ING Groep NV (ING) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the ING Group Q3 results 2004 conference call on Thursday the 4th of November 2004. [OPERATOR INSTRUCTIONS]. I would now like to turn the conference over to Jemma Baks (ph). Please go ahead.

Good afternoon. This is Jemma Baks for ING Group welcoming you to ING's conference call on the figures for the third quarter of 2004. We are turning this over to Cees Maas, Chief Financial Officer, Vice Chairman to the Executive Board in Amsterdam and Tom McInerney, Chairman and CEO of ING US Financial Services in Atlanta.

Let me first say that any forward-looking statements in today's comments are subject to a number of variable, including interest rates, foreign exchange rates, inflation rates, movements in securities market, including equity markets and underlying economic health and changes. Realization of forward-looking statements could be materially altered by unexpected movements in any or all of these and other variables. With that said, good afternoon Cees and Tom. Cees, over to you.

Thank you Jemma for your kind introductive words and welcome to all of you. Good morning, good evening wherever you are in the world, welcome on behalf of Tom, Tom McInerney, and on behalf of Jonathan Atack, our Head of Investor Relations, who is here of course present. I would like to give you a very few short introductory statements, I'll keep it short and then I will hand over the floor to those of you who wants to ask any questions and we will perfectly going to answer them all.

As you have seen from our press release, the operating net profit went up by 33% to a level of 4 billion in the first quarter and our operating earnings before tax went up 24% to a level of 5.9 billion Euro. And it was not only the bottom line growth that was strong in the first nine months, but also our revenue growth was continue to be strong like-for-like. So I have not taken in to account currency changes, in that divestments or investments growth was up 12%, top line growth for ING as a whole, which is in strong revenue growth. The growth was of course strongest in the bank as you have seen 60% up and which was to a large extent due to low risk cost, risk cost were low in the first half year already and they further, they came down further to a level of 19 basis points over all in the first nine months of this year. Also the risk cost and the impairment costs, credit losses and impairment cost in insurance side remained low and lower than expected.

The value of the new business of our life insurance went strongly up from 330 million in the first nine months of 2003 to 466, an increase of 41%. The internal rate of return went up from 10.9% in the first nine months to 11.9, which is close or almost at the target that we have for 12% internal rate of return of the new production.

We strongly improved our debt equity ratios to the leverage of the group as targeted, we came down from 40.4% at the end of last year until 11.4% at the end of September and we still feel comfortable that we can reduce our leverage on group level until 10% at the event. Also on insurance, the consolidated insurance company reduced its leverage from 20% at the end of last year to 16% at the end of September, also a very healthy development. In order to reduce the volatility of our capital base, we decided to further sell down part of our Dutch equity portfolio. The value of the equity portfolio today, is about 6 point, sorry today, I mean at the end of September, was about 6.4 billion Euro and that was partly due to the reduction of course of further sell down of that portfolio. We did that as I said in order to reduce volatility, but also to reduce concentration risks in certain of our equity investments. And with this size we feel comfortable that we have the right mix and the right balance between equity investments, proprietary equity investments for, on our capital base and real estate investments and some bonds.

We made further progress in our portfolio management, which we, you know was an important priority this year. We on the insurance in America we had decided and agreed to sell our insurance business in Argentina, which we had put in the one off earlier. We have decided to exit the ING individual reinsurance life business. As you know we have agreed to reinsurance contract with Scottish Re. We have decided to sell Delta Asset Management, a small asset management firm that we owned and we have recently announced an IPO of our ING Canada, in our life insurance operations.

Of course as we have said, it is not only divestitures, we are in the business of smaller add-on acquisitions also and as you know we have bought the Alianz non-life portfolio in Canada and that was of course by our Canadian operations. In the Netherlands, in the European insurance business we have announced earlier that we have sold our health insurance business and also in Asia Pacific we have in the second quarter sold our Australian non-life business to our joint venture partner QBE. In the whole sale banking business we have sold earlier this year our Asian Equity business in the third quarter of CNE Bank, Dutch banking, small banking business, well performing and we have an agreement in principle with Sal Oppenheim to sell our ING BHF Bank as a scale down at the UM (ph).

Here also we were active in add-on acquisitions, we bought Rodamco real estate portfolio Asia, as a good add-on to our real estate investments in Asia, in order to improve our asset and liability management to improve the duration of our assets in that region. And we bought the lease unit of Abbey National in the United Kingdom.

On the retail banking side we bought Mercator Bank in Belgium and on ING Direct we were active in buying Egg Bank, France, buying savings clients of Egg France, about 45,000 clients and a few people who managed those clients and at a price, which roughly speaking equals to the price if we would have acquired them through direct marketing. The overall transactions in book-gain, the overall book-gain on these transactions is 6 million in the first nine months, are basically neutral on our profit and loss account. The improvement was of course in the debt equity ratio we have used the proceeds first in improving in to the capital position of ING. So we improved the debt equity ratio of the group by 100 basis points and we reduced our required capital of around one billion by releasing or selling in fact risk weighted assets. And the operating net profit of this closed business units amounted to approximately 100 million in the first nine months of 2004.

As far as the outlook for the remaining part of the US is concerned as you know we have decided not to give any full year forecast for our net profit, but we have stated and repeated that we will remain confident about our full year 2004 results. Having said that I would like to give the floor to you and we are ready to answer your questions. Thank you.

[OPERATOR INSTRUCTIONS]. The firs question comes from Mr. Robert Procter. Please state your company name followed by your question. Mr. Procter please go ahead with your question.

Hello, can you hear me?

Yes we can hear you, please go ahead.

You can hear me. OK

Yes.

Robert Procter. I had actually only two questions case. Firstly on the net interest margin on the Dutch business, in particular, I think, you had 168 basis points in the third quarter. That looks to me to be the lowest margin for at least three years on a quarterly basis and I think you gave some brief commentary on lower income from the asset liability matching book. I just wonder if you can amplify what is going on here, give us some feel for what the outlook going forward is. That's obviously lower than I had expected. And the second question is just a simple one. It's just regarding the US life business. I think you mentioned it in your introductory remarks about credit losses but here too I think there has been a quite sharp deterioration in the third quarter. I think 27 basis points of credit losses, I think 6 basis points in the second quarter, I just wonder if you could give us some additional commentary on what's going on there.

OK, then, thank you. Well, the net interest margin in the Dutch, in Holland is down from 187 basis points to 169. I can't imagine and say what's going on there. Let me say, first of all there are couple of reasons for that and one is sometimes offsetting Europe. First of all there are higher interest results in the Post Bank and in ING bank Netherlands. So that is the good news. So the business, so to speak business wise it was better in the Dutch business in Post Bank in the Nether lands. However this was more than off set by three elements. The first one is, we have referred to that already before in the first half year, this for the ALM results, the Asset Liability Management results in the Netherlands that was one that continued in the third quarter lower than in the third quarter last year.

The second reason was speak all about the first nine-month and I can go in to probably detail on the Q3. The second result is lower release from the amortization reserve. You know that on the Dutch GAAP if we saw a bond above par, then we capitalize the capital gains and amortize the remaining period of the bond. That is not allowed anymore under IFRS and which means that this portfolio is gradually shrinking and therefore the release of the portfolio is going down also. This is in say in anticipation of IFRS calculation.

The third one and probably the most important one is an interest loss that we suffered of the buy back of some loans from ING Insurance. You know that we had an entity originally at ING Insurance and is transferred to the bank called (inaudible), WUH, the mortgage bank in the Netherlands. That mortgage Bank was now fully integrated in to the organization. We have still some bonds outstanding in the markets, which is fine, which we served, which is guaranteed by the insurance company in counter guarantee by the bank, however there were some banks, sorry, some bonds that were hold by the insurance company originally issued by the way the WUH and guaranteed by the bank. And this is in fact an asset class that you hold in legal entity, ING Insurance and being guaranteed by ING Bank and in fact also owned by ING Bank and we thought that from an outside risk perspective, I don't want to call it circular trading because there is not circular trading, but it has elements of so to say, internal risk transfer and we thought that it would be more pure to buy them back. So the bank bought the bonds back from the insurance company. The bonds were, had a market value above par, so in order to be fair against the policy holders national and then on the -- of the insurance company, we had to buy them back above par, the loss that we faced in bank, which was about 38 million was charged to the interest results and of course there was a profit of 38 million in the interest result of the insurance company, because all of that level had no impact, but they showed up a negative of 38 million interest loss f the buy back of these bonds and in the bank. If you correct for that later part, so for the buy back of the bonds of the WUH, than the interest margin would have been 174 in Q3. So instead of 168, so that means that it would go down from 187 to 174 and that is due to the two factors I mentioned, the lower ALM results and the lower release from the amortization reserve. May be for the loan losses, the impairment losses I hand it over to Tom. Tom.

Thanks Cees and good afternoon Rob. In terms of the credit losses in the third quarter in the US, the 27 basis points endeavors that was approximately 51 million, a 11 million of that, or 6 basis point was sort of a core credit losses on the core fixed account portfolio. We also had 40 million of losses, which was 21 basis points -- limited partnership holdings that we have, we marked those to mark it over time and based on the review in the third quarter, we wrote those down by 40 million or 21 basis points.

Tom that the -- Sorry,

Go ahead.

I was just going to ask that, that's a review you do from time to time or on a regular basis and how does that work?

We do that on a quarterly basis.

OK.

OK. Thank you.

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

Hi, it is Nick Holmes from Lehman. I had a couple of questions, first one on the bank cost income ratio. I wonder there are two parts to this question, firstly I wonder if you could explain what caused the rise in the expense ratio in Q3 in both wholesale and retail banking? That is apart from the increased costs of ING Direct and restructuring charge of BHF bank. And the second part of that question is, is your targets of cost income still 65% and is that a target for next year that you think you can achieve? Then my second question is on new business profits. The Japanese new business profits has risen very sharply this year and were major contributor to your very good result. Do you expect this level of new business to be sustainable in the Q4 and in the next year?

That's it Nick?

Yes, that's it.

For the time being? For the moment? First of all, the Japanese business profits, well, you are right. Japan is doing very well. Sales have increased significantly. Value of new business increased by 63 million compared to the three quarter of 03. So yes, great This is mainly or in fact primarily attributable to higher margin of our quarterly product and so that is good favorable investment returns. The values for new business for the SPVA products has also improved. You know we have grown strongly there in this SPVA, its single premium verbal notice product. And that is due to the increased production. Because we were successful in selling it to the bank branches. We started with (inaudible) as you know and we have broadening our distribution rates. Is it sustainable in Q4 and 2005? Well, that is apart from the forward-looking statement, which means don't touch and don't give any value to that in the disclaimer. I must say if I look at the reason for the growth, you can expect that there is, that there is at least an expectation of sustainability in it because it is due to the fact that it is an attractive product that we are able to hedge it attractively and adequately. The golden moment that we have imported from the United States (inaudible) we are doing this for a long time. So that you can price it adequately and competitively. That it is based on larger and broader and deeper distribution. So you could argue yes, there is an important element of sustainability in it in Q4 and 2005, might be expected to be sustained. However, I can only say the experience in Japan is that there is volatility in the attractiveness of products and since it is, this growth is based on basically the strong growth of two products, there is no guarantee in this respect given the experience that we have that it will be, that you see the same strong sales or sales growth in to 2004 or 2005. I think that is the best answer I can give to you. Then your target of 65, sorry --.

Thank you very much.

OK. Then the target or 65% next year, on -- well, I mean yes the target is still there. I think it is difficult to achieve it this year. So let me be very honest on this. Well we always see in the bank and every bank in the world that the cost income ratios of Q4 are inclined to go up, first of all because Q4 is from an income, from a revenue perspective always a difficult quarter and from a cost perspective, or the cost of, so to speak the revenue basis is based on 2.5 months and the cost basis of course at least three months. But you always see at the end is adjustments of bonuses if you are doing well in a year then the bonuses are adjusted so to speak to the real bonuses or you do bonus accrual in the first three months, and then you do the real bonuses in the last month in December, in the last quarter. And what you always see if you are doing well, and we are doing well, then costs are going up. This is in phenomenon that we see all over in the world. So it will be difficult to bring it down, is my opinion, is my guesstimate that 65 at year end, will it still be there? Yes. And do I hope to achieve in 2005? Yes. Why am I saying this because indeed I see there is a very, very strong cost control culture today in our organization. We all, and you see it that the costing commercial has come down substantially so far and I expect that will continue and the cost income commercial of 65% is achievable.

Then question on the expense ratio in Q3, operating expenses in Q3, and particularly in the wholesale banking went up. The wholesale operating expenses, this went up by 32 million and as you said correctly so, ING BHF bank the restructuring provision, there were some low expenses in the Netherlands and Belgium. ING Direct and the retail area where of course strongly up -- the cost so, I think that was the best thing, as far as expense ratio is there, you are not talking about combined ratio. The combined ratio for ING Direct improved, expense ratio has increased of course. On the rest of the retail bank an increase in the Netherlands, an increase in Belgium retail, sorry I just talked about wholesale, there was a decreased, retail went up, but the activities increased also. So expense ratios went up there. Cost income ratio on retail went up from 69.2 in the second quarter to 71.5 in the third quarter. But we are doing everything to keep that as low as possible and keep it under control as far as we can. Thanks.

Could I ask just a very quick follow-up. So your 65% is still the target for next year. Would you guys as far as to say that that is looking conservative, you could improve upon that, over the medium terms there are still costs that could be taken out of the bank.

There is a philosophy here in the, in our organization that it is better to under promise and over deliver than the other way around. So if you are going to call this conservative then to the outside world is, here I am, it could be. Whereas again, I would love to over perform instead of under perform and over promise.

Thank you very much.

The next question comes from Mr. Kevin Kolumbus. Please state your company name followed by your question.

Hi this is Kevin Kolumbus from HSBC. Two questions if I may. On share dilution first. Do you consider starting a buy back program to compensate for a share dividend dilution tax? And the second question on the SPETA (ph) Inquiry, Marshmark (ph) and Ace has suspended some of their employees based on their own investigation. Have you considered any preliminary investigation and can you share with us any conclusions please? Thanks.

OK. Let me start with the buy back program. We do not consider that and you hear me hesitating some times if, we expect as you know, we try to limit, no let me put it this way. We with the optional dividend, we like to accommodate those share holders who for good reasons mainly tax reasons want to have stock dividends. Belgium share holders, some institutional shareholders. You know it is also, for them it is very disadvantages to receive cash dividends because of the non-refundable with holding tax that we here have in the Netherlands and dependent on the one hand tax treaties respectively, the type of business that type of characteristics of their operations they can be funded or not if we with whole dividend tax. So for that reasons we would like to keep and we will keep optional dividend. We would like to limit the dilution of course as much as we can. In the past we gave a slight discount to those who receive cash. We might consider of course to give a more discount for those who want to have stocks in order to limit the choice for stock. Really to those who really needed for tax reasons and that we will certainly do in order to limit as much as possible. Another way to limit is of course this buy back program, unfortunately for tax reasons it seems to be difficult for us to do that. It seems to be that if we buy back our shares, we have to pay ourselves dividend tax, which is 25% over the buy back of the shares. We are investigating the possibilities, whereas possible not to do so, but if we have to wait it is prohibited to do that. But I know on your side we would like to minimize the dilution as much as we can, we say that frequently and I would like to confirm that. On the Spet-Aero case please Tom, probably you can answer the question.

Yeah. Thanks Cees. What I would say is, in light of the issues raised by Mr. Spitzer , we like many in the industry have been reviewing our quoting practices and broker relationships in depth and that is to ensure that is consistent with our commitment to the customers and regulatory requirement, while I review is not yet complete. I can't say that today we haven't seen any indications of the issues that some of the others in the industry have had.

Thanks.

The next question comes from Mr. Paul Goodhind. Please go ahead with your question sir.

Yes, good afternoon. A couple of questions if I can. I want to understand just the more detail on account case, your point on the net interest income and the lower benefit for amortization. If benefit is lower from amortization, there is still some benefits going through your net interest income from that. Could you quantify what that is. And does IFRS mean that, that would move to zero that by having a step change down on that revenue item, could you perhaps explain how that works in more detail? Second question is on the Dutch Life business. There seems to be very strong sequential new business in Q3 versus Q2, is that seasonal? It is a very large jump in Q3. What products is behind that and is that an encouraging sign for the future? Against that the margins that are pay to - credited from 16% to 2% in the third quarter. So I was wondering you are selling a lot of volume at very low margins or what is going on there? And the third question is back on the Japanese business. Strong growth through -- you are talking about. Could you say what kind of guarantees you are giving on those products? Talk in the market is Japan is that some guarantee is being offered at pretty aggressive rates, and perhaps some company aren't pricing for those guarantee totally. Could you just explain what your guarantees are and give us some comfort on the pricing of them please?

OK. Thank you Paul. Well, the net interest income, the release of the amortization provision, we never disclosed that as you probably know although it has been asked for in the past. But since this is probably one of the last times that I can give it to you may be I should give it to you. The release in the first nine months was about 100 million. And the comparable figure in 2003 was about 160 million, so, well 110 versus 170 to be precise. So that is lower and there fore you see a reduction. If you say so that means that it goes to zero, the answer is no of course. That we do today, that if we realize the sales, realize capital gains, we sell the bonds, if we capitalize and amortize of the remaining period in IFRS if I sell bonds with a capital gain, the total capital gain goes immediately to the P&L. So that means that, this is more volatile depends on what we do for trading purpose or whatever, in all businesses it depends. So but this is not true that amount will be zero in future and it is overall of the life time of the business, there is no difference between IFRS and the way the Dutch system works. But on an annual basis of course there is a difference and we will disclose of course always the realized capital gains that we have made in the fixed income. The Japanese business, the level of guarantees in the portfolio in the policy that we sell today, is at the level of I think 2%, the level of, just ask my actuary here, I think it is 2% the guarantees that we sell today as far as our GMP business is concerned. And of course we are fully hedged, we have the hedge in place, but the guarantee is 2% in our policies.

Then the Dutch life business in Q2 and Q3, is it due to high volume low price, or -- well I think we are catching up as far as our sales is concerned. You have seen that - -it is true that the pricing was a little bit less good than before. The internal rate of return went down a little bit in Q3. The main reason for that was expense over run. So the charge of the reorganization we left the temporary cost for the reorganization was left out, but the more structural cost in order to improve system results and also the things were taken in to account. So we had a expense over run and therefore the internal rate of return is down. Competition was high to sell prices like -- little bit behind, but that is not the main reason for it. But the volume also to say was good and overall we were not unhappy with this, with the result of our Dutch life operations in Q3. Thank you.

Thanks.

The next question comes from Mr. Andrew Richie. Please state your company name followed by your question.

Good afternoon, its Andrew Richie from Citigroup. I had three question, three areas. First of all about the bank, it seems to be quite a decline in the assets, earning assets of the bank quarter on quarter. Could you just give us a sense on what have been underlying growth, lending growth in the bank particularly in the wholesale area? Why there was a decline in assets quarter on quarter? I know there were some noise from disposals, they were not material in the quarter. Second question, in the US, could you just give us a flavor for what is going over the accumulation sales, how do you expect that may be to be bit stronger year on year. What is the pipeline like on the return on service of the business and also in the US, why was the VA results not affected by negative debt on (inaudible). The final question area is you said you're confident about hitting the 10% debt equity ratio by the yearend, what that was when you hit that number? Do you want to stay on that number or do you think it is going below that?

OK, thank you Andrew. The decline in the assets of the bank in particular in wholesale that was the disposal of CNE Bank. We reduced the - they had an risk weighted assets of 2.8 billion of which about 2.2 to 2.3 in whole sale, remaining part in retail. But that's quite substantial. The rest of the wholesale bank and risk weighted assets, we try to limit them in terms of risk weighted assets as much as we can in order to protect Q1 ratio in the one hand and in order to give as much as room for expansion on ING Direct on the other hand. It is not true that the wholesale bank the credit risk weighted assets decrease so that - well of course it did because we have CE bank deconsolidation, but the rest did not decrease, if I look at the right figures then I see in whole sale banking actual September '04 compared to actual was up 5 billion from 157 till December until 162. So, 5 billion up. So, there is no decrease as such, but I agree the CNE bank had an impact of 2.8. The debt equity ratio, what happen here before I give the floor to Tom to the answer to US business - the Direct - what happens is we reach the level of 10, well then we reduced, then, we again reduced the excess capital s we have for further expansion of our business. So, yes, there is moving -- maneuver them to go to whole sale business. ING Direct will expand as they do today. There was more or less restriction for whole sale bank on risk weighted assets. It will be easier to finance to growth of our expanding life insurance business in the United States, in the Asia business - in the Asia region. It gives us the possibility to finance smaller add-on acquisitions, as we've done so far, but it gives little more to room the maneuver for that and that's what it is. There is no need as such to reduce the debt equity ratio further. It gives also some maneuver to reduce the average on ING Insurance level also. Although, we do not intent to reduce that further aggressively to be honest, but it would be down a little bit further. I would not be unhappy with it, but again not more necessarily, Tom your US question.

Yeah, Andrew your first question was on accumulation sales and you're right if you're looking year-over-year they're down 8% of course sequentially, they're up 7%. I would attribute that to a few things. First, we're continuing to have I believe strong pricing discipline looking to try to continue to improve the IRR's in the business, so that's part of that. Also, when the third quarter of '03, there was significant government case in the State of Texas in the third quarter of '03. So, that made the third quarter look somewhat bigger. Also, in the small corporate market, there were few players in the second half of last year few carriers. They got off the business, so there is more opportunity to close small corporate business in the third or fourth quarter. Actually, it's above those quarters last year were good. I'd say that you know the third quarter -- the small corporate market you know looking at with some of the other competitors have talked about, the line is down a little bit in the small corporate market. On the other hand, in the K to 12 market in the third quarter, the case kinder garden to twelfth grade education market was good. In terms of the dack (ph) unlocking, we actually did have dack unlocking in the VA business in the third quarter that was 12.7 million and that's in dollars. It was 9.5 million in the second quarter. We also as you know we had the GMMB and GM living benefit. In the way that works is we do mark those hedges to market and there was a gain in the third quarter on that. So, net between the second and the third quarter that helped the earnings by about 12 million in terms of the US Dollars, the gain on the hedge.

Thanks.

Next question please.

The next question comes from Mr. Duncan Russell. Please say your company name followed by your question?

Good afternoon. It's Duncan Russell from Fox-Pitt Kelton. The first question is on ING Direct UK. I just want if you can provide the net interest income of third quarter for that operation and also give us a bit of the investment assets and then my second question relates to the equities in the Dutch life insurance portfolio, I think you said there was 6.4 billion of equities in the that Dutch life insurance operation at the end of the October, but if I recall correctly in April, you said there was 5.8 billion in the Dutch life insurance operations, so I just wondering why it increased. Following that, if you could just tell me what the equities of the year-end of 2003 as a percent of total investments compared to now? Thanks.

Oh gee, I don't know if I can do the math so quickly as you asked your question to be honest. First, the market value of our shares in the Netherlands, there must be misunderstanding of that figure because the value of the portfolio end of 2003 in the Netherlands and of 2003 was 6.7. In the 31st of March, it was 7.2. In the 30th of June, 6.9, and on the 30th of September 6.2, and at the end of October 6.4. If I look at the AX and I'll give it you, then you see of course the AX is not running quite parallel of course that portfolio depends on the mix, but the AX was 338 at the end of December, stayed flat at the end of March. So, that means relatively our performance was a bit better, 345 in June and here you see little bit of the sale of our portfolio and 324 on the end of September and then you see the combined effect of the slow down of the AX index and the sales of our shares. So, that's it -- I don't recognize the 5.8 to be honest in the old numbers that I have here on value of portfolios, I don't see the 5.8, so I don't recognize it may be - it was a mistake or I don't understand in half year ago. On the ING direct per country to be honest we don't give that per country in terms of interest results and on total investments. What I can give you is the funds entrusted in the United Kingdom. That was 26 billion at the end of September, 26 billion Euro and you know it was only launched in May. So, that was a some strong growth are their and the split up over on interest income, commission income, and other income. We don't disclose that if you don't mind for simply commercial reasons and may be one day if those markets are matured, then we'll do that but split over the difference lines of businesses we don't give those openings. What I can give you and what I've given I think last time is just the split up over the total lines, but there is probably not we are interested in other than in the UK. The total income of ING Direct in the first nine months was 1.2 billion and 1.25 and total operating expenses was 850 million. It sort of gives you a growth result of 390 and the additions to loan loss provisions of little bit over 70 and then you end up at 320 million of profit before tax. That will be given of the total income of 1246, almost all is interesting because as you know we don't charge the client with any fees or commission income. So, that is roughly the breakdown, but we don't give it over the different countries. Then, the equities as a percentage of the total portfolio investments, well the total group and the mostly I've seen one of my associates have made -- I'll come back to that and give that to you in a minute because I've to do the mathematics. Thank you. Next question please.

Thank you sir. The next question comes from Christopher Hudson (ph). Please state you company name followed by your question?

Good afternoon. It's Christopher Hudson from Commerzbank. I'm going to follow-up on the answer given to an earlier question on the embedded value numbers because you seemed to show as it was pointed out sharp increase quarter on quarters. Sorry, sequential quarters in the sales and a sharp decline in this you know it's profit quarter sequentially and you explained this I think cost overruns. Now, on everything, based here what I thought cost overruns usually were associated with the decline in the sales. Can you explain that please?

As far as I've my Head of Insurance Risk John (inaudible) with me and he is apart from Head of Insurance Risk, he is our Chief Actuary also. So, probably John can answer that question even better than I can.

Sure, I think, you might be referring to in the Netherlands in terms of the sales seen up, but third quarter value of new business on a quarterly basis seems quite low, as you know national Netherlands, there is a lot of expense is going on into improve customer service and they completed in our expense study on this and we allocated some of those expenses to new business as well as in force and the new business would pull through so the third quarter which is about 10 million of our cost of overrun was put into third quarter but actually much more active to the first three quarter, you need to take that 10 divided as a percent of sales over the course of the year and then you'll see it's a little more even over the year.

That what sort of a catch up in terms of allocating the cost and it was done in the third quarter that's basically what it is.

Al right but even then it would little bit still appear that because you got a sales profit in Holland of 17 million or 17.5 million in Q1 and just under 13 million in Q2 and 2.8 in Q4 even I was to allocate 10 million back or so effect to me 6 million back and put 3 in each quarter, is still get a declining trend of Euro million profit on a shortly rising trend of Euro million sales.

The first quarter was quite good in the Netherlands we had some good profitable products. The second and third quarter are little more even when you look at the numbers and you know we continue to work in a very - it's a tough market in the Netherlands and we are doing far better this year then we are doing a year ago and we are continuing to improve customer service in the Netherlands that will have a good long term impact but the market quarter/quarter is continues to be tough market as I think you will see with most people operating in this business.

OK thank you, (inaudible) operator we have a last question is that correct or

Yes we have a question from Mr. Patrick Rudson (ph), would you like the take the question sir

yes please.

I have for a few questions still although we had this analyst meeting already today. First to come back on the question we will report through on the whole sale interest results, which was 6% lower in a amount of 170 million lower, you explained this with 38 million given this transaction on the bonds between the bank and the insurance. How much now in amounts speaking if you ALM contribution lower and how much is the amortization release lower in an amounts?

You said you have a couple of questions

Yes, OK can go with other ones. You might had seen with the calls and options you have written calls and logputs (ph), this has costs you money, can you quantify that for 2003 and 2004 and can you say once more how much is the hedge position, which remains at the moment. Then the another question is on ING Direct, the result was slower quarter on quarter mostly due to the UK and Germany. Can you explain why? And then finally if you calculate all the banking together then there is still a line order and this is order line was 87 million negative in third quarter '04, if I am correct and its very high negative, Can you explain why?

The easiest questions for the last one, let me start with the hedge on our capital - on our equity portfolio. The question is what is the loss on the whole hedge -- on the hedging that we have done since the end of 2002, I mean that's the way I understand the question. The total after tax cash -- sorry loss is around 250 million, so the total two year hedge program has cost us 250 million and again I have said that before its an unrealized loss, it has never shown up in the profit and loss account, it is going to the balance sheet, its already in fact the reduction of the value of our equity portfolio all these I should put it other way to 6.4 billion would have been 6.65. The value of the Dutch equity portfolio if we never hedge it, is that therefore a bad policy, no, it was an insurance premium to total reduction and to an high volatility in Dutch stock markets, probably we would have been down graded, probably we would have to decide (inaudible) new capital if we would not have hedged - had this insurance premium, so we still feel that it was a right decision and those time to do it. But nevertheless the negative value was 250 million.

I had a question how is about puts and course, we have still hedged today from the original amount of 4 billion, we have still hedged now a total value at the moment of portfolio 1.4 billion, so we have reduced our hedge substantially because we feel the capital position has substantially improved. The debt equity ratio has substantially improved and therefore we sell it, it was not necessary any longer to continue on the size of 4 billion with this hedge. If you ask me are they still any course outstanding, the condition to value to puts, the answer is, no. There are no further course outstanding, so we have freed up all the upward potential and we have less and some down protection for in amount of value of 1.4 billion.

Then ING Direct Q3 lower than Q2 in results, the answer is, yes. There are two reasons for that, the revenue growth in the third quarter is traditionally always a little bit less. Believe it or not but even in ING Direct you can already speak about tradition is already -- always a little bit lower because in the month of July and August people are going on holiday and they are incline to spend instead to save, so there is always little bit lower then the second quarter, but the most important reason of the cost, the cost of marketing have gone up sharply. There is one 7 million more marketing cost in Q3 in Germany than in Q2 , and the same but different amount for the same in United Kingdom, we have sharp increased of our marketing cost there. That's one reason, the second reason is that due to the strong growth of our mortgage portfolio, so the self generated mortgages in the United Kingdom cost has gone up. The cost of the acquisition cost of a mortgages is higher then the acquisition cost of a savings account of client, that doesn't mean that over all long-term cost of servicing mortgages is higher than of a saving term, that's not the case, so here also we expect that ING Direct will remain in the 50 basis points cost operation company, but the initial cost of mortgage is higher than that of the savings account. So if you expend more rapidly in mortgage than in savings. New cost are going up and this happens in the third quarter. There was a very small decrease in the margin of an interest margin of ING Direct due to the flattening of the yield curve of only 3 basis points, so that was not the real reason behind the flattening - -of the low slightly lower result in Q3 than in Q2. Then whole sale question, we understand I'm not going to give you know we never give you the ALM results per unit, we have ALM operations in the Netherlands, in Belgium and in Germany.

How much is flow on year-on-year, any number for this year or last year was comparing how much was this --?

We don't, we never give you ALM results no changes also and I think -- you have quite a good explanations of that result, I thought already about the ALM results from the first half year and now in the nine month. I think you can expect that (inaudible) in the fourth quarter that will offset the - and I will stick to that statement . The other that's always the 87 million other that always a difficult, what shall I say --- it won't be polite to say its garbage bag of lot of other things but there are some, it is the 38 million that I mentioned for the WUH - OK the 38 - it is of course always the corporate line, the interest rate of risk which was - the interest rate, which change and let me see, the lower interest rate on financing and expenses in holding cost, the buyback of the bonds of WUUH - the

Buy back of the WUUH with the whole sale result not with the line order.

This fluctuates to be very honest, the other is the fluctuation and every month and every year and then this is in fact very complicated that is a result of free funding, it is the provision for capital taxes with this. It is too detailed to be true but yeah, firmly this time it was a little bit bigger amount then before last quarter, it was minus 28 and in the first quarter it was minus 50, so it is roughly speaking the volatility this time is not really much bigger than it was before.

Thank you

[OPERATOR INSTRUCTION] The next question comes from Mr. Nick Holmes please go ahead sir.

Yes, just a very quick follow up clarification on the Dutch Life insurance question. Firstly I wondered, whether you could update us on the restructuring charge, which I think you said was 75 million euros targeted for this year and you took 21 million of that in H1 I think and I can't see that you specify how much if any you took in Q3? And then secondly, with the 10 million of cost overruns in the Dutch new business profits, could you clarify whether these are separate from the restructuring charges, whether there is some linkage?

Sorry -- I can't do, the first one is easy Nick. The 75 million is still the best estimate we are already, we only have six weeks to go, its still the best estimate of our cost. Our costs are evenly spread of the two remaining quarter and over the months, I think its (inaudible) otherwise no seasonal battle in the year.

The last question was with the 10 million of cost overrun that you mentioned in the new business profit in Dutch life. Is that separate from the restructuring charges or is it linked?

It is separate.

It is quite is it, OK,

It is quite separate, yes.

OK, thank you very much.

OK, thank you. And as I understood there are no questions any more.

That is correct sir.

Thank you very much, and if this was the final question I thank you very much for your presence, for your contribution, for your questions. We always appreciate that. I would like to thank Tom McInerney and (inaudible) by the way it was also pleasant on the other side of the Atlantic. I have only one question left from Duncan, I have to answer and that is that the total the number of stock investment as a percentage of our total investments at the 30th of September, if I understand correctly is 2.7% and if you understood in only -- may be he asked for the total percentages of the number of stock investments in percentage of a our own capital and that is 43.1%, so both answers could be right. They are right of course, but it could answer his question. OK, thank you very much, ladies and gentlemen and I hope to see here next time. Thank you very much.