ING Groep NV (ING) 2005 Q2 法說會逐字稿

Good morning. I always feel embarrassed when I come here the day after the press release, because I'm sure you have had already had plenty of time and make a lot of work to analyze all of those numbers. So I feel that going to the numbers doesn’t bring a lot anymore, and that you want to rush to the Q&A as quickly as possible, I'm sure. So I'm going to try not to be too long.

And I think that the message that I would like to say -- to give you is we continue to work at the fundamentals at ING, and if you look to the overall profit up 25%. But also if you take out all of the divestments and if you take out all the one-offs, you also have a 25% increase over 6 months. So I think that shows that the underlying business over the last period did extremely well, and I think that’s the message I would like to leave you because we, and I, work essentially to manage the Company. And to manage the underlying cost and to manage the underlying growth, and that’s what we’re trying to do. So -- And that went very well for the last 6 month. And if you look to those -- to the slides, I think that this shows also that we have told you that we have put more emphasis on value creation. And you can see that this is paying off because our RAROC has improved, and value of the business is up 33%. The internal rate of return and the insurance is up to 12.6%.

And I hope that you realize what 12.6% is when you compare it with the current interest rates. So I think that we are doing well, and that allows us to also pay a dividend of €0.54 per share. I remind you that this number comes only from the -- mathematically because it’s 50% of last year’s dividend, and that’s what it effectively means. It is clear that our Banking business is currently doing extremely well. In relative terms better than the Insurance business which is more affected by the overall environment. But overall Insurance has also done well.

Now this is a very important slide which I would like to comment to you. This gives in light blue the core Company earnings for the last 6 quarters when you weed them out from the divestments, the capital gains, and the special items. And I remember reading some of you last year that you say that we rebased on our profits at a different higher level than the year before, 2003, the core profits. And I think that it is true that the -- our core profit increased substantially last year.

But you can see also that this year 2 quarters show that our core profits were rebased, also pretty significantly versus last year. And I'm sure that some of you will say well, yes, of course but this is the tax rate, okay, and, yes, tax plays a role. But by the way, that’s [indiscernible] paid with after tax. So if we manage the tax better, I think it has also, despite of our execution program. And I'm happy to tell you that although, of course the tax rate is particularly below because of the capital gains, that essentially - and in case we go over - our tax rate also we believe is structurally lower now than it used to be.

So I think that the message of this is what is very important for me and my team is to manage the core earnings, and the core earnings basically show the last 2 quarters a clear rebase against last year. This slide show all of how you come from profit before tax including divestments to a net profit per share, and you can see that in the first quarter of -- in the first 6 months of 2005, we had some very nice profits for divestments.

And I think if over the full period, that divestments have created quite nice profits, which is good because we had -- that would invest quite a few difficult cases last year, but we yield a profit from that. And, of course, we cannot make money from the divested unit any more, so the profits for divested units is very small. But you can see the tax rate there's a big difference compared to the past. And that leads to a net profit of 25%.

And just to show you that we help you making the calculation. On this slide I have taken all -- starting from the net profit, I had reworked on to the divestments and the special items to come up with the net profit excluding divestment and special items. And that’s where we come to plus 26% also. So the core business has done as well as the net profit.

Again, repeating the strong value creation on the RAROC side, pretty high, and on the internal return of rate pretty high. And I think we are also at a stage in the Group to manage more and more in value. I told you that some of you in the past. We work on value, and I think that you can ask yourselves some times also, when the RAROC becomes so high, especially with the current interest rates where do you go? Do you want to still continue to improve the returns or do you want to go for volume? That is something that we have to discuss to create absolute earnings.

This is something that we have to permanently manage. What is the -- Also know that we have reached our earning rate in all our returns. What is the best strategy now going forward? And this is certainly, as we enter 2006, a message that we said to our people, because we are going to be much more proactive in allocating capital. And the message to be our people will be certainly as we go into the planning period for 2006 to say, okay, come back in October/November with a plan.

And we are going to look what you can generate with the capital we give you, how much return, but also how much cash flow you can give, and what is the best balance between the 2. And that’s going to be a very interesting exercise. And finally again the dividend.

Now I will pass on to Cees who will go into the -- some detailed numbers, and I will come back on some more generally before we get into the question and answer. Cees?

Thank you Michel. I've been instructed to be short on the numbers because you know them all, and I will just show some or highlight only a few special items, if you don’t mind. On slide number 8, the Insurance activities consolidated. Most important thing that, on a comparable basis, so not taken into account foreign exchange, divestments and special items. Profit went up by 21% in the first half year, driven by strong life results in the US, strong life results in Central Europe, and strong lights -- life results in Australia.

Of course, offset by Taiwan after we have on a net basis set the profits on -- to zero. Non-life did very well also for the -- I think that I say here now for the 6 consecutive quarter, that the profits in Canada were high and unsustainable. But they continue to be high and very good. This time it was the continued strong and low claims ratio in Canada. So were doing -- still doing well. But the Netherlands was very good also. In particular, motor was good, so promising then.

Value for new business up 33%. Of the developing countries, 37% up and that includes Taiwan. The value for new business in Taiwan was half what the value of the new business, almost half of Asia Pacific. So that new production in Taiwan is very profitable.

Let me go then to slide 9, and for those of you who heard the conference call yesterday this is old news, of course, but for those who didn’t let me highlight again what happens with the reserve adequacy. ING is testing its reserve adequacy level on a very prudent, not to say, conservative confidence level. 90% - what does that mean? That means that if you run a few tests, say, you run 10 tests then 9 of these tests the reserves should be adequate, and you allow to be 1 of the tests not to be adequate.

Sometimes you run hundreds of tests, so -- but 90 confidence level. On a 50% confidence level, which is sometimes called best estimate assumptions - which is required for US GAAP but also for IFRS - that means 1 out of 2 of those tests should show adequate reserve levels. And 1 is allowed to show inadequate reserve levels. So that is by far less conservative. We run already for long a 90% confidence level.

On that level, all our business units are adequately reserved except Taiwan, on a 90% confidence level. So all our business units in the world, that sell life insurance products are adequately reserved on that conservative level. And it would as a whole consolidated is also conservative -- adequately -- has an adequate reserve level.

On a 50% level best estimate all the business units are adequate including Taiwan. We have an adequacy of plus €300m in Taiwan on a 50% confidence level which is, by the way, also regulatory required in Taiwan to do it from that level. So we don’t have to strengthen the reserves in Taiwan on a regulatory basis, neither on a physical basis. We don’t have to do this.

Nevertheless, why are we going to do this then? For the first time this time, on the level of Asia Pacific, the reserves are inadequate. Also on a consolidated level. All the other units in Asia Pacific are adequate on 90% level, but on a consolidated level, given the size of the inadequacy in Taiwan, this time for the first time on Asia Pacific level it is inadequate. What is the difference between previous quarter? 4 things have happened.

First of all, the interest rate came down further, about 30 to 40 basis points in this quarter. Second, persistency went up. We expect there was some relationship, some positive correlation between the low interest rate and the persistency of course. If you have guarantees where you have a 6% or 8% guarantee and the interest rate is 2%, you would do your utmost not to get -- to lose that policy of course, 1 way or the other. So you continue to pay your premium. Even if you get unemployed or sick or whatever, it is a fantastic policy of course. So the persistency indeed increased in the second quarter.

Both of the elements, interest rate and persistency caused about half of the increase in the inadequacy, if we compare the first and the second quarter. Third, the Taiwanese dollar appreciated further. That’s another 25%, the explanation of this. And third, we have some changes in model assumptions and then refinements which caused another 25%. This has happened in the second quarter.

But to go back and to make it clear, the problem that we have in Taiwan is only for the old block of business. The block of business that we bought when we bought Etna, and you have -- and we have guarantees there, say, 4% or 5%, 6%, 7%, 8%. The bulk of the guarantees is in the 6% and the 8% bracket. This is the issue. The new policies, we have no problem there. A profitable business and we don’t have these guarantees that could hurt us.

So we decided to strengthen the reserves, and we took some measures for other structural improvements. We've been asked, of course, why the €80m. In fact we've decided not to let the gap grow, and the calculations are such, if you have a product that is not profitable and you take profit out of it, then you increase your inadequacy. So we decided to strengthen the reserve with the profit taken on that book of business, and that was €80m in the first quarter and in the first half year.

How much it is in the second half year we don’t know. We don’t know how much you make from it of course. But I only can say that last year the overall profit after tax was €77m, after having taken €100m reserve strengthening. So roughly speaking, we expect it to be, say, €200m in the year as whole, assuming that we make another €100m or something like that in the second half of the year. That will be used for strengthening the reserves.

But compared to striking in, the Taiwanese profit will show zero bottom line. We recognize profits so as to be taken and reserve, and it end up as zero compared to last year when the figures for Taiwan it was net €77m. So if you say what is the -- if we made €6b after tax last year, if we do exactly the same as in 2004, we make €77m after tax less last year. I cannot explain more clear than this. I hope that is clear.

So that is what we did and if you have any further question, of course, I'm very happy to answer them. And Jon Heale is here and he is -- he can assist me and you in your questions -- in your answers.

The insurance Europe very briefly. It went well, up 16%. Profit in the Netherlands 12% due to some one-off items. Non-life did very well in the Netherlands as I said already before. Operating expenses in the Netherlands were high due to higher salaries, because the new collective labor agreement but also marketing costs at our company called RVS. And of course, the OPs&IT expenses in Nationale-Nederlander.

Insurance America - 1 of the drivers of the Life Insurance business. US Life 20% up, in particular in the retirement services and the strong growth in asset management. We were able to improve our margins and that is a very good sign.

Mexico did well in terms of profitability, a little bit less in terms of premiums because we stopped our Non-life group business. So the large contracts in Non-life was -- is unattractive and we scaled that down to almost zero.

Insurance Asia Pacific - Korea did very well, Australia did well, Taiwan did very well in the value of the new business. So we are -- the growth machine of Taiwan is still 1 of our core businesses.

Banking activities and Michel to it already. Also the risk cost is, of course, 1 of the low risk cost, 1 of the main drivers of the strong performance of the Bank. The additions to the loan losses were only 3 basis points, 7 basis points in the second quarter. We had a net release in the wholesale banking of €76m, and in the retail bank and in the -- in ING Direct the additions to the provisions for loan losses were on a relatively modest level. 15% retail bank and 20 basis points of course, and 20 basis points in ING Direct.

Of course, interest margins are under pressure everywhere. Yield curve flattens, yield curve -- interest rates is low but, nevertheless, we were able to grow -- let the retail bank and ING Direct see further -- show further growth.

Wholesale bank - again the loan loss provision and some gains on divestments. We divested compared -- Baring Asset Management of course. The remaining part of Bank Slaski, the IPO, and we sold in the second quarter NMB-Heller. But if we exclude for all that, and then profit before tax increased by 11% which is a very nice performance for the wholesale bank. Strong improvement also here in the United Kingdom. We had a problem in London for quite a while, and we brought it back on their feet we, and the United Kingdom, [Reid] London, did very well

Also Central and Eastern Europe - costs were high in particular in Belgium due to a provision we had to take for Williams de Broe, a securities broker here in London. Operational deficiencies, so to say, has given the reason that we had to take impairment losses.

Retail banking - in the Netherlands supported by continued growth of mortgages. Belgium did extremely well. As you can see an increase of 111% which is fantastic. Higher savings, lower risk cost in the retail bank in Belgium. And our Greenfield in Romania is on track, and I say that here because a lot of Romania is in the newspaper from time to time. There's a big bank for sale there.

We've chosen a different way. We've chosen to start a retail bank from scratch there, and we’re rolling out new branches. We have rolled out already 50 branches and we continue to roll out another 60 in the next, I think, 12 months or so. So we've done -- we are doing it our own way. We've built up our own goodwill instead of paying.

ING Direct was hit, of course, in the second quarter by flattening of the yield curve. Quite a unique situation that in all the 5 currency zones in which we operate, the long-term rate came down. That affect us a little bit because the duration of our portfolio overall on average is about 2.5 years, so it doesn’t hit us that much. But on top of that the short-term rates in the United States went up. So on balance we saw flattening yields -- yield curves everywhere.

We decided for commercial reason not to lower the savings rate in the second quarter, in all the 9 countries in which we operate. And of course, as a consequence, we continue to -- with our marketing costs - marketing costs first half year went up 21% compared to the marketing cost in the first half year 2004. And as a consequence of which, of course, the profitability flattened. In order to -- We ended up in the second quarter with an overall interest margin of 77 basis points, 83% in the first half year.

77% -- sorry, 77 basis points, of course, margin. In order to restore profitability we decided to lower the rate in, I think, in 4 of the 9 countries including the United Kingdom. That’s probably 1 that you know. We lowered the rate by 25 basis points, from 5% to 4.7%. We announced that well in advance, here in the United Kingdom. We’re not obliged to do so. In Germany, for example, you have to announce that in advance. Here it isn’t, we did. We also did, we stopped the marketing.

What we do in order to show us for customer care, that period of 3 weeks before we announce -- we lower the rate, we announce it and we stop excessive market. And why? Because it’s -- we can be accused of course of getting the client in. Say you're promising 5% the day that you [indiscernible] and you say, how now we lower your rate, and we don’t think that is fair. We want to treat our customers fairly. So we stopped the marketing. We saw only 2 days here in the United Kingdom some outflow of money, and after 2 days the inflow started again.

And on balance, we have a positive inflow of clients in the United Kingdom and also in all the other countries. So lowering the rate, which was a fear for some of you in the past, does not lead to an outflow of clients even of in the United Kingdom.

Let me then conclude by saying that, yes, we have a solid overall first half performance. Second quarter was down. Underlying it was up by 6.7%. It was expected, of course, that the second quarter would be lower than the fantastic first quarter, and the market expected it also. And we also, of course, -- we benefited from lower, effective tax rate and Michel said it already. We had some one-off items there in the tax rate but we have come to the conclusion that we see a structural lower tax rate, compared to previous years.

But there are all sort of reasons for -- 1 is, of course, lowering the tax rate in the Netherlands have been lowered from originally, what is it, 34.5% to now 30.5%, and then to 29.5% and it’s probably going down to 28% or 28.5%. So it will be lower, that’s 1. But second also, we do very conservative tax provision. If the tax inspector puts a claim, a tax claim, on us then we take 100% provision for that.

Not only because we want to be prudent or conservative but there's another reason for that, a tactical 1. If we say, well, we think we’re going to win, we take 25%, and at least that is for the tax inspector the start of the negotiations. And since the tax inspector has access to all our books all the time, he knows exactly what we provision for. So for that reason we always say any tax effect 100% provision. And of course, you negotiate with tax inspectors.

You go to Court. You go to the Supreme Court. Sometimes you win, sometimes you lose. If you lose you have to -- you are fully provisioned. If you win you have a relief. It’s like loan loss provision. You provision and you to try to work out, and try to get your money back. So there are always releases in our taxes, always. Sometimes they're more, sometimes they're lower.

We have made an analysis of that, and we came to the conclusion that our long-term structural tax rate, given the lowering of the rates, will be somewhere between 20% and 25%. And you know that in the past we said it would be somewhere -- between somewhere 27% and 30%. Now it’s between 20% and 25%, and for 2005, the year as a whole, we expect a tax rate of around 20%. So there are a few one-offs this year but we expect a structural lower tax rate. Michel, I think that’s it.

What I would like to discuss a few minutes is what -- if you look strategically what we have done. We have accomplished our program now. We have most -- most of the divestments are done, and what is not finished is to concentrate on execution. And there's a lot of time spent in the Company concentrating on execution, and I always say -- also say that we are not contemplating any big acquisition at the time. This is not our strategy today. Our strategy is to continue to organic growth and implementation of our strategy. So that’s where it is.

So for the shareholders what does it mean today? The shareholders get from ING an attractive dividend and gets opportunity for growth. That’s interesting because the combination of attractive dividend and opportunity of growth is not always present, especially with other bank insurer I think.

Third I would like to insist on the fact that - and maybe that has been not noticed enough - but that we have seriously reduced our risk profile in the last few years, and I will explain that in a few minutes. And that we focus on execution efficiency, and I’ll say a few words on the compliance issue because I think that you might have read in some newspapers some rumors about this.

First of all, attractive dividends. Our dividend over the years they plot an interesting growth. I recognize that during a few years that growth was a bit slow to even put to a halt. But nevertheless, we continued to pay a dividend over those difficult years, and now we are recovering and getting back into the growth. So attractive dividends for the shareholders. Some very nice yields on investments.

Second, opportunity for growth. If you look to our operations, 32% of the embedded value of our business is in insurance -- of insurance operation is in the emerging markets. And about 30% of our economic capital is in growth market in the bank. So be -- ING at 17% of other emerging markets. So I think what I want to say is that, we are concentrating our activities and our efforts to develop in emerging markets. And growth area in the bank is essentially ING Direct.

I say to you also that we were concentrating on the number of growth in ING. I mentioned last time 3 - retirement services. So I'm glad to see that profit in the US retirement services went up 23%, and that the value of new business in pension funds in Central Europe and Latin America is up 24%. So we concentrate. This is an area in which we believe there is potential and we’re moving in there.

Secondary banking - I don’t need to repeat the growth of ING Direct for the first 6 months. It’s pretty stunning, and a lot of banks don’t even have €30b of assets and that was so. We got that in 6 months, and Postbank itself, which was the origin of ING Direct, has renewed its product offering in Internet banking, and plus 59% of new clients in its Internet banking business in the last 6 months. So that’s pretty strong. Very great success of this new offering.

And finally life insurance in the developing markets. Value of new business is up 37%, driven by Asia and Central Europe and you see the growth of 59%. So I think that in ING that we have identified a whole growth and we’re making the progress that we want.

Now attractive risk profile. Let me insist of this because we did a number of -- we took a number of measures in the last few years. Number 1 we have strengthened our capital base. And our debt/equity ratio at a Group level went down from 20 -- more than 20% to less than 10%, and we intend to keep it that way. Second we have, in relative term, reduced our exposure to equity and real estate, especially our equity. We have reduced in relative term and even absolute term our equity portfolio.

Third, we have reduced the exposure to large risks or to banking risks. For instance, all loans to emerging markets as percentage of the lending portfolio has been put from 8% down to 4%, and we did that purposely to reduce our risk profile. And we do -- But it would be better. Also we did a number of -- we took a number of initiatives including reducing the concentration risk on some names, and establishing a portfolio management unit which are selling and buying loans to permanently balance our portfolio.

Further, we have in the third group strengthened the risk management capabilities. We have implemented centralized capital management, which is a very important way to better manage risk and economic capital throughout the organization. We have implemented economic capital model in insurance, and we have integrated the credit risk database for banking and insurance so that we can look across all our businesses, any kind of concentration and risk, and there is a committee who meets regularly will look at and take the necessary measures as required.

And also remember in all those business units that we disinvested, there were also risks that we didn’t like and that we were able to unload in the last year. So it’s not only that we were, in terms of revenue volatility, but we reduced it also in terms of risk volatility. We basically have improved our situation. Now you might see that the cost -- You might have some questions on the cost side, especially on the bank side for instance. But you have to be a bit careful when you look at the cost side.

If you look to the cost side of the bank you look -- it looks like it has increased by 8% but clearly that for special items, divestments, and even things that I know which are in the underlying costs which are not relevant points and I gave you an example. We have a new agreement with the unions in Holland. There's been an increase which was retroactive up to 2004. But those expense were not in 2004 and they come full in 2005, plus the increase of this year. So -- But this is not recurring because this -- the 2004 cost won't happen again.

Then you got --You really realize that the cost -- the underlying cost of the bank is up between 2.5% and 2.8%. So that gives you a better view. I still believe it’s too much by the way, but I think that it gives a much better view than the 8% that you have seen in the press release itself.

Now we are also -- You have to realize that in those costs, especially in the insurance side, we are still doing a lot to improve operations. And we are also start to announce -- we have started to announce a number of initiatives. For instance, you know that we have outsourced our IT business to IBM in the United States. That will create some savings over time.

We have announced a cost reduction program at Nationale-Nederlander earlier this year, which is -- which I mention at the time was absolutely necessary to keep Nationale-Nederlander competitive, and we on track on this. By the way, we are going to introduce -- launch next week our first completely new program on the auto insurance. Which would allow basically to have a completely online service from the brokers to the insurance company and then -- on all offer for car business. So this is a brand new program which is going to, over time, be very efficient and we are now rolling out those in all business lines in the next few months.

So cost reduction program at Nationale will be allowed, by the way, by the introduction of all those new systems. We also announced more recently the streamlining of an operation on IT in the Benelux, and you have to realize that we have announced at the time that we have a program of redundancy of 450 people. This is the first time that such a program had been implemented in the Dutch operations. And you have to realize that this in itself it’s -- behind the number. It’s a clear signal for the first time that we are taking grips to the cost of the Dutch operation in a serious way.

Next to that by the way, we will also reduce significantly the number of outside contracts in the OPs&IT area significantly to reduce cost. And I've also announced that we are working on some analysis on sourcing and outsourcing some of our businesses, business processes. We’re doing -- We are working on it and -- We are working on it and when the -- some of the projects will be sufficiently mature for me to announce them, I will do so.

So I think we are monitoring costs and efficiency in a good way. It doesn’t show yet as much as I would like, but everybody is on the deck to do that.

Finally, I would like to speak a little bit about compliance issue in the Netherlands, because you have probably seen that in the press. And like me, I’m sure that you are shareholders or analysts, when you open your newspaper and you see this perhaps you don’t like it at all, right? And I don’t like it at all myself, to say the least.

Now those come from isolated issues in the Netherlands in different business units, and you have to understand the climate today in the Netherlands and in ING. And first of all, over the years compliance standards have been tightened very seriously, number 1. Number 2, the authorities have established their authority on this issue in the last year. Number 3, we have introduced a whistleblower procedure, which is a great procedure to basically give the opportunity for people to report on breach of accounting rules, of any kind of very important issue.

But I have to tell you also that this procedure has to be learned by a lot of people, to learn the scope and the usage of this procedure and how to deal with it. It’s true for the whistleblower. It’s the 1 -- It’s true for the 1 which is accused. It’s true for the company like us who has to manage this procedure, and it’s also true for the authorities who receive sometimes anonymous copy of this whistleblower -- by the whistleblower. It is true also for the press who seems to receive also sometimes an anonymous copy of those requests.

So this is a procedure which has created certainly very good things, but it has to be learned to be managed carefully. And also in the background of that, we have tightened a lot of -- on the cost side, efficiency side, we have asked more from people. We start firing people, being tougher and taking measure quicker on people for the first time. And of course, that makes some people not that happy and some are very unhappy, and some are furious that we’re doing this.

So you have to understand that the climate is that way, and in the meantime I have asked all the managers in the Netherlands practically, to basically go into every processes and looking to make sure that things are right. And in that context and in going into those processes, they have found a few things that they felt were wrong. And, according to the new rules we not only do that, but we make an investigation, that we report it to the authorities, and then the authorities do what they think suit for that.

And sometimes they are released go in the newspapers. Now is it pleasant? Very unpleasant. Is it to be expected in those circumstances? Probably yes, because going through all this management effort there is some implications. But I am absolutely convinced that we have to go through this period, and continue to do that to the point where all processes are at the standard that we want, and that we have -- but including the future cost reductions.

So this is a process that we have to go through and we will go through with a lot of conviction, and I'm not going to say to people to slow down because they have to go this and get the job done so -- and they will. You have to also say that the opportunity very often. I should say that because they are not -- we’re not in Holland so you haven’t seen what the newspaper reported from time to time. But you have to realize that we, as a Company, also in a very weird situation in most of those case because we know the facts.

But we have no right to basically explain the facts to the press or to the outside world because we have to respect the rights of the whistleblower, and we have to respect the rights of the person who is accused. And sometimes also this new procedure, both whistleblower and the guy who is accused, so the person who is accused, basically getting confronted with this can also has a strange reaction.

And we can’t control their own reaction but we can also not even put the facts on the table, to respect their rights. So it’s a very interesting situation and that’s something that you should know, so that is going -- procedures expand European-wide.

So what I would like to say is, we had solid profit development for the first half 2005. We continue to focus on efficiency and compliance, and we well-positioned here for future growth and value creation. And in the meantime we provide you with very nice yields. Thank you very much, and we are ready to take your questions.

Who likes to be first? Who is -- Please give us your name and the company that you're representing because you're live on internet.

It’s Ulrich Volk, Capital International. You mentioned, Cees, that on the Group level you still have reserves at the prudent level of 90% confidence interval. So that means that if we quantify the potential shortfall and the negative spread in Taiwan is about €3b. So that means you’ve excellent reserves excess to your prudent requirements somewhere around the Group. So doesn’t that leave you considerable scope to manage any earnings shortfall coming from Taiwan, by releasing some of those excess reserves?

That is true. Well, releases you don’t have to release it. You have a confidence level of 90% that we have €7b excess reserves, including the €3b shortfall. It’s a comfortable position. I don’t see that as a problem.

You're right. It’s a question that we ask ourselves, also strategically, what should we do? It’s a bit weird that if we, at the Group level we have so much surplus in 1 end, we cannot use it and we start to just compensating just 1 location rather than to look at the Group level. It’s clear and so -- And by the way most companies would do this in those circumstances, because not only they would use not 90% in transferring but 50%, and therefore they would not do it. Or by the way could not do it because the US companies could not do it at 90%.

They would have to go to 50% because the rule is that in US GAAP you cannot put reserve strengthening, if you are not really at the 50% level. In IFRS also by the way but we -- it’s not yet finalized in IFRS, and we are doing this because it is the continuation of all US GAAP policy to take a reserve on 90% in any location. But it is clear that what we are doing here is basically taking advantage between brackets, of our very strong position, both in earnings and balance sheet terms. And to be able, rather than to wait to be in a situation like this, to take immediate corrective action so that we are preempting any.

And I think this is very good and this is very conservative. But we ask ourselves in a discussion in the Board, should we use this capacity already that we have and advise us to do this, or should we just not -- do nothing and continue like this. We could have chosen for doing nothing but we would have done to change our internal rule which was, by the way, possible. But we decide to stay extremely conservative.

But we decided - that’s the point. We really considered that and so why do you do that 91% or at 80% or why don’t you change your internal rule? Because we have this internal rule since 1999 for the last time, a mandate, and approved by the Supervisory Board. But we thought it not right to change a rule once for the first time the rule hurts you or hits you. I mean that is, come on. [inaudible - over speaking]

But there might be 1 day an issue. If the market works generally percent on 50 basis points or at 75% rather than 90%, ING would be too conservative as a group to be at 90%. And that’s a question that we are going to ask ourselves, certainly in the broader scope. You have to realize 2 things. First of all, if we were to move it now back to something like 50% you wouldn’t even see the problem. So we will not say nothing because the rule is at 50%, so nothing was necessary to report.

So I think that we are very conservative and we feel good. But we will analyze in the future, compared to the competition is this policy -- should we change our policy short-term. By the way I would like to say also something, if we would say that we will not consider that there were any liability of this sort after 25 years, we would not have any problem either, at all. The problem will complete disappear by the way. So we could have said that too, we didn’t say that. Mark.

When I saw that --

Your name. You're well-known but even knowing that.

I'm Mark Cathcart from Deutsche Bank. When I saw the €200m that you were adding for the year, it seemed suspiciously like the amount of tax reduction that you were indicating to the market. So I just assumed it was like an earnings situation.

I will keep that in mind but I didn’t talk about this but [inaudible - over speaking]. That’s interesting but, no, the real reason is that the fact that rather technical 1. As long as you recognize profit of, in fact, a loss-making product in the past, then you add to your -- to the GAAP, and let’s not do that. So we recognize the profit, we take the profit to strengthen the reserves in order on a net basis not to let the reserve go [inaudible - over speaking]

The €6b to €7b of reserve that you have in addition to 90%, does S&P look at that as quasi capital to help your AA? So in other words, if you were eating into that then it would impact the view of the rating agency, that’s correct?

Yes.

Okay.

Although this 90% is -- the testing is part of your AA. You need less capital because if you do, if you test on a 90% confident level. If you need it, it would test on a 50%. You have less buffer, you need in fact more capital.

Got it, okay. Then all of this on the view that interest rates eventually go up to 5.25%? So when we say 90% it’s a bit like if I live in the Netherlands, and I'm told by the government that there is a 10% chance that global warming will lead to flooding of the Netherlands over the next 1,000 years. But in brackets, down the bottom in tiny writing, on the basis that temperatures only rise by 0.5 degree centigrade. I don’t see that.

So can you give us some indication? What would happen if rather than going up to 5.25% from, say, close to 2%, they go up to -- you have a little table showing if they went up to 4.25% or 3.25%, or stayed where they were. Or monstrum horrendum, actually went down to, say, 1.25% just to give us an idea as to how the balance lies. In other words, would you eat into your €6b to €7b or would you quickly go to 50% confidence levels?

Jon, the sensitivity. You said yesterday also to -- for the conference call.

I was asked to turn around and face the camera when I answer these questions, so. We've done some sensitivity testing and to give you some guidance on it. So the range you're chatting about, it would obviously eat into that €6b or €7b adequacy that we have over the 90%. But I believe even on some of your lower scenarios, we’d still be probably at 90%. So we would eat into that €6b or €7b but I think, even on your worse case, ING Group in total would still be fine at 90%.

And in the future we’ll try to give you some more guidance on these things, but 90% is well above we know what most people hold around the world. We did an industry benchmarking, and we were told by an external group that for those who test, not everybody tests, but for those that test 90% is at the upper end of the range. And in solvency too, the number that’s been kicked around and been debated today is 75%.

So on retrospect, don’t you wish that you hadn’t mentioned this issue at all in your first half, and just --

No.

So that we could focus on all the other wonderful things that are happening?

No, I think that’s -- I feel that either you take the position that you transfer and you say what it is, and you build trust with everybody at the expense of some time of what you say or you don’t. We -- I think we were very transparent. We are, I think, in the forefront of transparency in this industry, and I think it’s important to stay that way. And I think that you people are able to read through all this so -- and know what it means, and make the comments you’ve just made about weather.

You're well-informed, so I think that the market -- No, of course, it has a temporary reaction like we have seen yesterday. But over the long run, I think the transparency of our discussion is much better than price-wide issues. So I will not -- I don’t regret it at all.

Okay. And just that final point, the €6b to €7b would cover the worst scenario. But if that €6b to €7b reserve disappeared, then would you have to supplement capital to please the rating agencies from another arena or not? Thank you.

I’ll answer this because I spend all my time talking to the rating agencies about this, and they're well aware. We give them our reserve adequacy test. They review it. They’ve said in print, I believe, they talk about our strong capital position as well as our strong reserving position. So I think ING has decided to run the Company at a quite a conservative level. I think it’s going to -- solvency too will have an influence as to how we look going forward. It’s depending upon where that is set.

The important thing to note also that we hold capital to attest the 99.95%, which is the AA standard. So in addition to these reserving standards, we also have enough capital there, and it’s where you want to cut the line between reserves and capital.

I think, Mark, also to see through a little bit now. This -- You also to think through it as a business person also at the end of the day, right? It’s useful from time to time. You not only look at all those calculation and all this. And as a business person, and if you look to Taiwan and you look to the growth that they have, GDP growth, and the type of inflation they might have and you -- whatever premium it gets.

Is it likely incredible interest rates would stay at this level so low, except that there is a currently capital restrictions so the capital cannot flow out. So -- But at 2% interest rate the capital will flow out, it goes somewhere else. So they -- therefore they're interested where it to go. So I think the question, there is also an issue here and I -- that doesn’t reduce my willingness to be conservative.

But on the other hand, you have to take a little bit of a step back from a business standpoint. Say, okay, is this really something that you believe can stay over the next 40 years and frankly, I have. In case we both have our doubt that the scenario of such a low interest rate in such a kind of economy can stay so low. So you have to put that in perspective too, and I think that we are [indiscernible] and understand those calculation. That they are there to manage better our business. But at the same time we have to manage our business and make some -- take some views on some of the issues.

Yes, please.

Thank you. It’s Trevor Moss from Mann Securities. Just dealing with the Taiwan situation perhaps for 1 last time. I think you may have mentioned yesterday that there was an embedded value impact, a negative 1. I was a bit surprised by that because on the basis that the statutory reserving in Taiwan is 50% confidence level and you're ahead of that, why statutory profits would be affected at all? Or were you thinking more in terms of rebasing economic assumptions at the end of the year, so [they would] assume embedded value [inaudible - over speaking].

Yes. That is the way -- If you rebase your economic assumption that the short-term rate has come down [inaudible - over speaking]

So it was just that, it wasn’t actually that there was any impact on cash flows? Okay, that’s fine. Secondly, on the new business IRRs that you show, I was wondering how your 90% confidence level on reserving gets reflected within that in any way? Just looking at the IRR in the US, for example, which is clearly moving nicely upwards. It’s not reflected so [inaudible - over speaking] it’s best just to make economic capitals? Yes, okay.

Yes, here.

Thank you. Duncan Russell from Fox Pitt. Some of my questions were just asked actually, but the final 1 there was the 10-year bond yield in Taiwan today is 1.87%, or at the end of the quarter is 1.87%. But you reported a 10% margin, new -- positive new business margin. How do you make profit when the guarantee is 2% on new business in Taiwan?

Jon, I don’t think it was 1.7% but -- 1.8% but it doesn’t matter.

In Taiwan there's government rates, there's swap rates as well as our investment portfolio, and to our portfolio we’re able to achieve about 2.5% for some interim papers, yes, and we guarantee it too.

Yes. Because we invest in real -- in equities and real estate also partly, not only in bonds.

That’s the same. The question was asked also, do you have other blocks of businesses like the Netherlands, where you have guarantees of 3%, and does that kick in if the interest rate is -- which the loan for now is 3.25%, and does it kick in if it’s going down? Which is no, because the --yes, the government rate is 3.25% but the -- we make a spread because we have a AA plus portfolio.

Bond portfolio generally speaking adds another 30, 40 basis points, and partly we invest in real estate, we invest in equity. So the overall refinancing yield is still around 4% or a little bit above. So before that kicks in then you have to go down really very far in the long-term bonds yield. So in that the same mechanism works in Taiwan. That gentleman over there and then Robert.

Bruno [Poulsen], Sanford Bernstein. 2 questions. Firstly, when you talk about having €7b excess capital over all, does that include any diversification benefit across the nation?

No, I don’t think so. That doesn’t -- It only works in economic capital in -- on the capital side, not on the reserving side.

And I'm a bit puzzled. What -- When you talk about a 90% prudent level, given that the main risk is interest rates and you're taking a deterministic view of the interest rates, what was does the 90 -- What does 90% actually mean, if you like?

Yes, well. Let me from a simple business guy looking at, you make thousands of interest rate simulations, and you want to have a [indiscernible] way, and you want to have 90% of the scenario bringing you a liquid reserve. And that’s the way it works. So, it’s an econometric way to look at this I think, rather than to make a judgment about what it is.

So this is the nice thing for the rocket scientists of your generation, you get that done. That’s [indiscernible] results but that’s the way to do it, and I think that is -- by the way this is now what is generally accepted as the best practice in the industry. This is also towards which practice the regulators are doing. So I think we are a bit in advance and --

That’s Mark’s example if the weather and the flooding in the Netherlands. If you assume this, this and that, then you have a chance of so much, that once every 2,000 years the country’s going to be flooded. Yes, it’s the same so to speak kind of an excuse for the weather. Robert.

A few more questions on the same subject unfortunately. First of all on Taiwan. You’ve told us how bad Taiwan is. Do you have a ranking on this 90% confidence of how your other life operations stack up, on that 90% confidence level? What will be first, what would be last, and what are the rankings, the major ones in between? Because that’s something we’d really quite like to know.

The second 1 is on a similar subject. You probably feel that you're being relatively conservative by putting up this 90% confidence interval. How do you know -- Are you in conversation or contact with some of your competitors to see how they're doing it? And how you rate compared to them? You did mention that the US companies only earn 50%. So how well do you stack up against them?

And the thing -- the final thing which actually does puzzle me slightly is, you must have know that there was an issue of here at the time of the first quarter results, when you lifted putting any further reserves into Taiwan. Why was that?

Okay. First of all on the competition. First of all, the -- we have asked an outside party, [indiscernible], to give us some information about the practice of our competitors. They came back with the comment first of all that this looks like the most secretive things, to the point that they couldn’t get any answer really from a number of those competitors, who didn’t want to answer the question. And second they say that, based on what they have learned, we clearly are the top of the conservative range, and if not the most conservative. So that was clearly said.

On the point of did you know something in the first quarter that you should have done something, that’s a very good question. To be honest, Robert, when I learnt this -- when I was told those numbers, I generally don’t kill the messenger or the pianist. But here we’re ready to do it because I was not very pleased with the fact that, after having been in 1 direction last quarter we went to another direction this quarter. This is something I really don’t like to be honest.

But I have to recognize at the end of last quarter we had asked -- we had made all sorts of calculations at the time which give -- and the fact also that the interest rate were higher than they are today. So the first thing interest rates are higher, which is an important point. And we are -- we had -- we were conducting a broader survey of the situation. But at the time, the situation has improved compared to the end of the year.

So clearly improved, interest rate was in better shape. So we, based on the information we had, we had to do what we did. But I was not very pleased to see the interest rate move direction in the last quarter, number 1. Surprised that the persistency of analysis actually showed some different results but maybe Cees you want to comment on this, because you were -- you did the [indiscernible] case.

On the question of the Q1, let me be clear on this. We knew it had the potential problem because we disclosed that there was a deficit in Taiwan, but not on the level of segment reporting, as we call it. So on the level of Asia Pacific, so there was no reason to do anything, we disclose all that. And we considered, of course, in those, because why we having asked this outside party to say, how conservative are we because we consider it ourself.

Are we not too conservative? It is nice to be conservative but too conservative and then you priced yourself out of the market. We want to do business and with 2 conservative assumptions here, you cannot -- you don’t sell any policy at all. And you quit out of [a certain country]. So we've asked an outside party, tell us are we conservative? We knew by the way but you want to know how and too much. And for -- And then given the fact that the interest rate was going up. By the way the interest rate changes, now is only 25% of the additional problem that we have in the second quarter.

It was also [inaudible - line interference] time, and it was also the Taiwanese dollar which was rather stable in third quarter. So an accident never comes alone, and here also there were 3 or 4 different moves all of sudden in the second quarter. So we said, okay, given the fact that we make a study, we first asked the outside party where are we in the ranking, and let’s make a study whether or not we’re too conservative. And what is this development of IFRS, for example? How are we going to do this?

Because this adequacy testing is, in fact, only because you have still -- you have a difference between the asset side of your balance sheet and the liability side. It’s still on a nominal basis. If you do a full, fair value appreciation of your assets and liabilities then this becomes redundant, this whole adequacy testing, except for the 50% reserve strengthening. But then this 90% is not necessary anymore. So where are we today, where are we going to, and what is the step tomorrow, and where are we in the market?

That was the decision that we took internally in the first quarter, and we said that, well given the fact that interest rates are improving, let’s stop this reserve strengthening. And then before we got everything in, then this happened.

I think it’s important to simply comment on this market value because, if we go to full market value on [indiscernible], we decide then the surplus has to go to equity. And therefore every quarter you have the movements based on the interest rate movements. So it’s the -- So the question of an equity [indiscernible]. But of course, depending of the situation, you can have an equity positive or a negative as you start.

So this is the reason. Then the ranking, that is a difficult 1. To be honest, I don’t know. But the ranking you -- The ranking -- It depends on how you rank it. For example, I would look -- The first thing I would look at is the Netherlands because that’s the biggest block of business. Now if you have a tiny little operation somewhere with a single guarantee in 2 policies, then they can -- that can hit you first but you don’t even see it. But if you have a few big block of businesses with guarantees, like we have in the Netherlands, that would for me the first rank.

And as I say, there is no -- any view that this would go wrong. So I'm not sure that the ranking is a full thing but, to be honest, I don’t know. Jon, do you know where the -- if you would rank it, what you would rank?

Well, I think for a business unit by business unit, yes, a ranking. We do test every business unit. We said we’re adequate everywhere over 90%. It varies [inaudible - line interference] assumptions always, depending on where you are at any point. I think this [inaudible - line interference] at Taiwan comes from the Netherlands. [inaudible - line interference] rank them highly. [inaudible - line interference] elsewhere in the Group is in the Netherlands.

[inaudible - line interference] still [inaudible - line interference].

You seem to be getting a bit [inaudible - line interference] everything was going really well. If you look at the spread of operations, roughly what proportion of your operations currently do you think are operating at best operational practice within their industry? What areas do you think [inaudible - line interference] underlying performance to be [inaudible - line interference]?

The second question is, I think somebody mentioned €7b of excess capital. I'm always concerned that [inaudible - line interference] come out [inaudible - line interference] ING as it used to in the past. Can you say what you said a few weeks ago, that if ING were to buy anything they’d finance it from selling a non-core operation, or they would IPO something to pay for it?

Did I say that?

I think you said it at your April conference that, if you were looking to buy something, then you’d look to sell something else. I was a bit dozy that afternoon so maybe, yes. I'm sorry to put your words in your mouth but I thought that’s what you said. [inaudible - over speaking]. I retract that last statement, I suspect that’s what you said but I'm not too sure. I think that’s what you said.

But maybe what you’d like me to say now. First of all, in getting to performance and benchmark in terms of performance, it’s a continuous process because the world is moving [permanently][inaudible - line interference] but we have made tremendous process -- progress. There's progress, for instance, in our US operation in the last few years compared to [inaudible - line interference] than a long way to be their excess cost. It’s minimal and negligible.

So I think that they have done a good job. This is a good operation. Of course, they got a big problem because you start with a merger and you have to really fix it, and then you put all resource to it and really attack it very forcefully. And I think that our US operation has done that very well. That’s, I would say, a good example of serious improvement in the last few years.

I think that if you take, for instance, ING Direct, I think they are extremely well-positioned in terms of efficiency and performance culture, and getting things done in a -- much better than industry benchmarks. So here are 2 businesses where probably ING is really at the top of this benchmark, and the US has really done a great [inaudible - line interference]

Of very [inaudible - line interference] in the past if -- and that’s why Netherlands is [inaudible - line interference] to be done but [inaudible - line interference] the whole attitude of the [inaudible - line interference]

First of all, I -- clearly there is no big acquisition in the [inaudible - line interference]

No, because I think [inaudible - line interference] at this point we have -- it is not on the agenda nor the calendar, in the cycle that we -- we are not there to make a major acquisition.

Going back to your first [question], [inaudible - line interference]

[inaudible - line interference - 5 minutes]

This is -- I don’t say no surprise but we don’t give any prediction but nevertheless it is quite a performance. We’re in the right product range and product mix. Retirement services are doing very well - the 41K, 424, 457 business. We have really a right position and exactly in the right segment that is growing. So I think that our US business is doing very well, and apart from that we have integrated it adequately and so on whatever [separate] from us that we will do at the end of the day.

But we -- I think we’re in the right business and we have the right business mix there.

But the permanent dilemma that you will have in the US is very simple. It’s the dilemma that I mentioned earlier is returns versus volume. And you know that if you want to have a -- if you want to be stroppy on your pricing, you open the tap and you get huge volume but at the expense of returns. So our people there have a very clear mandate to manage profitable growth, and to make sure that as they book new business and as they manage their market share, they also manage that in the eyes of the return.

Okay, it’s a kind of a -- I'm asked by the management of the -- the managers of the Company, not only in the US but where. Sure, this is a bit complex but should we look for volume? Do you want volume or do you want returns because we can’t do the same thing at the same. I say the world is more complex than that. You have to deal with those 2 measures at the same time. And that means sometimes that you have to make some arbitrage. It is important maybe the market is more competitive. People have too much capital so they open the tap and they’ll know, and then it becomes more a -- more competitive.

Sometimes people -- the same people would just go back. So we have to manage that, and I think our people are doing a very good job of doing this.

Just a quick question on your capital position. Could you just talk about whether this year you see yourself generating substantial surplus capital or not?

Which 1?

This year. Do you think you're generating substantial surplus capital this year, given that in the first half you made €3.5b of earnings? I think you’ve paid out about €1b. You -- It looks like you invested about €1b in Life Insurance, and your risk weighted assets in the bank only grew by about 7%. So it looks like your generating substantial surplus capital, plus your balance sheet has been repaired now. You’ve got a debt equity ratio below 10%.

So how do you see your capital position and what are you going to do with this surplus cash?

We have -- I think we spoke about that last quarter also. And last quarter we said that we expect a surplus position this year of between €700m and €1b for 2005 and gradually growing next year. Let’s not say double because that’s a little bit too much probably, but in the range of €1.5b to €2b. That was our projection. This is -- The development this quarter is roughly in line with what we expected last quarter, a little bit better I mean. So that still holds.

What are we going to do with it? Well, first of all we are preparing, of course, for our next budget. We've also said that we don’t exclude smaller, add-on acquisitions and we've named a few. We invest in Bank of Beijing and those smaller things. It is small - about €200m here, €100m there, that eats quite rapidly into the €700m to €1b. We -- Risk weighted assets are growing. We allow them to grow. It’s good for the wholesale bank. We see a lot of banks who put a brake on the growth of risk weighted assets.

We don’t, we let ING Direct grow, and the risk weighted asset is not that spectacular there but since the size is so huge, it is quite a lot. So I think organic growth and add-on acquisitions will be -- will use this excess GAAP. And since it is not so excessive that we have to consider buyback shares or something like that. But the dividend -- the capital position is adequate to continue with the dividend policy as announced. Please.

Mark Tiller, UBS. 2 questions on the bank. You just said you want to significantly grow risk weighted assets. Can you talk about the net interest margins? They are coming down significantly quarter-on-quarter. Can you give us a flavor regarding the outlook? Then can you give us more detail regarding the credit outlook, maybe specifically on the Dutch market?

And thirdly, moving on to US insurance, your Dutch -- or the other Dutch life insurer, they have reported a sharp increase in surrenders. What do you think is development in your numbers, specifically on fixed and probable annuities?

Maybe I’ll take the first 1, the margin of the bank.

By the way to correct, I have not said that I want to grow risk weighted assets significantly. I said we allow the risk weighted assets to grow. That’s a little bit of [indiscernible - over speaking].

The net margin of the bank looked to drop pretty significantly. But you have to understand that there is some accounting reclassification into this. And if you clean it up for the accounting reclassification -- IFRS reclassification as well, in fact the net interest margin is only down 5 basis points. So we’re talking about a very small number which, by the way, I think is extraordinary giving the yield curve that margin has only grown by 5 basis points.

So I'm positively surprised. But fortunately the numbers are completely distorted by some reclassifications or some earnings, and someone can give you this -- the specifics if you want. But that --

Yes, I think that is necessary and I have the specifics.

[inaudible - microphone inaccessible] quarter [inaudible - microphone inaccessible]. Excuse me, is that quarter-on-quarter, the 5 basis points, or first half versus first half?

First half versus first half.

Yes, got it thanks. And the Netherlands is up quarter-on-quarter though?

Yes, the Netherlands is up. The interest margin in the Netherlands on IFRS was in Q1 2005 1.28% and in Q2 1.33%, the interest margin in the Netherlands. The interest margin outside the Netherlands -- Sorry?

It is not corrected.

Sorry?

I don’t think it’s corrected.

Not correct?

No. Those were not corrected by the -- on the IFRS, I think, aren’t they?

Okay. Are they not correct?

Corrected for IFRS.

Yes, this is IFRS GAAP that I give you. Please follow it up. Provided they are correct and those roughly are the numbers. The credit quality in Netherlands. On the wholesale bank the business in the Netherlands is so small that it’s stable. It was minus 4 basis points for the full year [with cost]. Well, let me give you the -- in the year as a whole, and the first 6 months plus 4 basis points. But that is a couple of millions, it’s nothing. ING Lease is coming down. We had from 21 basis points full year to 12 basis points in the first 6 months.

NMB-Heller is coming down. We had a problem there. We've restructured that so that’s not good compare -- not very well comparable, but they are now about 185 basis points, it’s coming down. Wholesale international minus 22 coming from minus 4, so there's a release. So there's no indications and the overall for the Netherlands coming down from 12 basis points last year to 3 basis points. So roughly speaking, stable risk environment in the wholesale business in the Netherlands.

In the retail stable. Also ING Banking Netherlands 50 the year as a whole. 16 first half year. 32 basis points Postbank for full year, 32 basis points first half year. This is absolutely stable. So the overall is 21 versus the year as a whole versus 20. So there's absolute stability in the credit portfolio.

We keep saying that we don’t believe that the credit impairment will stay, still be 9, but when we look at our books we don’t see any difference.

Withdrawals in the Netherlands -- in the United States on the retirement services, it just a big chunk --

In the Netherlands you ask, yes?

No, you asking US?

Yes.

Yes, US. Because [indiscernible] apparently was some other Dutch company with a large business in the US. I don’t mind calling -- referring to anyone to be honest. Withdrawals are overall relatively stable. We don’t have this issue, and the fixed annuities is stable. And the variable annuities - it’s stable only in the -- it’s another thing that I have to [indiscernible] interest [indiscernible] but that’s not --

So, no, we don’t have that, other than in the retirement services. We have some increase in the second quarter. But all the others are stable, and I don’t think that they're going to dig in the retirement services. So the rest of the comparable business I see only stability over the last -- if I compare the last 6 quarters, I see the same numbers everywhere. So, nothing. Yes, Robert.

Rob Haines, JP Morgan. On your Japanese selling of the single premium, the annuity product, through those networks, are those networks finalized in terms of size, in terms of run rate? Are you increasing those networks and what’s an idea of what that run rates going to be from now on?

To be honest, are they stable the networks?

No, I don’t what you mean by that because it -- Well, I was return in Japan last year and I visited the financial institutions who have this ability for our products, and we have distribution agreement with them.

Well are they -- Is that -- Are you or are they -- Are you increasing the number?

Look I don’t think -- If you ask them do they comment for a volume for the next 10 years, no. This is -- We have to fight every quarter for shelf space in those distribution channels - by the quality of our product, by announcing our products. By doing something which is very important in Japan which is providing extremely good after-sales service and we spend a lot of time of improving the after-sales service in Japan. And therefore they are perceived when they use us.

And in all role and our people are making the major effort to expand those channels, and to make sure that we have to entertain this. This is a job of making sure that we are in those distribution centers all the time, to promote our products. That we talk to the people that we -- So we’re marketing shop. So when you say, are they stable? They are as stable as our core product quality is, and the service delivery is, and as our marketing push is, that they continue to deliver very high volume.

Well, what I meant to sell -- also say to clarify, is the number of distributors increasing substantially?

Well, the increase -- the substantial is a word with, if I might say, that I don’t like too much because it’s decreasing, but it is -- you have to understand that it is more important to have a large big player, than to have -- because small -- There are no small players. What is important is to be in contract with the big players, because they move on so much volume, and to be able to move those big players to really penetrate the market. There is again best to concentrate on the big players and work with them, than just try to shoot to every distribution channel. That is clear.

But it is increasing if you compare to it last year, of course. Because we started, remember, with only Nomura and then we -- the market opened up --

Most of the banks, we have most of the big players except 1, and that’s what I recall from my visit there the end of the year.

And there is 30 altogether?

30 altogether today. So, yes, compared to last year and beginning of last year, yes, of course.

A key thing is though is when you get those big distribution channels is to manage the sales effort and the marketing efforts.

But we have the big ones like Nomura, Daiwa. Those are the big [inaudible - over speaking]

We only want 1 of the big bank. I think at the end of last year we still had 1 which was not on our list.

Okay any other questions or is it time for lunch? I see almost in the body language confirmation that is time to stop. Thank you very much.

Thank you very much.

You are all cordially invited to lunch.