ING Groep NV (ING) 2009 Q4 法說會逐字稿

Good morning. This is Caroline. Welcome to your ING's fourth quarter 2009 conference call.

Before handing this conference call over to Jan Hommen, Chief Executive Officer of ING Group, Patrick Flynn, 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 current views, assumptions, and variables, including interest rates, foreign exchange rates, inflation rates, movements in security markets, including equity markets, and underlying economic conditions, and changes.

These are set out in greater detail in our public filings, which we would urge you to read.

The realization of forward-looking statements could be materially altered by unexpected movements in any or all of these and other variables.

Good morning, Jan, Patrick, and Koos. Jan, over to you.

Good morning, and thanks for being on the call. This call will last an hour and a half, I think we have said. And we'll do a quick introduction of the numbers, because you probably have seen the numbers already. We'll do a quick presentation; you can follow that, I think the presentation is on the web. And then, we open it up for questions.

Now, ING has emerged stronger -- I'm on slide number two -- has emerged stronger and a more efficient Company from 2009. When you look at Back to Basics, we over delivered on all of our objectives. We paid back half of the capital injection made by the State, which I think was an important turning point for us.

Our priority is operational separation of the Bank and the Insurance company in 2010, and to be able to create two strong businesses that can standalone by themselves and have a good future going forwards.

In Q4, I would say the trend in commercial performance continued; was positive again.

Market conditions have improved. But we still had impairments and revaluations that have continued at a substantial level. We took a lot of provision for the deposit guarantee system scheme in the Netherlands, following the failure of the DSB Bank. That's included in our Bank numbers.

And, on balance, we report an underlying profit of EUR74 million. Shareholders' equity increased to EUR8.95 per share. And all our capital ratios have improved.

Then I go to page three. You see the deliverables on the Back to Basics program. Well, all the targets were met. The target for cost reduction was set at EUR1 billion originally; increased that to EUR1.3 billion. And, ultimately, we achieved EUR1.505 billion.

Also, we reduced our balance sheet by 18%; the target was 10%. Reduced the leverage; we now have 27.8. And the number of people reduction was 11,000 people.

So, we have become a more efficient Company; we have become a less risky Company; and we have become a much less leveraged enterprise.

A substantial reduction in expenses, on page number four; significant reduction. The total Back to Basics; EUR1.5 billion. But what's in there is a structural improvement of EUR1.2 billion. And about EUR281 million are one-off releases mainly, so they may not show up again in the years to come.

We continue to be very vigilant on cost, and we'll continue to have projects to make sure that our costs will stay in line and will not increase.

Provision for deposit guarantee scheme for the DSB is recorded under operating expense. As are also the impairments on real estate development project, which is somewhat distorting for presenting the right picture here, certainly, for the Commercial Bank.

Nevertheless, I think I'm satisfied with the progress we have made to improve the efficiency. And we continue to look for ways to reduce costs and streamline our processes under the One Bank project that we have in the retail business, and also in the Insurance organization in the Netherlands. And we look at performance improvement initiatives of the project Mistral that we have started in our Insurance organization.

On page number five you see the balance sheet reduction, 18%. That is a significant reduction, and you see it explained what the contributions have been. I don't want to pay attention to that now; maybe you want to come back on that.

On page number six you see the slide where we show what we are doing to prepare for the separation of the Insurance organization. We have formed the team. That is in a very orderly fashion dealing with that; a very diligent team. It's a project that, I think, will take probably a year to accomplish.

Preliminary analysis is showing that we have about five countries where we have significant entanglement issues, significant integration levels where we need to work on; and then, about 10 to 15 that have medium integration; and about 35 countries where there are no entanglement issues at all.

We have separate workstreams organized who are analyzing what needs to be done for operational separation, including HR, and finance, and brands, and option IT distribution, and facilities.

And the aim is that we are done by the end of the year; that we finish this project by the end of the year. But the actual timing of the divestment project will then be more or less depending upon the markets, and the market conditions, and the improvements we can secure in our operating performance.

As I said earlier, we are not in a rush. I don't feel any pressure here at this moment, no time pressure. We have plenty of time to do this. And we plan to use the coming two years to improve significantly the operating performance of our Insurance organization and to optimize the portfolio so that when we go to market with our Insurance business, that we are in a position to extract the best possible value for investors.

And meanwhile, it is business as usual. We are managing our Company. Our employees and management is focused on delivering quality products and good services to our customers.

Slide number seven, you see the underlying profit; significant improvement compared with Q4 last year. It's a small profit. But, yes, it had an impact with the provision for DSB, as well as the special lapse provision that was made at the end of Q4 for the Insurance organization.

Slide number eight; you see the commercial results. Commercial performance improved strongly in 2009, supported by cost reductions and improved margins at the Bank.

The pre-provision profit before market impact reached EUR8.8 billion in 2009. Again, a significant improvement over 2008, where we scored EUR7 billion.

On slide number nine you see the commercial performance delivered by -- on the Bank side. On the top, that result was EUR1.8 billion. For the total year that brought the total to EUR7.4 billion. Compared to the fourth quarter last year, an 81% improvement, mainly as a result of cost savings, but also better margins, and strong results in our Financial Markets operation.

Insurance; commercial result was EUR296 million, for a total for the full year of EUR1.4 billion. And the results were 5% better than a year ago, mainly as a result of cost savings. In Q3 -- compared to Q3, there was a decline but that's due to the increase in operating expense and lower non-life results in the Benelux.

Slide number 10; you see the increase in shareholders' equity. We jumped shareholders' equity from EUR17.3 billion to EUR33.9 billion. So, a significant increase, where the book value now is EUR8.95 and the tangible net asset value per share is EUR8.14.

The next slide shows the capital ratios. All our capital ratios have improved. The core Tier 1 ratio went up to 7.8%; the Tier 1 ratio at 10.2%; the debt leverage in the Group was brought down to 12.4%; and Insurance is now below the 10% level, 9.7%, as a result of the sale of the Australian joint venture, of which the proceeds were used to reduce the debt level.

And now let me turn it over to Patrick, who will tell you more about the results of the Company. Patrick?

Good morning, everybody. Slide 13; we have the key highlights [for the] results of ING. I will not read through these individually, but I'll come back to a summary at the end.

As Jan said, 2009 was a tumultuous year; a year where ING has significantly strengthened its balance sheet and reduced costs. And on slide 14, I think you can see that coming through the financial results.

The underlying net result for the full year, profit of EUR748 million, which compared to a loss of EUR304 million in the prior year. A turnaround of EUR1 billion.

That turnaround is even more marked when you look at it quarter-on-quarter. Fourth quarter 2009, a small profit of EUR74 million, compared to a EUR3.1 billion loss in the fourth quarter 2008.

Overall, the net result is a loss of EUR935 million. However, I think it's worth pointing out that that includes the EUR930 million post-tax cost of the settlement on the IABF Alt-A arrangement that was mandated with the EC. If you exclude that, we were at breakeven.

Going forward to slide 16, where we talk about the Bank results, Jan mentioned the strong commercial result; EUR1.8 billion. A little bit lower than the third quarter, primarily due to lower seasonal results in our Financial Markets business.

A couple of points to bring out in this slide. Impairments on debt securities; still a chunky number, EUR272 million. However, it's significantly lower than the third quarter where we had EUR664 million.

We signaled that Alt-A impairments will decline, and they have done. The residual mark-to-market now is only EUR150 million. So I think this is a positive that we should see continuing, lower Alt-A impairments, going forward.

Real estate revaluations are at a similar level to the third quarter, as are loan loss provisions. And Koos will give you more insight on that subject in his presentation that comes later.

The other key impact, as Jan mentioned, was we took a charge for DSB, namely, the failure of DSB and our contribution to the deposit guarantee scheme in the fourth quarter, which, combined, brought the results underlying, before tax, to EUR132 million.

Moving forward to slide 17, interest margins. ING's interest margins have stayed strong at 141 basis points, which compares to 140 basis points in the prior quarter.

There was some improvement in retail deposit margins, where deposit levels in the Netherlands reduced 25 basis points in the quarter. On the other hand, lower short-term rates curtailed ING Direct's margin 4 basis points.

We've also given you a sensitivity here; 100 basis point shift upward in the yield curve would cost approximately 7 basis points.

On the subject of funding, again on deposits, moving forward to 18; ING has a strong loan-to-deposit ratio, and that further improved in the quarter. It is now at 106%, improving from 108%. We're fundamentally funding our commercial loans with commercial deposits.

Loan levels remained largely flat in the quarter, whereas deposits grew somewhat. It led to the strengthening in this ratio.

Slide 19; we look at the Banking business lines. The key point here is that compared to the prior year we have improved significantly across the board, with the exception of Real Estate.

Retail Banking results are EUR421 million in the quarter, five times that of the preceding quarter 2008. It's down from the third quarter '09, primarily due to higher loan loss charges in the quarter, albeit our retail interest margin has improved successively each quarter this year.

ING Direct, loss of EUR177 million is lower than the preceding quarter. That's due to lower Alt-A impairments which I referred to earlier.

In addition we took a realized loss of EUR83 million on selective de-risking of some prime RMBSs. This helps reduce our RWAs by EUR7 billion.

Commercial Banking, on the right-hand side, top of the slide, profit at EUR379 million, down EUR200 million compared to the prior quarter; again was driven by the lower seasonal effects I mentioned earlier.

And Real Estate, similar number as impairment levels remained at the levels we saw in the third quarter.

Moving forward to Insurance, on slide 21, commercial results EUR296 million, broadly in line with the third quarter; slightly down. However the underlying result was a net loss of EUR47 million and we had a EUR551 million profit in the prior quarter.

The key thing here is we updated our lapse assumptions in respect of guaranteed variable annuity products to reflect lower customer lapse experience. This is an annual assumption review we undertook in the fourth quarter.

Other points here, as we mentioned in the third quarter, we had a number of positive realized gains which helped boost the number in the third quarter, whereas this did not continue to the same degree in the fourth.

Another point that I'd like to draw out here which is a small number, EUR45 million on equity hedge costs. It was a much higher number in the past and these hedges are running off so this cost will decline further.

Slide 22, I think gives you what I would call a more meaningful representation of the Insurance business. The preceding slide makes it look more volatile than it really is. Here we see, on slide 22, that our Insurance operating income, partly stable, improved somewhat from the preceding quarter. Admin expenses are slightly up, which meant that the Life operating result reduced EUR20 million.

The effect of the volatile items I referred to earlier are summarized in the line at bottom; non-operating volatile items.

So the core Insurance result is comparatively stable and generating EUR456 million.

Moving forward to slide 23, underlying results before tax by region, for the three operating regions excluding corporate line, the results all show an improvement compared to the fourth quarter '08.

Insurance Europe, profit of EUR234 million. It's down compared to the third quarter, primarily due to impairments we took on hybrid capital instruments in which we had invested following EC restructuring of those companies.

Insurance Americas is down to EUR14 million, driven mainly by the variable annuity assumption change and some further impairments on RMBS and CMBS.

Insurance Asia Pacific, loss EUR29 million is almost exclusively due to the EUR190 million element of the lapse assumption change related to VAs in Japan.

Slide 24 shows the sales numbers. These are down on the preceding quarter, albeit we had an increase in VAs in Europe.

On slide 25 we give you further an update on the Insurance capital structure. Key points to note here, on page 25, is that equity has improved from EUR15 billion to EUR16 billion, partly due to an injection of capital and profit on disposal of our Australia business. This represents and demonstrates our continued full commitment to boosting our capitalization in Insurance.

We also give you a breakdown below of the distribution of the net assets by country.

So in summary, before I pass on to Koos, results for ING have improved to a profit for the full year of EUR748 million.

In the Bank the strong interest margin helped sustain revenues, albeit we were knocked back by the impact of DSB and Real Estate charges in the quarter. Hence we posted a pre-tax profit of EUR132 million.

Insurance results were primarily hampered by the annual assumption change in respect of variable annuities; but our Insurance equity has increased to EUR15.9 billion.

And I'll now hand you over to Koos who will take you through the risk section.

Okay. Good morning, all of you. First on the risk front, what I'll do is I'll update you on the sovereign exposure. We'll go through the loan loss provisioning part. We'll take you through Alt-A, what impairments have been taken and what is left. I'll give you some insight on the Real Estate part, both the investment part as well as the developments. And then finally we'll go through the RWAs.

But let us first start with the government. On page 28 what you see is our total exposures and then let me first start on the left-hand side.

We have for the Bank and the Insurance Company an investment portfolio of EUR212 billion. And out of EUR212 billion there is EUR88 billion of governments.

And if we then zoom in on certain exposures, and then particularly I'd like to go to Portugal, Ireland, Greece and Spain, then what you see, in fact, is that the total of that is 4% of this portfolio. So, in other words, in Greece we have EUR3 billion, we have in Spain EUR3 billion and we have in Portugal EUR1.9 billion.

If you look at that exposure, this is all part of our investment portfolio so it is available for sale. And what we have seen at year-end, this portfolio, if I only zoom in on Portugal, Spain and Greece, was valued at zero and it declined to minus EUR0.2 billion in our reval reserve on February 9. So that is a bit the price effect.

What I want to say is that overall the exposure is not that high and the results will be reflected more in the revaluation reserve of the Bank.

If we move from the investments in the governments, let us first do a quick overview of the general account of the Insurance Company before we move to the loan book and go to the Bank.

On page 29 I give you a quick snapshot of the general account of the Insurance Company. In total that's EUR152 billion. What you see in there is a significant amount of government bonds. That is what you see in the wheel, the EUR41 billion which is a reflection of the de-risking.

We also see that if I look at the rating, and I add up everything with the rating from AAA to BBB, you see that 95% of the portfolio is at investment grade.

Overall, if you look at it, the revaluation reserve of the debt securities there, it improved over the year 2009 significantly. It improved by EUR5.9 billion to minus EUR2.3 billion at the end of this year.

Point of issue is the CMBS portfolio which is in there. Yes, we have high credit enhancement in there and yes, the debt service capacity ratio, that stayed at 1.6 so there is no deterioration there. Nevertheless, on some parts of that portfolio, we have taken small impairments there.

Overall the view there is that, underlying, what we have seen is some deterioration. Prices, however, have gone up so that might lead that we might sell some parts of that portfolio.

If we move from the general account of the Insurance Company to the risk cost of the Bank and then we're on page 30, what you see there is that the addition to the loan losses is 96 basis points, and that is net number.

What you see there as well is that in essence we had quite a lot of releases, 38 basis points. And why is that? It's your secondary markets for distressed paper are better so that means you sell at better prices than what we have provisioned for.

Also what you see is the early restructuring deals which have been done. Well, those ones are done and that normally leads to some releases as well.

Total stock of provisions, it's at EUR4.4 billion at the year-end. If you look at going forward, what we see there, well, basically in the early 2010s we see it moving around at the levels of second half of '09.

We move from the loan losses. Let us look at the sectors which contributed in there and that is what you see on page 31. You see that the high contributors are still the structured finance, although it is less than the last year's, and the US mortgages, with EUR114 million and EUR156 million.

But what you also see is that, right now, the increase is a bit more in the SME side; mid-corp and SME. And you see the decrease more in the general lending products. And so that is on a net basis what you see happening in the loan loss provision front.

So the dynamics are that the large corps is a bit less, the mid-corps is a bit higher and at the moment still the US mortgages is ongoing.

If we move from the loan losses to the non-performing loans, then let us first look at the commercial loan book, and that is on page 32.

What you see there is again the non-performing loans slightly lower on average than in the third quarter. Where you see it lower? Well Structured Finance; it's a bit on the Real Estate Finance because some files have been restructured. But you see a bit the increase in the mid-corps and the SMEs. Overall net net it's a lower number.

If we go from the commercial loan book to the mortgages, and the mortgages are on page 33, then you see basically the NPL that is staying at 1.3% where the increase is in the US mortgages to 4.7%, so a slight increase. But, at the same time, if you look at Dutch mortgages and if you see delinquencies, the 30 days, or you see the delinquencies in the 90 days still staying stable.

If we go from mortgages to the Alt-A portfolio, Alt-A you see on page 34, basically there's a few things to note. Relatively over 2009, we have seen quick prepayments, so that means the overall portfolio has gone down and which led also to the Dutch government prepaying our loan to them quick.

But if we zoom in on our position in that portfolio, what you see is that over Q4 we have taken a EUR324 million pre-tax impairment based on EUR150 million credit loss. And that means that right now what is in portfolio is there's in total EUR150 million of negative reval reserve left.

Overall what we have seen is still delinquencies moving up from 24.1% to 25.9%. So the increase of delinquencies is less. Prices of the Alt-A bonds have increased. So prices increase and slightly less deterioration of the underlying; that is basically what we have seen on the Alt-A part.

If we go from Alt-A to the Real Estate investment side, that is on page 35, what you see there, overall, is that the Real Estate investment portfolio, so that is the Canada exposure plus it is the seed capital in the funds in both the Bank and the Insurance Company.

Overall you see that the portfolio, which is revalued through P&L, is declining. The total value right now is EUR7.7 billion. It is declining first because values have declined but also because we had a sale in the fourth quarter of EUR0.8 billion. Net net, if you take that sale of the EUR0.8 billion out of the fourth quarter, then you see a bit of a stabilization happening there.

Now, why is there a stabilization? You could overall say that the yields, with which you discount cash flows, are stabilizing around 7%. Nevertheless the rental income and the expectations of rental income are still declining.

So what you have seen over this year is, quarter-by-quarter, a bit lower downward valuations of the Real Estate portfolio with a lesser speed. So that is what we, in a nutshell, see on the REIM side, on the investment side.

If we go to the Real Estate development part, and that is on page 36, there we have taken a significant impairment in the fourth quarter.

Now on the Real Estate development part, the total portfolio, the EUR2.3 billion there, the impairment in Q4 has been relatively large, which is also because we went through each of the individual projects there and took decisions to exit more projects at the fourth quarter. And if you exit it, then at a certain moment you need to move from a going concern to a sales value.

Overall, what we see there on the Real Estate development part is that over the next year still you will see downward valuations of real estate affecting the portfolio. But Q4 really was a bit a higher exception because we had seriously gone through a lot of projects and made that exit.

If we move from the Real Estate development part to the risk-weighted assets, and then we are on page 37, we started this year with EUR343 billion of RWAs.

In essence, what you see is that we had a 10% credit migration, so you could say that is the Basel pro-cyclicality, which is for ABSs and for the other one. Then what you see happening is we took a lot of mitigating actions.

And what are the mitigating actions? We reduced balance sheet; remember we did not invest bonds in ING Direct. We also had the facility with the Dutch State and selectively we have sold some ABSs and that actually brought our total RWAs down at the end of the year as compared to the starting of the year.

So in essence you could say that is one thing which was particularly helpful as well in making sure that our core Tier 1 ratio improved.

You see that also particularly if you highlight then from the third quarter to the fourth quarter. Third quarter we were at EUR337 billion. We do get credit risk migration. At the same time we sold, for instance, part of our US prime RMBSs and that resulted in EUR7 billion RWAs less.

And why is that so? Because what we sold, and that is what you see on the bottom left-hand side, what we have sold is the lower rated tranches of the ABSs and there you can, with a relatively modest hit on your earnings, you can release a serious amount of RWAs. So that is what we have done.

So concluding on a nutshell, loan loss provisions stable at the second half of the year levels. Revaluation of a small amount left if you look at the REIM. So the investment portfolio declines slowing down. If you look at the [RED], the development part, it increased but specifically in Q4, but still RED is a more concerning portfolio for the year 2010. And if you look at RWAs, I think that is managed.

So that concludes the risk part.

Thank you, Koos. Let me summarize and then we have page 40. The letters are getting very small for me.

Here we list our priorities for the year 2010. Of course, the number one is to make sure that we do a very good separation of the Bank and Insurance organization; operationally complete by the end of the year.

Secondly, we need to improve the performance of our Insurance operations in order to maximize value once we do the divestiture program. And we have a project here under the leadership of Tom McInerney, the Mistral project where we bring together all type of ideas to improve our operations.

The third one is to make sure that we maintain the engagements of our employees while we are working on the separation process. And I think we have taken a lot of steps already, but it's important to be vigilant and we would like to see the engagement scores that we every year have for employees, that they go up this year. Even though the circumstances may be difficult, I think the leadership needs to be able to do so.

And number four is to make sure that our customers are happy. In particular we have a new initiative, the [net promoter] score that we are rolling out in our retail business. We expect a lot of that.

Number five is (technical difficulty)

Number six, we need to take another look at our portfolio. We always do that, but also again this year. Certainly when we prepare for the separation, do we have all the right businesses to go forward with? And how can we make sure we do?

And then the last one is we will be vigilant and continue to be vigilant on costs and further improve our efficiency.

So this is a year of transition. A lot of groundwork is being laid for a successful future. But I also see it as a year of opportunity where we are redefining our future and redefining the future of two very interesting businesses of our Company.

So having said that, we have until 10.30 to answer your questions. So let's start immediately and give you the floor.

Thank you, sir. (Operator Instructions). Your first question comes from Mr. Duncan Russell. Please go ahead, sir.

Good. Okay, so first question -- good morning, first. First question is you were talking at the start about the disentanglement process and how that would take a year to do the whole thing.

I was just wondering, of those projects you identified, I think you said 20-something projects or something like that, could you tell us for the US specifically whether that was one of the business units where you've got a lot of disentanglement to do or whether there's not much disentanglement to do?

So could you identify how much is for the US subsidiary of the Insurance business specifically please? That's the first question.

Second question then is on the variable annuity adjustments, so the policyholder behavior. Could you give any indication on what sort of assumptions you're making now? So, for example, how much of the policies which are 20% in the money you assume -- just some sort of reference of policies which are in the money and their resulting lapse assumption. Anything you could give there would be useful, versus current experience and versus past experience.

And that was it, actually. Thank you.

Okay, Duncan. I will do the first one and then I think Tom or Matt, Matt Rider, who we have, will do -- Matt is our new Board member in Insurance -- will do the second one.

On the disentanglement, very simple. There is none, it's all completely separate and there will be no disentanglement issues in the US. So that's a pretty straightforward easy country.

Matt, you will do the second one.

Yes. So on the VA assumption changes, what we've done is had a look -- and we do this routinely, by the way, on all our products, is look at the experience that we've been seeing over the last several quarters and we make those adjustments during the course of the year.

Now, on the VA, specifically in the US, what we were seeing is some credible evidence to suggest that for contracts that were significantly in the money, we were seeing lower lapse behavior than was originally anticipated. [Credible] evidence led us to making the change that we did in the US. And then we did similar actions in Japan.

Now I'm reluctant to give one single number in terms of the lapse assumptions, mainly because we do this on the basis of how much the thing is in the money. It varies by policy, duration and so on. So I think it would be inappropriate to give a single number on this.

Just to maybe leave you with the message that, every time we do one of these assumption changes, we try to get back to the middle of the road, and that's where we stand now.

But just to be clear. The assumption change, does that take it down to what you're currently seeing? So you've factored in the current economic environment, the markets etc., or have you assumed again -- are you somewhere between what it used to be and what it is currently?

Like I say, we take a middle of the road estimate, looking very much forward to where we think the economy and the markets are going to be. So it's not like we take it down to immediately the experience that we see, but we take a prudent number and we get back to the middle of the road.

So if lapses used to be, I don't know, 10% or something, what have you assumed now in that -- the portfolio?

It's very difficult to give a single number in this regard because it varies by how much it's in the money, how much -- what policy duration and so on. So we're not going to give that information out.

Okay, thank you very much.

Your next question comes from Spencer Horgan.

Thank you very much. Two things please. The first one is, obviously you referred to the EUR1.5 billion of cost savings you've made in 2009, and you said you're going to continue to focus on it in 2010. I wondered if you might dare to put some number on it for 2010?

And then the second question is, I think you touched on this but I didn't quite get it. There seems to be an equity injection into the Insurance Company down from the holding company, could you just explain exactly what's gone on there? Thank you very much.

Okay I'll do the first one and Patrick will do the second one. The EUR1 billion cost reduction, yes we secured that one and we will continue to work on further cost reductions. I'll give you a few examples where we are working on.

There is a project going in Retail Netherlands, that's already a project for two or three years. That still will have benefits when we complete the next phase. We're now on the third phase of that project; that will have additional benefits going forward.

And then we have the One Bank idea. As you probably know we have put our Retail Bank, Commercial Bank and ING Direct under one leadership, one management team and one balance sheet. And we have already secured a number of benefits here. There are still more to come.

Then we have in Insurance; we are merging in the Netherlands, the back offices of our European activities in the Benelux. And in Eastern Europe, we are integrating and doing a back office integration of our Eastern European activities.

So all these things, and then in the US we've continued to look at further opportunities to reduce our costs. So these are all programs ongoing. We have them individually listed, we have not made a, let's say, big number out of them. These are individual projects, but it shows that we have the continued attention for further reducing our cost.

Patrick.

Yes, in respect of the Insurance equity, what we did was, following the rights issue, we injected EUR550 million equity into the Insurance holding company. And we also used profits -- part of the profit on the disposal of Australia, New Zealand to fund a EUR1 billion reduction in hybrids. So we increased equity and used that to reduce hybrids which have come down from EUR4 billion to EUR3 billion.

Got it, thanks.

The next question comes from Farquhar Murray. Please go ahead sir.

Hi morning, Farquhar from Autonomous Research here. Just two questions if I may. Firstly just starting with Basel III, a couple of -- well one peer in particular has highlighted some numbers in terms of their Basel III Tier 1 ratio and their net stable funding ratio. And I just wondered whether you might be able to give some color around those as well?

And then secondly, just coming back on the variable annuity assumption changes, could I just clarify, if lapses stay at their current level that you saw towards the latter end of last year, can I take it that you would actually have an incremental charge in the next 12 months?

And then also, what are the macro dynamics of these lapse assumption changes and could we see recoveries in certain market scenarios? Thanks.

Yes, Koos, do you want to deal with ratios?

Yes, I think if you look at the Basel III, then I think what most of you know is that the components which are in there like the DTAs and everything else. We are a modest user of that.

So from that angle you could argue, like our capital ratios, above average or below average hit, then I would say it is below average. Nevertheless, still some rules are uncertain. And the question is what will be grandfathered as well in terms of hybrids, or not?

So I find it a bit uncertain to make a definite conclusion on this right now. And we have to await the quantitative impact study.

But overall so far, so fine, but we must see first the rules set in stone before we know.

If you look at the stable funding ratio, it's a little bit similar, the rules, which are therefore liquidity, are rules which are applied already for a long time in the Netherlands. So in that sense we are following these kind of liquidity rules, or similar type of rules, already for us, I think, since 1996.

At the same time the issue there is that the devil is in the detail, because there is still some uncertainty on what kind of liquidity do you need to hold for certain type of demand deposits from customers. And also what kind of assets are eligible. And between the most harsh and the most lenient part, well you can drive a truck in between those assumptions.

So that is what makes it a little bit difficult to come to a conclusion there. And so overall we are watching that carefully, but at the same time it does not lead to taking an immediate action right now in the Company. We first must see the quantitative impact study.

Farquhar, this is Matt Rider, maybe I take the VA assumption changes again. So I think your question is, if markets stay the same, are we looking at incremental hits to the P&L as a consequence of the assumption changes? And the answer is no. And in fact what we should see is that the impact, as we come out of the crisis a bit, should be a bit more positive.

The change that we've actually made is the lapse rate only for contracts which are in the money. So as we emerge from the crisis and we see that contracts become less in the money, then we should see some improvement here.

Just as a follow-on would that -- you suggested there though that the lapse change hadn't taken it to the current level of behavior that you're seeing. If markets were just stable and lapses stayed as they were, would we see a charge at the end of the year is my question?

Well the charge would come as a consequence of, if there was any further review of the lapse data and we saw something moving about, then we would obviously take that into consideration. But at this moment, no.

Okay.

Your next question comes from Christopher Hitchings. Please go ahead sir.

Hi, thanks very much indeed. A couple of issues, some follow-ons from where we were before. Can I just look again, on the VA assumptions, you have -- are these mostly -- these are, where guarantees are in the money, so presumably they're policies sold relatively recently. Now you introduced some very new products that tried to increase or reduce lapse rates last year. Are any of those involved?

Just on from that, I know you haven't updated your embedded value, you're going to move to MCEV and disclose it later, but have you made any changes for those lapse assumptions in your new business assumptions? What is, in fact -- are you selling VA new business now, what -- and the new products, when are they coming in?

Secondly, in terms of the development assumptions, the -- sorry, the development provisions in banking, can you give us some handle on what types of developments are being provisioned and on what basis? And your warning that there could be more of these to come, again could you give us some handle on that?

Finally, the third question is, on the bid, does the timing of the sale of Insurance depend anything on the appeal you are launching against the EU Commission and what has -- what's the issues facing that? Thank you.

Okay, Chris we -- the first one I think will be for Matt.

Yes, Chris so just thinking about what products this has impacted, it is the guaranteed minimum income benefit that we have sold in past years. And this is an area where we do have a lot of credible experience at this point, and that's why we've reflected the assumption changes.

On the more recently sold LifePay plus withdrawal benefits, we are not seeing credible experience at this point, so there's no reason to change any of our assumptions.

What we typically do is make sure that when we price new product, we take into account the best estimate of what we think future experience is going to be, depending on whether it is -- depending whether it's in the money or out of the money or policy duration and so on.

I think at this point I'll turn it over to Tom and he'll talk about recent sales and then rollout of new product.

Yes certainly Chris, you've seen us in 2009 significantly reduce the sales of VAs in the US and then we've ceased sales in Japan. We are in the process of getting final regulatory approvals for the new VA product.

And so that product, as I've mentioned in the past will have no rollup increase, it's basically a return of premium, although it will have an annual ratchet. And the only funds that will be provided would be indexed funds.

So it's clearly a lower risk product. In addition it's lower cost to the consumer, because instead of paying upfront commissions, we will pay a trail commission over time. So that allows us to reduce the -- because of the lower guarantee and reduced commissions upfront, allows us to reduce the price. So that product should be available for sale sometime in the first quarter.

Okay Koos. I think the development -- you refer to development expense on real estate and so Koos, do you want to elaborate on that one?

Yes sure Chris, if you look at development, what we are doing there is you have three phases. You have research, you have some land purchase and then you move into [construction]. Normally the way, how you do it is, you move to construction as well if a project is at a certain moment pre-let. That is the business model of development.

What we have done in the fourth quarter is we have said, on some of these and then we looked at some countries, and some projects, we said on some of these we are going to exit. And then it means you depreciate down or you impair all your research costs which you activated on your balance sheet. And that led to a one-off higher amount of impairments in Q4, which is not representative for 2010.

Nevertheless if you ask, what do you expect over 2010? Still you could expect some shortages or some cuts on rental income, and therefore projects overall being less profitable.

So it is not that I can say, like with Q4 impairments, we are completely done. Nevertheless, the Q4 was a bit higher because we really went with the dust comb through all the projects and decided to exit a few.

Yes thanks, just on that, could you give us any figures, like, for example, what your research -- what the research budget or component of your asset is?

I think, I don't have the precise breakdown here. I can say that, if I look at the impairment in Q4, a significant impairment was taken on some land positions which we had.

You've also made provisions on the land as well as research costs?

Yes.

That's both in there. And finally could someone tell Jan that his microphone is a bit dodgy.

My microphone is not good?

There's occasional -- your voice drops and goes all strange. Just it's not all the time, just sometimes.

Okay, we have a new one here. Is that better?

Hello.

Hello, I have a new one now, is it better or (multiple speakers)?

Yes that's certainly working, yes. Excellent.

Very good. Then the European appeal question, we are not -- well, we have filed appeal in a relatively short procedure. So we expect to get some answers on a relatively short basis. We cannot be precise because we don't know, it's in the hands of the courts. But I think at this moment, Chris, I am not really planning to do a sale. Or we are not really planning to do a sale of the Insurance activities any day soon.

We have time, I think we want to use the time well. We want to make sure we have the performance at the level that we want it to be. And we also want to make sure that markets are there in order to do the right transaction. So no, not necessarily connected to the EC appeal.

Your next question comes from Mr. Frank Stoffel. Please go ahead sir.

Yes good morning, it's Frank Stoffel from Bank of America Merrill Lynch. Just a few questions please. On your US mortgage non-performing loans, they've actually, I think, increased by 9% in the fourth quarter. Could you please just elaborate on when do you expect this to stabilize, whether there was anything you could elaborate on what has happened actually in Q4?

Then the underlying growth in risk-weighted assets in the fourth quarter was actually 10%, as Koos has mentioned. Sorry I couldn't find a comparable number for the third or the second quarter, if you could please provide them, that would be great.

Then you have just indicated a shortfall in the US Insurance reserve in 90% confidence level, surplus at 50% confidence level. Can we just go -- does it signify or does this mean that we should not necessarily anticipate that this means a reserve increase is on the agenda in the US in the next couple of quarters?

Then on the banking underlying results of EUR1.8 billion, could you please comment how the re-pricing of the, in particular of the commercial loan book, went on in the fourth quarter? Are you happy with what you have achieved? How do the new margins compare with what you got in the third quarter?

And lastly the net deferred tax asset in the Bank, I think it was EUR3.8 billion at the end of 2008. I think you've commented that you expect this to come down significantly in 2009. Do you have a number that you can provide us with please? Thank you.

Okay, well a lot of questions. I would suggest we limit it to three going forward otherwise we may run into trouble. The first question, Koos.

Yes, I think, Frank, if you look at the total amount of non-performing loans in the mortgages, it moved up by 9%. But let's make a difference between percent and percentage points because it moved from 4.3% to 4.7%. So that is what the increase has been, and I cannot say -- underlying overall, this is still in line, to be honest, with prime fixed mortgages what you see, and significantly lower than prime ARMs.

So if you ask me is it bottoming out already, then the answer is no. And, well I don't know, I only see on Alt-A that the amount of delinquency for instance, is leveling off. But on the mortgage market here, I find that difficult to see that at this moment. But the increase is, yes, in that sense more modest.

If you go to the next point on the risk-weighted asset increase, what I said is that in total, year-over-year, if you look at ABSs and the loan portfolio, the total increase in RWAs has been 10% for the year. In Q4, if you annualized the number, it has been 7%.

I think in the ABS migration and the other credit migration I think -- I think it's, sorry, okay good. Okay sorry, got it, thank you.

It may be worthwhile to go through just a recap of what we've disclosed here with respect to reserve adequacy in the Americas. So what we've disclosed is that basically at year-end 2009, we see that the net liability provisions for Insurance Americas became insufficient by about EUR1.6 billion at that 90% confidence level.

And that's an important one to understand, that you have to recognize that that test is significantly more conservative than using the best estimate reserve adequacy approach that would be commonly employed among other US insurance companies for instance.

So, but if you look down at the 50th percentile confidence level, again at the Americas level, the net liability provisions are more than sufficient, at something like EUR1.8 billion. And I think we've disclosed that.

Now a lot of the cause for that reserve adequacy issue is coming from the US and specifically the variable annuity business, the closed block. At this point the deterioration is really largely a consequence of modeling improvements that we've done, as well as assumption changes, as well as the impact of the -- we had some losses on the capital hedge that we had earlier in the year and that's impacting the reserve adequacy.

So at the 90th percentile level, the block becomes a bit more sensitive to changes in equity and interest rate markets. But what happens is that the impact on a best estimate of 50th percentile level is actually much less. So what we do is we go from this, about a EUR600 million inadequacy to about a EUR900 million inadequacy over the course of the year. And again we disclosed that.

So you asked a specific question about would we be increasing reserves or something in the course of the year and I want to address that very specifically.

So right now we are addressing many, many different alternatives to improve the reserve adequacy situation. Importantly, you have to look at this in the context of the financial markets. And we are, in fact, doing that.

Certainly if the financial markets were to underperform say in the coming quarters and years, then that would probably have an influence on the actions that we might take, let's say to improve the adequacy at what would then be a deteriorating position at the 50th percentile level. But we're not there yet.

So as we begin to emerge from the financial crisis, what you're going to see is rising equity markets, and generally interest rate rises, together with lower volatility, I think are really going to help that situation.

Now there are obviously things that we could do to improve this. We could write-off DAC or increase reserves or restrict positive DAC unlocking or something like that, or even zero out profits like we did in Taiwan.

But anything that we would do in that way would require a change to our, actually our own accounting policy. And that would be something that we would -- that would be an action that we would need to take, that obviously we would need to give you a heads-up on. So right now we're not anticipating that.

Great, thank you.

Okay the question related to the re-pricing of loan, the loan book, what we are seeing is that that the loans that are due and being re-priced were done, let's say, three, four years ago, they're being re-priced at a higher level. But at the same time we see that the pricing is becoming a little bit over the top. So we don't see this, the increases any more. It is becoming stable to a bit more competitive, let's say.

And Patrick you take the deferred tax.

The deferred tax number, indeed it has reduced significantly since 2008. It was EUR8 billion at 2008, it's down to EUR4 billion balance now.

But the net number I think was EUR3.8 billion at the end of 2008, do you have the net number?

The equivalent is EUR1.7 billion.

Okay, great. Thank you very much.

Your next question comes from Mr. Hans Pluijgers. Please go ahead sir.

Yes, good morning gentlemen. Three questions. First of all, still on the lapses. As I understand that, it is really based on experience so that, compared to the past, you assume that lapses will be slightly less than you have assumed so far. Is this correct, and I understand?

Secondly, on the DSB, could you a little bit elaborate on the level of charges you have taken there, because in the market there were quite a wide range of assumptions, we suspect, to a total loss on DSB ranging from EUR500 million to about EUR1 billion. Could you a little bit elaborate on which number you were taking as base for your calculation?

And last on the Real Estate, the non-performing loans has declined but you said they were mainly due to restructuring. Could you a little bit elaborate what, excluding the restructuring, the NPL have developed in Real Estate?

As I think the first question was on the lapses again, so what we're doing is we're looking at our past experience to try to project future policy holder behavior into the future. And what we've seen is lower lapse rates, specifically on contracts with benefits that are in the money. And that's the change that we have made for going forward.

Okay, question on DSB, we're not disclosing the number, it's still a preliminary estimate. To help you, your numbers are way too high, EUR500 million to EUR1 billion. Let me give you a little hint, it is less than EUR200 million but I'm not going to give you the specifics.

I would mean for the total loss on total DSB, so for the whole banking sector. So not for your part of those [loans].

Oh I see, okay. Well I'm not commenting on that one. Our provision, that's all I know, is less than EUR200 million.

Clear.

Koos, Real Estate?

Yes, on the Real Estate part, to be honest I don't have that because I know the NPLs and I know the NPL decline. But the what if we did not restructure, how would my NPL have looked like, that is not the way how I look at it.

I can try and look it up but normally what we do is, we have [fouls], if they are at a certain moment they need to be provisioned, or they are non-performing, then you deal with it, and from then on you calculate your NPLs. But that what-if, I cannot answer.

Okay, thanks.

Your next question comes from Francois Boissin. Please go ahead sir.

Yes, good morning gentlemen. Francois Boissin from Exane BNP Paribas in Paris. I have two questions please. Could you give us a bit more color on the Real Estate development exposure, by country after the write-downs that you booked in Q4 '09?

And second question, can you maybe give an update on the asset disposals, other than Insurance, and specifically the Dutch banking operations and the ING Direct in the US? What can you tell us on timing and updates on that? Thank you.

Okay, I'll take the last question first. The asset disposal on the Dutch banking activity, the planning and working on that one to separate it out and carve it out of the operations in the Netherlands, but no progress to further mention here.

And ING Direct, as I said earlier, we have mentioned that earlier in previous calls, we are not in a hurry at all. We will take our time, we are not in fact in any way discussing or negotiating any transaction over there.

Okay but is there any re-negotiation to try and avoid disposal in this area?

I cannot go onto details, we have filed an appeal with the European Commission and I need to wait until that will be resolved until we can do anything further. And Koos, developments.

Yes, if you look at the development breakdown, 40% of the development exposure is in the Netherlands. We have in total for the rest, the significant countries are Germany 9%, Spain 19% and we have Hungary at 9%. And then there are some other countries but that is all then below, well at or below, 6%.

Okay, and the net exposure now is EUR2.3 billion, right?

Yes, EUR2.4 billion.

EUR2.4 billion. Thank you.

Your next question comes from Mr. William Elderkin. Please go ahead. I'm afraid Mr. Elderkin's de-polled. I won't keep you a moment for the next question. You have a question from Farooq Hanif. Please go ahead.

Morning everybody. Two quick questions. Firstly, on net interest margin, you've made quite a lot of statement today, so you've talked about the sensitivity to the yield curve, you've mentioned some things about pricing. Can you just bring that all together and tell us where you think it's going?

You're getting positive re-pricing on loans, you're seeing competition coming back. I think in the past you said that it's wise to assume that the 140 basis points that you're making right now goes back towards 120 basis points or so. How realistic is it that actually your margins remain quite good for 2010? That's question number one.

Question number two is, today what are your current thoughts on the structure of disposals? I know you've made some comments that IPOs are looking like an option. Are you talking about one or two, can you just give us, whatever you can tell us about what you think the best approach might be? Thank you.

Yes, on interest margins, yes the levels are higher than we've seen in the past. As Jan said, there's increasing competition coming in and, over time, we would expect those margins to come back down to the level we indicated before, 120 basis points, the good longer-term estimate.

Clearly it hasn't happened yet, we're still in a position where we're benefiting from higher interest margins, and I think that will probably continue for a little while longer before the longer-term margins come in.

Just on that, the fall to 120 basis points, is that just you assuming rates will go up, or is that just based on competition?

It's a combination of things. Competition will come back and, potentially, interest rates would go up as well. So we benefited from widening margins on re-pricing and loans where, in the crisis period when those loans mature, the margins will reduce. So it's a combination of things, but primarily competition.

I think it's fair to say that, for the time being, we don't see any let-down of margins. The margins are basically at this level, and maybe gradually later in the year declining, but I think, for the time being, we see them as fairly robust.

With respect to the structural disposals, yes of course, Farooq, we are looking at various ways to do this. First of all we have said we are separating the Insurance and the Bank organization where that's necessary, and we will take probably a year to do so.

Further, we are not in a hurry to go into any type of sale process because we want to take a very careful look at how markets develop, and market circumstances are. We clearly have an interest in doing this right, and to create the best possible value for shareholders.

When we look at market circumstances today, I think the public market looks like the most attractive market. Whether there's one or two IPOs, I can't say at this moment, that that's still to be discussed.

But further than that I can't go, we need to keep a very close eye on how markets develop, and how we develop as an organization, to see what the best opportunities are for us.

And to what extent do you think you're going to be influenced by Solvency 2? For example, just wanting to get things out of the way before that becomes a hard capital requirement.

Well, we will take a look at that as well, and of course we'll do our planning, based on all the evidence, and all the circumstances, and all the input that we can get at those points in time.

But I'm not in a hurry today, I think we want to take our time, we want to do it right, we want to go to market with a very good performing business, and we're working very hard on that one. That's our first priority.

Okay, thank you very much.

We have a question from William Elderkin. Please go ahead.

Thanks, good morning everybody, it's William Elderkin, I had a couple of questions please. First of all, could you just give us an update on what your expected tax rates are in the Banking and Insurance Division, given all the changes in the Group?

The second question is, if I look on page 70 at the Insurance Europe Margin Analysis. Can you give us an idea of how much of the Insurance operating result is derived from the Dutch business, and how much, I guess, from the Eastern European businesses?

And then the final question is, can you give us an update on your thoughts on the Solvency 2 discussion and what that means for your Insurance business, does that mean there's likely to be more or less capital going forward?

Yes, on the tax rates I think the guidance we gave you was 20%, 25%. Where we're looking at it now, we see that probably going to the 30%, perhaps 35%, range in 2010; largely due to change in mix and less tax re equity income potentially in 2010.

You said 2010. Just in terms of building our models going forward, is that 30%, 35% range the kind of number we should be using?

Yes, that's what I would suggest you use in your model.

And to be fair, would that apply equally to the Insurance and Banking businesses, or are the rates likely to be materially different?

Well at this point I think the guidance we can give you is for the aggregate, because it will depend on how the business evolves. But I think that's best used for both.

Okay.

Matt?

Yes, I believe you're looking at a life insurance operating result of EUR167 million for Insurance Europe and a total operating result of EUR221 million. And, of that, about EUR100 million or so is the Benelux on the life side, and the non-life is about EUR50 million.?

Okay, and then Solvency 2? Koos?

Yes, I think on Solvency 2, the good thing which we embrace is that it becomes more risk-based, so the calculation of what risk is, that is the part where we are happy with.

And still the issues which we find is that, number one, for liabilities, should there be some form of recognition that a balance sheet side, the liability side, is more stickier than for instance in a bank, which is the so-called liquidity spread discussion, and we are clearly in favor of applying that.

Second part is asset risk factors, that is moving in the right direction with the CEIOPS. That is going down a bit, but still one of the bigger issues is to compare economic capital to a market value balance sheet. That leads to an element which is a bit too pro-cyclical and there's an ongoing dialogue with the regulators on this. That is where we are taking part in.

Is your sense, as things stand, the proposals would leave your business, do you need more capital, less capital, about, do you have the right amount of capital there?

I find that difficult to say because you could say like on as-is basis, currently right now, then the amount of capital is sufficient. But if the system becomes too pro-cyclical then you need to hold more buffers.

So it's actually the pro-cyclicality element that is a part where we have a concern on, and that dialog, that determines whether you need more buffers. But the current capital situation is fine.

Thank you very much.

Your next question comes from Mr. Marc Thiele. Please go ahead sir.

Good morning. I'd like to ask three number questions. Firstly, I was previously thinking you would produce a few numbers related to the profitability of the asset management, I couldn't find anything. Could you at least provide us with the third party assets under management, excluding unit-linked?

Then secondly, ING Direct USA, on page 38, you mentioned the disposal that you've done. Can you give us an update how much capital is in that operation, and what level of risk-weighted assets are we looking at?

And then thirdly, there was little change in the loan loss provisions in the fourth quarter sequentially. The coverage ratio is still relatively low at 36%, historically the level was 45% to 50%. Over which timeframe would you expect a move back towards the 45%, 50% level?

The first question relating to the asset management. We have said that, as of January 1,, we will start working on that one so that by Q1, it will be the first time that we will report them separately. So they are not yet in the 2009 numbers but you will get them as of Q1 2010.

Then we have a question on ING Direct, Koos.

Well maybe can I first start with the loan loss provision, and then we'll go to the ING Direct. If you look at the loan loss provision part, the coverage ratios, the coverage ratios are a result of a number of factors. The first part is, of course, we are in a more securitized business which leads to lower loss-given defaults.

Second part is, in the beginning of a crisis, if you have new files then, in general, your coverage ratio is low; and if you have a lot of older files, then your ratio becomes higher because those are the more difficult workouts. Third element which plays a role is, in general, and then if I look particularly at retail, after three years we basically write something off entirely. So we don't leave it on, and that means like a lot of (inaudible) provision files are just being taken out.

So I think those are a number of reasons why, in the end, our loan loss provision is something which the coverage ratio can move a bit up and down.

At the same time, if you look at when do we end up at the 45%, 50% guidance, that is a more difficult one. We indicated already in the previous quarters that we move in 2013 to this target, that is where we will end up with.

But right now the only guidance I have is that what we see still in the second half of this year, a little bit leveling off of loan loss provisions, that is something which I see as the base case for the next few quarters. But I cannot give a precise time path where we will end up in, when we will precisely be at this 45%, 50%.

If you take ING Direct in the US, the risk-weighted assets, then in total, we are talking about EUR25 billion, that is the RWAs for the US portfolio.

Thank you, just a follow-up. Do you have a number for the third party assets under management, excluding unit-linked? You published a number last quarter but as a comparison here?

Yes, it's EUR183 million.

Thank you very much.

Your next question comes from Mr. Marcus Rivaldi. Please go ahead sir.

Good morning everybody. Three questions please. Firstly, looking at your Tier 1 hybrids outstanding at the moment, the ones that are trading substantially below par. Effectively, by our calculations you've got roughly EUR750 million of potential core Tier 1 gain, if you have conducted some form of liability management exercise. Could you just give us some insight as to how you're thinking about that, and whether you are looking to harvest that gain at any point?

Secondly, on the deleverage of the Insurance business, could you just give a bit of explanation as to why you're doing that, and is it to help a potential sale at INGV? And, therefore, should we expect a continuation of that deleveraging? There's another EUR3 billion of internal hybrids there.

And then finally, just whether you're going to be paying a dividend internally from the Insurance operations up to Group? Thank you.

Okay, in respect of the hybrid, we keep a close eye on where the market prices are obviously, and that's something we're looking at and keeping evaluating our options.

We also want to see where the Solvency 2 debate is going and hybrid capital, what's eligible and what's not, and how these new CoCo instruments evolve, and what options in that space. So we're keeping our options open and looking at how that develops.

On the leverage change, it was simply because we had an internal ratio on hybrid capital where we slightly above our internal ratio; we wanted to get it back in line so we moved the hybrid level down so that we were within our own internal ratios.

And on dividend policies, we maintain our internal dividend policy discipline, it remains the same as it has been in the past.

So does that, just be clear then, is there, because I think there was no dividend paid from INGV up last year. Is that the case this year as well?

Well in 2010 we will maintain the same policy and as the results develop, and if we have results in excess of minimum requirements, we would dividend up from INGV and all other insurance subsidiaries. We will maintain our pre-existing policy in this respect.

Okay and just one very short follow-up question, but obviously you said there's no disentanglement issues with regards to the US, and I think also you've been quoted about examining different IPO options.

Is there any sense that maybe getting rid of the US quicker might generate greater value for the Group from the second IPO, given, I guess, maybe issues around reserving strength and all the rest of it at the US at this point in time.

Okay, I think we have a process here that we like to run as confidential as possible, so whatever we do we will let you know as soon as we do it, but we are not going to speculate about alternatives that we can do. But thanks a lot for the tip, we'll keep it in mind.

Thanks very much.

The next question comes from [Mr. Bert Valk]. Please go ahead sir.

Hello this is Bert Valk at (inaudible) Amsterdam. I have a question on a sheet which was in the last presentation, it's not in this one. It's about capital structure of the new bank which includes the insurance subsidiaries. Is your expectations, as of the relevant regulation for this set-up, is it unchanged?

The second question is more on the business model going forward. You have slightly increased the intensity of risk-weighted assets, is this more or less continuing, and will it be impacted by the regulations change?

And then about regulation change, President Obama has proposed two things which, with regard to the bank tax and the Volcker rule. Is my expectation correct that this will not impact ING very much, but what will be the impact which, when these kind of measures would come to Europe? The Dutch Minister for Finance has more or less voiced his support in this sense, but could you give a flavor on this? Thank you very much.

Okay, Patrick, the capital structure?

In respect of the bank holding company type structure I think you're referring to, no we didn't include it in this deck, in part because it involved three rules that have since come out and we need to evaluate how they were playing out.

I think part of the reason we showed it was to demonstrate the underlying capital strength of ING as compared to some other bancassurers which has also been reflected in the press. But the primary reason we have not put it in is that we have to look at what Basel III rules will do, whether that structure will apply under Basel III.

Koos?

Yes, on the RWAs, in general what we have seen is RWAs, they have gone down because of all the risk-taking actions we have done.

Going forward, what you can expect is, on credit migration, that could still go on for the next year. But nevertheless, we will continue to apply the same methodology as this year which means invest a bit less in bonds. So I think we have sufficient mitigants to manage the RWAs going forward.

If you talk about regulation there, you could say like in 2011 there will be the new Basel rules on trading and that will lead to an increase in RWAs, but our total amount of risk-weighted assets for trading are low. So even if that doubles or triples, then that is not something which will hit us significantly.

Okay, on the Obama tax and the Volcker rules, I think we need to be really careful. We see a lot of suggestions coming to the surface from different types of players in the market, not very well coordinated.

And I think one needs now is a well-coordinated regulatory framework that is a level playing field, that will apply worldwide ideally, but if not, in the European markets. I think that is important, and not to regulation that is -- today it's going this way, tomorrow it's going the other way, and nobody knows exactly which way it is going.

I think that's very dangerous for the rational development of this industry and could only lead to too much capital or too much regulation. And then you have the consumer ultimately to suffer from that, because those prices will have to go up. I think we need to be really careful here.

And I don't know what the Obama tax will be when it comes to Europe, I don't want to speculate on that one either.

Okay, thank you very much.

Thank you. Your next question comes from Nick Holmes. Please go ahead sir.

Yes, hello. I just had a very quick follow-up on the VA lapsation which is can you tell us which vintages of policies are affected? For example, is it mainly '03 to '07? Or is it earlier than that? Thanks.

Hi Nick, it's Matt. I think the best way to characterize it is it's a long-run assumption change that we're making for the future, but it really affects all the vintages. So it's the entire block. So we're basically coming to a new management best estimate for contracts that are in the money.

But can you give us -- I think you did say earlier that it wasn't the policies that were written most recently, it was ones written a little bit further back which would be logical, because they have more -- they would be more in the money logically. You can't give us any flavor on this?

Well it's the guaranteed minimum income benefit products. And they've been sold for more than 10 years, yes.

Okay, fair enough. Thanks.

Okay, I think we have one more question.

Your final question comes from Benoit Petrarque. Please go ahead sir.

Good morning, Benoit Petrarque, Kepler in Amsterdam. First question is on the risk cost. The gross -- we have seen the gross additions, it's around the 134 bps for Q4. Actually the increase is coming from the Benelux retail division. Is that a structural trend here, or is that just bad luck in Q4?

The second question is on the Real Estate development division. What is the NPL on Real Estate development, end of Q4, as well as your cover ratio please?

And last one on the sale of US prime RMBSs, the EUR800 million disposal, which freed up EUR7 billion of risk-weighted asset. It sounds a great deal for you. Can we expect more -- similar disposals in 2010 and similar releases of risk-weighted assets please? Thank you.

Okay, is it bad luck or not? What we talk about in the Netherlands and in Belgium is more the SME part and normally what you see in a crisis like this is that first, the more higher leveraged large corporates, they had been affected and we had on the Real Estate side, we had more covenant breaches. So that has been the theme early 2009 and mid 2009 and late 2008.

What you see then is that it starts to more hit the real economy and the real economy is more with the SMEs, and that is why here you see some -- you see it more affected at this moment.

Can I say like is that bad luck or not? The answer is in fact that the watch list, and that is before something becomes very much a problematic file, the watch list for the large corporate debt stabilized already more in the third quarter, and I think you see some stabilization in the watch list for SME right now. But typically SME is just a bit slower.

For 2010, can we take a range of 110 bps to 120 bps risk cost? Is that the kind of level you are looking at?

Well I think I am already giving guidance in fact on the overall amount of risk cost, which is already a bit risky because you don't know these kind of things. But if you asked me can I give guidance on specific sectors there, I find that a difficult one.

And again, the only thing what I can say is that overall, there is different slices of credit in the portfolio with each dynamic, so that means we gradually are leveling off there, but it does not go in one go.

If you talk about the Real Estate development part, I don't have NPLs because in fact what you have is you have basically activated cost, you have some land and you have projects under construction. And at a certain moment, if you decide like a profit is not -- or a project in the end is not going to give you a positive result, then you take an impairment. So there is no NPLs on the development part.

And if you look at the third question, the EUR800 million disposal, yes typically what we are vulnerable for is that if you have an ABS and if an ABS has a very low credit rating, then it bites you a bit in the ankle and as far as RWAs is concerned. So then, at a certain moment, if it bothers you and if the price is good, you sell something.

Really, can you expect more than typically the guidance I can give you? This is a rule which is on banking and not on insurance. And if you look at banking, you know how much is the total amount of very low rated ABSs, then that is relatively small. And if you look at Alt-A, on Alt-A we have a different ruling with regards to RWAs. So no, there is not a clear expectation that there is lots of ABSs which are near the front door which we are about to sell.

All right, thanks.

Thank you sir. There are no further questions, please continue.

Okay, thank you very much. There are no further questions. We hope we have answered your questions; if not, then we have always our IR department available for further explanation. Thanks for being on the call and we may probably see a few of you during our trip to London. So thanks, and goodbye.

That concludes the ING Groep fourth quarter 2009 conference call. Thank you for participating, you may now disconnect.