ING Groep NV (ING) 2007 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the first quarter results 2007 conference call on May 16, 2007. [OPERATOR INSTRUCTIONS]. I would now like to hand the conference over to Mr. [JC Ray]. Please go ahead, sir.

Good morning. This is JC Ray, welcoming you to the ING's conference call for the first quarter of 2007 before handing this conference call over to Michel Tilmant, Chief Executive Officer, John Hele, Chief Financial Officer, and Eli Leenaars, Member of the Executive Board responsible for Retail Banking.

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, underlying economic conditions and changes. The realization of forward-looking statements could be materially altered by unexpected movements in any or all of these -- of the variables.

Good morning, Michel. Good morning, John. Good morning, Eli. Michel, over to you.

Yes. Good morning all of you. I would like first to say that we inaugurate today an early telephone meeting with all of you to allow you to have an early as possible feedback from us on whatever questions you might have. So I hope this formula is convenient for all of you. And I would certainly welcome any comments after this to make sure that this is convenient for you.

I hope that the technology works also very well. I understand that all of you have the slides which you can access through the Internet. I hope that this will work smoothly because my intention is to go through the presentation so that you have the flow of information in front of you.

Let me say, first of all, that as key points, and this is slide two, that the first quarter results demonstrate clear resilience of ING business portfolio. Very importantly, all commercial momentum continues, particularly at growth engines. And we are keeping investing to support growth in mature and developing markets. At the same time, we have decided to make a EUR5b share buyback to optimize our capital structure.

On page three, page three. On page three, I would like only just to say a few words. First of all, underlying net profit was about EUR1.9b, down 3.2%, but flat excluding currency effects.

All business lines grew pre-tax profit, with the exception of Retail Banking which, as you know, had a record quarter one 2006. And we have experienced some volatility in the Corporate Line. But, clearly, strong volume growth in savings, mortgage and current accounts largely has offset pressure from the yield curves. Decline of most currencies against the euro had a negative impact of EUR61m on net results. And let me say that commercial momentum continues, that we continue to invest and also that we planned a EUR5b share buyback. But I don't want to go into the detail on this slide because we are going to go into the detail in the next few slides.

On slide four, you have the usual graph which shows our performance evolution over the last few quarters. And you can see that there was no divestment this quarter, and this reflects also the evolution of underlying net profit, excluding the realized capital gains on shares.

I would like to -- I would like to insist on, first of all, on the good progress of commercial growth across the Group, slide five. ING Direct had a record own mortgage production of EUR5.8b. 700,000 new customers were added in the first quarter, and the funds entrusted were up EUR1.8b, excluding foreign exchange impact.

Sales of retirement services accumulation products were up 17.3% on the U.S. basis during this first quarter. Life insurance sales in Central Europe were up 27.9%. Life insurance sales in Asia/Pacific, excluding Japan, were up 19.8%. Underlying profit of real estate before tax rose 36.2% to EUR158m. And in Retail Banking, we had a strong volume growth in savings and deposits, plus 4%, in mortgage plus 9%, and current accounts plus 9% in the Benelux. Asset Management inflows were EUR14b.

So, as you can see, we had good growth, good commercial growth, but also we are consistently following our strategy to invest in growth. First of all, growth in managing established business efficiently. We are unveiling today that we decided to -- Postbank and ING join forces under one single ING brand name in the Netherlands, and we will discuss that further in the presentation. Also we have launched variable annuities in Europe, starting with Spain end of March, and to be followed by other countries in the next few months. ING Direct is announcing to launch in Japan later this year and we have shown record growth in Poland, which shows that the efforts we have made to put Bank Slaski in better shape is now paying off handsomely.

When we look at future growth, in Russia, we anticipate a license approval for new large greenfield operation by the summer. In Romania, we are preparing for the launch of the mandatory second-pillar pension fund following the pension reform by the Romanian government. We are continuing aggressively to roll out our greenfield retail banking in Romania, with a lot of success. And India, we have accelerated the expansion of our insurance distribution network to 153 cities.

I would like to say a few words on Postbank and ING Bank to join forces under one single brand, ING. First of all, the new combination is based on Postbank's successful direct business model, enhanced by access to professional advice capabilities of ING Bank. The key here is we have 8m customers out there, and we are able to offer the best of Postbank, which is fantastic Internet site, a very good call center technology and we are mixing that with very good advice from ING Bank Netherlands for all activities which has to do with value-added transactions like mortgage, pensions and life insurance.

So this good combination is very strong. The new combination will operate under ING brand as of 2009 and will be the leading bank in the Netherlands. So it's a very strong leadership that we want here to reinforce.

Our investment will lead to improved customer service and increased operational efficiency because, of course, rather than to invest two times in two Internet sites, in two call centers, we are going to be -- and two IT platforms, we are going to be able to streamline that in only one. Rather than to have one headquarter for Postbank, one headquarter for ING Bank, we will have only one headquarter. And therefore it will simplify all our operation in the Netherlands, as well as improve the service.

And we expect therefore positive P&L impact already in 2009. Altogether, we have an investment of about EUR890m to deliver an additional EUR440m in annual pre-tax earnings by 2011. But let me insist that this is accretive already in 2009. Our cost/income ratio should head below 50% in 2011. This will, as a consequence, a reduction of about 2,500 FTEs over the next five years.

As you know, page eight, as you know, we have experienced in a number of countries, starting with the U.S. and after in Japan, the core of variable annuities, which is a new generation of life insurance product which cater well for the new demographics. When you see rising life expectancy, with longevity risk, when you see that state pension funds, ability to pay pension over the long term is questioned, what we see is that people retiring at 60 and having a life expectancy of 30 years want to have the ability to -- that their savings is following those 30 years.

And therefore they want equity returns, because with the bond returns today they probably won't have enough after 30 years of retirement. So they want equity returns. But at the same time, they want guarantees about the downside. They want protection and they want liquidity if they need it.

So we have decided, based on the strong expertise that we have built in the U.S. and Japan, to launch variable annuities in Europe. We have put together a variable annuity team in Europe to coordinate efforts over rollout and leverage on our best practices. And the centralized VA team is in place to design and roll out our business activities in selected markets in Europe. We have successfully launched a single premium variable annuity at the end of March in Spain, and the second European country will follow within three months.

We are also happy to say that after a difficult 2006, Japan is renewing with success. A new SPVA product was launched in Japan on April 2. It received very favorable response from distributors. Our volumes are picking up and our market share has increased strongly from March to April. And the trend is accelerating in May and we have seen the results are extremely positive and encouraging from April to May.

Let me also say that if you look to ING Direct, it is interesting to see that ING Direct was launched now 10 years ago. It clearly reflects our entrepreneurial spirit, together with the greenfield. And you can see on the slide that over the last 10 years the growth has been impressive, with total client balance reaching EUR291b and the number of customers, 18.2m customers. So growth has been impressive. The P&L also has been pretty strong in the last few years. And you have to look at the fact that for the first quarter of this year we'll make more money than the full year 2003.

But, at the same time, we feel that there is a huge potential going forward and we should not be distracted by the yield curve, which is a bit difficult today. But we should not be distracted by that and we should continue to invest. And we feel that there is a lot of potential. Certainly four product categories, savings and deposits, lending and mortgages, investment products with mutual funds, and payment accounts. We also believe that there are three sources of growth, the growth volume of established products, the extension of geographic footprint and broader product range. So I think we are keeping our commercial and investment momentum in ING Direct. And we believe this is the right time to do it to accelerate that growth.

In that context, we have decided to launch operation in Japan later this year and we have officially requested license in Japan. As you know, this is an important step. We believe that Japan is an important market. This is a largest savings market after the United States, so for us it was important to move into Japan. By covering -- by entering Japan, we now cover 70% of the global savings market. And we believe that, together with our standards, ING Direct's strategy and sensibility for local practice in Japan, we stand to get some, very quickly, some success in Japan and accept the fact that we have to invest quite some money in Japan to develop ourselves. That's part of our strategy.

I think that coherent with our policy to work for shareholder value, we believe that it's very important for us to optimize permanently our capital base. And therefore we are happy to say that we have decided to buy back about EUR5b of shares which shows that we basically are consistent with our approach and that we have disciplined capital management. This buyback will start in June 2007 and will continue for about 12 months.

We believe that this program will enhance the capital structure, reduce cost of capital and improve earnings per share. But let's be clear, the combination of strong earnings and refinancings to optimize the capital structure, but partly Basel II, are expected to create comfortable capital surplus after funding significant growth of business, small bolt-on acquisitions and attractive dividends. Our capital management forecast shows very clearly that we have the ability to continue to fund significant growth of the existing business organic growth, that we are capable of making the small bolt-on acquisitions that we have always said are part of our strategic approach, and to pay an attractive dividend.

This will -- you have to realize also that ING has consistently strengthened its balance sheet over the last few years and I want to insist that we want to stay within the target to maintain a AA-rated Company.

Of course, the share buyback program, this is usual to say, it's conditional on Company-specific or market-related reasons that would make the program undesirable. And you can see here the evolution of the balance sheet and the ratings.

On this, I am transferring to John Hele who is going to give you a detailed presentation of the numbers.

Good morning. Turning to slide 13, as Michel said, all our business units, with the exception of Retail Banking, grew compared to a year ago. I think when you step back from these numbers, you can see this growth and I'd like to point out a couple of things.

Although Retail Banking is down, they were up 21% from Q4 and have been able to raise their income, even though the business margins have been depressed. In Insurance Americas, the 10% increase is after -- well, that includes the currencies. 22% if you exclude the currency movement. And Asia/Pacific would be up 8.9% if you exclude the currency movement.

So the business lines have been performing well. The big swing has been in the Corporate Line which has been as a result of some one offs, positive and negative, between the two periods, as well as some volatility in our hedging programs.

Turning to each line of business, on slide 15. Insurance Europe is up 5.6% in profit year over year, and driven by higher life results in all the regions. We've had strong growth in Central Europe, both in terms of life profits, sales in terms of APE, and value of new business up 35%. The life result in the Netherlands was up 12% due to lower provisioning for guaranteed pension contracts.

Our non-life results in Europe were down about 16% due to storm claims in Belgium and the Netherlands.

We have had a rise in operating expenses to fund the substantial business growth in Central Europe and some higher external staffing costs in the Netherlands.

Central Europe has continued its growth process, with 17 new products and 20 riders filed. We have seen a very competitive situation in the Netherlands. And this has countered some of the strong development in Central Europe. However, in the Netherlands, we are maintaining a good, solid hurdle rate to ensure that the capital is not put at lower returns.

Turning to Insurance Americas, on slide 16. We see that's up 10%, and that is including a weakening U.S. and Canadian dollar. Excluding the investment gains and currency effects, U.S. profit rose 25%, supported by higher fee income due to an increase in assets under management.

Our sales of our growth sector, the retirement services business, and the good accumulation products increased 17% on a U.S. basis. Our variable annuity sales were somewhat flat year over year due to a flat stockmarket in Q1.

Profit in Canada was down, excluding the currency effects which were 15m, due to higher claims. The claims ratio increased 5 points to [65%] due to a slight increase in our property and casualty businesses and auto and homeowners, and some lower investment gains year over year.

We have seen a slight decline in the VNB due to the lower sales in the U.S. and currency effects and a higher discount rate.

The IRR is reported 9.5%. But this includes the redundant reserves for the individual life and lower fixed annuity spreads in the U.S. We do expect that we will have the onshore captives working in place by the end of second quarter '07, and this would add 11m to the VNB once these are in place for the first quarter.

Turning to Asia/Pacific, growth has been driven by South Korea, Australia, and a dramatic increase in assets under management. As I said earlier, the profit would have been up 8.9% excluding the currency effects, driven by higher volumes in South Korea, growth in fee income in Australia due especially to their [One Care] product, and the investment management business, particularly in Taiwan.

Japan did have a negative P&L impact in the quarter of about 20m due to a change in the hedging line in the SPVA portfolio. This is something that varies quarter to quarter. Sales were down due to the competitive area. But the good news is that the new product is improving dramatically.

If I continue, the growth in South Korea, Australia and India is especially growing. Expenses have grown to reflect the continued investments in South Korea, Australia and India.

The reserve adequacy in Taiwan is at 337m. That's 57% as at the end of Q1, and we have announced a change in our reserving policy which I'll get to in a minute.

On slide 18, we show an example of the dramatic growth we are experiencing in the Indian Life Insurance business where we've increased the number of cities we've been in, in a quarter by 40%, the number of agents by almost 30%, and customer acquisition by 83%. So the industry is growing rapidly. We are growing with it. And we are really ramping up our whole distribution capacity along with product development.

ING announces a change in its reserve adequacy policy. Our old situation, as at the end of last year, was we applied a 50% reserve adequacy test at an individual business unit level. We now have changed that to be instead of a business unit at a business line, so we will only take an immediate reserve strengthening through the P&L if the inadequacy exists at a business line level. This gives a larger buffer to allow for fluctuations in these numbers. This change of policy has been approved by external auditors.

The impact, there's no real change to our economics, but it does give a buffer as opposed to EUR337m, of EUR3.2b. We are using our rule of thumb that 10 basis points in interest rates in Taiwan is about 150m to the reserve adequacy. We now have 200-basis-point buffer in Taiwan. Rates have been about 2.3 to 2.4%, so up a bit from the quarter end. And so we think this will remove some uncertainty in the quarterly numbers.

The value of new business, on slide 20, we show the trends from a year ago. Of course, we had Korea with higher allowed regulatory pricing. That was reset by the regulator in the middle of last year. And the change in the variable annuity business in Japan had quite an impact, along with the redundant reserves in the Life Insurance business. We've seen Central Europe growing in both sales and margins. And with the Netherlands, with slightly reduced sales and margins, reflecting a very competitive environment. The new products in the business initiatives as well as the onshore captives should improve VNB going forward.

Slide 21 shows the Corporate Line. And here you can see the interest on core debt is relatively stable. The gains and equities year over year were also relatively stable. There is a swing on these fair value changes and derivatives, which is a non-economic change.

We did see a change in the gains on run-off business in reinsurance. And we had to do a one-time reserve increase due to a change in the asbestos law in the U.K. that flowed through. We saw some other volatility that swings due to some derivatives as well in the other line, a swing, but you can see it goes up and down quarter over quarter.

Turning to the Banking business, on slide 23. The Wholesale Banking business experienced solid top-line growth, driven by especially ING Real Estate and Structured Finance. Stable earnings in the interim growth were offset by somewhat higher expenses and a small release of risk costs year over year.

The income growth though at ING Real Estate was up 27%, and Structured Finance 14%, reflecting improved trading conditions. The lower interest result reflecting the negative impact of the yield curve was more than offset by a sharp increase in investment income.

Expenses have been impacted in Wholesale by compliance cost as well as the growth of ING Real Estate and our other core businesses. Benign credit -- the benign credit environment resulted in a net release of EUR41m in risk provisions.

RAROC, reflecting the new methodologies, remains high at 24.6% due to the key focus on capital efficiency.

Retail Banking. The volume growth helped to offset the impact of the flat yield curve. So even though year on year the profit before tax was down and the spreads are down, the total income was up almost 4%. We've also announced the combination of Postbank and ING Bank to join forces which will further improve the profitability of this line going forward.

We've had solid, robust profit, particularly in the Benelux where we've seen solid volume growth in savings and deposits, mortgages and current accounts. Also Poland has been performing very well, with a strong increase in profit and record growth in all major product groups. ING Vysya Bank in India had a turnaround on track. Private Banking, especially Asia, continues its round of growth. And the RAROC stays at very acceptable high returns.

ING Direct, on slide 25, continues its strong commercial growth. The online profit is up 6.5% and this is after a dramatic expansion of the product offering and the geographic footprint. 700,000 new customers were added in the quarter, with EUR5.8b of new mortgages, creating a EUR75b mortgage portfolio.

We have higher results in all euro-zone countries and Australia. The impacts in the U.S. and Canada were factored in from the inverted yield curve, although we continue to have growth in new customers, residential mortgage and funds entrusted. Germany, which has had mortgages and off-balance-sheet products longer than most other areas, shows it's underlying profit up 30%.

And the funds entrusted in total up EUR1.8b, where we saw strong growth around the world with some outflow in the U.K. New payment accounts which have just been rolled out in the U.S. and Spain continue to grow in popularity. 115,000 new accounts in the U.S. and 125,000 in Spain and, of course, the new introduction of ING Japan, planned for later this year.

I would like to spend a moment on slide 26 to address a concern that people may have on ING Direct. We did see EUR4.4b of net outflows, primarily due to a minority of rate-sensitive customers. It primarily affects people with balances of over EUR50,000. We did have a net new 9,000 new clients join ING Direct U.K. So we have had money coming in. And some of these higher balance rate-sensitive customers have been [leaving].

2% of our clients left ING Direct in the U.K. which is only slightly above the natural attrition rate. And I think very exciting, the new mortgage business is growing rapidly and within six months we have almost EUR1b of new mortgages written.

We have announced in the U.K. that we will raise our rates 25 basis points to 5% from June 1. And this means that 5% is now the lowest rate that we offer U.K. customers.

I'd also like to spend a moment here on slide 27 on why mortgages are so important to ING Direct. On the upper left-hand corner shows the pricing of the margins we get of originating our own mortgages versus us investing that same money in retail mortgage-backed securities. And you can see the economics of it, showed by the 40-basis-point increase.

How does it work through our P&L? Well, we have a loss in investment in year one when we write a new mortgage. So as we write more and more mortgages, we put pressure on our P&L. We're 140 basis points down in the year that we write it, of which about 100 flows through to the P&L. In future years though, we improve our future productivity.

So what does this mean for us, so for the quarter? The EUR5.8b that we wrote in the first quarter, that means roughly a EUR60m loss this year, but another EUR30m of profitability each and every year into the future. And as you add this on year after year, you can see the power of the ING Direct machine.

And I'd also like to spend a moment on our interest margin. And this is, I think, one of the challenges under IFRS, is exactly figuring out what's going on with interest margins due to the accounting. You will have seen that from the fourth quarter when we had 105 basis points recorded interest margin, our first quarter is 95 basis points which looks, on the surface, like a pretty large job in just one quarter. However, when you break it down, there is about 6 basis points of that is accounting asymmetry, meaning that it's a narrowing of the interest margin, both the transfer of income to commission income. There are swaps are products that reduce the interest margin, but we bring it back another line so it's okay in total income. There's about 3 to 4 basis points related to the increasing rates of ING Direct and lower retail margins in the Benelux. And I think this is an important thing to figure out quarter to quarter, what's going on economically and what's going on from accounting volatility.

On slide 29, we previewed at our investor day that our economic capital was going through a new methodology. We changed some credit risk drivers to be more compliant with Basel II, changed the tenor of loans, really removed some of the approximations that we have been using. At the same time, we've also revised our diversification and taken out some of the conservatism when we got more precise on the credit side.

So, in total, the economic capital is roughly about the same. And there are some slight winners on it in terms of the economic capital. In thinking about in RAROC calculations where we replace the actual risk cost with an expected risk cost when we produce those numbers, you can see there is a slight increase in Wholesale Banking with the credit risk cost, and a lower number in ING Direct, and Retail Banking is about the same. So these will be factored in going forward.

Thank you, John. I want now to introduce Eli Leenaars. As you know, Eli is a Member of our Executive Board, in charge of Retail Banking, and is going to make a presentation about our decision to reinforce our position as the leading Dutch retail bank. Eli?

Thank you, Michel. Good morning. Good morning to all. I'd like to start with slide 31, where Michel went through in his presentation -- Michel went through in his presentation. And the basic story is that we are going to combine Postbank and ING Bank under the single ING brand. The bottom of the page shows that it's a significant investment in our Dutch banking market, building on our existing strengths. I think no details at this stage, I will go through it in the next few pages in detail.

Page 32. Our basic value proposition or, in other words, what are we going to do for our clients, is to enhance service to our retail customers in the Netherlands. We want to be a leading direct bank, like ING Direct is elsewhere in the world and Postbank is in the Netherlands. I would like to expand that service, that superb service to ING Bank clients, to have a state-of-the-art Internet banking service and highly accessible contacting centers.

Second thing is we are going to create modern, low-barrier bank branches for personal advice and give Postbank clients access to the advice services in the ING Bank branches. We are going to mobilize those branches to make them more accessible, modern and open.

Third point is the basic values of the Postbank brand, being reliable, easy to use and value for money are going to be the values of the combined bank going forward. So that will not change going forward.

Another point to make, what we are going to do for our clients, it's going to be a bank with a Dutch identity, which means a no-nonsense approach, best-in-class products and processes, under ING brand, the international brand from Dutch soil. This is for our customers, for our retail customers.

For our Private Banking customers and business customers, nothing will really change. They will keep their services. They will keep their account manager, relation manager in the branches to serve them from now on and in the future. What will happen though is they will get access through the combination to the superb Internet banking services of Postbank going forward since we can share the investment cost over a larger number of segments.

Slide 34. Postbank and ING Bank have done and are doing well. There is a stable market share in most products, if not all products, with exception of mortgages, which we have been increasing over the last five years significantly. It led to revenue development, ING Retail Netherlands, between 2002 and 2006 on an annual basis of 6%, and led to a double-digit profit growth in the same period of 11%. And, as you can see on the bottom right-hand side of this slide, that has led to the cost/income ratio in this period trending downwards to the current level of 61%. So yes, Postbank and ING Bank are doing well. And that's the strength we are going to be building upon in the new initiative.

Next page. Despite the fact that we have been doing well and performing well and our customer satisfaction rates are high, we do see changes in the market. Customers do start to behave differently, especially technology changes give them that opportunity. So they're using Internet much more than in the past. And we want to anticipate those trends by making [those stages] and taking these initiatives.

And as you can see on the left-hand side of the slide, the usage of MijnPostbank.nl, which is the Internet site of Postbank, has increased 62% annually since 2004. This shows the strength of the Internet capabilities of Postbank and the fact that the clients really are looking forward to that to use it.

So direct channels, on the right-hand side of the slide, for day-to-day products, Internet. Less and less branches are used by clients for the day-to-day products. But advice-oriented products in the same time require superior advice proposition, so therefore the personal advisors in the branches. The clients say 'we want both. We want state-of-the art Internet services for day-to-day transactions and would like to have superior advice by people, by advisors if we require to any long-term investments, for pension and for mortgages'.

Next slide, slide 36. What are we going to exactly do? We think ING is uniquely positioned to exactly take advantage of those new trends, Internet becoming more and more important, and personal advice in complex situations required by customers, also by the Postbank customers. By combining Postbank and ING Bank, we can capture that opportunity much better than we do right now.

At the top of the page on the left-hand side, Postbank has a very strong position in Dutch retail bank, focus on mass clients and mass affluent, reliable, easy to deal with and value for money. The direct bank model, the largest direct bank in the Netherlands, with 2.7m clients online, and post offices for day-to-day services and transactions. Strong direct proposition and a very low and, for the Dutch market, quite a low operation -- cost/income ratio, so strong operational efficiency.

ING Bank, on the other hand, a strong position in the Dutch commercial bank through all clients segments, mass, SME and Corporate and Private Banking, and using branches for personal advice. So first professional advice capabilities, and combine the retail with the commercial bank and a personal approach.

Combining those two strengths, we're creating a brand under the name ING, with a very strong proposition in retail and commercial markets, 8m clients, significant share in all market segments. It's going to be -- the base is going to be the direct model of Postbank, supported by the national branch network footprint of ING Bank.

It's going to be a leading Dutch retail bank. And one with an international brand from Dutch shores. One product set and one supporting IT platform and one headquarters instead of three right now. Reliable, easy to use and value for money are going to be the brand values going forward, based on the Postbank current values. It's going to be the most efficient Dutch Bank.

Very important, doing so we will not change account numbers for clients, which is very important reason for clients to switch if you would change account numbers. Very important that we do this under one brand otherwise the value proposition for clients would be confusing.

Next brand -- next slide, why have we chosen for the ING brand? ING brand is the best choice because it recognizes the strength of the Postbank brand, reliable, easy to deal with and value for money. And using the international strength and the international investments we are doing in the ING brand, it's going to be an international brand from Dutch soil. And Dutch soil is very important -- soil is very important going forward.

Next page. How is this combination exactly going to work? We think that we have significant potential to strengthen the relationship with customers in advice-oriented products, especially the Postbank clients, by transferring the knowledge and the cross-sell capability of ING Bank, leveraging the sales capacity at ING Bank through its branches, and by using one of the stronger international brands in a route to further strengthen customers acquisition and retention at the new combination. That will lead to revenue potential.

The second important part of this initiative is efficiency improvement. We would like to leverage the high traffic footprint and outstanding channel delivery of Postbank in order to reduce the distribution cost of the combination. We would like to transfer market-leading operational efficiency of Postbank to increase the quality and reduce the unit cost of all product processes. We would like to extend the no-nonsense value-for-money philosophy of Postbank to reduce our overhead costs. We think a very powerful combination.

What is the financial impact of what we are going to do? That's slide 39. We are going to invest almost EUR900m, EUR890m in the period of 2007 until 2011. The net impact, P&L impact you can see on slide 39 on the top left corner is, over the years, is going to be a negative impact of EUR300m. The investments, the P&L impact of the investment you can see on the top left-hand corner, it's going to be an investment of EUR300m P&L impact in 2007, leading to a positive impact in the year 2011 of EUR440m which you see on the right-hand side of this slide. The breakeven point is going to be 2009, where we're going to make the initiative breakeven. But the total investment is going to be EUR890m, leading to a benefit, total benefit of EUR440m in 2011, starting 2011.

Other key figures are a headcount reduction of 2,500 people, a cost/income ratio which we expect to be going below 50% in the year 2011, which really means annual cost savings as of 2012 is going to be 12% of the combined 2006 cost base. So, of course, in that period we are going to have the natural increases of cost, but 12% is the calculation of the EUR440m over the existing cost base in 2006. Incremental annual revenues are going to be 4% of the current combined 2006 revenue base.

Next, page 40. How are we going to spend the EUR890m as investments? We're going to spend it in systems and processes. And you can see on the right-hand side of this slide how we are going to invest it. 57% is going to be on OPS/IT. 29 -- 28% in redundancy costs, and 15% other. And in that other and also IT is the modernization of the bank branches included. The majority of all those activities will be implemented between 2007 and 2009, when we are going to really with the a strong focus implement the program. The investment in 2010 and 2011, as you can see on the top left-hand side of the slide, consists of the depreciation of the new IT systems which we are going to build.

Next page, 41. We think there is significant potential for additional revenues. At this stage, the average number of products per Postbank client we sell is 1.7. The average of the Dutch market is 4. We think there is room for significant uptick there. As a piece of evidence, the first Postbank shop which we started half a year ago already saw some very encouraging and promising results, with an average of 350 visitors a day. We think we have taken a very prudent assumption of the incremental revenues. The new combination provides significant potential to strengthen the relationship, especially for the Postbank clients in advice-oriented products.

All this, we think, adds up to substantial efficiency benefits. So other than the revenue, we also have the efficiency benefits. We project them to be EUR280m starting 2011. A breakdown of those cost savings you will find on the right-hand side of the slide which is, of course, to significant part is in staff, 62%, because that's the natural composition of cost. 18% in OPS/IT. By moving to one set of products and processes, IT platforms into one brand and one service provides significant cost savings. The migration to Postbank IT platform enables us to shut down almost all of the IT systems of ING Bank, for instance, for payments, mortgages and Internet. The overall headcount reduction is going to be 2,500 FTEs.

What's the implications for the organization? ING, with this, shows its commitment to investing in the Dutch banking market. We are going to combine two strong brands under one brand strength -- under one brand, which will strengthen our competitive position which is the basis of this initiative.

Yes, this position and process will affect employees, and we're going to seek advice from the respective works council and we will develop a mobility plan based on the existing social plan which we concluded with the unions in 2006. And, of course, in line with our strong social policy and social plan, ING will make every effort to help affected employees from job to job. We are strongly committed to that and we feel that by doing that we can reduce the number of people who are going to be forced to exit to the absolute minimum.

What are we going to do going forward? Slide 44. This is the day of the announcement, 2007. And we are going to start with the preparations as of today. In 2008 we're going to move to one head office, basically closing two of the other head offices, and start implementing the new branch concept, organizing of the branches. And in 2008, we are going to upgrade, start to upgrade the IT systems. So we are going to be ready early 2009 to operate under the one ING brand. And early 2009, also as a consequence, we will start the migration of the customers to the single IT platform of Postbank.

Slide 45, the conclusion. We are reinforcing our position as the leading Dutch bank by making this investment. We want to leverage the trends that our customers want from us, easy access, reliability and value for money. And we're going to add to that need for superior advice. We're going to act under one strong international brand, ING, combining the success of Postbank with the advisory strength of ING Bank.

Thank you very much.

Thank you, Eli. Well, before concluding this presentation, I would like to say a few closing remarks.

First of all, the first quarter results demonstrate the resilience of ING business portfolio, despite the stage of the yield curve and the currency situation.

But, more importantly, I hope that you realize that the management team of ING doesn't want to be distracted by the agitation which takes place around us, but that we want to be absolutely consistent with our strategy. And that we have the conviction that, together with the entrepreneurial spirit that we have, the marketing skills and the commercial skills, we are absolutely ready to continue the commercial momentum that has taken place at ING in the last two years, particularly at growth engines. So we are full of confidence on that.

And second, that we are ready to make serious investments to support growth, not only in developing markets, but also in mature markets like Holland, where we believe that the investments we are making to improve the customer offerings at Postbank/ING Bank is a very good source of growth for the future.

And finally, despite the fact that we want to insist on organic growth, we are ready to make bolt-on acquisitions. And our plan is certainly for growth. We also feel that thanks to Basel II, we are able to optimize our shareholder structure and capital structure. And therefore we feel confident that despite our growth initiatives, we can, with comfort, start the plan of buying back the EUR5b of shares and optimize our capital structure for the benefit of our shareholders.

Thank you very much. And on this I am ready to take questions.

[OPERATOR INSTRUCTIONS]. The first question comes from the line of Mr. Nick Holmes. Please state your name, company name, followed by your question.

Yes. Hi. It's Nick Holmes at Lehman. My main question was I know that you've flagged your surplus capital position before today, but would you say that there's been a change in your strategy away from focusing on organic growth and towards using tighter capital management as a way of generating EPS growth? Perhaps if you wanted to respond to that question first, and then I could move on to one or two more.

I'd like to answer this question, Nick. I think I would say this is the wrong reading of our strategy. I think that, first of all, as we demonstrated in our capital presentation at the analyst meeting earlier on, it is because of Basel II combined with our portfolio structure which, for instance, a lot of mortgage in our loan portfolio, that we are able, thanks to this new regulation to some extent, we are able to free up some capital.

So it's essentially because of Basel II that we are able to free up capital. But we are continuing to be strongly oriented towards organic growth, and also bolt-on acquisitions. I can tell you that we are working on a number of bolt-on acquisitions right now. No big ones, but bolt-on acquisitions which are perfectly in the sweet spot of our strategy. And also we continue to believe that we can pay a very good dividend.

So I think that it would be a misreading our intention to believe that we have switched our strategy to try to boost EPS by share buyback. That is not the purpose. But, on the other hand, I think that given this new Basel II regulations, I feel that we can provide the benefit of that back to our shareholders and we are taking advantage of that to optimize our capital structure.

So it shows both a strong intention to grow, like we have said in the past. And at the same time, a lot of attention for optimizing the capital structure and for shareholder value.

That's very clear. Thank you for that. Can I ask just one more question on the same subject of -- or at least on the subject of growth? Your life new business value was very sharply down in Q1, especially in the U.S. and Asia. And I wondered, how do you reconcile you calling that business a growth business with what is happening at the moment to that business? And what are your expectations going forward?

Yes. I would like just to make a global approach on this. And I have Tom McInerney here with us this morning and he will comment on the U.S. side. If you look to our value of new business, you can see that the value of new business in the growth area, like retirement services in the U.S., like Central Europe and Asia, without Japan, has done very well. So I think that this is completely consistent with what we have said where the growth area in which we want to develop.

It is true that we were penalized this time by Japan. But, on the other hand, Japan, as you know, we are correcting this because we are now launch on April 2 a product which has turned out to be very successful already in the first two months of the launch. So we are fixing Japan as we talk.

And the Dutch market has been disappointing. But, as you know, it has been disappointing for everybody. And this is something we have said since quite a while and therefore that's why we have put so much emphasis on other initiatives, like starting the SPVA in Spain and rolling out that in Europe and in other countries.

And the U.S., I think the U.S. is a particular mix of situations and I would like to turn to Tom to comment on that.

Yes. Nick, I would make three points. First, clearly the value of new business was impacted by the Individual Life business, and we've been talking about this for a few quarters, where we don't yet have the captives in place, although there's good news on that. I think we're making progress. The regulators seem to be comfortable and we fully expect to have the captives and then the benefit of that as of the second quarter.

The second point I would say is that retirement services sales on a U.S. basis, which is just the flow of deposits in, was good in the first quarter, was up 17%. But I've also told you in the past that it is going to be lumpy. We didn't have any significant large sales in the first quarter. We don't have too many in the pipeline, although I would expect we'll have some later on in the year in the second half.

And then the other point I would make, of course in the U.S., the U.S. competitors don't really focus as much on value of new business. And you can argue is that right or wrong. But if you look at, and I would refer you to page seven of the U.S. statistical supplement, the -- in the first quarter, excluding currencies and excluding capital gains and losses which is the way we look at the business, which is the underlying operating earnings, they were up 25% in the first quarter. John made that point.

But also, and I think we've -- Kathy Murphy and I have both shown you this in presentations that we've done, from 2002 to 2006, the U.S. growth in underlying earnings on the same basis, excluding currency and gains and losses, has grown at a compound growth rate '02 to '06 of 25%. We've also been able to do that in the first quarter of '07. So that means for 17 quarters in a row the U.S. overall has grown at 25% each quarter. So I would say that's a growth engine.

And furthermore, within the U.S., our insurance businesses have basically been flat on net earnings growth. So the wealth management businesses, which are retirement services and annuities, are growing significantly in excess of 25%. And that's really where focus is going forward.

So we were a little disappointed in the annuity business in the first quarter. It's going to be lumpier. Our net flows in the VA business still remain good, so we feel very, very good about the U.S. wealth management business going forward and would expect -- I don't know that you can count on 25% per quarter forever, but certainly we would expect strong double-digit growth, as we've demonstrated over the last 17 quarters.

Thank you very much for that. Very quick final comment on the same theme of growth. ING Direct, how do you reconcile that at the moment as a growth engine? Are you concerned about the increasing competition in the U.S. and U.K. in particular? That seems to be the main problem, taking over from the inverted yield curve.

Nick, let me turn to Dick Harryvan, who is with us this morning, so he will give you a direct answer on that.

Nick, we're -- I think as far as growth is concerned, we saw growth up in the first quarter versus the fourth quarter of last year. It was a record quarter again for mortgages. We are focusing, as we have reported in the last quarters, more on mortgages at this point in the cycle than on savings. So EUR5.8b in own-originated mortgages. John Hele already indicated the benefits of that for the profitability of the model going forward.

In the U.K., we did see an outflow, but this was well within the outflow that we forecasted. In the end, just over 2% of our customers left us in the first quarter, which is only slightly above the natural attrition rate of about 1% a quarter. So these are interest rate sensitive customers with balances over EUR50,000, on average, which we see as a, let's say, a healthy rebalancing of our portfolio. And we are not sorry, let's say, to see these customers leave.

You could say, in hindsight, we benefited -- there was extremely fast growth of the U.K. greenfield operation, the fastest of any start-up we had, because of this somewhat more interest rate sensitive nature of U.K. customers. And this is just a healthy rebalancing of that portfolio.

In the end, in this flat yield curve, as far as the competition on savings is concerned, our absolutely no operating cost is what will, in the end, allow us to remain competitive vis-a-vis other banks. If you look at the U.K. market, just since we were focusing on that, we will be paying 5% as a minimum, starting June 1, to our customers, while other U.K. banks, on average, are paying 3.8%. So you see there, already, a reflection of the fact that we're a low-cost operator.

Our expenses in the savings business related to the balances are 25 basis points as we speak, and that is about a sixth -- almost 2% lower than branch banks. That's where we're getting most of the competition. The, let's say, competition from direct players has much less influence on us than, let's say, the traditional players, which, of course, try to gain customers back, as you would expect in a competitive market.

Okay. Thank you very much indeed.

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

Good morning. It's [Mark Peter] here from UBS. Two questions, if I may, firstly on entering direct banking in Japan. Could you give us a bit more background regarding the strategy you will be following? An indication regarding the investment you're prepared to make would be very helpful. And will you provide the end product? Will you join the banking network, Bank of Japan and ATM network too?

My second question is coming back to the U.S. business, if I may. On variable annuities, it looks like you've lost market share again. And I was just wondering if you could run us through the product pipeline and what we should expect in that market, after you've given us some guidance on Japan.

Thank you very much. First, I will turn to Dick.

On ING Direct Japan, our market research shows that our proposition going in, which will be, following our proven strategy of starting in the savings segment -- there we have a proposition which is very attractive to Japanese consumers. They have been used to receiving one or two basis points for the last 10 years. We'll be able to, again because of our efficient model, to put a very attractive rate into that market, still making a nice margin from the beginning.

If you look at our launches in bigger markets, our start-up losses in the first years are typically EUR50m to EUR60m a year. Japan being, of course, the second-largest market in the world, you could expect the investment to be slightly higher than that, not double, but somewhat higher than the EUR50m, EUR60m for the first couple of years.

And the U.S. variable annuities, you're right, Mark. Sales were down 5%, so that was a little disappointing. I think overall the market was slow in the first quarter for VA, given the fact that the equity markets were flat. We do -- we don't have any totally new products. We do have upgrades on existing products that are coming online May 1 and then some others on August 1, so we would certainly expect to see momentum pick up from that.

I would also point out that the most important thing in terms of variable annuities are not sales but net flows. And our net flows have averaged between 500 and 700m a quarter for many quarters now. And I think if you compare that to our variable annuity competitors, the net flows that ING has is among the best in the industry. So we clearly want to get our sales up, but we're very pleased with our net flows.

Great, thank you. Can I come back quickly just on Japan? Are you joining the network and are you offering the end product?

We will not, in the first instance, join the ATM network.

Thank you. Great, thank you.

So the account will be linked to people's payment accounts and they can transfer their money back online or through instructions to the call center and get it back within 24 hours.

And this is the traditional way to enter a market. That's how we have started everywhere.

Thanks very much.

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

Yes, hello. It's Paul Goodhind from Bear Stearns here. Couple of questions, maybe for Dick, perhaps, on ING Direct. Could you give us the total amount you spent on acquisition costs this quarter, versus the same quarter last year? I guess I'm including both the acquisition costs of the savings business and also the mortgage acquisition costs. In the past, you've given an indication, I think, of the profit contribution of the non-savings products, mainly mortgages and mutual funds. Could you give what the contribution for those products was in the first quarter, again versus last year?

I would say that -- I think John Hele answered the question quite clearly on mortgages in terms of what the costs are there in acquiring mortgages. So the cash outlay is about 1.4% of the face amount. What flows to the bottom line, accounting-wise, is about 1% in the first year.

On savings, the acquisition cost per account is remaining stable at approximately EUR100 per account, which we've communicated in the past. So the acquisition cost per client is -- we don't see it increasing there. It's more in the flows, so if you look at -- with a big base and the economy doing well, people are spending more money in the first place and they are also moving money to other investment categories. That's a phenomenon you see in all European and North American economies.

So that's put some pressure, let's say, on the growth of savings balances, but that will come back subsequently, when people's inclination to save more again returns. So stable acquisition costs on the savings side of approximately EUR100 and a 1.4% cash outlay for mortgages.

And the profit for mortgages and mutual funds?

We don't really disclose that. I can say that mortgages are now solidly profitable, Paul. So last year, we came to breakeven point and -- we were solidly profitable and we actually see our profit momentum coming very heavily from the mortgage side. You can imagine that the savings side is somewhat flat in the current yield curve environment.

Thanks.

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

Good morning. It's Chris Hitchings from KBW. A few little issues. Old reinsurance, I know it's only minus EUR20m, is this Victory, because you've talked about [Asbestos U.K.]? Is this Victory and, if so, what are the limits on that? Question one.

Question two. Taiwan reserve strengthening. You've changed your reserve policy basis to leave a buffer of EUR3.2b and yet you're not changing the reserve strengthening program in Taiwan. I would have thought that would have justified it. Is there any reason behind that?

Third question. I was intrigued that you opened more new current accounts in ING Direct Spain than you did in the U.S. Are there any timing issues there? Are you pleased, happy, with how your [ING] account's doing in the U.S.? Thirdly -- yes. On ING Direct, the rollout in other parts of the U.S., how's that going? What impact has that had, if any, in these figures?

And finally, whereabouts will you charge the reorganization costs for the Dutch banking merger? Thanks.

Okay, thank you very much. First, the question on the reinsurance, old reinsurance provisioning, old reinsurance provisioning. John?

This is -- it's called NRG. It includes the runoff of Victory, I believe, and it has been a generally positive contributor over the last few -- couple of years, but we had to do a one-time reserve strengthening due to a change in the U.K. law. But that should be it on that.

The second question on Taiwan, dealing with our reserve strengthening, if we have this buffer, why not change it, our other policy when it comes to reserve strengthening is that we don't really want to make the reserve position worse. And we're so close to the 50% test in Taiwan, if you start to let that deteriorate, you will start to make the inadequacy worse. So we are continuing to add prudently to those reserves.

At some point, if we get far enough away, as we get further away from the 50% level in Taiwan, we could see some future profits develop there. But we'll have to wait and see [inaudible] as we know, highly sensitive to the current interest rate there.

Okay. ING Direct, Dick?

Yes. In terms of the numbers of payment accounts in the U.S. versus Spain, Spain indeed does have 125,000, which is slightly accounts versus the U.S.' 115,000.

Spain has been working on this now for approximately 18 months, of course in a smaller market than the U.S., needless to say. But the number in Spain we are, I would say, very encouraged about, because it's approaching 10% of our clients in Spain. And we see that the propensity to buy this service from us increases all the time with our clients based on their experience and the word of mouth. In Spain, in a payment account, you must deposit your salary, your monthly salary, so that's a requirement. So these are all people that have this as their primary account.

In the U.S., we just started, in the first quarter, 115,000 accounts with an attractive rate for -- of 4%, even up to 5% for customers with more than $50,000 in their account. So very encouraged by the first quarter result, there - approximately $3.2b went into this account in the first quarter and we have high expectations going forward.

As far as Atlanta -- the new areas in the U.S., Atlanta, Chicago and Miami, they contribute approximately 35% of our total client growth, which was 320,000 in the first quarter.

Thanks very much indeed. Yes, and where are you charging the Dutch bank reorganization costs?

Yes, I think the answer to that question is on slide 39. When you see on the left-hand side P&L impact assessment, that's how you see it spread over the years from this year to 2011. And then on the next page, on the left-hand side, you see how per year on what it is being spent. Obviously, the cash out of this investment are in the early years.

I was more interested --

But from an accounting point of view, if that's your question --

Yes.

This will be [roughly] -- a good piece of these costs will be reported as a special item.

It'll be a special item, yes.

Yes.

Thanks.

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, Kelton. You may have already answered this question. I was a bit late on to the call so, if so, just say, and I'll listen to the replay. But I was just wondering do you anticipate any -- Just on the branding, in terms of combining the two banks and the Postbank brand, do you anticipate any issues moving to the single ING brand in the Netherlands for the Banking side? Do you see any conflict with other distribution such as brokers? So can you just comment a bit on the branding, please?

I think we are conscious that branding is always a sensitive issue. And of course, Postbank is a well-recognized brand, with 7m customers. But also, we have to recognize that branding image is an evolutionary issue. And we feel very strongly, after having made a number of marketing surveys, customer surveys, that the appeal of ING brand today is very strong, because it is now an internationally-recognized brand. We have invested a lot in the brand and the ING name is now well-known in this country. Therefore, I think that -- To some extent, also, Postbank, although very successful with some generations, was a little bit losing momentum with some other new generations, when ING is picking up.

So we feel very strongly that the ING name now is very strong, that it has brand recognition and also that we have experience in other countries of renaming very well-known, entrenched brands into ING with a lot of success. I can give you two very good cases. U.S., when we acquired Aetna, was one of the most famous insurance companies in the U.S., we rebranded them ING with a lot of success. In Belgium, when ING bought BBL, it was a very well-known brand with 98% recognition and we have moved into ING without any problem. And today, ING is as much recognized brand.

So in this country, where ING is seen as a successful Company with international radiance, I think that the transition should be easier. And we are very confident that we can make it work.

And with that, do you anticipate any conflict with other channels, like brokers or -- would there be potential to leverage more products through this combined ING Bank, such as the Insurance business?

No. At this point of time, I think, first of all, there has been no conflict of channels. And frankly, I think that, at this point of time, given the situation, I think that moving into pushing more of the brand on the Retail Banking side is probably the right thing to do.

Okay. Thanks.

[OPERATOR INSTRUCTIONS]. The next question comes from the line of Mr. Ton Gietman. Please state your name, company name, followed by your question.

Good morning. This is Ton Gietman, Petercam, Amsterdam. Two questions. First, you are, in the Dutch Retail Banking area going to save EUR280m in a four-year period. However, in the first quarter already, your expenses went up EUR45m. On an annual basis, that's EUR160m. Could you tell us what is happening with the expense growth, not, by the way, only in Retail in the Netherlands, also in, for instance, Wholesale, where we see expenses growing by more than 10%?

And my second question -- my feeling is that the brand name of Postbank is a better one than Nationale-Nederlanden. So when are you going to tackle the other big branding name in the Netherlands, being Nationale-Nederlanden?

Okay. First, John, do you want to comment on expense, generally speaking?

We have seen expenses in Retail Banking, as you said, compared to Q4, up. We have dramatic investments across all of Retail Banking. Growth, of course, in Poland and some of the developing markets. Our investments in Romania are continuing on track. We see these expenses in terms of ratios and them averaging out over the year, so this is really a reflection of the ongoing growth in the business.

I would like to make --

In the Netherlands, the expense growth was more than 7%, so that's not investment in Poland and Romania. Year on year, the expense growth in the Netherlands was 7.6%.

Eli, do you want to talk about that?

Yes. One of the reasons, Ton, is that, in the first quarter of last year, we had some, let's say, negative expenses because of extraordinary items. So optically, the expense growth looks higher than it actually is.

I think we should re-base the numbers --

[Always].

-- after taking out the exceptionals. On top of that, I think that, Ton, we are -- I have to say very clearly to you that we are very comfortable with our cost increase going forward to the year and the Board feel very confident about our cost structure over the full year. So -- and especially, I think that we are making the clear decision that we have to continue to invest in those areas where we feel there is growth and traction and we will do so. And on the other hand, we will have to continue to invest in mature markets when it makes sense, like we do in Postbank and ING Bank, here, to reduce long-term structural costs.

So I think that -- I feel very confident about the evolution of the costs for the full year. We have made our calculations and we feel confident. And maybe I'll pass to John Hele, who wants to say something.

Ton, also, you're looking at compared to a year ago, but of course Retail Banking in the Netherlands has been doing investments in compliance and upgrading their infrastructures. So compared to the fourth quarter, operating expenses are flat, but income's up 5%. So I think that's a very well run, dramatic change, there.

Thank you. My question on Nationale-Nederlanden?

Brand, the NN brand now, I think that, in the Bank side, we recognize, of course, that Postbank name is a very good name, but nevertheless we felt very strongly that we had to change it to a new brand and to really upgrade the brand from that standpoint, in terms also of business content.

When it comes to Nationale-Nederlanden, this is a totally different issue, but I remind you also that, there, we have another issue, which is the channel issue. Nationale are working through brokers and intermediaries, when the Bank works through the bank network. So I think that that -- the issue of the Nationale-Nederlanden name is another issue that we have to look in the context of the overall strategy of our insurance business in this country, which is certainly something we are working on.

Thank you.

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

Hi. This is Bruno Paulson calling from Sanford Bernstein. If we could focus in on the Dutch life business, firstly, what plans there are to improve the very low new business profits.

And also, the life IFRS profit was up a bit on last year, but last year was a very depressed quarter because of the fair value adjustment. If you could talk us through what the fair value adjustments were last year and this year and if there are any other factors depressing the IFRS profit in Q1.

Okay. Let me speak about the Dutch life business first. I think we have seen, in the last few years, the volume of life business in this country decline substantially overall. So the market has declined and it's a combination of a number of factors, including, certainly, a change of regulation regarding taxes and second, to some extent, some compliance issues which came up very strongly to the surface, particularly in the press. And those two things have basically meant that the volume overall of our business, of the business generally speaking, has declined.

Now, I think what you see is that we have two choices right now. Either you want to really be very aggressive in market share at the expense of return, and that means putting a lot of capital at a very low return, because we see our competitors accepting business at extremely low return. And since we have other places to put our capital and we are not obliged to put capital at low return, we prefer to put something else and not compete that aggressively to put a lot of capital at very low return. I don't think that would be consistent with our strategy.

So you have to some extent -- if you are consistent with your own strategy, you will have also to understand the consequence of that. And therefore we're looking for growth more in those growth engine and insurance that we have mentioned to you. So that's the situation. And I think that that means also that we are working carefully on our Dutch business. We are watching carefully the evolution of that business and this is not outside of our radar screen, let's put it this way.

In terms of [inaudible] IFRS profits, the [separate account] shortfall and volatility that we had that we explained in prior quarters, a year ago it was at roughly minus EUR100m and this quarter it's minus EUR40m, so there's a EUR60m gain on that. There's also some lower profit share in, say, EUR10m, from policyholders.

This is offset a bit by a slightly lower investment result, which was fair value changes of non-trading derivatives were about EUR30m lower and some other items that add in terms of pluses and negatives. And operating expenses were slightly higher, as we are paying and investing for all the new regulations that we have to follow in the Netherlands. So that's the basic adjustments up and down between the two periods.

Thank you. And on the operating expenses, have the benefits of the Nationale-Nederlanden job cuts come through yet or are those still to come in the future?

I think in terms of the cost there, I think we are absolutely on plan regarding the progress we wanted to make on the plan we announced to you a few years ago -- a few years, I think two years ago. At the same time, there were new regulations coming in, which has imposed to the insurance companies to produce a number of additional, for instance, statements and reports to the customers. And we are very busy responding to those [regulatory] requirements, and for that we had to take a number of temporary employees to get that done. And that is, of course, having an impact on the cost, but that should disappear after a while and therefore come back totally on plan. But unfortunately, at the time we made the plan, announced the plan, those new regulations were not known.

Yes, so the operating expense being up EUR13m a year is mainly caused by external staffing to get all these projects done and everything else. And as we get those done this year, then we'll start to see those wane off over time.

Thank you very much.

[OPERATOR INSTRUCTIONS]. Excuse me, sir, there are no further questions at this time. Please continue with any other points you wish to raise.

Thank you very much. We have no more points. And I hope that the format was helpful for everybody and we are eager to get your feedback on this format and to see if this is the right way to continue. And thank you very much for your interest in ING and have a good day. Goodbye.

Ladies and gentlemen, this concludes the first quarter results 2007 conference call. Please be advised that there is a recording of today's conference that will be available on the following dial-in numbers and access codes. For the Americas regions, please dial 001-303-590-3030 and enter an access code 3731275 followed by the hash key. For the U.K., please dial 0044-20-7154-2833. You will be required to enter the access code 3731275 followed by the hash key. For the Netherlands, please dial 0031-45-799-0029. You will be requiring the access code of 135829 followed by the hash key. Thank you for your participation. You may now disconnect.