ING Groep NV (ING) 2008 Q4 法說會逐字稿

Good morning. Welcome to ING's analyst conference call. Before handing this conference call over to Jan Hommen, Chairman of ING Supervisory Board and CEO Designate, John Hele, Chief Financial Officer and Koos Timmermans, Chief Risk Officer, 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, movement in securities markets, including equities markets, and underlying economic conditions and changes. The realization of forward-looking statements could be materially altered for unexpected movements in any or all of these and other variables.

Good morning, Mr. Hommen, Mr. Hele and Mr. Timmermans. Mr. Hommen, over to you.

Thank you. Welcome and thank you for joining us this morning. I'm here with John Hele, CFO, Koos Timmermans CRO, and Eric Boyer the acting CEO.

Before we go into the results of Q4, I want to share briefly with you my observations since being named CEO Designate a few weeks ago. This includes the lessons learned from the financial crisis, both for the industry as a whole and for ING specifically. And then I will talk you through what we are doing to address these concerns, the measures we have taken to strengthen ING, and the change program we are implementing to build ING into a stronger Company.

The financial crisis has had a profound impact on the entire industry, and the magnitude of the crisis has left few companies unaffected. For ING, we ended 2008 still focused on growth, and we were overtaken by the pace and severity of the deterioration in financial markets in Q4.

The need for many companies, including us, to seek government support, has raised some new and important issues, including the level of capital financial institutions should hold, regulatory issues, and the role that banks play in society. If you read the newspapers these days, it is clear that the crisis has damaged the confidence in the financial industry.

We are fortunate that our customer base has remained stable, but we are very aware that we must continue to work to earn our customers' trust every day.

From the crisis, we have learned how important it is that we live up to our responsibilities to all of our stakeholders, for customers that we provide them stability and be a trusted financial partner, and that we offer them transparent products at fair prices; for employees, that we give them clarity on ING's future, that we keep our staff motivated, and focus on the customer.

We must partner with regulators and governments and society to build a strong and stable financial sector. And we will continue to make credit available to sustain a health economy. And, of course, we need to take into account that we can only do that at market consistent rates in line with our underlying standards. And for investors, we need to strengthen ING's financial position, improve our earnings capacity, provide more clarity and reduce our volatility.

For ING itself, we must also draw some important lessons from the current crisis, and we must accelerate the transformation of the Company in light of the changes that are happening in the industry.

Our focus on growth over the past years and our ambition to be one of the leading financial institutions has resulted in many good market positions. However, it was also supported by tail winds in the markets which masked some of our underlying cost and performance challenges. Simply put, we must take a more disciplined approach to growth, to cost and risk, and we must be more selective in where we focus our efforts to build towards a truly leading market position.

Our overriding short-term objective is to navigate ING through the crisis by addressing these issues head on, while anticipating possible new challenges that may emerge. We're taking a more selective approach to growth within our current risk and capital constraints. For example, we have decided not to launch ING Direct in Japan and not to launch the Life Insurance Greenfields in the Ukraine.

We are further reducing our risk and our leverage, and there are many examples of that. We are reducing volatility in equity by shrinking the available for sale portfolio. We will maintain our capital levels in line with market expectations and continue our dialog with regulators and rating agencies to assess the level of capital required once the crisis subsides. We will bring cost in line with the reality of today's leaner operating environment. And also, we must be outwardly focused and alert to changes in the markets. We will increase accountability within the Organization, and we will certainly reduce the complexity of the Group and focus on the basics.

As you can see, we have already taken some measures to stabilize and to strengthen ING. The illiquid asset back up facility with the Dutch State offers now protection on 80% of our Alt-A portfolio. It will strengthen our IFRS equity by EUR4.6 billion and reduce risk-weighted assets by about EUR13 billion adding about 37 basis points to our Tier 1 ratio.

The sale of our Taiwanese Life business significantly reduces interest rate risk and economic capital requirements in the Insurance company. And the divestment of ING Canada sharpens our focus on core businesses and generated cash proceeds of EUR1.4 billion. These measures have further strengthened our cap ratios, but we have to remain vigilant of what is going on in 2009.

What are our priorities going forward? We are reducing our exposures to market volatility. We are reducing the size of our available for sale portfolio to limit volatility in the IFRS equity. We have hedged most of our direct public equity exposure. We have disposed parts of our investments and real estate and private equity. And we are reducing the size of our Bank balance sheet by about 10%, not by restricting lending, but by decreasing the non-lending assets by about 25%.

Costs reduction is a major priority going forwards, and we have announced measures to reduce operating expense by EUR1 billion in 2009. This will lead to annual savings of about EUR1.1 billion going forwards from 2010 forwards.

We are reducing head office expense. Looking at marketing, we have already announced the Formula 1 that we will stop this year when the contract is up, and we are looking at third party staff. All in all, it involves a headcount reduction of about 7,000 people. And on everything we do, [modesty] must prevail in order to align our cost base with the environment where we are in now.

We also continue to work to preserve our capital, focusing the Organization and divesting non-core activities. We will stop setting up new Greenfield operations in new markets, and we will work to buy back the Tier 1 securities from the Dutch government once the crisis subsides.

This is by no means all we need to do. Indeed, you should consider this a first wave of what will be a substantive journey to qualify our portfolio and improve our position.

This you can see in the change program for 2009/2010; let we've put it in context for you what we had have in mind. Over the last three weeks, we have developed an outline of a program to strengthen and transform ING over time, consisting of four major elements. The first priority is to strengthen the financials and restore credibility in dealing with the crisis, for which we have already taken some initial measures, and they include, of course, reducing costs, the EUR1 billion I have just mentioned, [dealt with] Alt-A, and de-leverage the balance sheet by a combination of reducing the asset size and preserving equity.

In parallel, we will start reviewing the portfolio to determine where we create value for our customers, our clients and our employees and, of course, for shareholders.

Our options are open as far as I can see it. We want to reduce the number of markets in which we operate. We have accelerated our review of where we really want to compete, and are able to do so effectively. We have taken some initial steps here by stopping new expansions as ING Direct in Japan and Insurance Greenfields in Central Europe, as well as the sale of ING Canada. And after conducting this review, we need to act decisively but prudently on our conclusions. Reduce the complexity by disentangling businesses and operations to improve agility and speed.

We will invest in those markets where we choose to focus to improve the Operational and Commercial performance and build the necessary scale. Over the last couple of years, the emphasis of ING on growth has led to less of a focus on Operational and Commercial efficiency. To create strong and sustainable franchises, I believe we need to take the following actions. Steer towards top quartile Operational and Commercial effectiveness in our relevant markets and sectors. There is some low hanging fruit that we are already addressing, but we need a fundamental change in our mindset towards leading in operations. We will review whether we have and how we can create market leading positions through our organic investments and our portfolio choices.

We can only deliver this program if we build a stronger Organization that answers accountability, is simple to manage, and is more responsive to customer needs. This transformation of ING will require adjustments to the Organization. It will enhance our performance culture with clear personal accountability, steer better on Operational and Commercial performance. It will increase the frequency and depth of dialog, moving towards transparency in our businesses, place more emphasis on consequence management, strengthen and simplify governments, further empower our risk and finance functions, tighten up the management of the business, speed up decision making, and simplify some of our internal structures.

We will continue to innovate by analyzing changing client needs and develop the appropriate products and processes to accommodate these needs, but to do so in a manner that takes far better use of our increasingly scarce resources.

Well, the crisis was evident in the fourth quarter financials. I can work you through the bullets quickly. Q4 2008, an underlying net loss of EUR3.1 billion, driven by market volatility and declining asset prices; Banking underlying net loss of a little bit more than EUR1 billion in Q4, but full year, we remained profitable, with a little bit more than EUR700 million of profits. Insurance, underlying net loss of EUR2 billion from investment losses and DAC unlocking; divestments and special items totaled a negative EUR611 million, bringing the quarterly loss to EUR3.7 billion.

But our Commercial performance was resilient in 2008 despite the headwinds we saw in Q4. Full-year 2008, our net production of client balances of EUR93 billion; client savings and deposits were EUR21 billion of this. And our value of new business was down 8.1% for the full year as especially weakness in the second half was offsetting the solid performance we had in the first half of the year.

Let me now hand over to John for an update on the financials.

Okay. I'm on slide nine. And I'll just highlight some of the key results of our quarter and the year; walk you through our Commercial performance in 2008, which should hold up throughout the year pretty well despite the headwinds in the fourth quarter; talk to you about our expenses, as well as our capital ratios.

On the next slide, we show you the full-year and the fourth quarter results of Bank and Insurance in Group. I think it's interesting to note the Bank, for the full-year was profitable and Insurance had a loss of approximately EUR1 billion for the year. I think this puts the Bank in line or slightly better than many other banks for the full-year 2008. And Insurance was dramatically impacted by the financial markets.

I think the equity securities, the hedging programs that we did put in place compensated for a good part of that, but the credit markets, other debt securities, as well as hedging and the volatility of the markets, took their toll on the results, particularly in the fourth quarter.

As you look at it by line of business on slide 11, the Banking business, in particular Wholesale Banking, had a hard fourth quarter. That was driven by real estate revaluations and credit related mark-downs and impairments.

The Commercial performance in general lending and structured finance was resilient throughout most of the -- in fact, all of the year. And risk costs increased as the worsening economic conditions started to take their toll.

Retail Banking had a lower fourth quarter. That was driven by two major factors. Number one, we had higher costs in the quarter as we got ready for the integration of Postbank and ING Bank. It was for temporary workers to prepare for the integration that is happening this quarter. And that will be going away throughout the course of this year. We also saw quite a competition for savings, particularly in the Netherlands in the fourth quarter. We're pleased to announce that we see that subsiding a bit, and continued growth in Q1 so far in Retail Banking savings.

ING Direct saw a loss in the fourth quarter driven by a fundamental change in view on impairments, with the Alt-A portfolio that Koos will speak about. The interest margin has gone up in ING Direct globally as interest rates have come down around the world. And we're now seeing positive flows coming through in ING Direct as well in this quarter.

Turning to Insurance on slide 12, you can see the impact in the fourth quarter across the board in the three lines of business in Insurance, driven by asset classes, and also volatilities in both the Americas and Asia Pacific due to single premium Variable Annuities hedging, as well as DAC unlocking.

The equity markets on slide 13, had an impact on our DAC unlocking in the United States. Also in the quarter, which had -- we've not seen much of before, we saw a little of it in the third quarter, are other impacts on DAC unlocking, in particular, lower interest rates. And that had -- a reset we had to do for the DAC in this quarter. Now this gets reset each and every quarter as equity markets improve or as interest rates go up. And these come back again, and this averages out over time.

The market volatilities in slide 14, this shows a graph of the tracking of the assets and liabilities and how well we track on that. We saw EUR184 million of hedge ineffectiveness, hedge losses in the US in the quarter, and in Japan EUR252 million. This is caused by extremely large intra-day volatilities from our dollar hedging program.

On slide 15 I just want to spend a moment here on our reserve adequacy. You will see in our press release we mentioned two areas that fell below our 50% confidence level. Under IFRS, we're required each quarter to assess the reserves on the Insurance side; are they adequate? ING tests at both the 50% level, which is common under US GAAP and many other insurances, but also at a 90% level.

So you can see this representative by a cumulative probability curve here where, to show the 90% and the 50%, we tested a business line level and a business unit level. In total, the US business, which is the business unit, is sufficient at 99%. And we give the numbers where the US is sufficient in terms of euros as well.

It is important though that for both Japan as a business unit, and for the Retail Annuity business, they fell below the 50%. And what that means is the business lines are sufficient. So we have excesses elsewhere in the business lines or business units but these units are an early warning indicator. And the units will all work on plans to strengthen their reserves. And that can be from new business, that can be from working on different accounting systems, that can be from de-risking, adding more hedges. So there's a wide variety of activities that the units can work on, and they'll be working on that in the next quarter. And ING will come back with more details on that at the end of Q1.

When it comes to client balances, the fourth quarter also saw a net production loss of EUR6 billion, and that was driven both in Asia Pacific, ING Direct and Wholesale Banking. But clearly, the market performance was the major -- and FX, was the major two impacts on our client balances to end up at EUR1,455 billion.

The Retail savings flows on slide -- on the next slide, we have seen -- we did see a decline in Q4, but we have seen a new inflow of up to EUR5 billion in ING Direct and Retail Banking which has compensated now just in January alone for the outflows in Q4, so that's a very positive trend.

The interest margin has improved to 1.19%. Now approximately half of that is due to a higher interest result in Wholesale Banking which is partially offset by negative impacts and other income. That's how products are booked. So the true underlying driving margin is, say, about 1.10% or so.

Our new Life sales on the next slide are also driven in -- down a bit as the market turmoil took its toll on sales. And also, value of new business is down because of margin pressure, primarily in Variable Annuity products, higher hedging costs, and lower interest rates.

We adjust our VNP each quarter for the actual hedging costs that are incurred in that quarter and the margins that are incurred in that quarter, and then they are assumed to average out and revert to a mean over time. But we do reflect each quarter the true costs ongoing that we see.

Our embedded value saw the impact of the financial variances in the market turmoil as well. We've a complete embedded value report that's also been published this morning. I have a slide here that just highlights the large change in financial variances from asset revaluations, asset impairments. There's also a change in economic assumptions that a EUR2.3 billion reduction in embedded value. We did see some favorable expense mortality morbidity, but these were more than offset by the financial economic assumption changes. And in total, we ended up at EUR23.0 billion, which includes an injection of capital from the Group into the Insurance businesses.

On the next slide we will be working, as Jan mentioned, reducing our cost, and we give some details here by both the cost reductions, by the business line, and the FTE reductions. The EUR1 billion of operating expenses is 35% in employee costs and 65% other expenses. As Jan mentioned, we're reducing overhead, Formula 1, third party staff. And that's where we are first looking at reducing the structural expense changes.

On slide 23, we give -- slide 22, we give the adjusted equity changes. And you -- we can show how those moved in terms of the net result. This is adjusted equity, so this is for regulatory and rating agency purposes.

Moving on to the key capital ratios and solvency ratios, we are within our own internal standards. We're within what we believe are the market norms today and what the rating agencies expect. We have not set new targets. We're in discussions with rating agencies and others as we see how the market norms move out as we move through this crisis.

Our shareholders' equity has boosted by EUR3.9 billion from the assets back-up facility. We show for the Bank the pro forma impact in the slide. We also show you if our Bank debt was mark-to-market, and some banks to some or all of their senior debt and hybrids as a mark-to-market. That would add EUR6 billion of equity.

And I think it's important when you compare banks to analyze this and get them all on an equal footing. It is a little complex, but an important aspect when comparing ratios of equity, IFRS equity, to the total balance sheet. Also, it's quite different under US GAAP from IFRS, which is another adjustment that you really want to make sure you look out for.

On the next slide, we have notified you that in early January ING Direct reclassified EUR22.8 billion of available-for-sale assets. And these are listed between other ABS, CMBSs, covered bonds, and RMBSs into loan and receivables, as we're allowed to do under IFRS. These are all in Europe, and the negative pre-tax revaluation reserve is still not too big. So these are priced at 95%. We see no market in these today, and that's why we've reclassified them; we will hold for the foreseeable future, and these are for our core ING Direct businesses in the Eurozone.

We show you on slide -- on the next slide, the funding profile we have. We had a large amount of funding we were able to execute in 2008. We were very active in the first half of 2008, which was a very good thing. We have a manageable funding profile for this year in 2009, and we've already issued -- due to the preannouncement, we took advantage of the opportunity to issue EUR6 billion senior debt in the Bank under the Dutch guarantee programs. So we already have EUR6 billion of the required 2009 needs.

With that, I'm going to turn it over to Koos Timmermans to talk about risk.

Okay. On the risk side, page 28, a few things to go through. One -- well, first and overall, it's been a tough quarter with the asset prices going down but, also, earnings and real economy deteriorating, which has an impact on delinquency rates in our US housing portfolio.

So what we'll do is we will talk about Alt-A, and we'll talk about the US mortgage delinquencies and about our credit losses which we estimated at a higher level. Also, we'll talk about our structure, what we have done with the Dutch State. And then we'll zoom in on the rest of the balance sheet, so the exposures on interest rate equities, ABSs. And we look at the overall asset allocation, what we have done. And then we'll zoom in on the loan portfolio.

So with that, I'd like to first go to the Alt-A mortgage delinquencies. What we have seen in Alt-A is, underlying, we saw an increased rate of delinquencies happening over the fourth quarter. So Alt-A delinquencies, it increased from 9.7% to 12.7%, and on some tranches, like the [06] it's from 12.3% to 15.6%. So there was at the moment in the fourth quarter not an evidence that delinquencies were leveling off.

And the outlook, of course, was not getting better either, and that was evidenced amongst other by Moody's, who revised their ultimate loss expectations. And that went from 4% to 8% to 20% to 24%. And then we are talking about cumulative losses of mortgages. So that is not the same as our RMBSs because we hold credit announcements. But nevertheless, you see that those cumulative losses were increasing.

So what we do is we don't look so much when we project credit losses at the market values of the bonds. We do look at the underlying cash flows, and we test them. And with that in mind, and with the increased delinquencies, and with the worsening outlook, we felt that we had to take a harsher look at our [cash flow] testing. And this harsher look at cash flow testing resulted actually in an anticipated credit loss of EUR303 million on the Alt-As in the fourth quarter.

And the EUR303 million on page 30, we are -- that is approximately EUR260 million in Direct and EUR40 million in the Insurance company.

Now where this has come from? You know from us that we normally work at our Alt-A portfolio and then we select how much of test flow protection do we still have due to credit enhancement. And if it's in Bucket 1 then it means, like our cash flow tests, say, like there is insufficient cover. Bucket 2 says like, well, the credit enhancement is still one to two times bigger than the anticipated losses, or it has very low market prices. And then Bucket 3 are the ones where the credit enhancement is ample.

So what we did is we did that testing. And what you in essence saw is that Bucket 1 has completely been repaired. And if you look at Bucket 2, 62% of the ones with the coverage between one and two were impaired. And also a small part of the Alt-As with a mortgage with a price lower than 60.

Now that is in as far as we are talking about the credit side. But then what you can see is it has overall an impact on the impairment, because EUR303 million of credit losses resulted in a write-down to market value of EUR1.8 billion, and the higher pre-tax impairment over the fourth quarter.

Then let us home in on another aspect with the Alt-As; we have seen, and that is what you see on page 31, a risk-weighted asset growth driven by downgrades of Alt-A. You see overall that we had a growth in risk-weighted asset to EUR14.2 billion. That EUR14.2 billion on top there, that is the impact of the rating migration of Alt-A. The moment that bonds become downgraded or are rated at a level of BB or below, then what you will see is that, in general, you will take a one-for-one capital deduction. So that is one of the issues which is of importance to note with the securitization portfolio.

In general, what you can say is that those securitization transactions have a higher sensitivity to credit migration than if you look at the normal loan book, because I'd like to point out on the loan book, in general, and what you see on the loan book in general is that a one large downgrade, if you take the whole lending portfolio of ING. If you then take a one large downgrade over the whole portfolio, that translate into a 60 basis point increase, or decrease, in the Tier 1 ratio. And so you see a lot lower or a lot smoother migration with the normal loan book than with these particular Alt-A grades. So this is also one of the reasons why the facility which we have done with the Dutch State helps.

So then let us move over to page 31, I believe. And that is the page which is there introducing the transaction what we have done with the Dutch State. What we have done with the Dutch State is we have done a transaction where we start to share the risk. 80% of the risk goes to the State, 20% of the risk stays with us. In essence, if we look at the transaction, the day one P&L, once the transaction starts, is approximately P&L neutral. We sell at approximately at a price of 90, we re-impair some of the impairments. And overall, your day one P&L is neutral.

At the same time, if we look at the Tier 1 ratio, that clearly improves, because we have a reduction in risk-weighted assets by EUR13 billion. But also, what you see is the cash flow will change as well.

In other words, what will happen is the State will receive a coupon on the Alt-A of 4.5% approximately, so we take EUR21.9 billion and 4.5% that goes to the State. At the same time, we receive a coupon or receivable from the State, and that is partly fixed, and that is partly the one on LIBOR. And there we approximately receive a coupon of 21.9 times 3%; 550. So overall, we have a lower cash flow which we receive due to the transaction with the State.

But at the same time, we have lower future impairments, and what we also have is less of a credit migration issue. So all of these things help to stabilize cash flows, and it makes sure that the results get less volatile.

Let us now go from -- and by the way, if we look this cash flow, and if we look at the EUR100 million per quarter, approximately what you see as a lower cash flow, that will start to level off with the prepayment of the Alt-A portfolio. And if you take the normal prepayment fee, which we see right now, then you would have assumed that it's approximately 50% lower by year five.

Let us then look at page 32, and then we take the overall pro forma balance sheet at 2000 (sic - see press release) year-end. The wheels which we normally show, where you see total assets for the Group, the investment portfolio, and the ABS portfolio, like I've shown in previous quarters, are stated here. What I've done is say like, well, what is the impact of the facility what we have done with the State?

So in essence, what you see there is that we get a government receivable back instead of the Alt-A portfolio. And a government receivable is higher in notional than the Alt-A portfolio. And you get, on the liability side, a revaluation reserve which is reversed, which increase shareholders' equity. So that is in a nutshell the point which you will see.

And then in the breakdown of the investments, what you see is that I have a lower amount of ABSs, so that's in the middle, the dark blue part. And I have, on the right-hand side, a lower amount of Alt-As.

If we move then to page 33, and we look at the ABS portfolio, overall, what you see is a decline in the portfolio; EUR81 billion at Q3. It was EUR72 billion at the fourth quarter due to lower valuations; then it became EUR57 billion because of the illiquid asset back-up, and now, what Jan already alluded to, we do partially a reclassification, so it will be EUR44 billion going forward after reclassifications.

The reason that we do it is we want to bring the accounting more in line with the buy Alt nature of this portfolio, and at the same time, we want to stabilize our IFRS equity volatility.

Talking about the ABS portfolio, I'd like to zoom in on the CMBS portfolio. If you look at the CMBS portfolio, it declined in market value from EUR9.5 billion EUR7.3 billion, and so we had a fair amount of negative revaluations happening over the fourth quarter.

If we look at the characteristics of the portfolio, 430 bonds with quite a lot of underlying Commercial mortgages, 26,000 in the different type of trusts. One of the things we have to note is that those underlying mortgages, it's Commercial mortgages and it can be of various types. It can be more the shopping malls, it can be more the offices; that means that the underlying diversification is a bit higher than if you look at a normal mortgage borrower and what you see on the Alt-A side.

The particular things what we look at in this portfolio is, well, first the credit ratings, they are relatively high. The credit enhancement on the portfolio on a weighted basis is relatively high, and we look at the debt service coverage ratio which is, for us, important there, which is holding up well at this moment.

Why debt service coverage ratio? We'd rather look at debt service coverage in this case rather than your annual CPRs and your CDRs. That's a better way to project how this portfolio is performing.

If we go to -- from the CMBS portfolio to the CDOs and the CLOs on page 35, then what you see there is general decline of the CLO portfolio. What happened there, in general there was a sale in Insurance Americas of EUR650 million. At the same time, the Wholesale Banking side, they closed their positions in the CDOs and CLOs as well. There was a fair value decrease happening. The only offset there was a reclassification which I had from Insurance Europe where something was booked under European ABSs with SME as underlying, and that is now booked under CDO, CLOs. But overall, what you see happening is net-net. We have been declining in this area.

Then let us zoom in on the investment portfolio, page 36. Overall, the investment portfolio, what happened is we increased our weighting in government bonds, especially in the US especially over the last quarter, and what you see is clearly our ABSs went down, partially because of the illiquid asset backup facility, partially because of revaluations, and we went down in the equity part because of hedges and because of sales. And actually, what we'd like to do in the investment portfolio is to bring that down slightly further, partially by integrating a bit of ING Direct's balance sheet by making sure that we put ING originated assets in the ING Direct balance sheet, where regulators allow us so and where we can sell part of our own portfolio.

So that is a -- the point what we try to do is partially integrate balance sheets, so also make sure that we can continue to lend money and, therefore, also reduce our revaluation sensitivity.

With that, I'd like to move now to the equity part of the investment portfolio, page 37. On the equity part of the portfolio, what you see is over the year from 2007 to 2008, we have been declining in the equity party, both on the Insurance side, as well as on the Banking side. And where we do have the equities, we do hedge this portfolio to a reasonable amount.

Still we have the basis risk, and that is you cannot precisely replicate the IFRS impairment rules with equities with put options, thus, roughly speaking, we have a hedge on the total portfolio.

Also from time to time we hedge some of the debt unlocking in the US if we have a very negative view about the market, so that is something which we do more opportunistically.

If we then move from the equities to the Real Estate side, on the Real Estate side, what you see is we still have the EUR9.8 billion investment and seed capital in the Real Estate Funds which are revalued via the P&L. You see in essence no material change in the inventory. We divested some, and that is EUR0.4 million, but again, this is a market where it is difficult at this moment to allay all exposure elsewhere.

A brief update on the Real Estate Funds; what you see is EUR66.5 billion in Real Estate Funds. Why a lower amount? That is more a lower revaluations of the portfolio, not necessarily outflows. Most of the funds are not open-ended, and they are not open ended Retail based type funds.

A few words on the debt financing in the funds; overall, there is approximately EUR22 billion of debt financing in the fund, EUR4 billion funded by ING there. Over the next year, the refinancing requirements are approximately 10% in the funds, which is a relatively modest amount there.

Then moving from the Real Estate side more to the de-risking on the Insurance in the area of interest rates; one of the things what happened is [Tilf], the Life business in Taiwan, it had a reduction in economic capital of EUR5.7 billion, it increased our market value of our balance sheet by EUR3.4 billion, and in essence, that is the case because we have a lot of guarantees at a lot higher rate than the currents [operate] in Taiwan for 10 years which is at this moment at around 1.43%.

So it helps to shorten the duration of the liabilities on the Insurance side. Meanwhile, over the fourth quarter what we also did is we lengthened the asset duration on the Insurance company, and we did that by investment in government bonds, interest rate swaps and swaptions wherever we get a reasonable accounting treatment for this.

Then moving to page 40, overall balance sheet reduction, one of the things is we reduced our balance sheet already in the fourth quarter by EUR41 billion, and we want to cut it by another EUR70 billion in '09. Where we do that? There is a few obvious ones; reverse repo interbank activities as well, but there's another one, and that is what I already mentioned before, that is trying to bring down the investment portfolio and to basically use savings money to fund loans rather than the investment portfolio as well.

Overall, balance sheet reduction does come at a cost, and what we expect over 2009 is EUR130 million P&L impact because of the balance sheet reduction. But what you see as well there is that our lending as a percentage of total balance sheet will move up from 57% 3Q '08 to 64% at the end of '09, and that is something which we are aiming to do.

Then if we move to page 41, we look at the loan book because we are now at the loan book. What you see actually in the loan book is an increase in the total amount of provisions. Over the fourth quarter, 81 basis points on a net basis, 94 additions minus 12 releases, so in general, a higher number there. Where does it come from? You see it higher in the mortgages and that is delinquencies in the US. You see it a bit in the Private Banking area. You see it in the structured finance area and you see it in the corporate loan book and a few separates as well. So it's a bit widespread over a number of areas.

Then if we zoom in on the mortgages, because that's with the loan book, in half of it is regional, half of it is Wholesale. If we take the Retail part, the mortgages, that's the biggest chunk of it, there what you see is the NPLs in a matrix, and overall what you see on the EUR267 billion, you see that the non-performing loans has moved up gradually from 0.9% to 1.1% where the US in this case is the biggest contributor.

The right hand graph puts it a bit in perspective. What you do see is an increased amount of delinquencies, and that is the red line there. It is going in line with basically the prime mortgages. So yes, in general, that is a bit the characteristic of the portfolio, but then again, delinquencies across the board are increasing in the US market at this moment.

What we do, do actually is we do have strict underwriting. If you look at our loan to value index for property values right now, they are at 75%. And also what you see is new production, you do it on an average LTV of 63%. And in general what you find is an interest margin. If you look at an interest margin that is basically the rate minus the cost of fund, minus repayments, minus commissions, that is at 150 basis points. So it is at healthy prices, but at the same time you do see an increased amount of delinquencies overall in the portfolio.

If we then move from the Retail side to the Commercial side, and that is on page 43, in general, if you look at our Commercial loan book, what we have is either a higher rating or we want to have a higher degree of quality collateral as customers.

And if you look at the Commercial loan books, it's relatively diversified. That's what you see on the left hand side, diversification per type of industry, and on the right hand side, you see the diversification per geography, although there is a strong focus on the Benelux because the light blue and the dark blue side clearly indicate that half of the portfolio is in the Benelux.

If you look at the non-performing loans, it increased from 1% towards 2% of the Commercial loan book, and that had to do with the Real Estate, the builders and automotives in particular.

Then if you look at -- final point from my side on the risk, on the Alt-A side, yes, we have seen underlying economy deteriorating and, therefore, we have taken steps to both first impair more, and second, to do our illiquid asset transaction with the state.

Second point is we are de-risking the balance sheet, and that means like reducing the balance sheet, we are reducing exposures to interest rates, equities and ABSs, and we are trying to integrate the balance sheet a bit more where regulators and the positions allow us so. Third thing is if you look at the risk costs increase in the book, that was on the fourth quarter, it was a relatively high number, and it was driven by the various sectors; partially by the Wholesale and partially by the Retail side.

And with that, I'd like to hand it over to Jan.

Okay. Thank you, Koos. A few closing remarks. It will be clear that our objectives short term are to strengthen ING and deal with the impact of the crisis by quickly reducing costs, by monitoring and reducing risk in our capital exposures, and by de-leveraging further the balance sheet with our reduced assets and preserve our equity, and all that, of course, keeping in mind that the customer is critically important to us. It is their willingness to do business with us that makes a successful Company.

Further we will take a very hard look at how we can reduce complexity of the Group. We're going to review our portfolio of businesses in light of the changes that are happening in the industry. We do that with the collective Executive Boards, and we have a process already designed in order to get the data and get us the conclusions in a few -- in a relatively short timeframe.

And we are going to focus on fewer businesses and fewer markets. We're going to have a more focused Company which will be easier to manage and easier to run.

And at the same time, we want to strengthen the institution and those activities that we will declare to be the portfolio that we want to be successful with, and we will really look at how we can make that portfolio more effective, more efficient, but also do that in a culture of performance with clear accountability. And we want to simplify the way that we operate, simplify the governance structure of the Group and be, of course, very outward looking to our customers.

Having said that, I think we are at the end of the presentation, and we want to open it up for your questions.

Thank you, sir. (Operator Instructions). There will be a short pause while participants register for a question.

The first question comes from Marc Thiele from UBS. Please go ahead.

Thank you. Good morning. My first question relates to the earnings power of the Group going forward after all these de-risking efforts. You've already told us about the impact from transferring the Alt-A portfolio, and you have given us a bit of flavor on the de-risking of the Bank, but maybe you can give us a bit more insight into what sort of earnings power will be left of the Group after you've been reshaping it.

My second question is related to the operating Life results in the Americas and Asia. There are losses that are flagged on the slides 58 and 59, and it seems that the cost reduction programs are not enough to fix this. What other alternatives do you consider in terms of getting those businesses back into profit, or are they part of the problem and will be regarded non-core going forward?

And then the third question regarding the capital targets, you said earlier there is still a bit of uncertainty regarding how the rating agencies will treat the capital positions going forward, but am I reading too much into it that you are introducing more of a corridor when you talk about 100% to 120% in terms of the coverage ratio versus the 120% that I thought was the previous minimum, or how do you think the numbers will shift going forward?

Okay, let me deal with the first question, the earnings power. I think the intention of our portfolio review will be to create a business that, going forward on a sustainable basis, will be a profitable business. And that is I think what we have in mind when we do the review.

I cannot tell you exactly what it will be at this point in time. I think you need to give us some time to go through that review, but as soon as we have that done, I think we will report it back to you.

I think John, would you like to deal with the Life?

Sure. On the Life Insurance margins, Marc, in both Europe and Americas, well, of course, there's a large investment variance in the quarter that we see. The [technical] margins bounce around sometimes quarter-to-quarter in that. The investment margins are flat, as you can see from the margin analysis on those pages.

The expenses were up in Americas. The expenses in this analysis reflects all the DAC unlocking and all the DAC adjustments in it, so there's a large negative DAC hit in both the third quarter and the fourth quarter, and that's when the Americas -- it's a long way above the run rate, and there's a bit of that as well in Life Insurance Europe. So that's why we're seeing some pressure and squeeze in the margin analysis. But if markets stay flat or flattish and just slowly go back to normal, then the DAC unlocking becomes not an event. And, of course, if markets recover, then the DAC is a positive unlock from the expense side.

On your question on capital targets and ratios, we still have an AFR to EC for the Group. and we said it was a 120% number in times of normal times. We always want to run at a buffer because this number's highly volatile. I think you've seen it's highly volatile. particularly in the third and fourth quarter of this year, and so the Group AFR EC is at 136%, but that's -- again, it's a very volatile number. We want to be running that as a buffer and that can come up and down in any one quarter.

You need to average these out over a period of time, and you've got to -- and particularly in the volatile markets that we're in today, these numbers will bounce around quite a bit. But I think in terms of how we settle these, there's a lot of uncertainty today. We find in speaking with the broad constituents on what the target should be, we noticed the other day that the targets, say, in the Bank a year ago, that was the target for many banks being a Tier-1 ratio is now the target for their core Tier-1 ratio, and that's a dramatic change in the course of a year. I think 2009 we think is going to continue to be challenging, and we need to ensure that we have enough capital margins to ride through this.

Thank you.

Thank you. The next question comes from Farquhar Murray from FPK. Please go ahead.

Hi there, morning. It's Farquhar from Fox-Pitt here. Two questions if I may. Just starting with risk-weighted assets, which I think given the reclassifications and the transaction, it's probably about EUR330 billion, could you split that between the loan book that you've given the 60 basis point guidance on, and the prime CMBS and subprime components of the risk-weighted assets?

And can you -- also on the 60 basis points guidance, could you just clarify if that does include the reclassified component as well?

And then just turning to strategy, I just wondered if you could give us -- I know it's probably too early to get anything particularly concrete, but just in terms of criteria, could you give us some sense of the criteria you're thinking in terms of disposals and consolidation, and also what timeframe you might think disposals would occur across? Thanks.

Okay. Farquhar, it's Koos Timmermans. On the loan book, the guidance is given on the subprime part. And to be honest, the impact on risk-weighted assets is nothing because that's all on the Insurance part, so that is where I don't have it.

Prime, there we are talking about the securities and the securities are part of the investment books, and as long as they are high graded, it's the normal part of ratings for this portfolio, so I don't have anything particular on this area to mention.

With respect to the strategy, I would say our basic strategy continues to be that we want to deal with savings and investments for our customers; that is the foundation for our strategy. And then the criteria that we will use to determine which are the businesses that we want to continue with will be a number of them.

Just let me mention a few. We want to look at market position that we have. We want to look at capital requirements. We'd like to look at the risk that's involved in these businesses. We'd like to look at the consistency of earnings that you have, the volatility. So all these things together I think will be evaluated and will be then scored. And I think we'd like to end up with a portfolio businesses that really hangs together, that's very coherent, and that for the future, in the new environment in which we are in, will give us a consistent franchise and a consistent pattern of earnings.

I think that's what we are looking for as criteria, but you need to give us a little bit more time to work this out because we just started with that, and it's a process that we need to do extremely well because this is an important decision point that we cannot afford to make mistakes here. So we need to do it on the one hand very good, and on the other hand, yes, we need to do it fast as well.

Okay, thanks.

Thank you. The next question comes from William Elderkin from Citi. Please go ahead.

Thanks. Good morning, everybody. I've got two questions on slide 10. First of all, the Insurance Commercial result in the fourth quarter, EUR348 million. Is that a good reference point to the likely level of earnings over 2009, and if not, can you explain what the exceptional adverse effects are within that EUR348 million number?

And secondly, in terms of the risk costs in the fourth quarter for the Bank, again, is that a sensible reference point to when we start to think about risk costs over 2009 and 2010?

And then my final question is with ING Direct having hitherto run with a fairly separate balance sheet, and then, as I understand it, moving towards a more integrated approach, why wasn't that done previously? I assume there must have been positive reasons for the previous strategy and really what the positives and negatives of a change are.

Okay, I'll take the first question, William. It's John here. The EUR348 million in Q4, you'll see that's below the full year of EUR2 billion for Insurance. Q4 saw some squeeze in margins in the basic Commercial result on the Insurance side. It's hard to predict, very hard to predict the global economic view in terms of margins that we are going to see in sales and expenses. We do have an expense reduction system that will be gearing in -- kicking in throughout the year, so I'd say it's probably between the two.

But again, it's highly variable and would depend upon a lot of -- you'd have to read our full forward-looking disclosure to put on that number I would say today.

Just on that, if you assume that the very difficult conditions in the fourth quarter were to persist through 2009, for example, is that a sensible reference point in (inaudible) if you're thinking about possible level of earnings? I don't know if -- there's nothing extraordinary within it.

Let me answer it this way. There's nothing exceptional in Q4 other than the higher, slightly higher expenses that can be adjusted for and some thinning margins. If it's Global Insurance business, there's a lot of factors going on all over the world that impact that basic number. But the fourth quarter reflects a pretty hard quarter for the basic business.

Okay, maybe on the second question, is the fourth quarter 81 basis points the reference point going forward for loan losses, I find that an extremely difficult question to answer. The first thing is the economy in the fourth quarter came to a standstill, and what you see is that some of the companies, therefore, were brought in difficulty, and that resulted in the high loan losses which we have right now. But it is very difficult to foresee at this moment what the real economy will do over this year and, therefore, here we assume that the loan losses will stay at elevated levels. But to give a precise mark at this moment is more difficult than it ever was, so I would not like to do that.

To come back on question number two, and that is the more integration of ING Direct, well, there's a few things. The first is we set it up, ING Direct separately, and it gives an ease in terms of accountability, in terms of measurability, and at the same time, we also have to note that you set up a business on the ground quicker this way. What was never an issue overall is an overall balance sheet length.

We were always working within the rating agency and within the capital constraint which were there, and an absolute sight of a balance sheet was not so much of an issue. Since it is more of an issue right now, you more look at how can I grow my loan book and how can I reuse my revaluation sensitivity and at the same time keep on originating loans. And that is why selectively you try to create some integration between the direct units.

But the caveat there is -- the way how you try to do it is by basically running off or selling some of the loans and then replacing it internally with loans. But it all has to fit within the regulatory structure and environment as well. And that is the part what we are pushing on right now.

Thank you.

Thank you. The next question comes from Duncan Russell from JP Morgan. Please go ahead.

Hello. Hi, good morning. Okay, so the first question is, can you just comment on the duration of the double bond you're buying? So is it short duration, long duration? And second question is, you obviously did quite a lot of asset reductions in the fourth quarter and some CDOs being closed in the Alt-A as well. Have you continued that in the first quarter? And if so, what have you done about it? Thank you.

Well, it's on the duration side; if we talk about -- we can talk about two types of duration. One is from a pure interest rate perspective, and then from an interest rate perspective you can say that part of the portfolio where we have floating rate, always there we also have floating rate facility with the government. and where it's fixed it's fixed. So in that sense that is a neutral part.

But if we talk more about the contractual obligation, like when do we expect the payback in this transaction, or the [unwind], I already mentioned something and that is you expect basically a 50% reduction in five years' time. We are working with an average repayment scheme of approximately 10% per annum on this portfolio, so it's in line with what we have with the Alt-As.

If we talk about further reducing exposures, I think if you look at it, yes, we did some [home growing] activity; what we have, for example, over the month of January and in the fourth quarter we also reduced our hedge fund exposure by EUR10 billion. And there is more and more of this happening at this moment, but not in a type of a fire sale type of approach but selectively.

Sorry, on the government bonds, I meant -- there's a slide which says you've increased your government bond exposure, both in Insurance and in Banking; I think from 31%, 36% or something like that. That was more loans you were referring to. What duration of government bonds are you buying?

Oh, okay, on the government bonds, sorry. I thought it was more on the government facility illiquid asset facility. No, the government bonds which we have been buying have been long-dated because it's solves in interest rate risk gap which we had on the Insurance side. So I think it is probably more in the 10 and in the 30 years that we've been buying and, David?

That's correct, yes.

Yeah, so 10 and 30 years.

Okay, thanks.

Thank you. The next question comes from Chris Hitchings from KBW. Please go ahead.

Hi, thanks very much indeed. A couple of issues I'd like to get your thoughts on. One is dividend. I think you made a statement somewhere, I'm just trying to find it, that it's hard to tell what dividend you are going to be paying in '09. I think about two months ago, certainly, you were suggesting that the aim would be to try and pay something. Has that view changed?

Secondly, you made some comments about (inaudible) in Retail Banking in January. Have you got any other comments about what went on in the business in January? I think would be quite helpful.

Third question, yes, looking at your loan loss provisions, and one of the things that I think has worried some people is your loan book to Real Estate developers and what the -- what risks are there. I know you said although, yes, the Real Estate loan loss charges have gone up, could you tell us a bit more about loans to value and the actual risks there and where the portfolio is?

And thirdly, just thinking through, you're de-risking the book, you're going into long-term government bonds, there's a view -- how vulnerable do you think ING is if in three years' time, two years' time, the principal problem of the financial sector is seen to be very high inflation. Thank you.

Okay, let me deal with the first question on the dividend. We have announced that we will not pay a dividend, the final dividend of the year 2008. And anything related to 2009 is highly speculative because first of all, we don't know the numbers yet in 2009, and secondly, I think you need to have more data. Also not just 2009, but also more look into the future to see whether you can consistently pay your dividends. So this is an issue that we need to postpone to a future date.

With respect to the Retail business, I think our Retail business in January was doing quite well, we have seen. Also ING Direct was picking up some nice balances and increasing them. In fact together, I think in the last 10 weeks we have seen more or less roughly EUR1 billion increase in savings together, so it looks like our business is doing relatively well. And I cannot make any comment on the Insurance because that's a little bit longer-dated, and we don't have too many detailed numbers there yet.

We do know, Chris -- it's John -- that sales, although being down, as best we can tell, are really in line with what other players are doing. So it's not we're losing market share as a ranking point of view, but clearly we're seeing an overall reduction in unit linked, sales in Asia, in Variable Annuity sales. They're still being sold, but we're seeing a lower level of activity around the world.

And you had a question on the loan book on real Estate. Just -- I'll clarify it and then Koos can jump in. The Real Estate finance are loans to properties, and they're developed in The Netherlands as well as across Europe. It's not to real estate developers; we do have a development book of our own. We've got 2 billion of properties that we control and we manage. but that's not the Real Estate finance book.

And, Koos, the loan to values on that. It's quite good.

Well, yes; maybe if -- I don't have it here at hand, but I disclosed it the last time that the loan to value of that book would be 66% or 67%. But otherwise I can look it up, but that is probably what the number is. If I look at the breakdown, Chris, of this portfolio, it's EUR36 billion, Real Estate finance EUR20 billion -- or EUR90 billion of it is in The Netherlands, and then the other part is broken down over different countries. Countries of interest, in US has EUR4.6 billion in there and Spain EUR3.5 billion. So that is if I look at the country breakdown, and for the rest there is other EU in there as well, and relatively small UK.

If I then look at the difference categories where we are in, it's both Residential, Offices, Real Estate and Industrial, and in general what you can see there is a clear division in there; that Residential EUR6 billion, Offices EUR12 billion, Real Estate EUR10 billion and Industrial EUR5 billion. So -- and then you have a category other.

So it is a relatively diversified portfolio which covers both, and a different end of the spectrum in terms of types of industry as well as country, but with the big buyers in the Netherlands.

Thank you. The next question comes from Bruno Paulson from Bernstein. Please go ahead.

Thank you very much. A couple of questions.

Firstly, following up from what William was asking earlier, I'm trying to understand the Commercial result which is meant to be the stable bit. It was running at about EUR2.2 billion a quarter in H1 across Insurance and Banking, dropped to EUR1.7 billion in Q3, and EUR1.3 billion in Q4. And it is just trying to understand what's changed and to extent that EUR1.3 billion is a normal level.

And my second question is you say that the risk-weighted assets in 2009 in the Bank should be roughly flat ex the pro-cyclicality. Is this excluding the -- or including the Alt-A deal which, obviously, reduces the risk-weighted assets. And what is your current best guess of the rough scale of the pro-cyclicality effect, to the nearest 5% or so?

Okay. Bruno, it's John. The Commercial result, yes, you're very correct there. Commercial result's been decreasing. We're driven a lot by client balances. That is one key factor. The second of all I would categorize would be just spreads in general across the board. The interest result is slightly up, but then in other spots, in some lines of business, it is down.

We've had some expenses clearly in Q4 and Q3 in various areas that, say, late '08 compared to '07 are higher. That's why we're taking strong steps to rectify that, but some of that was also driven by the Postbank and IG Bank movement. So also sales are down, which also has an impact across the board for our margins and our businesses.

So I think it's a combination, I would call it general business environment that's driving a lower basic Commercial result.

Maybe on the risk-weighted assets, on the risk weighted assets side, I stated in my section that overall we expect a more flattish type of result, and the flattish type of result is we already, we cash in the EUR30 billion of risk-weighted assets due to the state, that's fine. But overall then net-net we will get more loan production, so that is a plus in risk-weighted asset. But that will be offset by the fact that we try to reduced the development portfolio so that's a minus. So those two will net out, and then the only thing what you do get is your credit migration, and that brings you to the pro-cyclicality. And there, I think the only indication which I have for you right now is indeed the 60 basis points, but that would happen if all of your borrowers migrate with one rating category.

So just be clear, the flat pre -- there were three factors in the first half. There was the 14 you've got rid of, then there was the reducing the book, and then there was the increase in lending. Are you saying the reducing the book and the increase in lending cancel out, or the 14 and the reducing the book and the increase in lending cancel out?

Well, actually, if the 14 is a plus and then what we try to do is the increase in loans will be offset by the decrease in the investment book.

Right, so you've got before pro-cyclicality, you've got the gain of what you've unloaded on the state?

Yes.

Thank you.

Thank you. The next question comes from Frank Stoffel from Merrill Lynch. Please go ahead.

Good morning. It's Frank Stoffel from Merrill Lynch. Just a few questions, please.

The Alt-A migration in the quarter was quite material. And AAA tranches, for example, went down from 87% to 65% I believe. Could you please elaborate how a downward migration of such magnitude is consistent with a 90% Alt-A variation, in particular, as the rating agency also pays the rating on cash flow expectations?

And related to this, could you please tell us the share of BBB and BB rated tranches within the Alt-A portfolio at the end of Q4?

Then on your Real Estate portfolio which is valued to the P&L, the value in the Netherlands declined by about 12% during the fourth quarter. Is this a genuine value reduction or does this include any disposals? And related to this, could you please elaborate on the loan to value development of your Dutch market book in the fourth quarter?

And lastly, and probably you might have said this but I might have missed it. The EUR40 billion balance sheet reduction in the fourth quarter, how much was this in risk-weighted asset terms, please? Thank you.

Okay, maybe let me take the first one on the marks of the market prices of the Alt-As verses the transaction which was done with the state. I think there is to a certain extent an apples and an oranges there. And one of the things is if I need to sell a EUR22 billion portfolio to the market, then I will have to pay even probably lower marks than what is currently quoted in the market. But you have to realize that even those market quotes are very thin. We did not for nothing, we classify quite a lot of the portfolio to Level C because it is increasingly difficult in respect of Alt-A to find market prices. But the biggest part of the difference is that we basically fund this portfolio. So in other words, it's not directly a sale price, it is you could say the price for a cash flow swap, and that is what [this] 90% [is].

What we did is we reconstructed. We said like if a market price is not a market price, let's start with a book price and amortize cost, and then let's take a severe scenario of credit losses. We (inaudible) that format and then you end up basically at risk-free cash flows. And then we sell at what is the value of those cash flows.

So we replicated a market price by not looking at markets for this. So that is basically how we came to the pricing of this transaction.

I'm not referring to the market price or to the 66, but just to the fact the rating agencies when they down grade the tranches which they have done during the fourth quarter, they also look at cash flow expectations. And having seen downgrades of the magnitude we have seen in the fourth quarter, how can this be consistent in a 90% valuation which is based on cash flow expectations as well?

But even if you take the following and let's take [Mouleys] as an example, they made an outlook and they said like we expect 20% accumulative losses on '06/'07 tranches of Alt-A. If you take 20% losses over time and you have a 15% credit enhancement in the bonds right now, then you expect somewhere down the road 5% of losses to happen on your bonds. And if you start to discount it, you could even say that is a price of 19 or even, at this moment, too low a price.

You have to take all those factors into consideration. What the price was based on was basically the input of a company called Credit Dynamics as well, and they looked at factors and they were actually in line or even a bit more drastic than what Mouleys [did].

Okay, thank you. Did the BBB and BB tranches as well?

No, I think we were originally in only the AAA type of tranches, but yes, we did get a serious amount of downgrades as well to BB, but that's more the preliminary, or those were the beforehand AAA tranches, and we never invested beforehand, at the outset in BB tranches.

Yes, sure. But how much of the portfolio was BBB and BB rated at the end of the fourth quarter?

I would have to look it up.

Okay, thank you.

This is John. You're question on Real Estate, the impact in the Netherlands, that was from revaluations of the investments that the Netherlands Insurance business has in real Estate. It was not from disposals.

Your question of loan to value for the -- I think you asked for the Dutch mortgage portfolio, right?

Yes.

It's about 80%. It's about the same as it has always been, so there's no major change there. And your final question on risk-weighted assets, I think.

Balance sheets, EUR40 billion.

Oh, the EUR40 billion. That was merely from financial markets and also loans and short-term loans and short term receivables from banks. So I don't think there was much of an impact on risk-weighted assets from the reduction so far.

Okay, so pretty minimal in risk-weighted asset terms.

Yes.

Okay, thank you very much.

Thank you. The next question comes from Farooq Hanif from Morgan Stanley. Please go ahead.

Hi there. I would just like to focus on two areas. Just stepping back and looking at the big picture again, it seems to me that the gigantic strategic question, Marc, hanging over the future of ING, the description that you give of what criteria you have for looking at which businesses you keep and what you do to shape your business, the reduction in balance sheet, it all seems to be geared towards paying back the Dutch government. Could you just comment on that? Is that really underlying all of this; your primary goal, just to pay back EUR15 billion to the Dutch government? That's question number one.

Question number two; I am a little bit confused about the reserving adequacy in the US. You say that the other 50% conference level, you have quite a small deficit in US Retail Annuities. What would that be at the 90% confidence level and which is more important?

Secondly, you say that on a best estimate basis under US GAAP, everything seems to be adequate but that doesn't back up with the 50% confidence level remark that you made. And in terms of the action that you're going to take, what -- isn't there a risk that they might have to be pretty significant, a bit like Taiwan, so you're ending up either reducing your new business growth by a large amount for basically taking away earnings to build up reserves like you did in Taiwan? Thank you.

Okay, let me mention to you the question related to the strategic question that you ask in paying back the Dutch government. I think the most important thing that we need to do, and that has consequences for I think everybody, is to make sure that we create a business that has the ability to generate earnings on a consistent basis and that will create value for the shareholders as well for ING. And I think that is the fundamental I think solution; also to get the Government pay-down. And I think I cannot find another way how we could do this.

This is not going to be a fire sale of activities, because that would be the wrong thing to do. I think we need to look at our opportunities that we have. We need to put ourselves in the new environment that's coming. And I think we need to create the best portfolio of businesses, and then run those business as hard and as well as we can. And I think that will create the best possibility for value as well as to make sure that the Dutch Government will get repaid.

When will you be able to come back to us on this? It feels to me like all of the detail that we're looking at in the numbers, it's irrelevant until we know what that picture is.

Well, I'm very eager to know that myself. And I think what we will do is we will, together with our team that we are looking at, we will come to a conclusion I think relatively quick. We need to know that quickly because we want to know how we can get to a more stable position and a better position going forward than we are in right now.

Okay thanks. And on the reserving?

Yes, sure. The -- well, the 90% are core tasks at a business unit level around the world, and the whole US business is more than sufficient by EUR900 million -- EUR600 million at the 90% level, and EUR2.3 billion positive at the 50% level. So that's the range of magnitude that we have for the total reserves. The US Retail business, which is one business of -- that's the VA business and the Fixed Annuity business together, those two product lines have a slight insufficiency at the 50% level.

And why is this different between this and US GAAP, we do stochastic testing. And that's why in the US Retail Annuity business with low interest rates, you do all these stochastic tests and you take a median of that, and that's how you get the insufficiency. US GAAP is just a straightforward best estimate, and so you don't see any difference in that when you're just above, say, the guarantees, or just above being in the money. The way we do it is we do all these -- all these stochastic testing.

We did this for years in Taiwan. We were an early warner in Taiwan. We're not saying this is Taiwan, but we will start to deal with this earlier and more proactively because we do this type of testing. And we added the Retail Annuity business in here, because -- well, we had Japan and we figured you don't ask the question, if you have an inadequate in Japan, what's going on in the US business? So we decided to just give this to you as well.

The only reason I asked the question was that things obviously have got worse since the end of 2008, and I guess I just wanted to get a feeling for really how worried you are about the earnings impact of all of this.

Well, this will impact us all for the foreseeable future because we have such adequacies for the whole business unit for the US. And it -- this was -- this actually came because of stochastic testing. So it's taking into account a potential worsening situation already in 2009. So I think that that's the one thing.

If rates stay down and stayed low, you will see some DAC adjustments on an ongoing basis. So that is what you may have from an earnings impact. because DAC is reset each quarter and then you move back to basic assumptions going forward. If DAC stays down and stays lower things go get worse, then you do always have this DAC adjustment.

Okay, thank you very, very much. Thank you.

Thank you, the next question comes from Johnny Vo from Goldman Sachs. Please go ahead.

Yes, hi guys. Just a couple of quick questions. Just in relation to the pre-release statement and what you've released today in terms of the capitalization ratios. All the ratios were broadly in line except for the double leverage ratio which increased by about 1.2%, which equates to around about, I don't know, EUR500 million odd difference. Can you firstly explain that?

And second thing, in terms of the Taiwanese business that you've sold, how [fundable] is that capital in the Insurance division to subsidize any other areas of the business where you might need capital? And that's it.

Okay, Johnny; it's John. Yes, when we gave you the preliminary numbers we were speaking to the auditors whether or not we needed to accrue the EUR425 million coupon for the core Tier 1 securities in our IFRS balance sheet, because it's not paid yet. We definitely don't accrue dividends to shareholders. But due to complexities of this we decided to accrue that. And that's the slight difference of the debt equity of the Group.

On the fundability, the way it all works is that within a business line at a reserving level, the reserves within Taiwan, that is all fundable within the reserving test systems that we have within a business line. The capital itself, we never put all the capital that we needed in to Taiwan. We notionally allocated and reserved it for us. So that is available for us to hand over time. Insurance, particularly in Life Insurance, those are very long term contracts. Like, for example, the Taiwan need for capital wasn't going to happen for another 10 or 15 years. And so that's what you have this capital [about]. So capital gets released; if it's tied up somewhere it will be released over time.

So -- but we manage that on an ongoing basis and that of AFR and EC freed up is clearly available, but we do check the duration and cash flow timing of all this to make sure that it is appropriate.

Okay, brilliant thanks.

The next question from Nick Holmes from Nomura. Please go ahead.

Yes, hi. I had one question firstly on US Life which is, with the other DAC unlocking in Q4 which was pretty big, can you tell us what the key assumptions are? What are the equivalents to the 2.5% equity growth? Perhaps you might want to answer that one first before I move on.

Oh yes, it varies a lot by product. And this is John. But it's that the interest rate drop and I think also some lapses a little bit, but that was mainly the interest rates being lower, it has to be said. And -- well, there's the equity and then there's the interest rates. And the interest rate piece was the big piece.

Right. Can you give us any sensitivity for that? Because it's quite a big number isn't it, 525?

Yes, it's much harder to do in the equity markets. But we'll try to work on that for you guys to see if there's something that we can do. I'm not sure. It's tricky for us even, but we'll try to see if we can do something for you on that.

Right. Second question is just looking at the Bank bad debts. You said this is pretty difficult to forecast for '09, but I wondered how concerned are you that the provision loans seem to grow very rapidly in '08? They seem to grow by 73% from EUR4.5 billion to EUR7.8 billion, whereas the actual provisions only grew by 31%. Does that indicate that something is not quite right?

It's Koos here. I think what the growth implicates is that we come from a very, very low basis. We didn't provision anything at all over the last years, 2005, 2006 and 2007. And I think that is what is indicated.

Which we're not allowed to under IFRS, Nick, so --.

We would have nothing to provision.

Yes, we have to have objective evidence in order to create the provisions and we had two factors happening. One is less objective evidence to provision, as well as a lot of release is happening from good workouts of a lot of the problem loans from 2002. And so now you're getting -- the other factor that happens under IFRS is that you enter the cycle, you have less releases, and you have to provision relatively more as you enter. And it's sharpest right about now when you're coming from a very low base and you start to get on track. And then what will happen is that the economic cycle, let's say, steadily gets worse instead of sharply increasing getting worse, then these things start to even out a little more instead of the very sharp turn you've seen in 2008.

Right, okay, but the NPL coverage if you want to describe it as that has deteriorated.

Yes, but I think, Nick, the NPL coverage doesn't tell too many things because then you also have to look at what type of loans are non-performing, and is there some collateral behind there as well. So if you had a mortgage defaulting or non-performing, then given a high collateral under there, in general, your amount of provisioning is lower. So I find it difficult to automatically make that statement.

Yes, if you had a credit card portfolio, you have a very different relationship between your provisions to your loan balances than if you have low a LTV Retail mortgage portfolio in a stable -- in the environment.

Okay, thank you very much for that.

Thank you the next question comes from (inaudible). Please go ahead.

Good morning. Slide 43 on the Commercial loan book, could you give us the total exposure as well as the part which is unsecured?

And the NPL increase from 1% to 2% in '08, how much of the increase is actually -- well, actually happened in Q4?

The size of the total loan book, I think it was something -- EUR250 or about.

So that was the first question. Second question was on the -- then we're talking about the total NPL increase, whether all of this happened over the fourth quarter?

Yes.

Is that right? Okay I'll come back to you on that question.

And another question is on Basel II. You give some guidance; is 60 basis point guidance. First, how much [Dutch downgrade] do you expect in 2009?

And second, when are you going to provide some more details on sensitivity analysis? I think on a Basel II on the third pillar you need to disclose some more on the [PD and LGD] sensitivity?

I think in general you will more get more of this information in the pillar III disclosure, because what we have given you is not so much a forecast. What we have given you is a sensitivity and we said let's not discriminate. All the loan portfolio goes down by basically one rating class. And that is the sensitivity which we have given. But is it difficult to translate that into a rating forecast right now.

Both internal and external ratings, they are pretty volatile at this moment, but I just wanted to indicate it to you like what does it do to the loan book. And I think it was more the conclusion for me that a loan book in general has less capital sensitivity than the securitization book if it comes to very low rated tranches. And that is said; that was the aim of what I tried to explain.

The Dutch downgrade, that's based on your internal rating or just based on external rating?

Internal rating.

Sorry, internal?

Internal rating.

Yes, okay. Thank you.

Thank you. The next question comes from Tony Silverman from Standard and Poor's Equity Research. Please go ahead.

Hi, I've just got a couple of questions. I wonder if you could clarify what you were saying about deposits at ING Direct which came off a little in Q4. Were you saying that in total that had all been recouped in this quarter?

And the second question was, returning to the EUR525 million of other DAC unlocking on slide 13, is there any element of that that we should in principle add back to the EUR348 million of Commercial result for Q4 in Insurance on slide 10?

And also on the EUR525 million, some of it is -- in the narrative, it's said to be due to higher hedging costs. And I was wondering how much is that element, and would that continue going forwards if volatilities of equity markets stayed where they are?

Okay. on the deposits at ING Direct, I can say that in the first half of the year so far year-to-date, we have more than recovered what was the decline in Q4. In fact we have doubled the decline in Q4. So we have EUR7 billion so far this year, an increase compared to a decline of only EUR3 billion in Q4.

The DAC unlocking, the EUR525 million includes, as we said. lower interest rates. It also reflects higher credit spreads as they've adjusted the models, because that impacts the spreads in Fixed Annuities going forward, so you're going to have just some lower margins and all that is net [present] valued. How I view all these things, Tony, is through the DAC unlocking, if you think the world will stay for the next five, 10 or 15 years at this level, then this is a correct DAC unlocking correction if it stays down and slowly gets better. If you think it's going to recover a bit, maybe not in '09 but in 2010, 2011, then a portion of this will all come back into earnings.

So if they average these things out over time, clearly, we're at a new level down in post equity markets and interest rates, and much higher, dramatically higher credit spreads. But in my mind, I give credit for this coming back in over time because I expect things will mean revert, not to the levels of, say, the last few years, but to a better long-term return that we've seen over a 20 year period.

If I could just come back on that if I may. Where is that EUR525 million in the Insurance column on slide 10? Is it in the EUR348 million or is it in other rows? And it does refer to hedging costs on the right hand side of that slide 13. I was wondering how much of it was hedging costs.

It's all in other; the great FX hedge other.

Okay.

Which is EUR736 million for Insurance in Q4. And, well, I'm sorry, Tony. What's your second question on the EUR525 million on slide --?

It refers to hedging costs, lower interest rates and higher hedging costs.

Yes, so in the quarter, we had higher hedging costs, and then we -- so we take the current volatilities and then we mean revert those back over a period of time to the norm, to an average. But that reduces my margins I'm going to have the next few years as it reverts back. And that's reflected in the DAC unlocking.

And over what period do you revert them back?

I think it in the five years; three to five years and it will depend on the -- which assumption, which product we have.

Okay, thanks very much.

(Operator Instructions). Thank you, sir. There appears to be no further questions. Please continue with any further points you wish to raise.

Okay, then I think we thank you for attending this session and we will be back with you in the near future. Thank you very much. Bye bye.

This concludes the ING analyst conference call. Thank you for participating. You may now disconnect.