates, those are set for the duration of the product life. The annual research portfolio is in the 20% range and there we are able to reduce that and we have been doing that and I think over the course of the last five or six quarters on that individual annuity annual reset we have been -- the contribution to the crediting rate has been in the five to six basis point range a quarter. If I could just go back to confirm what I said earlier in response to the question to Paul Goodwin I gave you 4 billion number for the reserves of the reinsurance business, that's correct in total I wasn't sure whether Paul was asking for the individual or the group rate, so combined is 4 billion if you split it, the individual reinsurance reserves are around 2.5 billion and the group reinsurance are around 1.5.

Thank you Tom. Then the healthcare what we sold in the Netherlands and now we are leaving the visibility insurance, the answer is no, we only sold our so called National and Netherlands insurance that is NN healthcare to OMDG that is in one of the biggest healthcare insurance company in the Netherlands. We felt that our N was too small, we didn't have enough scale and although it is good business but we did not have enough scale and therefore we sold our portfolio to that company, but we are not going to leave the visibility business at all.

Then I have question on, because misunderstood in the beginning on the securities business, the commission income securities, the main reason is a decrease of commission income from securities in the international wholesale banking units and that is because of you know we sold our Asian equity business, we have scaled down part of our European business and American business also, but mainly in the Asian environment. I think that we closed Asian transaction in the end of March or somewhere in March. So it is from the second quarter onwards we do not have any income any longer cost not either by the way, we have not had any income anymore from that line of business. So that is the main reason for it. Thank you.

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