ING Groep NV (ING) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for holding. This is Yvonne welcoming you to ING's Q1 2011 conference call.

Before handing this conference over to Mr. Jan Hommen, Chief Executive Officer of ING Group, 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 that 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. Over to you.

Thank you very much and welcome, everyone to the ING conference call on the first quarter results 2011.

I'm happy to report the Bank posted another strong quarter and that the Insurance Company showed significant improvements in the first quarter as well.

I will talk you through the presentation and then afterwards Koos Timmermans, Patrick Flynn and Matt Rider are here with me and we are all available to answer your questions.

I'm going to page 2. ING Group reported an underlying net profit of EUR1.492 million (sic - see slide 2) in the first quarter. That was up from the EUR923 million that we had last year.

The Bank posted another strong quarter -- an underlying result before tax of EUR1.7 billion. The Bank results benefited from a healthy interest margin from higher client balances, lower risk cost and an improvement in expenses compared to Q4 last year.

Underlying result of the Insurance Company showed a significant improvement compared to a year ago. They were up 280% from Q1 last year to EUR461 million. Insurance result benefited from higher fees and premium-based revenues and an improvement in the investment margin and especially also very good cost control.

Restructuring of the Group is on track. We continue to work towards the physical separation of the Banking and Insurance activities. We have already an arm's length arrangement with each other that was put in place at the end of last year. But, at the same time, we are now laying the foundation for two IPOs -- one for the US and one for the European/Asian Insurance business.

And then we are looking at the repurchase of the EUR2 billion of core Tier 1 securities from the Dutch State. We plan to do that next week on May 13 and we will also pay a premium of EUR1 billion when we make that EUR2 billion payment.

On page 3 you see the results from Bank and Insurance. Strong numbers in this quarter. Significant improvement for the Insurance Company -- operating results of EUR561 million, a 35% increase compared with the first quarter last year. And the negative impact on non-operating results diminished significantly.

For the Group, that led to underlying net profit of EUR1.492 million (sic - see slide 3), up significantly compared with a year ago and also the fourth quarter of last year.

And then a net profit of EUR1.3 billion, EUR1.4 billion included a negative EUR111 million for special items, primarily related to the restructuring programs and some of the separation costs that we are still having.

Page 4, good progress compared to the ambition that we have set for the year 2013. Income growth supported by healthy margins and higher client balances; cost income ratio declined to 55%; risk costs that are trending down to more normalized levels; and a return on equity at 20.3%, that is based on the target of 7.5% core Tier 1, and if you calculate it based on current equity on IFRS accounting, then the return for the Bank of equity was 13.7%.

Insurance also good progress on the ambition we set for the year 2013. Investment margin continued to improve following the reinvestments we did last year; administrative expenses down from a peak in the fourth quarter 2010, led by reductions in the Benelux and in the US; ratio of administrative expense improved to 40%. The first quarter seasonally low, so the full-year number is expected to be below the level of last year, but we will remain focused on the ambition that we have set of 35%.

And then a positive return on equity of 6.2%. Still work here to be done; we still need to go to double-digit levels here. But clearly a good improvement by Insurance.

Our separation and divestment process is on track. We anticipate that we will spend this year about EUR200 million in after-tax cost and mainly we're using that for replacing temporary solutions for more permanent solutions.

In the first quarter the separation costs were low, only EUR20 million, because most of the cost has skewed to the second half of the year.

In 2011 the main priority is that we prepare the businesses for the two base cases to IPOs. No final decision yet on what we are going to do with Latin America, but we continue to look for the strategic options that we have for that business. And we are taking steps that we can meet the other requirements that we had from the European Commission, including the divestment of US ING Direct and the carve-out of the WestlandUtrecht Bank from our retail operations in the Netherlands.

But the overall restructuring is on schedule and we expect that to be completed by the end of 2013.

Page 7 you see what we are doing with the repayment of the Dutch State core Tier 1. As said earlier, we plan to repay on May 13 EUR2 billion of the core Tier 1 plus a premium of EUR1 billion.

And then the total amount that we will pay so far, if you look at all the numbers we have done -- the EUR400 million of interest payment we did in May plus the payments we made earlier, EUR5 billion plus EUR600 million premium -- then we will have already paid EUR9 billion. So we're very close to the full amount of EUR10 billion.

And then next year we expect that we will repay the remainder -- the remainder is EUR3 billion -- assuming that market circumstances will stay favorable.

In page number 8 you see the second tranche of the state aid will be repaid out of retained earnings. Again, we had a good quarter. We had a net profit of EUR1.4 billion. It was basically offset by foreign exchange changes and by revals of our debt securities, but we ended up with an equity of EUR40.1 billion.

And on the right side you see what happens when we repay the core Tier 1. Our core Tier 1 ratio will go down to 9.1% on a pro forma basis when we do the repayment to the Dutch State.

On page 9 you see the Alt-A market values are recovering, the repayments continue and the cash losses remain rather limited. We have put it in, because we had a number of questions from you, to help you understanding where we are.

You see that the market value of the portfolio has increased to 66.4% at the end of first quarter and, at the same time, the face value of the portfolio that we sold to the Dutch State has declined from EUR24 billion to EUR14.3 billion at the end of the first quarter. And that happened because we had faster repayments and faster prepayments than we had anticipated in the original plan. Also, currency movements have helped here.

The Government has used the excess cash that was generated to reduce the receivable that it has from ING. So that has come down from EUR21.6 billion at the end of 2008 to EUR11 billion now at the end of this quarter.

Let me go to the Bank and discuss the numbers of the Bank in more detail.

On page 11, you see the good quarter that we had. Gross result rose by almost 14% compared with a year ago. And income increased by 8%, supported by continued solid interest margin and higher client balances.

Risk costs continued to trend downwards to a more normalized level, mainly driven by improvements in the mid corporate and the SME segments in the Benelux.

Underlying results increased to EUR1.7 billion compared to EUR1.3 billion in the first quarter last year and EUR1.5 billion in Q4 last year.

Interest results held up well in the first quarter, rising 4.1% compared with the quarter a year ago, driven by growth in client balances. And interest margin remained very healthy at 144 basis points.

We saw a decline compared with Q4 of 3 basis points. That was -- in general, lending held up quite well compared with Q4. Margins from mortgages and, of course, savings were somewhat lower, especially in the Netherlands, where we saw quite some competition.

Interest margins in the mid corporate and SME segments were flat in the Netherlands but improved slightly in most other countries.

On the volume side, page 13, net production in residential mortgages was EUR4.6 billion, slightly lower than the previous quarter. And other lending showed a net increase of EUR4.9 billion, basically driven by growth in structured finance and Retail in Central Europe.

The net production of funds entrusted at Retail Banking was EUR12.5 billion, driven by ING Direct.

Commercial Banking reported a decline of EUR12 billion net outflow but that's showing a seasonal effect because always in Q4 you get a lot of corporate treasuries to park excess cash with the banks and then taking that up again after year end. And it happened again this year; the same happened, in fact, the year before.

When you look at expense, expenses are up 3.4% compared with a year ago but they are down 1.9% compared with the last quarter. And you see the underlying cost/income ratio down to 55% compared with 57.2% in the previous quarter.

The target still is 50% for 2013 and we are looking to do that with structural improvements, while at the same time, we want to continue to invest in our business and in the future of our franchise, mainly in IT and in operational excellence in the loan bank structure that we have designed.

Risk costs gradually declining to a more normalized level; we saw a small uptick in Q4, as a result of model updates on the mortgage portfolio but, again, risk cost declined in Q1 this year to 42 basis points over average risk-weighted assets; very low number of incidents, especially in the mid corporate segment and Retail Benelux.

For the quarters ahead, we assume risk costs as a percent of risk-weighted assets that are expected to remain below the average of 2010.

Non-performing loans, a slight decrease to 2.1%; we saw that risk cost declined by EUR83 million. The decline was mainly visible in mid corporate in the Benelux in Retail and lower risk costs for the Dutch mortgage portfolio after the model updates that we did in Q4.

And on the right hand side of the slide, you can see that the non-performing loans, as a percentage of total loans declined to 2.1%.

You see on page 17, Retail Banking results increased sharply compared with a year ago and also compared with the previous quarter. And the underlying result before tax rose to 12.7% compared to the first quarter, mainly driven by ING Direct and by Retail Netherlands.

A strong performance also from the Commercial Bank and Real Estate continued to be profitable.

The Commercial Bank posted a record result in Q1, up 13% compared with a year ago and driven especially by lending activities in Structured Finance and Leasing, as well as high results in Financial Markets but Financial Markets, basically, all driven by client relations.

And our Real Estate business, another quarter of positive underlying results and that reflects the ongoing recovery that we are seeing in real estate markets.

Our core Tier 1 ratio strengthened to 10%. We generated EUR1 billion of core Tier 1 capital, as the net profit was offset by a small increase in risk-weighted assets.

The strong capital generation from the Bank provides important strategic flexibility, as we work towards the repurchasing of the remaining outstanding core Tier 1 securities by the Dutch state.

And also in this context, the upcoming regulatory changes under Basel III, ING Bank will continue to focus on maintaining a strong capital position.

And then the last slide for the Bank, slide number 20, the loan to deposit ratio is 1.06; a good funding mix, with little dependence on short-term professional funding.

And basically, we have met already at this moment more than our -- we have already raised EUR10 billion so far this year, which is almost all the requirement we have for refunding the outstanding maturities that are coming due this year.

Let's go to the Insurance now, page 22.

Insurance had good results in the first quarter, operating result of EUR561 million. That was up 35%. Good growth in sales and assets under management that drove fees and premium-based revenues higher.

Investment margins continued to improve and gradual reinvestment in higher yielding assets.

The negative impact of non-operating results diminished significantly in both this quarter and the last quarter. And underlying results before tax was up to EUR461 million.

On slide 23, you see the spreads further improved to 95 basis points. That's an increase of about 19% compared to the year ago quarter, mainly due to reinvestment into fixed income securities in the Netherlands and in the US, as well as accretion of assets that were previously impaired, in particular in the US.

When you look on page 24, you see, on the left side, that fees and premium-based revenues are the greatest contributor to the Insurance earnings. In Q1 they grew by 10.5% compared with the same quarter a year ago, primarily driven by increases in Asia, in IM and in the US.

The increase in Asia related to reflected robust sales, coupled with higher renewal premiums. And at ING IM, fees increased as a result of higher assets under management.

Administrative expenses declined, in fact, sharply, compared with the last quarter last year. And they were up just 0.8% compared with a year ago, if you exclude the foreign exchange impact. So good cost containment, in particular in the US and the Benelux, as well as non-recurring releases that had an impact of EUR22 million, in particular related to incentive compensation in the US.

On the right hand, you see that the ratio of administrative expenses to operating income declined to 40%. And while the first quarter is always seasonally low, the full-year number is expected to be below the level that we had last year. And we remain focused on moving to that 35% goal that we have set for 2013.

You see on page 26, the operating results in all the units basically doing well everywhere except in Central and the Rest of Europe. And there was some pressure there due to the financial institution tax that was set in Hungary, as well some regulatory changes that impact the pension business in Hungary; also higher costs that we have to make in order to make ourselves ready for Solvency II.

And the margins that we had on Insurance products were a little bit lower in this area as well.

Page 27, you see the interest rate sensitivities. They have been significantly reduced because we had changes in our hedging strategy for the separate account pension contract in the Netherlands. The revised hedging strategy reduces earnings volatility, while at the same time offering an equivalent economic hedge.

And we used long duration government bonds here to replace the interest rate swaps, as the strategy to hedge our interest rate risk.

Then you see that equity-related earnings sensitivities reflect direct equity exposure, primarily in the Benelux, and indirect equity exposure that arises primarily from the US DAC unlocking and activities.

Effective in the first quarter 2011 and in line with US peers, we have seen -- mean reversion methodology will be utilized in determining the short-term equity growth assumptions in US DAC calculations, again reducing the sensitivity to earnings movements in equity markets as we go forwards.

And then the market-related impact has been negative in the past years. However, after the measures that we took in Q4 last year on the US VA and in Q1 this year on hedging in the Benelux, we believe that the volatility will clearly have diminished and that non-operating results going forwards could be positively impacted by that.

You see sales on page 28 increased by 11%. If you eliminate the impact of foreign exchange, then it was 8%. Sales in Central and the Rest of Europe and Latin America declined, compared with the first quarter last year. But they were higher in Asia Pacific, in the Benelux, and in the US.

In Latin America the decline was mainly because we had some lower mandatory pension sales as new regulations led to a reduction in transfer activity. In fact, that is good news for us because lower transfer activity means more stable levels of income for our business in Mexico.

Our capital ratios are solid, are good. The Insurance solvency ratio remains stable at 241%. And the RBC ratio improved significantly to 456%, and that reflects the favorable impact of higher equity markets on the US closed book.

That will do it for now. I would say we are ready to answer your questions and we have Patrick, Koos, and Matt here available to do that together with me.

(Operator Instructions). Duncan Russell.

JPMorgan. The first question is have you got any update on your ability to call hybrids from the -- have you been in any discussions with them? In that respect I note that you have got about EUR1.2 billion of cash in the holding company, and I'm assuming that's there for that purpose. So could you just update me on that?

And the second thing then is on ING Direct USA. You said you're thinking about transferring the Alt-A within ING Group. Are there any regulatory things we need to be aware of when doing that? And then, secondly, your ability to strip out capital from ING Direct USA, are then any regulatory things we need to think about there as well? Thanks.

Okay, on the hybrids, we cannot make any comments. There's no news on that. On ING Direct US, Alt-A, Koos, do you want to take that one?

Yes, on the Alt-A side, Duncan, what we want to do is the following. We want to make sure that if something would happen with ING Direct, in case you would come to a sale, that you don't automatically become a forced seller open-all-day transaction. And we realize that the Government does not want to be directly related with a US entity. So simply what we are doing, right now, is looking at potentially re-hanging the Alt-A portfolio outside of ING Direct US into ING Bank NV and continuing the transaction as is. That is our first priority.

And there's no regulatory issues with doing that? The US regulator doesn't have -- you don't have to do anything to do that?

It depends on the precise way how to structure that. Because there is different ways how you can re-hang that.

Right, okay, and then the capital, excess capital in ING Direct USA?

Excess capital in ING Direct USA, that is a question that we need to evaluate here as well. That depends on what the transaction will be, that will be done. So I don't think we can comment on that at this moment yet.

Okay, thank you.

Farooq Hanif.

Morgan Stanley. Actually I want to follow up on the points that Duncan raised. Firstly when you say re-hang the Alt-A, is that as straightforward as basically taking cash from a European balance sheet and putting it in place of the Alt-A in the US? Would that not actually recognize a loss? That's question number one.

Question number two is, I understand obviously that, in the US, the core Tier 1 ratios that you see are primarily a Basel I type of model. Would there be a big change if you moved to Basel III, and you looked at the core Tier 1 ratio of the US business, ING Direct US, on a Basel III basis, would it be actually positive?

And another question is the competition that you're seeing in the net interest margin, affecting net interest margin. Is that going to be quite significant going forward, or do you think it's just a small blip? Those are all my questions, thank you.

Farooq, maybe on the first one, on the Alt-A. What we have right now is ING Direct US owns a government receivable, and it owns a 20% Alt-A itself. Potentially, what would happen, in such a case, is that ING Bank would be buying these two assets for cash, and it needs then to look at financing for this. And that financing could potentially also come from ING Direct US.

So I don't need to do anything with European assets on this. It's just more focusing on those particular assets on the balance sheet of ING Direct in the US. But, again, there is various options on how we want to do that. And that is what we are still exploring. So I don't have a definitive answer on this.

Okay, and on Basel I versus Basel III?

I think if you look at -- we have Basel III, for us it's more on a consolidated basis. If you look at RWAs, and that is something which you have under US GAAP and the local filing, they look approximately equivalent as what you have seen under IFRS.

So basically the transition wouldn't really affect the ratio, the capital ratio?

No.

Okay.

In respect of bank interest margin, I presume you're referring to the overall bank, and not just ING Direct US?

Yes, that's right.

The interest margin has come down a little bit, and that's broadly in line with what we said last quarter. The fourth quarter last year, the interest margin was 147 basis points. We indicated that it would come down a little bit from that, and that's generally what's happened. It's come down to 144 basis points.

That, in part, reflects some lower demand and increased competition in mid corporates; and a little bit of more pressure emerging in terms of our mortgage portfolio in the Benelux. On the other hand, our specialized finance activities, we've had strong production there at good margins. Perhaps they're a little bit lower than Q4, but they're still way ahead of where they were pre-crisis.

On the Financial Markets, well as you know, we've said before, it's volatile. That can be a volatile factor. Good Financial Market results this quarter which is the typical seasonal effect, corporate treasurers get active again.

On the liability side, we're seeing some pressure on savings and deposits, and some small client rate increases in Q1 in the Benelux. And, as mentioned before, deposit competition in ING Direct countries like Spain remains strong. However, overall our margins are strong. We expect them to decline at a small rate, but remain elevated as compared to historical levels.

Okay, and can I just come back on one thing, sorry to take so long. But just on the Alt-A, when you said that you might fund it by a disposal, the conclusion from that is that you wouldn't have liquidity to do it without a disposal. Is that correct in transferring the Alt-A from one balance sheet to another?

Farooq, on this case, if we would have to fund that transaction, in fact a government receivable is an asset which you should normally be able to fund because there's liquidity in a market like this. Whether it precisely works in the current structure, how is it done as a loan, or whether you need to change something on that, that is what we are looking into that. But I think we can manage that.

Okay, that's very clear, thank you very much.

William Hawkins.

KBW. Two questions, with regards to the total Bank, in the past you've given guidance to the potential Basel III impact on the core Tier 1 ratio. Forgive me I haven't seen that in this. Could you maybe give us an update? So I've seen the 10% core Tier 1. I know that you say that could come down 95 basis points, post the final repayment to the Dutch state. But what would the pro forma impact be of Basel III? I think the last number was a cut of 75 basis points, but if you could update.

And then secondly, in the Insurance business on slide 26, strong operating result in the Benelux division. There's clearly ongoing regulatory pressure around specific products, but maybe broadening to wider regulatory pressure on profitability in Dutch insurance. Can you just give us some kind of update on what the potential costs of regulation in the Dutch life insurance market could be? And whether you view this becoming a systemic issue, or just something that you have to deal with and move on from.

Maybe, William, first it goes on the Basel III effect. What we have stated, we have a core Tier 1 ratio of 10% right now. What we have done in the past, you refer to a 70 basis point decline, which, under Basel III, that is what we have said in the past. And we have given an update; and that was at an investor conference later on, that it was somewhere around 130 basis points. Let me make a few points on this.

First one is what we did at that time when we defined it is we said if we implement it as of now, and as of now means no catching up of DTAs, no future profitabilities, and we are depending a bit on the revaluation reserve, and whether that will be basically neutralized through IFRS 9. So there is plenty of uncertainties under there, and that makes a big impact.

Overall, we feel that the way how our core Tier 1 is developing is very favorable. And we feel in that sense good. This full update is something we don't want to give every quarter. Nevertheless, you can calculate it yourself easily. Because maybe the changing particle is both our profitability, because that's a plus; and you have a revaluation reserve, which is a plus or a minus, depending on whether the interest rates go down or up. But overall, I think we have relatively comfortable starting position on Basel III.

And maybe on the regulatory developments in the Netherlands, I think there are probably two important ones. The first is a requirement by the end of 2012 to go to unisex pricing for all insurance contracts. Our reading of it right now is it would apply only to new contracts, but that's unclear at this moment. It will probably have operational implications, but not so much profitability implications, especially if it's going forward in pricing.

The second one relates to discussions that have been going on, especially in the press and in the parliament around the so-called woekerpolissencontracts.

Now you may recall, back in [2000], ING had reached agreement with various consumer organizations to compensate contract holders. We had established provisions of something like EUR365 million up through that time, and we thought that the agreement had been -- that that was done.

It is now a bit re-opened in parliament, and now it goes to the Minister of Finance, who has asked for a study to be done on the various arrangements that individual insurance companies have done to compensate these claims.

I think it's a little bit too early to talk about what the potential impact that might be. This will be an ongoing discussion within the industry within the Netherlands.

My overall question is do you judge that as systemic risk to the sustainable profitability that you are reporting, the operating result, or is it something that you'll work through and reprice for?

With respect to the woekerpolissen?

Yes.

Yes, it would be a one-time event.

Thank you.

Thank you. Johnny Vo.

Goldman Sachs. The question is just can you give us an update on the EC appeal that you have put in motion? That's the first question.

And the second question is, just in terms of your new business sales on the Insurance side. You seem to be growing quite effectively, and, in particular, the US seems to be showing some growth. Can you just talk about the growth that you're seeing in the US Insurance side? Thanks.

Okay, Johnny. On the EC appeal we have been notified, but we have read it ourselves, that the European Court plans to have oral hearings in July of this year.

We don't know anything more than that. We don't know who will be requested to appear, so we have no further information on that than that there will be oral hearings in July.

Okay.

And, Matt.

Yes, with respect to the sales in the US. Yes, I think the sales are quite encouraging. We're seeing some very nice upticks in the Retirement Services business, and the Individual Life side seems to be doing extremely well, up 43% in terms of application volumes over the first quarter last year. So we're seeing it pretty much in all segments. Actually quite a good performance.

All right. Thanks very much.

Spencer Horgan.

Deutsche Bank. Can I just ask two small questions back on the topic of the core Tier 1 ratio? And, firstly, with the 130 basis points impact of Basel III, which you mentioned before, can you remind me how much of that relates to deferred tax? And if the profitability of the Bank were to stay at current levels, for example, how long would it take that effect to unwind?

And then the second piece is, Jan, you talked about the Bank focusing on having strong capital ratios. Have you changed your view on where the core Tier 1 ratio should be conceptually in the future? Maybe you could give us your thoughts on that. Thank you.

Spencer, let me otherwise quickly update you on the core Tier 1 ratio at 130. Again, the one thing what I want to remind there, the deduction there was based on both DTAs, as well as the fact that we had IFRS 9. And so there were various impacts.

If you look at the DTAs, it was approximately 40 basis points. So, normally, what you would expect, if you take 40 basis points, and then we are now calculating out loud a little bit, 40 basis points is a little in excess of EUR1 billion. So you know our run-rate profits, so that is something which you should be able to catch up in a reasonable time.

Yes, that makes sense. And in terms of the target core Tier 1 prospectively?

Maybe on the target. The point is we are comfortable where we are right now, clearly, because otherwise we wouldn't be making our repayment to the State. But, giving a final target is a difficult one, because we also have to look at the regulators, and it does not make a lot of sense at the moment to make a target. We want to keep it in line with the major banks, and the major deposit taking banks, but, at the same time we also have to recognize that regulators have not given their final target yet.

So rather than giving two updates we want to do that just one more time after that field is a bit more stabilized as well.

Okay. Have you got any expectations of when that might be, or what the mood music from the regulators is?

Spencer, Jan Hommen. We have been in touch, as Koos was saying, with all the regulators that deal with this topic, and, in fact, we participate heavily in the discussions there. I would say that we expect more clarity sometime in the middle of the year, and that final decisions will be made by the end of the year, when they get together under the G20. I believe the G20 ultimately will make that decision.

Okay, great. Thanks very much.

William Elderkin.

Soc Gen. I have three questions, please.

First of all, in terms of the new business sales. Can you just give us a sense of how the margins on those new sales are developing, even just in a qualitative sense?

Secondly, you, again, reiterated the 50% cost to income ratio target in the Bank. Given the comments you've made in terms of the likely trend of net interest margin, can you give us, or remind us again, what kind of assumptions you're making in terms of absolute revenue and cost growths from here?

And then, finally, can you give us an update in terms of how discussions in respect to the Latin American Insurance business are developing, and, particular, in terms of any potential trade buyers?

So on the sales and our margins. In general they are actually either staying stable in some areas, or improving. It's generally an upward trend t.

On the cost income ratio target for the Bank. Jan has mentioned, yes, we're keeping the target at 50%. It did come down from 57% to 55% in the first quarter.

Getting it to 50% is going to require focusing on structural improvements, and those include things like procurement, professionalizing our procurement process. It also includes the transformation programs we have in the Benelux, and IT programs, which are designed to eliminate complexity. So this is structural work, which will take time to deliver.

In addition, we also have to invest, and will invest, in the business, and continue to build a franchise and invest in marketing. This will be a long-term process of taking out structural costs over time.

Let me add to that that we want to make sure that we continue to have -- we're not running the business for the next week, or the next quarter, we're running the business for the long term. How we want to make this a very sound, very professional run Bank that has very low cost, but, at the same time, has fantastic systems that can stand the test over time.

We want to build an excellent operational performance system, and so we will continue to make investment when needed. This is something fundamental, because I believe that once you do that that you will create savings themselves that allow you to make the professional investments that are needed to constantly upgrade your business.

So cost reductions, yes, but also upgrading our business, and making the performance for our clients much more acceptable, and much more attractive.

Any update on Latin American process?

Latin America. We are, at this moment, still where we thought we would be in our plan. We are reviewing our options, strategic options we have, and I would expect some time later this year that we can give you an update what that would mean. No decisions have been made yet.

Okay, thank you.

Thomas Nagtegaal.

RBS. I have two questions remaining.

First of all, you, again, had some positive credit migration effect on your risk weighted assets in Q1. What do you expect there for the remainder of the year?

And, second, coming back to Basel III. I know that the negative impact for you is relatively limited. Do you still see any potential additional mitigation that you can do going forward? Thanks.

Thomas, two points. If we look at the credit migration, yes, we have seen a slight positive migration in the first quarter. What we would expect, actually, over the next quarters is, on some model updates, a slightly negative development there. We're not talking about big numbers, but I don't expect the same level of migration positive as what we had in Q1. So a slightly negative number there, but not big numbers.

If you look at the Basel III negative impact and mitigation. Let's take the starting point. The starting point is we are at a core Tier 1 of 10% right now, and, after repayment of the State it will be 9%. That 9% is well above the minimum 7% as we know it right now. So I think we don't need to do a lot of mitigation.

I mean if you look at us right now, we're making a decent profit, we have a decent capital number, so mitigation is not something I'm looking forward, or looking for at the moment.

Very clear. Thanks.

Michael Van Wegen.

Bank of America Merrill Lynch. One question, please.

You talked about your conversations with regulators, with regard to the future levels of core Tier 1. Can you update us, maybe specifically, on how you see the Dutch Central Bank developing currently its way of thinking with regard to the implementation of [SIFI], and potentially any additional buffers on top of that? You just talked about 7% as a minimum, and you feel comfortable with 9%. But, what are you getting back from your main regulator on this topic?

Well, we have discussions with them on a regular basis. I think we see quite -- let's say, on the one hand, modest, but on the other hand, quite a strong relationship where we see them not going to the extreme, but somewhere in the middle of the pack, I would say.

Okay. Thank you.

Andrew Coombs.

Citigroup. I have two questions, please.

Firstly, just coming back to ING Direct USA. You talk about having the right structure in place to transfer the Alt-A assets. I was just wondering if you could give us a feel for how long the timeline might be in order to get that right structure in place.

And, also, therefore, what the implications are for a sale of ING Direct, USA. Should we be thinking of that more as a 2011, or 2012 event?

My second question just comes on the Financial Markets division within the Bank. If I look at your 2010 pre-tax profit numbers, I think 41% of the pre-tax profit came in the first quarter in that division. Do you think this year we'll see a similar level of seasonality, or do you think it's more likely to be less pronounced? So, perhaps, closer to 30%, for example, being booked in the first quarter this year? Thank you.

Okay. With respect to ING Direct US, the process we are following is a very diligent one. We earlier indicated that we would wait as long as possible. We have now decided, as we are going to canvass the options earlier, because of the complexity of this transaction, potentially. If you do the unwinding of the Alt-A, or you need to restructure that, together with governments, that will take some time.

So we are reviewing what options we have, including what we can do with the Alt-A. And I cannot make a prediction. I think it's quite unlikely that it will happen to be a deal this year. I cannot rule it out, but it's more likely 2012, for my opinion, but still it all depends on how quickly that you come to agreements on these, again, very complex type of structures that we need to resolve.

With respect to the Financial Market division, yes, they do quite well always in Q1, because a lot of customers do their business in Q1 when they do their hedging, and they're looking at the exposures that they have.

So Q1 is always the peak. Whether it will be the same this year as last year, always very difficult to say, but I cannot give a good prediction on what that will be. But maybe if you look at what they have done in the past, I must say that this division, this unit, has performed extremely well, in the last three years, and never lost anything in any quarter. So quite a good performance there.

Thank you very much.

Jan Willem Weidema.

ABN AMRO. Two questions. The sales of insurance in the Benelux are higher, could you give us a split of how much of that is from renewals, and how much is especially from new pension contracts.

And ING Direct US, Q on Q, that online result is down quite a bit. Could you help me what it is, except for exchange rate changes?

So on sales in the Benelux, you rightfully picked up the sales are definitely up, largely due to renewals of group pension contracts, but also due to new sales of group pension contracts. I don't have a specific split, but I think we can get that data for you later.

And ING Direct US, yes we had a model update in our loan loss provisions, which gave it a onetime step-up in loan loss provisions this quarter. Which is the primary reason for the lower PBT, as compared to Q4.

Okay, thank you.

Benoit Petrarque.

Kepler in Amsterdam. A couple of questions, the first one is on ING Direct, ING Direct US. You have $8 billion equity allocated to the business, for just $30 billion of risk-weighted assets. So I was wondering, could you give us a bit details in terms of whether you leverage the bank holding, i.e., part of the equity allocated to ING Direct US is not core equity, but might also be debt holding -- bank debt holding. Can you just clarify that?

Could you also give us a bit of more details on the funding structure of WestlandUtrecht? I know you have been quite aggressive on the savings rights at WestlandUtrecht recently. So does that bring savings, and do you improve the balance sheet? How did you improve the balance sheet over the last quarter?

Also, on the DTA -- actually the DTA in the annual report of the Bank, stable on 2010 versus 2009. Actually the DTA down sharply in the US, which makes sense, because of the profitability of the US operation. But it looks like you have new DTA in other jurisdictions, so can you clarify that, and you still think the DTA can come down further in the coming years?

And then can you remember us what is the risk-weighted assets weighting on the Alt-A portfolio please? Thank you.

In respect of WestlandUtrecht, yes we are trying to build that franchise and improve the ability to generate local deposits. We're also supporting the business in terms of its ability to start to think about issuing long-term debt to support it.

The balance sheet is EUR37 billion of assets, so building the deposit franchise will take some time, but it's a step in the right direction.

In terms of the overall DTAs, they are, particularly in respect of DTAs on losses, they are coming down. They're less than EUR1 billion, and as referred to in an earlier question, given the -- if current profitability picks up, they'll come down reasonably rapidly. I don't have a breakdown to hand, of country by country; given that before.

Yes, with regards to risk-weighted assets Benoit, I don't have a breakdown of risk-weighted assets for individual type of categories, like Alt-A. So that is not the type of breakdown I have available for you.

I did not hear the answer on the first question. Sorry, the line was bad.

What was the first question?

Yes, on ING Direct, you have a big amount of equity allocated to the US, for relatively small amount of risk-weighted assets, to this business. So I was wondering if you have debt leverage at Bank holding level, which you injected as equity in the US subsidiary. Because this could be obviously relevant in estimating the amount of excess capital you have in this business.

Benoit, on that, you are right. What you have, and you and you can see that in local filings. You have an operating company and a holding company above it. In the operating company your total equity is higher, that's approximately EUR8 billion. And in the holding company, there is some leverage above it.

The reason why this is done this way is that the US is also still run on a Basel I type of metric, rather than on a Basel II. So the difference is what you see in that holding.

All right, thanks.

Farquhar Murray.

Autonomous Research. Just one quick question from me, really a follow-up on ING Direct US. Are there actually any tax assets implications from either a disposal of that business, or a shift in the Alt-A portfolio?

And I don't know if -- I know you just said that you don't have the DTA breakdown by country, but might you just have the one for the US, by chance? Thanks.

I didn't catch the first part of your question, could you repeat it?

Okay, it's just a final follow up on ING Direct US, I was just wondering, are there any actual tax asset implications from a disposal of ING Direct US? Or indeed, a shift in the Alt-A portfolio?

And I know you said there you aren't giving the DTAs by country, but I just wondered whether you might have the US ING Direct one, by chance.

Yes, in theory there is -- Section 382 could, when you dispose, can give rise to potential haircuts for the acquirer on DTAs, if you meet certain thresholds on change of ownership clauses. But at this juncture, we're not in a position to confirm whether that would be the case or not. And I don't have to hand the breakdown for the US.

Okay, thanks very much indeed.

Hans Pluijgers.

CA Cheuvreux. Three questions if I may. First of all, looking at the Insurance side, the cost base, which was quite strong, 40% expense income ratio. Could you a little bit talk us through what you expect to change for the coming quarters? And what measures still you are taking to reduce costs there.

Secondly, on the solvency, 241% and stable, against -- compared to the end of last year, despite some increase in interest rates. Could you give some indication how the sensitivity of the solvency is compared to changes in interest rates, currently?

And lastly, on ING Direct, are you looking more into ING Direct and a strategic review on what the total business could be for the future? Do you see it more as a funding company for other parts of the business, and do you, in principle, strive for excess deposits at ING Direct funds, especially the Benelux operations?

Or do you believe that -- do you see some part of the operations which still do not have the good profile, going forwards, to remain in the Company? I'm more referring to of course, Australia, which has been rumored that you were looking at that. Could you give us some more feeling on how you see ING Direct, within the Group?

Let me deal with the last one, and then Matt will deal with the Insurance questions.

We see ING Direct as a very important vehicle in the future of our Bank. And why? Because we do have the ability to, as a universal Bank, use the assets or the liability generating capability of ING Direct, and combine that with the strong capability we have on the Commercial Bank side, to generate assets.

That will create a very powerful combination. We can do that in different countries and different regions. We are not doing that in the US, for a number of reasons, but we are doing that in other places where we can. And so we see that as a very important part of our business.

And rumors, normally we don't comment on rumors, because we can make a day job out of that. But in this case I would say ING Direct Australia is not for sale. And Matt, can you deal with the other topics?

Yes, so with respect to the cost income ratio for the Insurance and Investment Management, we saw that come down to 40% in the first quarter, and that's obviously a very good number, against our overall target of 35%.

However, important to note that the first quarter is generally seasonally a little bit low. We generally see lower expenses in the first quarter. Also, I think Jan mentioned in his opening remarks that there were some provision releases for some incentive compensation. So that drove the number down, maybe a little bit, maybe by a percentage point or so.

We would expect this number, for the balance of the year, to go up slightly. We still have some measures that we intend to take as a management team. But for the balance of the year we would expect to see it somewhat below the level of the full year, last year.

Now your other question respect to the Solvency I IGD ratio; we had seen it stable from the fourth quarter. It's actually not a number that is incredibly sensitive to interest rates. And you can see that over the past several years, this thing has been extremely stable, something between 240% and 260%.

So increasingly, we're going to be looking, obviously as the rest of the industry, at more Solvency II type measures, but that's to come.

Okay, thank you.

Lemer Salah.

SNS Securities. I have two questions. First of all, can you elaborate a bit on the timing of the Latin American Insurance disposal? The timing at this moment is really beneficial for financials. And taking into account that you have to do two IPOs in 2012, wouldn't it be more beneficial for you to do a trade sale, or another divestment structure, for the Latin American Insurance Division, in 2011? That's my first question.

My second question is I missed, in your presentation the net stable funding ratio and the liquidity coverage ratio at this moment for ING. Do you have the number in front of you? Can you share it with us?

Okay, Lemer, let me deal with the first question and Koos will take the second one.

Timing for LatAm, we are doing our strategic review for LatAm and we are progressing, I think, very well. I realize, together with you, that we see a good market. And so we are completing that review with some urgency here as well. But we need to take our time; we need to do it right; we need to do our processes in a diligent way. And that will happen.

I cannot make any further comment but I promised earlier that as soon as we have made our decision, you will know as the first one. And I mean that you as collectively you.

Wonderful.

Lemer, on the NSFR and the LCR, indeed, we didn't give an update and that is for two reasons.

One is there was not a material change in that. As you know, we have a loan to deposit ratio of 1.06 and our liquidity cover ratio was around the 90s. And we have not seen a material change.

It you look at the net stable funding ratio, I think for me it makes not a lot of sense to update all the time on this. This is an implementation 2018. So, therefore, we want to -- yes we need to be proactive in reporting but this is a 2018 measure, so it's a bit far away. And, therefore, from time to time, we give an update if we have significant changes.

Pleased to have your answers, thank you very much.

Marcus Rivaldi.

Morgan Stanley. My first question please is on the pace of your appeal to the EC. If you're still in dispute with the EC come May next year, would that impact your decision to press ahead with repaying the remaining state aid to the Dutch state?

My second question is, unfortunately, around hybrid calls I'm afraid. If, ultimately, you do push on with the repayment of that remaining EUR3 billion but you're still in dispute around the premium paid on the first tranche, would that, in your opinion, impact your ability or prevent you from calling hybrids?

And then finally, a very specific one, obviously, there's a hybrid call in the Insurance business coming up very shortly. You were given some very clear guidance, obviously, from the EC on previous hybrid calls. Do you expect that the EC might change their view on allowing you to call that bond, given IPO prospects for the Insurance operations?

Marc, on the appeal, it's very difficult to make any comment on the appeal. We don't know what the end result will be. We are not speculating on what it might be. I think that it's not what we are doing here. I cannot tell you what that might do. I can only say that we will do our best when we are called, but no more than that.

That's the hybrids; and then the second question related to if we are still arguing the premium. Again, here I cannot speculate on that.

In fact, we cannot make any comment whatsoever with respect to hybrids because we each time have to request whether we can do so by the European Commission and they basically determine whether we can or not. So I cannot make any comments on this.

But can I just go back to your statement, obviously, you make in the report around your target of repaying the remaining state support by May 2012? What are you thinking around the EC dispute when setting out that target?

Well the target is to repay the core Tier 1 -- to buy back the core Tier 1 securities. And we will have to do what we have to do when we know what the rules are at that time. I cannot predict what they are.

The worst thing that we can do is plan for the worst, which is we assume that we have to pay a 50% premium. But we cannot say anything else on that.

Okay, thank you very much.

Tony Silverman.

Standard & Poor's Equity Research. It's just a question about the profitability of ING Direct in the US. As you've mentioned you're progressing the sale. I don't -- I may have missed it here but I don't see a line or column for ING Direct in the US specifically. I wonder what you can say about its profitability and the capital that any profitability number is based on. Thank you.

Well it's not a separate segment in our results. It's within ING Direct itself, although we do give some data in the statistical supplement on the profitability, the PBT for it standalone.

And as I said earlier, it did come down, as compared to the fourth quarter, which was due to a one-time update to the loan loss model.

And what would -- when you're looking at its profitability, what is the NAV of it? Just glanced, looking at the statistical supplements, I don't see a column for ING Direct in the US.

It's there and perhaps we can help you after the call. We'll point you directly to it.

Yes, there's an ING Direct column obviously. Okay, we'll do it offline. Thank you.

Francois Boissin.

Exane BNP Paribas. Two questions on my side please.

The first one is related to WestlandUtrecht. Basically, what type of timeframe are you looking at on that? And basically, if you had the choice, would you be happier keeping this asset or basically, are you happy to sell it?

A second question is with regards to ING Direct; you mentioned that, clearly, balance sheet integration is a key issue for ING Direct. I was just wondering to what extent this applies to various geographies, i.e., is this just a European matter or does this entail Canada and Australia as well? Thank you.

Maybe Francois, let me first start on the ING Direct. I think the easiest integration for us, indeed, is in Europe. And that is what you see is also in this quarter, we did EUR2 billion more of balance sheet integration. So that is something which is happening.

I think the other parts are less significant in order to do that. There is limited Australian options because balance sheet integration simply means if we have an excess of savings in ING Direct and we can connect it to other assets which we are funding externally in the market. But the biggest opportunity is clearly in Europe, you are right on that.

Okay, a follow-up question is would you at some point in time reconsider your exposures elsewhere than Europe for ING Direct as a total?

No, I think ING Direct is a very important franchise for us. And it has done extremely well. But looking at -- and there's still a growth opportunity that we have with ING Direct. I think we want to look through that very carefully.

And, as I said earlier, at this moment, we're very happy with the business. We're still growing the business. And it is doing extremely well, so there's no need for making any change here.

Okay, thank you. And on WestlandUtrecht?

WestlandUtrecht, yes, of course we have carved out the business. It is standalone. It is running basically on itself.

The only relation we have is the funding is still being done by ING. And they are actively pursuing new opportunities to fund themselves, as you can see in the marketplace here in the Netherlands.

The timing of that is still open. We'd like to do it, of course, when we can. But we need to have the right type of counterparties to execute a transaction here and we have not found them yet.

Okay and I guess if you were unable to find a good price for that, would you come back to the EC saying right, funding is just too important and keeping the asset makes more sense for us?

Yes, we are not starting on that premise. I think we are still starting on the premise that we need to do what we have been told by the European Commission when we signed that agreement in November 2009. And we are going further on that premise, so we're not looking at maintaining that in-house.

Okay, thank you very much.

(Operator Instructions). Dirk Peeters.

KBC Securities, I have two small questions.

You are currently in litigation with Europe regarding the finishing of state aid and the price leadership restrictions and so on but at the same time, you haven't paid a dividend for two years. Now I've seen with (inaudible) that that triggers a re-notification report, which in turn could trigger some price leadership restrictions and so on from the European Commission.

I just wanted to check that if you win the case with Europe in the summertime that you just don't end up again with price leadership restrictions linked to the fact that you don't pay any dividend.

And then secondly, when I look at Basel III and the slide you showed with the assumption that you have 130 basis points impact, it mentions that you don't know yet whether you will considered as a systemic bank, whereas I think most of the investors do believe that you will be considered as a systemic bank.

But when I look at the press, I have the impression that the Dutch Government wants to speed up this process of introduction of Basel III. And then I would like to know what this could mean for you if you are considered a systemic bank and you need 1% or 2% more solvency capital.

Okay, with respect to re-notification, we have not paid dividends but we are repaying the Dutch state and we are paying that with a big premium. So I think we need to wait what that means. And I cannot really anticipate on whatever can happen in the court case. That is too complex and we don't want to speculate on that.

With respect to Basel III, I know that the regulators are looking to make some implementations but at the same time, I think there is also good coordination between the other regulators with respect to the implementation of Basel III.

So are we a SIFI, yes or no? We don't know yet. The regulators will determine that. And if we are a SIFI, yes, we may need additional capital. But we will only know that by the time that we have been notified, then we know exactly what type of SIFI we are.

Okay, thank you.

Thank you sir. There are no further questions.

Okay, let me thank you very much for participating in the call. I'll wish you a very good day. Thank you again, bye bye.

Thank you sir. Thank you ladies and gentlemen, this does conclude today's presentation. Thank you for participating. You may now disconnect.