ING Groep NV (ING) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for holding. This is Yvonne, welcoming you to the ING Q1 2012 conference call.

Before handing this conference over to Mr. Jan Hommen, Chief Executive Officer of ING Groep, let me first say that today's comments may include forward-looking statements such as statements regarding future developments in our business, expectations for our future financial performance and any statement not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statements.

A discussion of factors that may cause actual results to differ from those in any forward-looking statement is contained in our public filings, including our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission and our earnings press release, as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities.

Good morning, Jan. I will now hand the conference over to you. Please go ahead.

Thank you. Welcome, everyone, to the ING first-quarter 2012 results conference call.

First of all, let me say that we had a relatively strong first quarter, particularly when you see that against the backdrop of weakening economic environment and the ongoing sovereign debt crisis in Europe. The impact on markets and the de-risking continue to impact our results. They were down compared to the first quarter last year, but if I compare that with the Q4 of last year, significantly up, demonstrating in particular strong commercial performance at both the bank and the insurance company.

I will talk you through the presentation. Patrick Flynn, Wilfred Nagel and Matt Rider are here, and together we will answer your questions afterwards.

Looking at slide number two, you see the results. Underlying net of EUR705m, an improvement compared to Q4, both for Bank and Insurance, but down compared to Q1 of last year. Underlying results in the Bank were up 65%, up to EUR1,126m when I compare that with Q4, supported by lower impairments and lower de-risking losses, but despite a negative credit adjustment of EUR304m.

Insurance recovered from Q4 and operating results were robust at EUR475m. Underlying results were heavily impacted by the mark-to-market result on hedges that we use to protect our regulatory capital. Successful in protecting our capital, but it had a price in our P&L.

Net result for the Group was EUR680m. That included a gain on the sale of ING Direct US that was EUR489m, also included a charge, a provision that we are taking for a potential settlement of an investigation that we have been working with US authorities into transactions that were conducted by our Commercial Bank prior to 2007.

Capital ratios remained strong. ING core Tier 1 ratio is up to 10.9% and the Insurance IGD remained stable at 225%.

Slide number three, you see that the result's up in the Bank 65% compared with Q4, EUR1,126m is the number, and that despite the EUR304m loss that we took on -- or charge that we took on credit adjustments, consisting in credit and debit valuation adjustments in our Financial Markets business and also fair value changes on our own issued Tier 2 debt that we reported in the corporate line. Adjusted for the negative credit adjustments, the Bank result was in fact 6.8% lower than if we compared it with the very strong Q1 results of last year.

Insurance, underlying up to EUR475m. That is down slightly compared to Q4. And the results are driven by higher fees, by premium based revenues and by very strong performance in investment. On an underlying basis, the result in Insurance was a negative EUR18m, and they reflected the negative results basically to protect our capital in the Benelux and in the US VA business.

Slide number four, you see a comparison where we take out the special items, so that you have a better sense of what the more underlying numbers are. And there you see that market related impacts continue to have a negative impact on the results, but not as severe as we saw in Q4. The most significant item, already mentioned, is the EUR304m from CVA and DVA charges and fair value changes on our own debt on the Banking side, and of course a significant negative revaluations of the hedges in Insurance.

On slide number five, you see that we are making good progress on the restructuring that was demanded by the EC. The sale of ING Direct US we completed in February. We are now exploring options for selling our Asian Insurance and Investment Management business. We successfully addressed proactively asset disposals clauses in three senior debt security issues that were issued by ING Verzekeringen, with a total nominal value of EUR2.6b.

In April, our Insurance operations in the US completed a $5b unsecured credit facility, completely standalone, so on their own credit strength without support from the ING Group. It's a very important step to independence for our US Insurance operations.

And in March, we had a favorable court ruling on our appeal against the European Commission. We have started discussions with the Dutch State, and together we will soon start discussions with the European Commission. I must say, though, that we are committed and remain committed to the decision to separate Bank and Insurance, and that we continue to make progress as we prepare Insurance and Investment in the US and Europe for standalone activities.

Let's deal with the Bank, slide number seven. Results improved strongly from Q4 but down compared to Q1, because of the credit adjustments. Excluding CVA, DVA and changes in fair value changes on our own debt, the result -- the gross result was in fact up by 5.3% compared to the first quarter. Risk costs declined slightly, but we expect them to remain elevated for the remainder of the year, given the economic circumstances. And underlying result was up to EUR1,126m.

Slide number eight, you see the impact of impairments and the losses on de-risking. They were substantially less than they were in Q4. The largest impact, as mentioned already, is the EUR304m from valuation adjustments. EUR198m was due on CVA/DVA financial markets and EUR106m on our own Tier 2 debt that was reported in the corporate line.

And then, cleaning up the numbers, then you see that the gross result in fact went up 4.6% compared to the strong quarter last year and 43.5% compared to the fourth quarter last year.

Okay. A little bit more information on the CVA/DVA charges in the Commercial Bank. You saw that the results were heavily impacted, by EUR337m, from the debt revaluation adjustments. And we've had to do this rapidly, tightening of our spreads of our own structured notes. Spreads on counterparties narrowed at a much slower pace and this was only partly compensated by positive credit valuation adjustments on the derivatives, and that had an impact of EUR139m.

Under normal circumstances, CVA/DVA move in opposite directions and then loosely offset each other. Credit adjustments are changes in the valuation, but not a realized loss or gain unless a real credit event has occurred.

Page 10 -- slide number 10. Interest results for the Bank have remained steady, as volume growth has helped to offset some pressure we had on interest margin, where we saw really competition being very strong for savings. The underlying interest margin was down to 1.32%, compared to 1.36% in Q4. But if we take out the impact that the additional liquidity we maintain at very low compensation at the ECB, then we take out about 3 basis points, the result of having so much cash at the ECB. That was also one of the main reasons why our balance sheet went up to EUR921b.

On slide number 11, you see that despite strong competition for savings we were able to attract, on a net basis, EUR5.3b of new funds, which has further strengthened our funding profile. Retail Banking was exceptionally strong, with EUR11.4b in the quarter, of which EUR4.4b came from the Netherlands but basically all regions were showing a net inflow. Our strong funding position has enabled us to continue to support our customers and to maintain lending in these uncertain times.

The net production in residential mortgages was EUR1.6b. That was mainly outside the Netherlands. And the net production of SME and mid-corporates was about EUR1.8b.

Slide number 12. We maintain a favorable funding mix, dominated by deposits, but at the same time we are steadily increasing our long-term funding. Last year, the Bank had EUR10.7b of debt maturing, but we were able to issue EUR23b of new debt. And so far this year, in Q1, we have issued EUR9.2b in new debt, composition of covered bonds and senior unsecured. And we're making good progress to cover the refinancing needs we have for this year, that is, a total of EUR18b.

Slide 13, you see operating expense. Happy to say that they declined on both quarters, reflecting ongoing cost containment measures. In addition to cost control, the decline also reflected that we had lower marketing expenses.

So cost/income ratio, 58.8%, but if we exclude the market impact and the changes on the credit adjustments on our own debt and CVA/DVA, then the cost/income ratio was at 54.0%. And that really comes close to the target we have -- long-term target of 50% to 53%, which we still see as our objective and which we will certainly try to reach by making structural efficiency improvements in our processes, and for which we are willing to invest in new IT.

Looking at slide 14, you see an example of what we are doing in efficiency improvement and further cost reductions. We announced it last year, in November, that we were making some changes in our environment in the Netherlands. The program will lead to cost savings, with a significant reduction of workforce, but we are maintaining our focus on customers and further improving operational excellence here.

The program is well on track. It will result in EUR300m savings per year from 2014. But at the same time, I must say we are facing a lot of regulatory challenges. In April, the Dutch government has come to an agreement on the new budget, and that has an impact on the Bank tax. It has doubled for the whole industry in the Netherlands to EUR600m, and something like about one-third of that will come to ING. Fortunately, then the new Deposit Guarantee System that was planned is now being postponed to the later years, so that's the positive part of that.

Looking at risk costs, slide 15, loan loss provisions came down somewhat from the previous quarter, but still at elevated levels. And part of the lower risk costs in the Netherlands were offset by a provision for a CMBS booked under Other.

Slide 16, non-performing loans, still doing well. The percentage increased to 2.1% of total loans, and particularly by Commercial Banking Structured Finance, but I must say in total still very manageable. NPL ratios in Mid-corporates and Real Estate Finance remained elevated. We expect, given the economic circumstances, that we will continue to have elevated levels at around the levels that we see today for the coming quarters.

Slide 17, you see here the Dutch mortgages NPL at 1.2%, despite declines in home prices since 2008 of about 12%. The main reason for the low NPL is the relatively low unemployment in the Netherlands, at 5%, among the lowest here in Europe. Nevertheless, we expect that unemployment is rising because we are in an economic recession, and that house prices continue to show further declines. So we see and we expect some increase in the risk costs on the Dutch mortgages this year, but overall I must say our portfolio has been performing well.

The Dutch government in April announced some new reform packages, including the housing market, that will have a gradual reduction of the tax deductibility of new mortgages, but also has an impact on the repayment schedule of mortgages. On balance, I think a favorable plan, with some further opportunity for improvement, but we are supporting the plan, although we'd like to see the full plan before we can really make up our total minds.

Looking at slide 18, you see the Real Estate Finance. We had some provisions that were elevated since the start of the crisis, but the actual write-offs and the actual losses have been rather limited. Nevertheless, the NPL ratio remained relatively high and economic environment remains uncertain. So, therefore, we expect that risk costs will remain elevated.

Results from Retail Banking, that's slide 19, improved to EUR617m, from EUR347m last year in Q4. Lower impairments and lower losses for de-risking. Interest result declined on both quarters. That is reflecting the lower margins, as competition for savings is continuing, although we are seeing early signs that competition is easing and we have at least reduced the rate somewhat in some markets in May.

On slide 20, you see the Commercial Bank and the performance, very strong. And certainly, if we eliminate the negative credit adjustments of CVA/DVA, then the profit before tax would have been EUR809m. That is up 4.9% compared to a very strong quarter last year. Loan loss provisions increased in Q1 and also compared with Q1 last year, and that included -- last year we had a favorable development, a net release in Industry Lending. Financial Markets excluding CVA/DVA, again a strong first quarter, up about 30% compared with a year ago.

Tier 1 -- Core Tier 1 increased to 10.9%. The impact, of course, of the sale of ING Direct US, but also our own capital generation contributed to the increase. Risk-weighted assets increased by EUR2.4b, compared to Q4. That reflects the stake we have now in CapOne and also the counter-guarantee that we have written to the Dutch State, but it was offset by lower volumes and mitigating measures. And the market risk weighted assets declined by EUR3.2b.

Now we move to Insurance, page 23. You see that operating results remained robust at EUR475m, driven by strong investment margin and higher fees and premium based revenues. Underlying results in Insurance in the first quarter were strongly impacted by market related items and negative results on hedges, as we continued to focus on protecting our regulatory capital against the volatile financial markets we operate in.

On page 24, you see the investment spread. Investment margin was EUR459m, up 24% compared to Q4 -- the first quarter last year and 4.3% compared to Q4 of last year. Investment spread improved both in the first and the fourth quarter, despite de-risking actions that we took in the second half of 2011 in the Benelux. And we expect that the de-risking actions will gradually reduce the full-year investment spread in 2012.

On page 25, you see the fees and premium based revenues were up 11.2%, driven by seasonally higher sales, mainly in Asia, especially in the Japanese COLI business, but also higher sales in the Benelux. Technical margin declined, due to lower results in the Benelux and the US, but partly compensated by higher technical results in our Central and Eastern European activities. And that was the result of increased surrenders.

Expenses up 6.2%. That is mainly as a result of a non-recurring EUR45m expense reduction in Q4 of last year. But the ratio of expenses to operating income, 41.9%, is basically flat compared with Q4.

Page 27. If we take a closer look at our business areas, then we see that Life operating results in the Benelux improved from Q4, but offset by lower results in the non-Life business. Underlying result continued to be impacted by de-risking and the negative hedge results.

Despite macroeconomic challenges and regulatory changes in Hungary and Poland, our Insurance business in CRE is showing steady performance, with an operating result that is flat compared to Q4 last year. And our business in Asia posted a very strong increase in both operating result and underlying, compared with both quarters last year. Higher sales and growth in premium income drove the fee revenue much higher.

On page 28, you see the Closed Block in the US. I must say the US delivered solid operating results in Q1, mainly driven by a strong investment margin and higher fees and premium based revenues. The Retirement business in particular was strong, up from both Q1 and Q4 last year. Underlying result impacted by the losses in the US Block VA business. The rise in equity markets during the quarter had an impact on the hedges and created a loss on the hedges, because we are protecting our regulatory capital rather than mitigating earnings volatility.

On page 29, you see the reserve adequacy improved to the 64% confidence level, which changes the earnings sensitivity that we gave you last quarter. So here you see an update on the sensitivity.

So rising equity will still lead to an IFRS P&L loss, but will also improve our reserve adequacy. Falling equity markets would lead to P&L gains rather than losses, because a buffer has been built up already in reserve adequacy above the 50% confidence level. Now, the P&L volatility is the result of an accounting treatment of hedges, while economically we prefer rising equity scenarios as they reduce the in-the-moneyness of the policyholder guarantees.

Page 30. New sales increased by 5.1%, mainly due to higher sales in Asia Pacific and the US, as well as Eastern Europe, but partly offset by lower sales in the Benelux. Compared to Q4, sales were up 30%, mainly attributable to Asia Pacific as well as higher Full Service Retirement Plan and Employee Benefits sales that we had in the US.

31, you see the capital ratios. They were constant for the ING solvency ratio, 225%, and in the US the regulatory capital required ratio was up to 500%.

And that leaves me to conclude, to say again that we had a relatively strong quarter, particularly when you look at the economic environment that we were in. A good result compared to Q4, up 65%. Insurance recovered from Q4 and operating results were strong, at EUR475m. And despite losses we took on hedges, we were still able -- and because of that we were able to maintain strong capital ratios; in the Bank the core Tier 1 up to 10.9%, Insurance the IGD at 225% and the RBC at 500%.

So, with that, let me ask you to ask your questions and then we will try to answer them for you.

Thank you, sir. (Operator Instructions). The first question is from Spencer Horgan from Deutsche Bank. Please go ahead.

Thank you very much. It's Spencer Horgan from Deutsche Bank. Two questions. The first one is could you give us a bit more color on where we are with the European Union Dutch State aid discussions? Obviously you've reentered negotiations with the Dutch State, but I think I've see the European Union is intending to appeal the March decision. So maybe you could just give us your thoughts and a bit more detail around that.

And then the second one, I guess it's a relatively smallish point, but if I look at the Insurance operation profit, the non-Life result is quite weak this quarter, which I think is coming from the Accident, Health and Disability business. I guess the question is, in your view, is that a function of the weakening economic environment, rising unemployment? And linked to that, should we therefore expect it to either remain weak or deteriorate if unemployment continues to move up? Thank you very much.

Okay. Good morning, Spencer. Let me say the discussions with the European Commission and with the Dutch State, first of all, we are committed to continue the plan we have to separate the Bank and Insurance company. And we continue to make progress on that, as you can see from the list of activities that we have listed here.

Secondly, as a result of the court case and the appeal that we won, we are having new discussions now with the Dutch government, followed by discussions with the European Commission, with respect to making adjustments in order to reflect that court case. The fact that the European Commission has gone into an appeal is not a surprise. They had indicated that, I think, already from the very beginning that they would do. And they had so much time to do it, which I think was basically expiring May '12, so they have used that opportunity they have to go into appeal.

In the meantime, we have discussions with the Dutch government. I cannot go into more detail than that, to say that they have started and that we plan to have them soon together with the Dutch State plus the European Commission. And then we will see what the outcome will be of those discussions and we will report on them, but I think we cannot report on them until we have them. It would be really premature for me to comment on them now.

And with respect to the non-Life, I think that's right, that had to do with disability insurance that we have in the Netherlands, and that has a correlation that is quite close to the unemployment or the economic activity in the country.

Maybe, Matt, do you want to add to that?

Yes. You rightly point out we did see a deterioration in the non-Life operating result. And what we did is we saw emerging claims experience deteriorating a bit in the fourth and the first quarter and we've now reflected a provision, and I think importantly, under the assumption that the experience that we're seeing today continues throughout the balance of the year. So if it gets any worse, then we will have additional provisions. If it gets better, then we recover it.

Thank you. The next question is from Michael van Wegen from Bank of America Merrill Lynch. Please go ahead.

Yes. Good morning. Michael van Wegen from Bank of America Merrill Lynch. Three questions, please. First one, I'm afraid I go back to the State support again as well. Last year, you repaid part of the State support on May 13. That was a good date from a perspective of penalty cost. You're saying you're in discussion with the Dutch State right now, which seems to be largely focused on amending, potentially, the restructuring requirement. Do you feel that that could contain a change in penalty? And if not, I guess it still makes a lot of sense for you to repay part of the State support back in May. Could you talk a little bit about that and what your thinking is there? That's question number one.

Question number two is on the Dutch housing market. You pointed out that you're still missing maybe the full detail of the, let's say, adjustment to the Dutch tax deductibility for mortgage interest. Nevertheless, could you give some sort of thought about how you see this change impacting house prices and potentially your loan loss provisioning for the Dutch Retail business?

And then the third question, within the Commercial Bank you've shown that the NPLs for corporate loans and structured finance went up quite a bit in Q1. Can you talk us through what's behind that and how you expect those to progress? Thank you.

Okay, Michael. Good morning. Yes, the State and the repayments, we are committed to repay the Dutch State as quickly as we can, but we need to do that in close consultation with them as well as with the European Commission. So I cannot make any more comment on that, to say that we'd like to do it as quickly as possible and we'd like to do it, at the same time, in a way that we are not in any way violating any type of rules that are associated with that law, that we do it in a way that we create a problem for ourselves with respect to Basel III and the requirements for capital, or given the economic circumstances.

So we need to have a very balanced and very, let's say, careful approach to repayments. But the principle stands, we'd like to do it as quickly as possible and we'd like to do it in a way that we are not creating a problem, either today or later, for ourselves.

The housing market, yes, I'm quite positive about the housing market and the plan that is developed, but we haven't seen the full details yet. And I believe we need to look at the whole market, not just the market for homes that are being purchased but also homes that are being rented. I think you need to have the full picture, because a lot of people in the Netherlands are renting homes that could be potential buyers. And if you could get them to start buying homes, then I think you can get a kick-start in the home market that could be very beneficial.

And that I think has been, in my opinion, insufficiently taken care of yet. So I would like to see a more wholesale or wholesome proposal than we have seen so far today. But in principle, what I see is we can support.

Wilfred, do you want to make any comments on NPLs?

Yes. I think the question was specific to Structured Finance. What we're seeing there is mainly an uptick in provisions in the transportation and logistics sector, which as we all know is cyclical and very sensitive to what is happening in the economy at the moment.

If you look at the overall composition of the provisions of the risk cost, we don't see massive swings that would represent a trend. The overall level, as we said, is about where it was in Q4. And in the composition, the biggest change was that the Benelux SME and Mid-corps came down somewhat and that we had the specific provision for CMBS that Jan already referred to.

Yes. On that last one, I was actually asking about the NPLs, sorry.

Well, if you look at the NPL levels overall, they're almost stable, a slight uptick in Q1. And if you were talking specifically about Structured Finance NPLs, they are up a little bit more, from about 2.1% to about 2.5%.

And could you explain why that is? Is there any specific behind that or is that just general weakness in the economy and the transportation sector?

Yes, it is the latter, indeed.

Thank you.

Thank you. The next question is from Michael Huttner from JPMorgan. Please go ahead, sir.

Good morning. Thank you. You'll be glad to know (inaudible) I'm wearing an orange tie, so it will help me. Sorry about that. Just three questions. On the -- can you give us a feeling for your flexibility on the potential repayment in terms of Tier 1 bps? If you're at 10.9% now and the Basel III forward loading would be 9.2% and if I'm assuming 8.8% would be okay, how much is 40bps in terms of potential repayment capacity, just so I understand the maths a little bit?

The other thing, you haven't said anything about the progress -- potential progress on the Asia disposal. There was an article in the FT, which seemed very, very detailed, a few weeks ago, saying that you'd opened the data room and it listed many firms and then it even said a timetable for open -- to call for bids, which was mid-May. I wonder if you can give any kind of color to that or maybe any -- if that article was wrong, say well, no, the timing is not May; it'll be December or something.

And then the final point is on the US variable annuities. You had that huge provision in Q4, and I just wondered what would be the trigger for any more recognition of in-the-moneyness in the US. If you could talk about that, it would be very helpful. Thanks a lot.

Yes. Michael, there's something wrong with your phone, Michael.

Oh, really? Okay.

We could barely hear you and there was a noise that precedes you when you are talking, so it makes it difficult to understand what you say.

No. Well, in which case, I'll pass. I'll just listen in. Sorry about that. Thank you.

Yes, but we did not get all your questions, so we have a problem answering them if we --

Yes, don't worry. I'll raise them separately. It's fine.

Okay.

Thank you. The next question comes from Francesca Tondi from Morgan Stanley. Please go ahead.

Good morning. A couple of further questions on the Bank, if I may. I'm sorry, we're going back to asset quality. I know you were saying the duration is mild in the NPLs and I would agree with that, but if you would enlighten also a little bit more on the Commercial estate, on the Real Estate Finance. The small deterioration that you have seen in terms of regions, where is that coming from?

If you could also comment a little bit more on how you see evolving the quality of your Dutch exposure. We actually hear of some borrowers (inaudible) deteriorating, some companies in difficulties. Can you update also on where you are on that, also in terms of your loan to value?

A little bit also more color on your Spanish exposure. What deterioration have you seen there, if any, what we should be expecting, again referring to Real Estate Finance?

On a separate subject, well done on deposits on the Retail side. You also, however, mentioned some decline in corporate deposits. Can you actually describe what has been driving it, where that has happened, in what region or what kind of corporates and what has been driving it in your view? Thank you.

To start with your question on Real Estate Finance, the overall book, we see a slight deterioration in NPLs from 5.6% in previous quarter to 5.7% this quarter. If you look at risk cost overall, pretty much the same as the average of the previous three quarters, so no big swings there.

The outstandings so far have been coming down pretty much at the same pace as the valuation of the underlying collateral, so we're seeing relatively constant loan to values, which hover around 70%. Obviously the risk costs as such are at an elevated level. They have been since the start of the crisis. And that is, I think, no surprise.

What I would note is that the actual write-offs actually have been fairly modest, and that is in line with ING's longer-term experience. We tend to be relatively conservative when it comes to provisioning and we rarely ever see write-offs that go beyond the provisioning that we have done.

I'd point out that we're always primarily focused on large and prime properties and a lot of the news coverage that you see tends to focus on secondary market properties, where the risks are indeed different. Which is not to say that the overall portfolio is not under pressure, but I think not everything that comes up in the press is relevant to our portfolio.  We also have not done construction or hotel finance for a number of years.

And on average, this book has a duration of about three to four years, which means that a large part of the portfolio has been up for some form of renewal over the past three years, and that has given us opportunity also to tighten covenants and structures in general. And a very small part of what we have in terms of exposure at this point is to construction or land. That is a minimal part of the book.

Specifically to the Netherlands, what we're seeing there is an NPL uptick from 4.4% to 4.7% and, again, risk costs that are somewhat similar to what we have seen in the recent past. The loan to values there are very similar to what we see in the overall portfolio, at about 70%, 71%.

We do, by the way, a cycle of appraisals which is every three years. This is formal external appraisal. But we do an annual indexation where we ignore increases in values but do reflect the decreases that we see from indexation.

The office market, as you will have picked up from the press coverage, is the main concern. We believe that the quality of what we have there is good. But of course banks are deleveraging, investors are de-risking and we do see pressure. What, given the limited liquidity in the market, is very important to us and as important as these appraisals, if not more so, is to look at what the rent rolls look like and what the weighted average lease expiry is.

And looking at our book in the Netherlands, the remaining contracts for more than 50% of our book are beyond three years, but we do see a shortening there. So, clearly there is a bit of an increase in pressure in the longer run.

And then, turning to Spain, which I believe you asked about as well, total book there is about 2.6. The NPL percentage is stable, at about 18%. Loan to values are slightly higher in Spain, given the pressure on the prices, which leads to about 74%. We have a pretty decent coverage ratio in terms of provisions against that. And the risk costs were actually slightly down from the previous quarter, which in itself doesn't mean that much, but there is no trend to massive upswings.

We've never been an aggressive lender in Spain. It's a fairly diversified portfolio, with the exception of two somewhat larger clients. The focus has been entirely on professional clients, not on private individuals. And there is, of course, in the Spanish market a very limited activity at the moment, so we focus on cash flow rather than asset value. The weighted average lease expiries in Spain are stable. So, yes, it is a portfolio under pressure, but no specific concerns came up during the quarter.

Thank you. And just to conclude on the asset quality, again on the corporate loan side, deterioration is quite mild; it's 30 basis points. NPLs increased in the quarter. Could you flag any specific area or region which is originating that, and maybe again a little bit of focus on your exposure into Southern Europe there?

No, there isn't a particular region. As I mentioned earlier, the industries that we see in some difficulty are the cyclical ones like transportation and logistics. But other than that, also, if you look at it geographically, there's not a very clear pattern in any of our bigger countries.

Thank you. And the last point was corporate deposits, if you can just give a bit of color on where do you see some of the decline. It's not significant, just to get a bit of color there.

Yes. The decline was basically in the Netherlands, where we had seen last year, in Q4, a lot of corporates putting their money with ING basically on a very short-term basis. What we have seen in Q1 is that they have lengthened -- a number of them have lengthened these deposits with certificates of deposit, and they are no longer classified under the same balance sheet item but they are securities in issue. And also you see that we have replaced some of the short-term money by more longer-term funding that we were able to obtain from the CP market as well.

So, nothing special, I would say, but a lengthening of the deposits that they had put. This is over yearend.

Okay. That's clear. Thank you very much.

Thank you. The next question is from Francois Boissin from Exane BNP Paribas. Please go ahead.

Yes. Good morning. Francois Boissin from Exane BNP Paribas. Three questions, please. The first one is on slide eight, basically, for the Bank you mentioned a EUR119m positive market impact. I just wanted to have more detail on that.

The second question was on Insurance. Slide, I think it's 27, basically you show the very strong improvement in Asia. I just wanted to have a feel of the impact there. What is sustainable, in your opinion, and what is considered as one-off?

And then finally, still on Insurance, basically you mentioned that the investment spread is likely to go down in coming quarters. Could you give a bit more detail on your asset allocation and the type of impact we should be expecting for the rest of 2012? Thank you very much.

In respect of slide eight and other market adjustments, this largely is gains -- realized gains on bonds sold in our treasury area.

With respect to the Asia result, I think you've seen very strong operating results and underlying pretax results out of Asia. A lot of it is sustainable because it's just basic fees and premium based revenues, as well as increasing investment margin. But I think as you go through the detail, you'll find about EUR20m worth of incidental one-off items for the quarter.

And I would also say that the expenses for the quarter, relative to the way that they're going to go for the rest of the year, are relatively low. And that is because we'll increase our spend on sales and marketing, and we're going to have some expenses coming through, for example, on retention packages related to the strategic investigation of Asia. So, those are likely to come down a bit from where they are. They are very good results for the quarter, but they will likely come down a bit.

Now, with respect to the Insurance investment spread, what you've seen is an increase overall to about 118 basis points in the quarter. We had telegraphed in the last quarter that for the Benelux only we would expect to see somewhere between 10 and 15 basis points decline in the margin for the full year, due to de-risking that we had done within the third and the fourth quarters. That's popped up a little bit, actually, in the first quarter, but some of those things are incidental. We still maintain our guidance for the Benelux, 10 to 15 basis points down from the fourth quarter, which was 113 for the Benelux.

I think what you're seeing, though, also is in the US businesses a little bit of an improvement in the investment margin. And that's due to better, let's say, credit rate management. We're also seeing increases in volumes both in the Benelux and in the US, in the US mainly driven by shifts of client assets from equity related deposits to general account investments as even clients expect to de-risk.

So, I would say that we had given that advice of about 10 to 15 basis points for the Benelux reduction. It's going to -- it'll come in about that level. But we're going to see a bit of an uptick in the US business, so let's maybe take half of that amount for the total Insurance business.

Okay. Very clear. And just maybe a final question on Insurance, regarding the Asian disposal. Can you give a bit more color on the calendar here? And basically do we -- what we read in the press, is this accurate or not?

Our sale and review of our Asian business, Insurance and Investment Management, is on schedule, but we are not in a position at this moment to tell you exactly where we are. The review is still going on. We hope by the end of Q2, I think that we have a more firm position. But it's either beginning of Q3 or end of Q2 that we will be more firm on what it is that we are going to do, what options we are taking and what it means.

So you have to stay with us for a little bit, but we are not in a position today to give you more color, except to say that things are going well.

Okay. Thanks for that. Thank you.

Thank you. The next question is from Anke Reingen from Royal Bank of Canada. Please go ahead.

Sorry. Good morning. It's Anke from RBC. I have some questions on the banking side, please. Firstly, with respect to the repayment of the core Tier 1 securities, you mentioned obviously the Basel III Tier 1 ratio as one of the criteria for when you start repaying. And I was just wondering what you're looking at as a target level. And would you be -- do you reiterate your previous guidance on the Basel III impact, at 80 basis points and 165 basis points on a pro forma basis, given with the Investor Day?

Then secondly, in terms of margin pressure, can you maybe talk about what you're seeing on the Retail side at the moment? I think you mentioned the deposit pressure in May has somewhat eased, so are you taking comfort from this?

And then I was wondering, given you had a 3 basis points hit from additional liquidity, what are you planning to do with this liquidity? Is it going to remain to sit with the ECB? And should there be a potential for margin uplift, longer term?

And then, on your investment portfolio, I was just wondering if you could maybe give some color on the impairment and de-risking costs. I know it's very difficult to forecast, but I was just wondering if you have a budget for the year how much de-risking costs you will see.

And then lastly, sorry, but on the Spanish RMBS portfolio of three point -- is it still in the Bank EUR3.7b? And I was wondering, can you give us a bit more color on the credit rating and what the valuation is in terms of gross and net? Thank you very much.

Lots of questions, so we'll ask a number of people to answer them. Repayment, as I said earlier, we are dedicated to make the repayment to the Dutch State as quickly as we can. But we need to do it taking into account a number of issues, including how we deal with the State, the consultation with them, the conditions under which -- we also need to look at Basel III and the economic environment in which we operate. So, all together, I think to be evaluated prudently and carefully.

Our target is still 10%, what we try to maintain. And the impact if we would go to Basel III at this moment is indeed still the 80 basis points that I think we mentioned to you earlier.

Patrick, do you want to deal with the margin pressure?

Yes. On the interest margin in the Bank, it came down from 136 to 132, albeit, as you've noticed, the bulk of that, the 3 basis points out of the 4, is attributable to extension of the balance sheet, principally due to receipt of EUR22b of CP/CD.

The underlying, the 1 basis point fall comes from the type of pressure we've alluded in the past, namely continued pressure in terms of deposit margins in a competitive environment, a competitive environment where ING is actually winning because we increased our deposits from Retail by EUR11b in the quarter. We're beginning to see some early signs, as Jan mentioned, to easing in that respect, in that we've reduced in the Netherlands our pricing by 10 basis points, also in some of the ING Direct countries, notably DiBa in Germany reduced by 25 basis points in March. So there's some early signs of a moderation.

We have a target to get to 140, 145, which we announced at the Investor Day. Clearly that'll take some time. Asset re-pricing is -- lags deposit re-pricing, and it'll take a little bit of time to grade into that. But we're beginning to see, as was mentioned, a little bit of easing on the deposit margin front, which is good.

In terms of what we're going to do with the CP/CD, yes, we're in a sort of a luxurious position here where we did find ourselves receiving, on the back of the improvement of the credit markets, the LTRO clearly improved liquidity. And we found a lot of customers putting money with us, which we were glad to accept, including, I must say, some US money market funds as well were coming back in.

So in a market where -- in an environment where previously this had been a tight market, we were pleased to see this money coming our way, albeit it's not great for interest margin, inflates the balance sheet. So what we're doing here a bit is, Jan also mentioned it, we're looking to extend tenor. We're sort of pricing down for the shorter end and trying to encourage longer duration, which may lead to this reducing a little bit over time. But for the time being, this was pushed right back out to central banks and the ECB. But it's a good place to be in, to see our clients wanting to put money with us.

Yes. On the question with regard to the RMBS portfolio in Spain, it is still there. It's coming down gradually. It's below EUR4b now. The composition of that is it's 73 different originally AAA transactions. I think it's important to note that this book was bought mainly between 2003 and 2007, which means that the underlying assets did initially experience a run-up in value before they also became subject to the downward trends. So we had a bit of the plus at the tail end of the upswing of the market there.

If you look at where it is today, 95% of the ratings are still A or better, although realistically, given what's going on with the rating environment in Spain, we do expect that to come down. If you look at the performance of the underlying, then what we see is that delinquencies are ticking up a bit but so is the credit enhancement. So, on balance, not a big deterioration.

If we think about it in terms of risk-weighted assets, the current weighting of this book is about 8%. Obviously, if ratings come down, that may go up. We don't at this point see it go beyond 12%, and in some cases maybe 20% weighting. In terms of accounting, this is in a long-term receivables book, so it wouldn't have any direct impact from any ratings changes.

When you say -- sorry, when you say the delinquencies are going up but so is the credit enhancement, but the EUR3.7b is net of hedges or credit enhancement, isn't it, or --?

No. The EUR3.7b is the overall exposure, the size of the book.

Then on de-risking costs for the rest of the year, please?

In terms of de-risking, I think as we've mentioned in previous calls, we try to actively manage our portfolios. And if we see areas where we think our view on the credit of a particular instrument is not reflected in the price, we will actively de-risk it. In terms of the amounts, it's more of a process that we will go through and execute when we see it. But it's broadly at the same level, if you want to get a number, I'd use a number.

Thank you.

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

Hi there. Most of my questions have been answered, but I've just got a few left. Firstly, on the Capital One ownership, have you made a decision on whether you're going to put somebody on the Capital One board? And what are your intentions about how long you're going to keep this? What's your latest message? Are you going to help them, for example, with integration of ING Direct US?

Second question is how happy are you with the size, and how clear are you, on the size of the EUR370m provision for settlement with authorities that you referred to as a special one-off item?

And I guess my last question is on the technical margin in the Insurance business. That's always very volatile, but would you say that the first quarter was a bit under-earning compared to what you expect on average? Thank you.

Okay, Farooq. Capital One, yes, we have one of our Board members on the board of Capital One. It's Eli Leenaars. He is running our Retail business and responsible for Retail business international and responsible for ING Direct. He's on the board and he will be on the board, given the contract that we have, either for one year or as long as we have more than 33% of the shares that we still have.

The decision on what to do with it I think we will take over time. I have no comments to make on that one at this moment. But it's clear that this is not a strategic ownership position. But where we can help them in making integration, we certainly will. And by the way, we have some very good people in ING Direct. They have bought one of the best franchises, so they will certainly be helpful in making sure that we integrate the business well.

The provision we made for the issue in the US is a best estimate that we have made, given the progress that the discussions were having that we had with the US authorities. So it's a best estimate, but I think it's the one that is at least very close to where the final number will be. But I can't say much more than that, because we have not seen the final number yet.

And then, with respect to technical margin, Matt?

Yes. On the technical margin, you've seen a slight decrease in the first quarter, mainly due to additions to provisions for group pension contracts in the Netherlands and also slightly lower reinsurance recoverables in the US. And you're right; it is a bit arbitrarily low. We think that the fourth-quarter figure is probably a better guidance for the balance of the year.

Okay. Thank you very much.

Thank you. The next question is from Hans Pluijgers from Cheuvreux. Please go ahead.

Yes. Good morning, gentlemen. Most of my questions also have been asked, but two questions remaining. First, on the Retirement business in the US, can you a little bit elaborate on how do you see that business developing? It was quite a good development in Q1, but how do you see it going forward? And what are the main drivers of that result?

Secondly, going back to page 29 of the presentation, on the sensitivity of the VA Closed Block, you see that with an increasing equity market the sensitivity has increased somewhat. Is the main driver that the total book is becoming bigger, due to the rise in equity markets? Could you give some indication what the reason behind it is? Is my assumption correct?

And secondly on that one, how do you see the runoff of the book, going forward, progressing? Do you -- any numbers on that?

In respect of the Retirement services, clearly, given the very strong market position we have in this market, it's something which we would seek to develop and grow further. We're very pleased with the positive sales, and clearly we'd be delighted to see that continue, which is one of our ambitions.

In terms of the VA business, I didn't quite hear your question. Could you repeat it, please?

The sensitivity to rising equity markets has increased, if you compare it to the sensitivity you gave at the end of -- with the Q4 numbers. What's the reason behind that? Is that because of the total book has increased due to the increased equity markets? And secondly, could you give some indication on the runoff of the book, how is that progressing?

Yes. In terms of the sensitivity, there are basically two elements involved in the hedge result. One is we have a capital hedge. We also then have the delta hedge on the underlying equities, which is offset partly by the change in reserves, whereas the capital hedge does not have an offset in reserves -- IFRS reserves.

What's happened really is the composition there has shifted a bit more towards the capital hedge, as opposed to the delta hedge of liability, which gives you a little bit more sensitivity when markets rise, as you see in the numbers.

In terms of net flows, yes, it's about $3.5b per year reduction.

Back on the Retirement business, were there any special marketing things you did to boost sales, why that performance was so good, or could you give some feeling there?

Yes. There have been some additional marketing expenses that we incurred in the first quarter. But I think with the full-service retirement plans up 10%, it was a good quarter, and we would expect that to continue. That's really the core of the business.

Okay. Thank you. The next question is from William Elderkin from Soc Gen. Please go ahead.

Good morning, everyone. It's William Elderkin from SocGen. I've got four questions, please. First of all, on the Asia Pacific divestment, could you just elaborate on your thinking in terms of how you treat the joint venture businesses, and particularly what you do with the associated bank equity stakes that you hold?

Secondly, you mentioned that the Asian disposal process seems to be going very well. I just wondered, in terms of the US Life business, where you continued to refer to a base case IPO, I think, why you do that and don't adopt the more broader strategy you appear to have taken in Asia?

Thirdly, in terms of the Bank and the Bank expenses, is the first quarter level of expenses a good guide for the full year, given I think you mentioned that marketing expenses were quite low this quarter?

And finally, with the -- again on the Bank, with the bank tax -- Dutch bank tax coming in, can you just update us of where the overall normalized level of tax rates is likely to fall for the Bank going forward?

Okay. The sale of Asia indeed is going -- the process is going quite well. We need to review various alternatives, including if there will be a sale, to what extent there will be a sale of the whole unit or whether it will be done in pieces, and how we deal with the joint ventures. All these questions will be answered by the time we have more information about that. So, again here, I would say you have to wait until we come forward with more details.

With respect to the -- what was the question? On the Bank equity, on the expenses, yes, IPO preparation in the US. That topic, why we did an IPO, I think an IPO is always the most elegant way to prepare for a divestment, because it leaves all the options open in principle but it's the most stringent and the most complex way of preparing for a divestment. And I also believe that when we look at the alternatives and we look at the potential for creation of value, that at this moment this has the best potential to create value for shareholders and will be the best thing for our customers as well.

With respect to expenses, I'll leave Patrick. The bank tax I would say is not an impact on the tax rate. The bank tax is a charge that is not included in the tax rate in the Netherlands. It is basically a fee that we have to pay to the Dutch government and as part of the expense.

I must say we are not in favor, as you can imagine, of the bank tax. We believe it's not smart at a time that the banking system is requested and required to increase capital, that this is a charge on capital. And either you reduce your business or you have to charge it back to the customers. Either way, it will have an impact on the economy. So I believe it's not a good idea, but it is what it is.

Patrick, the expense?

Yes. On the Bank, expenses being held and actually reduced compared to prior quarter and the preceding first quarter; strong discipline shown there. In terms of the outlook going forward, you're right, there was lower marketing. There may well be a little bit of an uptick for marketing for the European Championships. For example, during the summer we may well do some marketing around that.

Now, the guidance that we've given at the Investor Day, low single digit, we stick to. But obviously, just to remind you that excludes potential changes to things like Jan just mentioned on bank taxes and the deposit guarantee scheme, which are interlinked. So, yes, the focus is to maintain discipline here and try and minimize deposit -- or, sorry, expense growth.

Thank you.

Thank you. The next question is from Benoit Petrarque from Kepler. Please go ahead.

Yes. A couple of questions from my side. On the taxation for Dutch mortgages, I understand you don't want to give your view on what the (inaudible) price is likely to do following this new ruling. But is that something we can expect in Q2? Like, what are your thoughts on risk-weighted asset migration on the Dutch mortgage book, given the risk weightings are quite low on these books?

And also, on the coverage ratio, which is at Group level down from 42% to 39%, what can we expect there in terms of -- specifically on your Dutch mortgage book? Probably higher coverage ratio, but I wanted to have your thoughts.

Second question is on the Commercial Bank. I see especially a very strong bank treasury business line, and that's a new business line, so I just wanted to check with you whether that's a normalized level where we are now or, for example, it was impacted by the CD/CP inflow you mentioned in Q1.

And also, could you comment on the operating expense level for the bank treasury line? It's quite low if I compare it to last year.

And then finally, on ING Direct, for the rest of Europe it's a pretax loss of EUR75m. Just wanted to know how much one-offs you have there.

And then, on the Spanish RMBS, which are mainly on the loans category, what is the fair value at the end of Q1 of this book? Thank you very much.

Okay. With respect to the Dutch mortgage markets, I think that the steps that are being taken now by the political parties in the Netherlands are steps in the right direction, so we support that. Whether they are yet the complete package, I think we need to see when the final details are available to us.

I would like to see also not just the homes that are being purchased but also the homes that are being rented included in the policy, because I believe that a lot of people that today are renting homes are in a position that they could buy homes. And if you can get that stimulated, then the impact on house prices could be completely different than what we are seeing today. So, to me that's still a question that I cannot answer yet.

If the package is what it is, I think we could see a small further decline in the house prices for 2012. Certainly not unrealistic, given the fact that we have unemployment rising and we see that the economy is not as strong. But depending on the package, the final package that's coming, that could revert the changes that we are seeing today.

The other question, the second one, Patrick, is that yours?

Bank treasury?

Was it --?

Yes. Specifically, just a sub-question actually to the Dutch mortgage market, I mean --

Yes, go ahead.

-- is there something we should expect in Q2 on the risk-weighted assets or the coverage ratio for the Dutch mortgage book? (Multiple speakers). Sorry, yes.

Sorry. On risk-weighted assets, this is obviously a book and a set of ratings and LGDs that does not change dramatically quarter by quarter. So, obviously, if there is going to be a change, I would say that it's more likely than not that the risk-weighted assets will go up a bit. But it won't be a massive move.

And in terms of coverage ratio, obviously what tends to happen in a period when NPLs go up is that initially the coverage reduces a little bit, and then it picks up again. But I would point out, as I did earlier, that the history in ING is that our provisioning is almost always more conservative than that we see in the ultimate write-offs. So we're comfortable with our coverage ratios.

And then there was a question, I think, about the Spanish RMBS and the fact that we hold that in long-term receivables, but what is the fair value. Well, I think the liquidity in this type of instrument right now is extremely small, so meaningful pricing is not really something that we see in the markets. It's clearly not trading at par, but not at massive discount. Indicatively, you would be looking at around 80%.

Bank treasury, yes. The bank treasury, we mentioned earlier the gains on bond sales, they're daily recorded in this bank treasury area. We also have some one-offs in respect of -- it was actually a gain on the translation of Greek bonds, a small gain there.

So in terms of expenses, I don't really want to get into guidance in this level of granularity, because it's quite small. But you have to be aware also that the expense line here can also include impairments on real estate items, so.

Okay.

Thank you. The next question is from Jan Willem Weidema from ABN AMRO. Please go ahead.

Yes. Good morning. Three questions from my end. On the Dutch banking tax, is there an offset for the tax you pay in Hungary and Belgium?

Secondly, the Dutch government is putting in place forced treasury banking for non-central government. Will it have an outflow as a consequence for ING?

And thirdly, could you please elaborate on the loan-to-value for the Dutch offices loans?

Yes. Jan Willem, the tax on the -- we don't really know whether we can offset that yet with the taxes we get in Hungary. I think it would be fair to assume that we can, because otherwise you have a double jeopardy here. But I don't know the answer to that question. Certainly, that we are pursuing I can tell you.

With respect to the new requirement by the Dutch government that lower governments have to bank with them, the outflow I expect to be rather minimal because we have some but not really that much, I believe, of the lower governments in our deposit base. But that's again something that we are evaluating at this point in time, but to me it looks like the impact is quite minimum.

And then, Wilfred, the loan-to-value?

Yes. Loan-to-value on Dutch offices is at the moment about 71%.

Thank you. The next question is from William Hawkins from KBW. Please go ahead.

Hi. It's William at KBW. I'll restrict myself to one question. Could you maybe give us an update of the capital structure of the Insurance group? I'm interested in particular in what's happened to the financial debt. I think that was EUR5.5b at the end of last year. And if there's any kind of update on the mix by country, because obviously there'd been an uptick in the Benelux at the end of last year. Thank you.

I think, in terms of the structure, the numbers are fairly similar to what we've shown you before. So, even the financial debt number has not materially changed from the number you mentioned.

Thank you. The next question is from Federico Salerno from MainFirst. Please go ahead.

Hello. Good morning. Just some clarification, really. Do you expect the Dutch bank tax to apply from this year already? That's the first thing.

Then, on SulAmerica, I guess you might be reluctant to say very much, but can you at least say if the stake is still for sale these days or not?

And then last point, the CVA/DVA, I didn't quite get it. It's included -- I mean the negative impact is included in the net interest line, or it's in some other lines of the Bank P&L? Thank you.

Okay. The bank tax is being voted on, I believe, in parliament in the next couple of days, so we'll see from when on that will be applied, but I believe could already apply in the second half of this year.

SulAmerica, I can't tell you much about that one at this moment. In principle, yes, we are willing to sell, but we have at this moment not too many discussions, I believe, at that topic.

And CVA/DVA, Patrick?

No, the CVA/DVA does not go through interest margin. It goes through other.

Okay. Thank you.

Thank you. The final question is from Matthias de Wit from Petercam. Please go ahead.

Yes. Thank you. One question, please, to come back on the Spanish exposure. You shed some light on the commercial real estate book and the RMBSs, but what could you say about the other assets you're exposed to? I'm particularly interested in the covered bond book and whether or not there is a big gap between the carrying value and the current market price of these assets. Thank you.

Okay. Well, we provided quite a bit of detail on the Spanish exposures in the annual report and also this quarter, so I won't dwell too much on the actual numbers. But if you look at the quality of the book, first of all, it is still rated well above A on average. And again, the Spanish bank downgrades will have some impact on that.

But we hold this book, also, mainly in held-to-maturity loans and receivables, and there is going to be limited impact, therefore, from an accounting perspective of what exactly happens with the pricing of this book. The same applies to risk-weighted assets. These are not securitizations and therefore they're not subject to that very punitive regime.

Now, when you ask about values at the moment, and they've been stable over the past few months, we're looking at around 96% at this point. It is a sizable book, but I think it's important to remember that Spain is one of the biggest, deepest covered bond markets in Europe and has a very good legal regime around these assets.

We know that our over-collateralization is still well above -- in average, well above the legal minimum of 125%. And the underlying in terms of qualifying collateral, that means the underlying, has to be lower than 80% loan-to-value. And that qualifying collateral is indeed well above the minimum, according to legal requirements at this point. So you could deduct from that that the average loan-to-value from our perspective is in the low 60s still.

Yes. And considering that it is trading close to par, you could divest without any major capital or P&L impact. Are you doing that already or have you got any intention to do so?

Well, if you look at the recent history, you would see that the total exposure has been coming down, and it continues to do so. We do this in a measured way, to manage the portfolio and act as and when we think it is appropriate, and when indeed pricing and liquidity are at an interesting level for us.

Okay. Thank you.

Sir, there are no further questions.

Okay. Then I would like to thank everyone for being on the call and wish you all a very, very nice day. Thank you very much. Bye-bye.

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