ING Groep NV (ING) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the ING Group’s first quarter results 2006 conference call on May 11, 2006. [OPERATOR INSTRUCTIONS]. I would now like to hand the conference over to Mr. [JC Ray]. Please go ahead sir.

This is JC Ray on behalf of ING Group, welcoming you to ING’s first quarter results conference call. Before handing over to Cees Maas, Vice Chairman of the Executive Board and CFO of ING Group, and Tom McInerney, Member of the Executive Board responsible for Insurance Americas, let me first say that any forward-looking statements in today’s comments are subject to a number of variables, including interest rates, foreign exchange rates, inflation rates, movements in securities markets, including equity markets, and underlying economic health and changes. The realization of forward-looking statements could be materially altered by unexpected movements in any or all of these and other variables.

That said, good afternoon Cees. Good afternoon Tom. Cees, over to you.

Thank you, JC, and good morning, good afternoon, wherever you are in the world. Ladies and gentlemen, also on behalf of Tom McInerney, who is present here in Amsterdam, and also Jonathan Atack, of course, is here. Also welcome on behalf of my two colleagues.

Let me say a few words by way of introduction, very briefly. As you have seen, the first quarter for ING showed very strong growth in our underlying businesses. Continued growth driven by growth engines, as well as our retail banking activities.

Underlying profit went up by 29% to a record of €1.976b. Our net profit -- total net profit increased even to €2.006b, a record high, plus 3%, as a strong underlying performance more than made up for by the €400m of divestment gains in the first quarter of 2005.

The three growth engines that we have, you know them, ING Direct, our life insurance businesses in Asia-Pacific and in Central and Eastern Europe, and our retirement services, showed a continued strong performance.

ING Direct added a record of 1.1m new customers in the first quarter. Our new life sales in ING Asia-Pacific were up 22%, and our retirement services sales in the U.S. were up even 37%. So strong commercial growth in those three lines of businesses.

Retail banking. Retail banking posted a record quarter of €566m. Underlying profit was up by almost 44%. We showed strong growth of mortgages in the Netherlands, especially in the Postbank, and also we saw continued growth in savings in the Netherlands, and also strong growth in mutual funds in Belgium.

The focus of execution has led to an improved efficiency. Our expenses are under control. The cost/income ratio of the Bank improved, for example, from 63.7 to 60.4. Our capital position is strong. Debt/equity ratios of the Group and of the insurance company decreased, and our tier 1 ratio increased. Also the capital coverage ratio of the insurance company went up to 277%.

Looking forward, ING is confident in the growth prospects of its underlying businesses and our ability to continue to create value for shareholders in the year ahead.

With this introduction, I would like to give the floor to you all and we are ready to answer all your questions. Thank you.

[OPERATOR INSTRUCTIONS]. The first question comes from Mr. Matthew Pickering. Please state your name, company name followed by your question.

Hi, it’s Matt Pickering from Institutional Capital. Cees and Tom, thank you very much for having this second call. Just a couple of questions, mostly on some of the cost announcements you’ve made, or some costs that came up in the first quarter.

Most importantly, the excellent cost control in the Bank, I just wanted to make sure I understood your view on the sustainability of that, especially in relation to the additional investment you stated you think is necessary for customer service reasons, and whether that additional investment is a one-off investment or just will be embedded on the run rate going forward in the banking division.

I also was hoping you might be able to talk a little bit about the cost in Nationale-Nederlanden, whether you expect the nice trend we’re starting to see to be able to continue, or now that severance payments have fallen away, whether the run rate we saw in the first quarter is more indicative of the expenses on a going-forward basis plus or minus inflation.

And then thirdly, on expenses, I was hoping you might be able to comment on the ROI you were seeing related to the additional marketing spend in ING Direct as it relates to your budget expectations for the first quarter asset growth. Thank you.

Thank you. Let me try to answer those questions as good as I can. First of all, the costs in the Bank and, in particular, the compliance of customer due diligence costs, are they one-off, yes they are. Well, let me say two things on this.

First of all, there is, in our industry, an upward pressure on costs because of compliance with regulation in general. Regulation is increasing. The number of regulators is going up. The regulation issue is going up. Consistency of the regulation is coming down. And that means that the cost of our industry is going up. That is a general trend. But not -- my first remark. But it’s up to us of course to keep the costs under control as we go forward and to be and to become one of the lower cost producers in the industry, just as a general remark.

The reference that we made to the cost of customer due diligence and compliance in our press release relates, indeed, to one-off costs. One is the issue, for example, here in the Postbank, where we have already, for long, millions of customers. Let me make it lively -- let me give you a lively example.

Myself, I have a Postbank account, a so-called Giro account. I have that account since I am 18 years old. I am now 59 years old so I have this account for 41 years. It is obligatory nowadays in the Netherlands to have for every client a copy of the passport in its files. And in order to have that, you have to go physically to the bank, or to a post office, and then show your passport. They make a copy and put it in the file. They have not done that with me 41 years ago. So I have to go in 2006 to a post office for my Giro account, show my passport, make a copy -- they make a copy of it, then I can go home.

We have to do that. We have now for 2m clients, of the 7m clients, we have these copies of these passports in the files. Still 5m to go. That has to be done in 2006. You can imagine that that requires a few additional costs. The post offices are a joint venture, so-called [post contour] [Post Office Inc.], and that’s a joint venture with ING and TNT, the mail distributor in the Netherlands. And we have to pay for the cost in that. So that is an important component in the one-off additional cost in customer due diligence.

Okay.

Just to make it as clear as I can. Nationale-Nederlanden, the trend in this -- yes, what happens is the cost in Nationale-Nederlanden were down because we spent a lot of restructuring costs in the fourth quarter. And the first quarter this year, we did not release any of the restructuring costs that we have available.

At the same time, the real decrease in expenses will only kick in in the second half of 2006 and near the end of 2006. So that means that 2006 for the rest is a little bit of a neutral year as far as our restructuring is concerned. And the real reduction in expenses will be seen in 2007.

Nevertheless, the fact that 2006 is this low, neutral year is a very good development. And that’s why we’ve said that the whole expense reduction now that on all the programs -- the result of the programs will kick in.

And the marketing expenses in ING Direct, well, it is in line with the budget. I heard you were saying that they were [above] budget. But it’s certainly higher than normal. It was €28m higher than it normally is. Normally, to give you a rough idea, marketing expenses are between 30 and 31% of total expenses. If I look at the last quarter, we had a quarter of 30, 31, 30, 31, and this quarter the marketing expenses were 35% of total expenses. So yes, we did a lot of marketing.

At the same time, if you ask for the return on investment, so the efficiency of those marketing expenses, you’ve seen that had 1.1m new clients coming in, which is an all-record high. Also taking into account that we had an outflow of clients, in particular in the United Kingdom in January, because in January we increased -- sorry, we decreased the rate in the United Kingdom for the first time at the level -- to the level of the base rate in the United Kingdom, 4.5%, and we had expected, and it happened, that we would see an outflow of money and clients. In particular, those clients who -- the first moves, the clients who came first when we opened ING Direct in the U.K.

And those clients, those first movers were relatively moved with large amounts, and we had expected that they would withdraw this amount, and this is exactly what happened. But despite all that, we saw an all-record increase in new clients. In particular United States was very favorable. So I think, from a point of view of efficiency, I think this money was very well spent.

Okay. And then two final ones real quick, if I may. One would be the increase in capital employed in the retail bank was rather significant. Obviously it was funded by a reduction in capital on the wholesale bank. What kind of opportunities are you seeing from a capital usage perspective that give you confidence that the incremental returns on the incremental capital will be greater than the current ROI of around 35 to 40%?

And then lastly, and then I appreciate your time, on Japan, given that the yield curve is steepening there, does that make that market more attractive for a new ING Direct business?

Okay. First on the return in retail banking. Yes, we allocated more capital to that. By the way, it’s not so easy. You cannot simply say here you have €1b and go ahead. This doesn’t make sense. There must be -- we always said we have a Postbank in the Netherlands which has a return on economic capital of over 120 or 130. But you cannot create two Postbanks in the Netherlands. That’s not possible. Unfortunately, but it is not possible.

So you have to find the growth component in it. Where the growth was strong was in savings. And savings do not require that much of capital. Some operational risk-based capital and so on, and mortgages. And in mortgages, the capital adequacy, so to speak, is high. The return on investment is high in mortgages, and certainly more than, generally speaking, the return on capital, the ROI for a marginal euro in wholesale banking. Again, generally speaking.

So yes, we think that the shift between retail banking and wholesale banking is a positive one from a return on investment point of view.

Okay. Thank you.

Japan. Well, let me make two remarks on this. First of all, the yield curve in Japan is already quite long, steeper than in the U.S. and in Europe, be it on a very low level. I think that the difference between the one month and the 10-year rate is about 1.8 now in Japan. It’s in Europe about 1.3 or 1.4, and in United States is -- what is it? 0.06 or 0.07 or 0.08. So -- but that’s already for quite a while.

The point is the level of the interest rate. And the level of the interest rate is still low in Japan. The short-term rate has gone up sharply, but from 0.02 to 0.08. And that is, indeed, in percentage-wise quite substantial. But it does not really help.

But that’s not the point. You know we have, in order to prepare to go to a new country, it takes us, well, more than a year at least. A year, a year and a half. And that means that we have to work a view on where the interest rate will be going forward and not where it is today. And yes, you might expect that the interest rate in Japan might go up from the 0.08 level, but the question still is will it go up to a level where it is attractive to start an ING Direct operation, specifically in Japan.

More generally speaking, ING Direct has operations in nine countries today. We have ample growth opportunities in those nine countries for further growth. And there is no urgent need to add a 10th country, being Japan. If it looks attractive, we will certainly do it. But again, there is no urgent need, in itself, for the future growth of ING Direct.

Okay. I would just offer that given how many deposits the major Japanese banks have, or basically balance sheet-heavy with deposits, you could, I would think, offer quite an attractive deposit rate to a consumer and garner significant assets if you’re willing to maybe take a little bit of foreign currency risk by having to invest those proceeds mainly outside of Japan.

But you obviously know the market very well, and I appreciate your comments on it. Thank you very much.

I certainly understood the background of your question. Thank you.

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

Yes. Hi. It’s Nick Holmes at Lehman. I had a couple of questions on the banking side, please. The first one is you’ve had another large loan loss release in wholesale banking. Since this has now become something of a material recurring figure in your earnings which is rather hard for us to forecast, I wondered if you could give us some more guidance to help us, such as which parts of the loan book do the releases relate to in terms of customer type and loan material to be profiled?

And then the second question was on retail banking. Just wondered, can you tell us what the contribution from mortgage pre-payment penalties is to the -- or was to the interest margin, and whether you’re seeing this slowing down?

And also, can you update us on Postbank’s mortgage and marketing campaign? Is that now over, or is it still continuing? Thank you very much.

Nick, thank you. The line was not that good. It looks as if you’re out on a sailing boat or somewhere like that, which is good, it’s fine for you.

I do apologize for that.

No, it doesn’t matter. If I understood your questions correct, the first one is where is the release in loan losses in the wholesale bank, which part of the loan book was that. Is that -- I hope I understood.

That’s exactly correct. That’s exactly correct.

We -- on the releases in ING Commercial Finance, that is the former NMB-Heller, so that is the factoring company. We had releases in wholesale banking in the Netherlands a little bit. Yes, relatively substantial. We had releases in Belgium. We had, of course, again releases in Germany, the old restructuring portfolio that we have on the BHF. We have releases already there for five consecutive quarters.

We had releases in Poland. We had releases in the rest of Central Europe. We had releases in the United Kingdom, in the Americas, in Asia and in the rest of the world. You better should have asked where do you not have releases. We did not have releases, but very small additions net in our ING Bank Netherlands network and in our lease operations. For the rest we had releases across the board.

Then the retail --

I was going to ask, could you possibly give us an idea of the age profile of the business that is causing these releases? Is this business that was written some time ago, when conditions were very different and it is therefore natural that there is some release? Or is it more recent business where your expectations have proved to be too conservative?

Well, that is difficult to say. But generally speaking, there is the releases of, well, in fact, we have releases that are rather young, so 2005 and so on. Quite a substantial part. And then the rest going back to 2004, ’03, ’02 and ’01, it is distributed roughly the same, so there is no specific year where you can say you have a lot. 2001 is still some releases, of course, because you know that was a bad year. So you see a small spike in 2001 relatively in percentage, and then about equal 2002, ’03 and ’04, and then a little bit of a spoke in 2005. But 2001 is the biggest part.

Then retail, the mortgage prepayment, you asked me which part of the one is in the interest margin. The prepayment penalties were €31 -- €34m in Q1, which was more or less equal in Q4 ’05 and in Q1. A slight difference there, there’s 21 -- 28 I think in Q4 and a little bit higher in, I think, 38 or so in Q4. But that means on the change in interest margin it had hardly any impact. And I think that was your question, if I understood it correctly.

Then the Postbank marketing campaign, has that come to a halt? The answer is no. We still advertise and are still as active as before. We have traditionally a very good and strong marketing campaign, very effective. In fact, ING Direct learned that from our Postbank marketing people. And the campaign is very effective. And we certainly will continue with that.

And if I may just follow up on the subject of mortgages, what is your view of the Dutch mortgage market?

Well, the Dutch mortgage market, in my opinion, will continue to grow for two reasons. First of all, there will be -- the house prices in the Netherlands are still going up. Not very sharply, but they are going up. So gradually, but still going up. The reason for that is that the supply of new houses is lower than the demand for houses. The reason for that is that there is no more supplies. The new houses will not be [the plan]. You can see that for 2006, 2007 and 2008 already now because you know what the plan is.

And at the same time, although the population in the Netherlands is hardly growing today, the number of persons per family is still going down. The aging of the population, that means that people stay longer in their own house, still going on. That means there’s a structurally higher demand for houses than there is supply, which means the prices are going up.

That also means that mortgages are going up. And there will be more new entrants to the market. And that also means more new mortgages. So I see still a potential for the mortgages.

At the same time, we have gained market share in the Netherlands over the last quarters. So for ING, I still see continued growth in mortgages. Thank you.

Okay. Thank you very much.

The next question comes from the line of Mr. Duncan Russell. Please state your name, company name, followed by your question.

Hi there. It’s Duncan Russell from Fox-Pitt. I was just wondering if you could give a quick comment on [Spitze] and compliance, because it seems you’re one of the most -- you’re one of the companies which most actively is emphasizing and upgrading your compliance systems. And I was just wondering if there’s any more sinister reason for you to keep on emphasizing this? Thanks.

I think, Duncan, on Spitze, just as you’re probably aware, he’s doing a broad review of various businesses in the U.S., including retirement services and annuities business. I think that, as far as that review, he’s asked for information from all the major players. And because we are on top, the [top] service player and annuity player, we’ve been part of that process. So he’s reviewing our various issues.

The recent New York [teachers] issue that’s out there based on some press coverage, I think, has certainly got some focus. I don’t want to comment specifically on that investigation other than to say it’s been part of the overall return process that’s been going on for several months now.

I think there are two issues on that. One is the endorsement issue. And I think that has been a practice in the industry. In our case it’s been fully disclosed to all of the participants in the program. Then the other issue there is a tendency to focus on just the cost. And we think our -- we have both a high service model, we have agents and representatives who work with clients, and we think on that basis compared to other high-cost programs, we have a quite competitive product offering from a cost perspective.

And then, of course, low cost, no service, no advice models. We do have a lower cost model [in our] service. So we think there are some competitors there [as well].

The next question comes from the line of Mr. Mark Cathcart. Please state your name, company name, followed by your question.

Mark Cathcart from Deutsche Bank in London. The guy who spoke from the States sounded like he was in a boat as well. Anyway, ING Direct in the States, I just wondered if you could talk about the competitive pressure that may be increasing there from competitors like Citigroup.

And also if you could comment on your market share development of variable annuities in the States as well. I think on a one-year view, Q1 versus Q1 last year, I think it was actually down a bit.

And it always used to be a delight following ING because things used to blow up, and it’s getting rather tedious nowadays. So what are the possible gremlins that you might be grappling with that you haven’t really made known in this presentation?

I will do the first question and Tom will do the second. Maybe we forget the third one. But Mark, your questions are good as well.

First of all, ING Direct’s competitive position. What we have seen is that Citi and HSBC are now starting to compete with us in the United States. It’s great. It’s fine. We always knew -- we are of the opinion that competition is good for the market. It increases the total awareness of the fact that direct banking can be a successful -- can be successful in the market.

By the way, it’s not only in the U.S. where we get competition. We also see Citi in Germany has started last year. Santander in Italy. So yes, we have copycats. Fine. We learned how the monkey should climb in the tree and you know how to do that. That’s one.

Second, in particular in the United States, if I would be in their shoes, without commenting on them, then I would not be happy with the moment that they start to copy us, because the worst, for a retail bank, the worst scenario for a retail bank is when the yield curve turns flat and the curve shift moves upward. That’s the worst of all because you have to follow your accredited rate, the savings rate for the client and your assets are going up also, but delayed, it’s slower, so your earnings are under pressure and such is the situation. And then if you enter the market and you have to offer competitive rates, then relatively speaking to a normal scenario where you have a slope in the yield curve, a positive slope in the yield curve, and as we have experienced in the last couple of years, unstable or declining rate is much better. That gives you more room to be competitive.

Again, it's a problem for all the banks, but in particular when you are a newcomer in the market then you have to pay with a little bit more and therefore your losses are higher than you would start off in a normal situation. But by the way, talking about this scenario, this is probably not you Mark, but most of the analysts who if you would have asked them three years ago what they would think of the profitability of ING Direct or the number of client growth of ING Direct, in such an almost perfect storm scenario, that is flat yield curve and increased rate, and be aware that in the United States over the last -- since the January 1, 2005, the short-term rate went up by 350 basis points.

If you would have asked what if that happens in 2005 and early 2006, with the profitability of ING Direct I think nobody, perhaps except you, that nobody would have believed that ING Direct could make money, and we do. And most of -- I know two or three years ago most of the analysts and investors were afraid that it would be a massive outflow of clients then, in particular when the stock market would pick up, which they do, and that is all not the case.

So we see the competition, we wish them luck. We feel that we have relative advantage over them then because we are a first mover and [Innus] is well known, and again we had expected it of course, that one day there would be competition. And we also feel that it might increase the total market of direct operating.

In very simple terms Cees, you offer 4%, Citibank or whatever, offer 4.5%. You don't think you're going to have to go up to 4.5% to keep your clients?

Yes, we offer now 4.15%, we have increased, but you know that although ING -- the Citi advertises copy -- copy our advertising campaign and do as if it is as flexible as ours. But you need to have a checking account with Citi and if you don't have one you need to open one. And I know that not every client likes that. So again, I wish them luck.

I'll try to get closer to the microphone can you hear me better now?

That’s wonderful, thanks. Maybe you can [relate] to the previous question as well? No, I'm joking.

On the variable annuity market share, quarter-over-quarter you're right, our market share has -- we've -- sales have been modestly up, a couple of percent. We were late about six months in offering a withdrawal for life benefit on our variable annuities. We offered that beginning November 15 so we haven't has as much momentum there. It’s been an attractive benefit offered in the market place so we were slower than some of our other competitors with sales momentum there.

If you look at fourth quarter '05 versus first quarter '06 our VA sales are up about 15%. About 20% of the sales in the first quarter '06 were with that withdrawal benefit for life. So I think that hopefully will allow us to build some sales momentum going forward in '06.

That's wonderful news.

Your third question is an attempt to stall the party and so --?

What you feel are your challenges, it’s --

I understand, I understand, that's why I am going to answer the question. Well there is continued pressure on margins, on interest margins in the bank. The yield curve narrows, there is still high liquidity so the margin pressure is there. The margin, the interest margin decreased only gradually but we feel that there is still margin pressure. Strong competition on the wholesale banking side and on the retail banking side, so that is one.

The -- well, as I said, the compliance costs that are high, is our one-off compliance cost. But generally speaking, I made a remark on the excess burden of regulation. It's a fact of life, you're in that business, but if you ask -- the challenges to overcome, then it’s certainly that.

The upward movement of the interest rate. On the one hand a higher interest rate is fine, it's great. For the insurance company it's fantastic because you have a higher return on your investment portfolio. And we said a few quarters ago that we live in a low interest rate environment which is a challenge. Now the interest rate goes up, so I don't complain. But we -- and as long as the interest rate goes up gradually then the short term effect will be moderate. If interest rates would rise steeply then the short term effect will be much higher.

So as such we are happy that the interest rate will pick up a little bit, but the speed in which is of course -- could be a challenge.

We have a few markets where the results are under pressure, like Mexico, the non-life business there is under pressure. In particular the [Afford] business there is an -- almost a war going on there in the fight for our Afford. There is consolidation is taking place, so of course not every market is -- the sun doesn't shine in every market. We're very happy with the development in China for example, but at the same time the size of that business is still relatively low.

And yes there is growth in those markets but before this -- the profits from China, is making a substantial part of our overall profit, that takes a while I can assure you.

We've also said last time that Brazil is still in a deadlock, our position there, the bad news. The good news is that the business is doing much better there. Yes, there are -- the –- Taiwan, the reserve adequacy, we still -- is still volatile and we are just adequate, the bad news. The good news is that since the end of March the interest rate increased 30 basis points. And that doesn't seem to be a lot, but it is a lot. Every 10 basis points is an improvement in our reserves for €150m, but it remains volatile so it remains a challenge.

I wanted to say so I can go on, but I can't. So this is about the challenges.

That's wonderful. Thank you Cees.

The next question comes from the line of Mr. Kimon Kalamboussis. Please state your name, company name, followed by your question.

This is Kimon Kalamboussis from HSBC. Two questions if I may. First, looking at the capital ratios, K1 is at 7.4, Insurance at 277%, and this is excluding any diversification. What is the excess capital position of ING, please? And also what is the free cash flow generation of the Group?

And second, in case of an acquisition would you -- obviously, that would exceed the Group's requirements. Would you consider selling ING Canada's stake, particularly given the good performance of the shares since the IPO? Please, thanks.

First the capital ratios, you are right. The capital, we have a strong capital position which we are happy with, by the way. As you know we were upgraded last year as one of the very few large financial institutions, if not the only one.

Capital ratios are improving. My first remark on the capital issues, there is a little bit of -- on the capital ratio of the bank which is now 743, the tier one ratio. We did a tier one securities issue in the first quarter and we took more than in fact we needed so there was a little bit of front-loading, the prices were very good for us so we took more in the market then we really needed, in the first quarter. So I expect that will go down a little bit, but of course still very adequate.

The 277% we -- that seems to be very high, which it is, it's good. But we also made calculations on our economic capital, but we have not finalized these calculations. We have introduced this start of [inaudible], but as I've told you before, and we are still refining the model. And you know how the system works, you need to have an economic capital which is -- you need your actual available financial resources so your capital, it should be a little bit higher than your economic capital.

If you have less capital than economic capital then in fact you operate [inaudible] capital is risky, and in a risky way. And if you have less then it's good, but not too -- sorry, if your available financial resources are too high compared to your economic capital, yes, then you don't use your capital efficiency.

We have some capacity -- spare capacity there, but not so much that I would speak of really excess capacity, capital. So there is no excess capital, in the sense that it is enough to do a share buyback program, or something, what I [mean to think of].

[inaudible] that we have so much excess capital that the money is burning in our pockets and that we want to do urgently acquisitions or something like that. So that is the background of your question.

And at least as important is the question of the free cash flow. We have said last year, and as we said already also today, that cash flow that we generate in our forecast for '06 and also in '07 and '08, is enough to continue, of course, the dividend policy as we have formulated it time after time, starting last year.

And the growth in our operations, that means ING Direct, Life Insurance in the emerging markets, our Retirement and Pension business and also our rapidly growing retail, if we have all done that then there is still, as we calculated today, an excess cash flow, say of about between €750m and €1b.

Also that is not enough for a share buy back program and as also say repeatedly, we might do some small add-on, fill-in acquisitions, not many but there is always something as there was one last year.

Going beyond 2006 this excess cash flow is increasing a little bit, say to 1.5, and then 2 or 3, but that was the same last year and there has always been -- enrolling, [needing compliant process updated]. So we are happy with our cash flow generating capacity. It gives us some flexibility but again not enough to have serious excess cash flow in a sense that could lead to share buy back programs or what have you.

Then, selling ING Canada, we have -- in the IPO of Canada we have stated that it is possible, that it generates a currency, if necessary for acquisition and growth. But for Canada there is no urgent need for us to sell it just to generate the cash.

So therefore we are happy with the development in Canada, we are happy with stock price, very happy with the stock price, and that's it. Thank you.

Thank you very much.

Your next question comes from Mr. Christopher Hitchings. Please state your name, followed by your company, followed by your question.

Good afternoon gentlemen, it's Chris Hitchings from Keefe, Bruyette & Woods. Two questions, well three really. Starting with, just picking up on a point before. You seemed to indicate that the slow growth in funds entrusted to ING Direct was, in the first quarter, was entirely expected. Now I didn't sadly write down the answers to questions that I write, and it must have been a completely different ING to whom I asked the question about the slow growth of funds entrusted in the fourth quarter and I was ensured that it was entirely seasonal thing as people withdrew money to spend on the Christmas presents and that it would all flow back again in the first quarter.

Could you just, sorry that wasn’t entirely a serious point. Could you just tell me, explain to me just how expected this was and whether the marketing campaign is a response to this? That's the first question

Second question, you have a tendency over the last few years for the wholesale bank to produce more profit in the first quarter than everywhere else. And then in subsequent quarters you've been adjusting for known funnies like divestments and loan loss charges. Could you tell me whether you think that seasonality has changed in any way, i.e. that will help us to know how to forecast going forward?

And finally just could you just fill in, you talked about how Japanese sales, the variable annuity products have increased. The [overall] sales service is down so could you just explain what sort of products have not been sold? Thanks.

Okay, thank you. First, the slow growth in the funds entrusted, were they expected? The answer is yes. We, as I said before, the action that we took in the United Kingdom was a deliberate action. We wanted to make the U.K. business profitable. By the way I hope that you’ve seen for the first time now, the U.K. operation is profitable, which is quite an achievement because that is within 2.5 years after the start. And normally we say that it [costs] three to four years before -- until we see an operation after the start is profitable.

That is of course because of the high average balances, higher than average over ING Direct. And it includes by the way the start-up costs for the preparation of the introduction of mortgages in the United Kingdom. Of course we could have done it differently, let’s be honest here. We could have kept the rates high and then we just would not have been in the profit and we would have had higher balances, but not necessarily more clients because we get the clients in because of the marketing. And that's what we continued. And indeed you are absolutely right, we accelerated the marketing cost, not so much in order to compensate for the outflow of funds entrusted, but just to use the momentum.

It is absolutely true and remains true that in the first quarter it's one of the best savings quarters for ING Direct. People spend money in -- over the Christmas period and over the Christmas holidays and then they start to save. And that’s the momentum that you want to grow, and therefore we have increased the marketing costs.

By the way, the €6.7b increase in funds entrusted is partly, for €2.1b it is affected negatively by foreign exchange, so it would have been €8.8b if it would not have taken into account foreign exchange changes and it is €1.5b -- and it includes €1.5b outflow, net of -- in the U.K.

The March figures for the U.K. were positive again, but in January and in February the outflow was, say, two-thirds outflow in January and one-third in February. So we are, relatively speaking, happy with the continued increase in funds entrusted in the U.K. And again, it was expected and to be very honest the outflow was precisely, in January, what our people had expected. So that -- I leave it alone for [inaudible].

Then the wholesale bank, is there a seasonal pattern in the first quarter? The answer is yes, you've seen that, you see it in the press release. There are two reasons for that, the first one on the cost side, the costs in the fourth quarter are always, in the Bank, higher than in the quarter before so you always see a jump compared to the fourth quarter. And the second is a phenomenon that you see in wholesale banks everywhere in the world and it is that the treasury, the financial markets revenues are always higher in the first quarter. It's apparently behavior of treasury and traders to be on the safe side, already, right from the beginning in the first quarter.

On top of that is the market. Markets always revive, and generally after the more flat and dull market in December. Most of the time, it was -- it can go the other way around, but nevertheless it happens. I remember a year of 1994, 1995, when it didn't happen, when it went the other way around. But generally speaking it -- the markets pick up in January and February, generally the beginning of the year.

Has it, will that change in the future? I think that the reasons that I described here is a general phenomenon and I expect, of course, you never know and there are always exceptions to the rule, but I expect they will.

Can you repeat the question on the sales of the SPVAs, I missed that?

Yes, the APE sales in Japan declined, as indeed did sales profit, yet the commentary talks about how you had increased, significantly increased, the sales of VA products in Japan. So I presume that sales of something else declined, and I want to know what it was and what impact that had?

Let me see, a little bit was the closing business of the SPVA. We had in the first quarter on the -- let me see, we have now -- the SPVA did well, let me check what was the reason for that was.

In local currency, yes, indeed, it is exactly what I thought [company] premium increased by 14% so there -- our collateralized in our corporate Life Insurance premium increased by 14%. Behind the single premium, variable annuities decreased due to the stronger competition, by 11% in local currency. So [company] went up by 14 local currency, SPVA decreased in local currency and that was the competition, and it's as simple as that.

And commission and other income decreased also, but that was an adjusted mark-to-market decrease on the derivatives of the hedge of the SPVA market so we're hedging, as you know we have a hedging program in place. And due to the increase in interest rates we're faced with a loss on the derivatives of the hedge. But it’s partly offset by lower underwriting expenditure.

Sorry, I'm particularly looking at the APE sales and the value of new business, which is what declined. And so you talked about how VAs actually increased in the first quarter and yet now you're saying this --?

No, no, no, no, because the SPVA premium is higher than the [company] premium. So that means that if SPVA -- sorry, company is higher. Jonathan is here also, then maybe he can explain it.

Yes, single premium variable annuity sales were down quarter-over-quarter, it's more competitive and we're maintaining our margins. Overall profit in Japan is up over a year ago. So we're more profitable as a business, but our sales are down a bit due to increased competition.

Fine, so that's the -- it is -- because trying to read the commentary I couldn't see what was causing the sales to be down. But -- because you talk about how increased sales of VAs impacted, you mean reduced sales of VAs. Okay, that’s good.

Sorry, I said that SPVA premiums decreased by 11% in local currency, that the [company] premiums increased. But account balance we had a lower APE.

Thank you much indeed.

Thank you.

[OPERATOR INSTRUCTIONS]. The next question comes from Mr. Bruno Paulson. Please state your name, company name, followed by your question.

Hello, it’s Bruno Paulson from Sanford Bernstein, two questions. Firstly in insurance, the new business profits in the U.S. were up sharply year-on-year, about 50% to 60m. Obviously currency is a bit of this, but there is an underlying event as well. Which products actually provide most of the new business profit and where has it improved in the U.S?

And second, in wholesale banking you talked about realigning the business model to have obviously less capital, less fixed assets anyway and less products. How advanced is this process, is it near complete or is there a long way to go in the optimizing of the wholesale business, particularly outside Benelux?

Tom?

The first part of the U.S. the value of new business, two core drivers to that. The first is in the annuity business we had higher sales of higher margin products. We've been using market-consistent pricing and therefore have really pushed on the product mix there. So overall, sales were good, but the mix was even better.

The other driver was retirement services sales which were very strong in the first quarter and so that also led to an increase in the value of new business. So it was really those two lines of business, retirement services and annuity, particularly variable annuity.

On the wholesale banking model we are pretty well advanced in reshaping the wholesale bank. The -- although I must say that it is a continuous process because the world is changing all the time, but we are focusing now indeed on a few product lines like structured finance. Of course we continue to grow in trade and commodity finance and of course financial market products. That is being done.

On the clients, we continue to focus on the clients in Asia and in Central and Eastern Europe, that's been done also. So we have put that -- those client groups in place. And of course we've also focused and successfully so on our M&A and divestment activities and with industrial consolidation going forward we feel that we can also be successful out there.

On the lease business we continue to expand there and also that is what we have done and in the auto lease business, as you see, we have completed the AutoPlan acquisition in France and doubled our market share there. So we are on all the places, on track. We have put more people and emphasis and also capital in our payment and cash management businesses. Added more products there to our clients since there is a movement in particular in Europe in consolidation in this payment volumes and payment business. We feel we have restructured our Group, our wholesale bank there adequately.

So we are on track, we've done most of it and the general -- but again, the world is changing so we will continue to change that, but most of the work is done.

Thank you.

[OPERATOR INSTRUCTIONS]. Excuse me Mr. Maas, there are no further questions at this time, please continue.

Okay, well if there are no further questions then I would say thank you very, very much, all of you for attending this conference call and for your active participation. And on behalf of Tom and Jonathan, thank you very much. I wish you well and I hope to see you next time. Thank you very much.

Ladies and gentlemen, this concludes the ING First Quarter Results 2006 Conference Call. Thank you for participating, you may now disconnect.