UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 20-F
(Mark One) | ||
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
OR | ||
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the fiscal year ended December 31, 2003 | |
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OR | |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-14642
ING GROEP N.V.
The Netherlands
ING Groep N.V.
Securities registered or to be registered pursuant to Section 12(b) of the Act:
(Jurisdiction of incorporation or organization)
Amstelveenseweg 500
1081 KL Amsterdam
P.O. Box 810, 1000 AV Amsterdam
The Netherlands
(Address of principal executive offices)
Name of each exchange on
Title of each class
which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
* | Listed, not for trading or quotation purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report.
Ordinary shares, nominal value EUR 0.24 per Ordinary share
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2,115,901,441 | |||
Bearer Depositary receipts in respect of Ordinary shares
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2,114,961,163 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ o No
Indicate by check mark which financial statement item the registrant has elected to follow:
o Item 17 Item 18 þ
TABLE OF CONTENTS
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PRESENTATION OF INFORMATION
In this Annual Report, references to ING Groep N.V., we and us refer to the ING holding company, incorporated under the laws of the Netherlands, and references to ING, ING Group, the Company and the Group, refer to ING Groep N.V. and its consolidated subsidiaries. ING Groep N.V.s primary insurance and banking subsidiaries are ING Verzekeringen N.V. (together with its consolidated subsidiaries, ING Insurance) and ING Bank N.V. (together with its consolidated subsidiaries, ING Bank), respectively.
ING presents its consolidated financial statements in euros, the currency of the Economic and Monetary Union. Unless otherwise specified or the context otherwise requires, references to $, US$, Dollars, and US Dollars are to the United States dollars and references to EUR and are to euros.
Solely for the convenience of the reader, this Annual Report contains translations of certain euro amounts into U.S. dollars at specified rates. These translations should not be construed as representations that the translated amounts actually represent such dollar or euro amounts, as the case may be, or could be converted into U.S. dollars or euros, as the case may be, at the rates indicated or at any other rate. Therefore, unless otherwise stated, the translations of euros into U.S. dollars have been made at the rate of euro 1.00 = $ 1.2088 the noon buying rate in New York City for cable transfers in euros as certified for customs purposes by the Federal Reserve Bank of New York (the Noon Buying Rate) on March 3, 2004. Except as otherwise noted, financial statement amounts set forth in this Annual Report are presented in accordance with generally accepted accounting principles in the Netherlands (Dutch GAAP), which differ in certain significant respects from U.S. GAAP. Reference is made to Note 6 to the Consolidated Financial Statements for a description of the significant differences between Dutch GAAP and U.S. GAAP and a reconciliation of certain income statement and balance sheet items to U.S. GAAP. Certain amounts set forth herein may not sum due to rounding.
Unless otherwise indicated, gross premiums, gross premiums written and gross written premiums as referred to in this Annual Report include premiums (whether or not earned) for insurance policies written during a specified period, without deduction for premiums ceded, and net premiums, net premiums written and net written premiums include premiums (whether or not earned) for insurance policies written during a specified period, after deduction for premiums ceded.
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CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this Annual Report that are not historical facts, including, without limitation, certain statements made in the sections hereof entitled Information on the Company, Dividends, Operating and Financial Review and Prospects, Selected Statistical Information on Banking Operations and Quantitative and Qualitative Disclosure of Market Risk are statements of future expectations and other forward-looking statements that are based on managements current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation,
| changes in general economic conditions, including in particular economic conditions in INGs core markets, | |||
| changes in performance of financial markets, including emerging markets, | |||
| the frequency and severity of insured loss events, | |||
| changes affecting mortality and morbidity levels and trends, | |||
| changes affecting persistency levels, | |||
| changes affecting interest rate levels, | |||
| changes affecting currency exchange rates, including the euro-U.S. dollar exchange rate, | |||
| increasing levels of competition in the Netherlands and emerging markets, | |||
| changes in laws and regulations | |||
| regulatory changes relating to the banking or insurance industries, | |||
| changes in the policies of central banks and/or foreign governments, | |||
| general competitive factors, in each case on a global, regional and/or national basis. |
ING is under no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason. See Item 3. Key Information Risk factors and Item 5. Operating and Financial Review and Prospects Factors affecting results of operations.
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PART I
Item 1. Identity Of Directors, Senior Management And Advisors
Not Applicable.
Item 2. Offer Statistics And Expected Timetable
Not Applicable.
Item 3. Key Information
In the table below, we provide you with summary historical data of ING Group.
We have prepared this information using the consolidated financial statements
of ING Group for the five years ended December 31, 2003. The financial
statements for the five fiscal years ended December 31, 2003 have been audited
by Ernst & Young Accountants, independent auditors, except for the financial
statements of ING Bank N.V., a direct wholly-owned subsidiary, which were
audited by KPMG Accountants N.V. and whose report, only insofar as it relates
to the 2003, 2002 and 2001 Consolidated Financial Statements, is based in part
upon the reports of other auditors.
The consolidated financial statements are prepared in accordance with Dutch
GAAP, which differ in certain significant respects from U.S. GAAP. You can find
a description of the significant differences between Dutch GAAP and U.S. GAAP
and a reconciliation of certain income statement and balance sheet items to
U.S. GAAP in Note 6 to the Consolidated Financial Statements.
In 2003, no material changes in net profit existed between the Dutch GAAP
accounting principles and the US GAAP accounting principles, see Notes to the
Consolidated Financial Statements: Differences between Dutch and US accounting
principles.
In 2002, a significant difference existed between the net profit pursuant to
Dutch GAAP accounting principles, which amounted to EUR 4,500 million, and the
net profit pursuant to US GAAP accounting principles which amounted to EUR
(9,627) million. This difference was primarily the result of the new goodwill
requirements (SFAS 142) under US GAAP. As of January 2002, goodwill is no
longer amortized, but tested for impairment annually. This change resulted in a
non-cash transitional impairment loss in 2002, related to the carrying value of
goodwill as at December 31, 2001, of EUR 13,103 million, which was required to
be recognized under US GAAP net profit 2002 as the cumulative effect of changes
in accounting principles. Excluding the effects of changes in accounting
principles US GAAP net profit 2002 was EUR 3,476 million compared with EUR
1,770 million in 2001. Other than the transitional impairment loss in 2002 no
additional goodwill impairments were recognized in 2002, in 2003 ING Group
recognized an goodwill impairment charge of EUR 101 million.
Under ING Group accounting principles goodwill paid on acquisitions including
related intangible assets are charged directly to Shareholders equity.
ING Group evaluates the results of its insurance operations and banking
operations using non-GAAP financial performance measures called operating
profit before tax and operating net profit. Operating net profit and operating
profit before tax are defined as profit before tax and net profit, excluding:
While these excluded items are significant components in understanding and
assessing the Groups consolidated financial performance, ING Group believes
that the presentation of operating profit enhances the understanding and
comparability of its segment performance by highlighting net income
attributable to ongoing operations and the underlying profitability of the
segment businesses. We believe that trends in the underlying profitability of
ING Groups businesses can be more clearly identified without the fluctuating
effects of realized capital gains and losses on equity securities and
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the impact of the negative revaluation reserve on equity securities. These
results are largely dependent on market cycles and can vary across periods. The
timing of sales that would result in gains or losses is largely at the
discretion of the company. The realized gains on divestitures that are made
with the purpose of using the proceeds to finance acquisitions are excluded
because the timing of these gains is largely subject to the companys
discretion, influenced by market opportunities and ING Group does not believe
that they are indicative of future results. Operating profit before tax and
operating net profit are not a substitute for profit before taxation and net
profit as determined in accordance with Dutch GAAP. ING Groups definition of
operating profit before tax and operating net profit may differ from those used
by other companies and may change over time.
The following information should be read in conjunction with, and is qualified
by reference to the Groups Consolidated Financial Statements and other
financial information included elsewhere herein.
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EXCHANGE RATES
Fluctuations in the exchange rate between the euro and the U.S. dollar will
affect the U.S. dollar amounts received by owners of shares or ADSs on
conversion of dividends, if any, paid in euros on the shares and will affect
the U.S. dollar price of the ADSs on the New York Stock Exchange.
The following table sets forth, for the periods and dates indicated, certain
information concerning the exchange rate for U.S. dollars into euros based on
the Noon Buying Rate. Effective January 1, 1999, the Dutch guilder became a
component of the euro.
Recent Exchange Rates f US dollars per Euro
The table below shows the high and low exchange rate of U.S. dollars per euro
for the last eight months
The Noon Buying Rate for euro on December 31, 2003 was EUR 1.00 = $ 1.2597 and
the Noon Buying Rate for euro on March 3, 2004 was EUR 1.00 = $ 1.2088.
RISK FACTORS
RISKS RELATED TO THE FINANCIAL SERVICES INDUSTRY
Because we are an integrated financial services company conducting business on
a global basis, our revenues and earnings are affected by the volatility and
strength of the economic, business and capital markets environments specific to
the geographic regions in which we conduct business and changes in such factors
may adversely affect the profitability of our insurance, banking and asset
management business.
Factors such as interest rates, exchange rates, consumer spending, business
investment, government spending, the volatility and strength of the capital
markets, and terrorism all impact the business and economic environment and,
ultimately, the amount and profitability of business we conduct in a specific
geographic region. For example, in an economic downturn characterized by
higher
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unemployment, lower family income, lower corporate earnings, lower business
investment and consumer spending, the demand for banking and insurance products
would be adversely affected and our reserves and provisions would likely
increase, resulting in lower earnings. Similarly, a downturn in the equity
markets could cause a reduction in commission income we earn from managing
portfolios for third parties, as well as income generated from our own
proprietary portfolios, each of which is generally tied to the performance and
value of such portfolios. We also offer a number of insurance and financial
products that expose us to risks associated with fluctuations in interest
rates, securities prices or the value of real estate assets. In addition, a
mismatch of interest-earning assets and interest-bearing liabilities in any
given period may, in the event of changes in interest rates, have a material
effect on the financial condition or result from operations of our banking
businesses.
Because our life and non-life insurance and reinsurance businesses are subject
to losses from unforeseeable and/or catastrophic events, which are inherently
unpredictable, our actual claims experience may exceed our established reserves
or we may experience an abrupt interruption of activities, each of which could
result in lower net profits and have an adverse affect on our results of
operations.
In our life and non-life insurance and reinsurance businesses, we are subject
to losses from natural and man-made catastrophic events. Such events include
weather and other natural catastrophes such as hurricanes, floods and
earthquakes, as well as events such as the September 11, 2001 terrorist attacks
on the United States. The frequency and severity of such events, and the losses
associated with them, are inherently unpredictable and can not always be
adequately reserved for. In accordance with industry practices, reserves are
established based on estimates using actuarial projection techniques. The
process of estimating is based on information available at the time that the
reserves are originally established. Although we continually review the
adequacy of the established claim reserves, and based on current information,
we believe our claim reserves are sufficient, there can be no assurances that
our actual claims experience will not exceed our estimated claim reserves. If
actual claim experience exceeds the estimated claim reserves, our earnings may
be reduced and our net profits may be adversely affected. In addition, because
unforeseeable and/or catastrophic events can lead to abrupt interruption of
activities, our banking and insurance operations may be subject to losses
resulting from such disruptions. Losses can relate to property, financial
assets, trading positions and also to key personnel. If our business continuity
plans can not be put into action or do not take such events into account,
losses may further increase.
Because we operate in highly regulated industries, changes in statutes,
regulations and regulatory policies that govern activities in our various
business lines could have an affect on our operations and our net profits.
Our insurance and banking operations are subject to insurance, banking and
financial services statutes, regulations and regulatory policies that govern
what products we sell and how we manage our business. Changes in existing
statutes, regulations and regulatory policies, as well as changes in the
implementation of such statutes, regulations and regulatory policies may affect
the way we do business, our ability to sell new policies, products or services
and our claims exposure on existing policies. In addition, changes in tax laws
may affect our tax position and/or the attractiveness of certain of our
products, some of which currently have favorable tax treatment.
RISKS RELATED TO THE COMPANY
Because we operate in highly competitive markets, including in our home market,
we may not be able to further increase, or even maintain, our market share,
which may have an adverse affect on our results of operations.
There is substantial competition in The Netherlands and the other countries in
which we do business for the types of insurance, commercial banking, investment
banking and other products
and services we provide. Customer loyalty and retention can be influenced by a
number of factors, including relative service levels, the prices and attributes
of products and services, and actions taken by competitors. If we are not able
to match or compete with the products and services offered by our competitors,
it could adversely impact our ability to maintain or further increase our
market share, which would adversely affect our results of operations. Such
competition is most pronounced in our
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more mature markets of The Netherlands, Belgium, the Rest of Europe, the United
States, Canada and Australia. In recent years, however, competition in emerging
markets, such as South America, Asia and Central and Eastern Europe, has also
increased as large insurance and banking industry participants from more
developed countries have sought to establish themselves in markets which are
perceived to offer higher growth potential, and as local institutions have
become more sophisticated and competitive and have sought alliances, mergers or
strategic relationships with our competitors. We derived approximately 52% of
our operating profit in 2003 from the Netherlands. Based on geographic division
of our operating profit, The Netherlands is our largest market for both our
banking and insurance operations. We are the second largest bank in The
Netherlands. In the retail market our market share is approximately 23% based
on total assets, approximately 25% based on total deposits and 24% based on
retail mortgages. Our main competitors are ABN Amro N.V. and Rabo Group B.A. In
The Netherlands, we are also currently the largest insurance company, with a
market share of approximately 23% in the life insurance market and
approximately 9% in the non-life insurance market, each based on premium
income. Our main competitors are Fortis Utrecht N.V. and Aegon N.V. We derived
approximately 14% of our operating insurance profit in 2003 from the United
States, which is our second largest market for the insurance operations. In the
United States, we have two core operating units and own the second-largest
broker-dealer network in the US with over 10,000 registered representatives.
Our main competitors in the United States are insurance companies such as:
Lincoln National, The Hartford, Aegon Americas, Met Life Nationwide and
Principal Financial. Increasing competition in these or any of our other
markets may significantly impact our results if we are unable to match the
products and services offered by our competitors.
Because our reinsurance arrangements are with a limited number of reinsurers,
the inability of one or more of those reinsurers to meet its financial
obligations could have an adverse effect on our results of operations.
Our insurance operations have bought protection for risks that exceed certain
risk tolerance levels set for both our life and non-life business. This
protection is bought through reinsurance arrangements in order to reduce
possible losses. Because in most cases we must pay the policyholders first, and
then collect from the reinsurer, we are subject to credit risk with respect to
each reinsurer for all such amounts. As of December 2003, approximately 40% of
our (potential) reinsurance receivables are with our main reinsurer and
approximately 30% are with six other reinsurers. The inability of any one of
these reinsurers to meet its financial obligations to us could have a material
adverse effect on our net profits and our financial results.
Because we also operate in markets with less developed judiciary and dispute
resolution systems, proceedings could have an adverse effect on our operations
and net result.
In the less developed markets in which we operate, judiciary and dispute
resolution systems may be less developed. In case of a breach of contract we
may have difficulties in making and enforcing claims against contractual
counterparties. On the other hand, if claims are made against us, we might
encounter difficulties in mounting a defense against such allegations. If we
become party to legal proceedings in a market with an insufficiently developed
judiciary system, it could have an adverse effect on our operations and net
result.
Because we are a financial services company and we are continually developing
new financial products, we might be faced with claims that could have an
adverse effect on our operations and net result if clients expectations are
not met.
When new financial products are brought to the market, communication and
marketing is focussed on potential advantages for the customers. If the
products do not generate the expected profit, or result in a loss, customers
may file claims against us for not fulfilling our potential duty of care.
Potential claims could have an adverse effect on our operations and net result.
Because we are a Dutch company the rights of our shareholders may differ from
the rights of shareholders in other jurisdictions, which could limit your
rights as a shareholder and reduce the
accountability of the members of our Executive and Supervisory Boards and our
management to our shareholders.
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While holders of our bearer receipts are entitled to attend and speak at the
general meetings of shareholders, voting rights are not attached to the bearer
depositary receipts. Stichting ING Aandelen (or the Trust) the trust which
holds more than 99% of our ordinary shares, exercises the voting rights
attached to the ordinary shares (for which bearer receipts have been issued).
Holders of bearer receipts who attend in person or by proxy - the general
meeting of shareholders must obtain voting rights by proxy from the trust.
Holders of bearer receipts and holders of the ADSs representing the bearer
receipts, who do not attend the general meeting of shareholders may give
binding voting instructions to the Stichting ING Aandelen. See Item 7. Major
Shareholders and Related Party Transactions Voting of the Ordinary Shares by
holders of Bearer receipts as proxy for the Trust. The Trust is entitled to
vote any ordinary shares corresponding with bearer depositary receipts for
which the Trust has not granted voting proxies, or voting instructions have not
been given to the Trust. In exercising its voting discretion, the Trust is
required to make use of the voting rights attached to the ordinary shares in
the interest of the holders of bearer depositary receipts, while having regard for
in such a way that all interests are balanced and
safeguarded as effectively as possible. The Trust may, but has no obligation
to, consult with the holders of bearer receipts or ADSs in exercising its
voting rights in respect of any ordinary shares for which it is entitled to
vote. These arrangements differ to some extent from U.S. practice and
accordingly may affect the rights of the holders of bearer receipts or ADSs and
their power to affect the Companys business and operations and the
accountability of the Companys directors and management. See Item 4.
Information on the Company-Corporate Organization for more information on
voting rights and our corporate structure.
The share price of our bearer receipts and ADSs has been, and may continue to
be volatile, which may impact the value of our bearer receipts or ADSs you
hold.
The share price of our bearer receipts and our ADSs has been volatile in the
past due, in part, to the high volatility in the securities markets generally
and more particular in shares of financial institutions. In addition, there are
other factors, beside our financial results, that may impact our share price.
These factors include, but are not limited to:
Because we are incorporated under the laws of The Netherlands and many of the
members of our Supervisory and Executive Boards and our officers reside
outside of the United States, it may be difficult for you to enforce judgments
against us or the members of our Supervisory and Executive Boards or our
officers.
Most of the members of our Supervisory Board, our Executive Board and some of
the experts named in this Annual Report, as well as many of our officers are
persons who are not residents of the United States and most of our assets and
most of their assets are located outside the United States. As a result, you
may not be able to serve process on those persons within the United States or
to enforce in the United States judgments obtained in U.S. courts against us or
those persons based on the civil liability provisions of the U.S. securities
laws.
You also may not be able to enforce judgments of U.S. courts under the U.S.
federal securities laws in courts outside the United States, including The
Netherlands. The United States and The Netherlands do not currently have a
treaty providing for the reciprocal recognition and enforcement of judgments
(other than arbitration awards) in civil and commercial matters. Therefore, you
would not be able to enforce in The Netherlands a final judgment for the
payment of money rendered by any U.S. federal or state court based on civil
liability, even if the judgment is not based only on the U.S. federal
securities laws, unless a competent court in The Netherlands gives binding
effect to the judgment.
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Item 4. Information on the Company
GENERAL
ING was established as a Naamloze Vennootschap (public limited liability
company) on March 4, 1991 through the merger of Nationale-Nederlanden, the
largest insurer in the Netherlands, and NMB Postbank Group, one of the largest
banks in the Netherlands. ING Groep N.V. is incorporated under the laws of the
Netherlands.
Mission
INGs mission is to be a leading, global, client-focused, innovative and
low-cost provider of financial services through the distribution channels of
the clients preference in markets where ING can create value.
Profile
ING Group is a global financial institution of Dutch origin with 115,000
employees. ING offers banking, insurance and asset management to more than 60
million clients in more than 50 countries. The clients are individuals,
families, small businesses, large corporations, institutions and governments.
ING comprises a broad spectrum of prominent businesses that increasingly serve
their clients under the ING brand.
Key to INGs retail business is its distribution philosophy: click-call-face.
This is a flexible mix of internet, call centers, intermediaries and branches
that enables ING to deliver what todays clients expect: unlimited access,
maximum convenience, immediate and accurate execution, personal advice,
tailor-made solutions and competitive rates. INGs wholesale product offering
focuses strongly on its strengths in employee benefits/pensions, financial
markets, corporate banking and asset management.
INGs strategy is to achieve sustainable growth while maintaining healthy
profitability. The Groups financial strength, its broad range of products and
services, the wide diversity of its profit sources and the resulting spread of
risks form the basis for INGs continuity and growth potential.
ING seeks a careful balance between the interests of its stakeholders,
customers, employees and society at large. It expects all its employees to act
in accordance with the Groups Business Principles.
Strategy and key figures
Satisfying the needs of our clients and delivering on the financial promises we
make to our shareholders are our primary goals. In view of the increased
stakeholder attention, the further globalization of ING and the rapid
developments in the field of sustainability and corporate social
responsibility, we continue to aim for a good balance between the interests of
all stakeholders: clients, shareholders, employees and society as a whole.
After several years of rapid expansion through acquisition, the emphasis is now
on consolidating INGs strengths and achieving synergies, operational
excellence and cost control.
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In 2003, ING Groups total operating income was EUR 69,073 million and its
operating net profit was EUR 4,053 million (both Dutch GAAP). ING Groups total
premium income from insurance activities amounted to EUR 45,519 million and
total income from banking activities was EUR 11,680 million.
The following table sets forth ING Groups total operating income by
geographical area for the years indicated:
CHANGES IN PRESENTATION
Beginning January 1, 2003, the regional ING Investment Management business
units have been integrated into the respective regional executive centres. This
step was taken in order to improve alignment with the captive distribution
channels, enabling ING to respond to regional and local market opportunities
more quickly and efficiently than before. A global asset management platform at
Group level has been established to coordinate INGs asset management strategy.
In addition, a global IIM Board has been set up to preserve the efficiency of a
global manufacturing platform and to ensure global consistency of the
investment strategies adopted in each region. In addition, it was decided to
discontinue ING Asset Management as a separate profit reporting centre. The
responsibility for ING Asset Managements other business units (Baring Asset
Management, ING Real Estate, Parcom Ventures, Baring Private Equity Partners
and ING Trust) continues to reside with the Executive Board member responsible
for asset management. For a description of these business units please see item
4 under the heading EC Europe .
Beginning January 1, 2003 additions to the provision for investment losses are
reported on a separate line within Total (operating) expenditure. Previously
these additions were reported as an element of Income from investments of the
insurance operations.This makes the presentation of the addition to these
provisions consistent with the presentation of the addition to the provisions
for loan losses of the banking operations. The comparable figures have
accordingly been adjusted for all prior periods.
Beginning January 1, 2003, claims handling expenses are accounted for as part
of the operating expenses. Previously, these expenses were accounted for as
part of the underwriting expenditure. This new classification better represents
the nature of the claims handling expenses. The comparable figures have
accordingly been adjusted for all prior periods.
The Latin America region is comprised of South America, including Mexico. Prior
to January 1, 2003, Mexico was included in the North America region. This new
regional classification is more in line with the internal management reporting
structure. The comparable figures have accordingly been adjusted for all prior
periods.
Prior to January 1, 2002, amortization of deferred acquisition costs (DAC) on
insurance policies was accounted for as part of operating expenses of the
insurance operations. In order to have a better view on the development of
manageable operating expenses, we decided to transfer the amortization of
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DAC to underwriting expenditure. The comparable figures have accordingly been
adjusted for all prior periods.
CHANGES IN THE COMPOSITION OF THE GROUP
On October 21, 2003, ING reached an agreement to sell ING Aetna Life to
Manulife Indonesia. This is part of INGs strategy to refocus its insurance
activities in the Asia/Pacific region to markets and products where it can
reach a leading market position.
On October 21, 2003, ING reached an agreement, in principle, with Baring
Private Equity Partners for a management buy out. The agreement is subject to
regulatory approval.
On July 21, 2003, ING completed the sale of the Italian agent network
activities of ING Sviluppo, as well as the affiliated Italian life insurance,
asset management and private banking activities to UniCredito and Aviva. The
profit on the sale amounted to EUR 71 million.
On July 3, 2003, ING announced that it acquired the remaining 30% stake in DiBa
(Allgemeine Deutsche Direktbank) pursuant to a put option and call option
entered into on February 26, 2002 between ING and BGAG (the investment company
of a number of German trade unions). On February 26, 2002, ING Group increased
its stake in DiBa from 49% to a 70%
On May 16, 2003, ING announced the sale of its 49% shareholding in Seguros
Bital (Mexico) to Grupo Financiero Bital for USD 126 million. The profit on the
sale amounted to EUR 44 million.
On April 25, 2003, ING completed the sale of 99% of Fatum, its insurance
business in the Netherlands Antilles and Aruba, to Guardian Holdings Limited of
Trinidad and Tobago. The value of the transaction amounted to EUR 45 million.
On July 23, 2003, ING completed the acquisition of Entrium, Germans second
largest direct bank, through DiBa (Allgemeine Deutsche Direktbank) from
Fineco/Capitalia of Italy, for EUR 300 million.
On September 9, 2002, ING announced it completed the purchase of an additional
24% stake in ING Vysya Bank (India) increasing its interest to 44%. The total
purchase price of the additional acquisition was EUR 73 million. The goodwill
amounted to EUR 55 million and is charged to Shareholders equity.
On May 13, 2002, ING completed its acquisition of a 49% stake in Sul América, a
leading insurance company in Brazil, thus strengthening the existing
partnership. As a result of the transaction INGs total investment in Sul
America consists of approximately EUR 188 million in cash, plus its 49% stake
in SulAet, as well as its asset management operations in Brazil (ING Investment
Management Brazil). The goodwill amounted to Eur 245 million and is charged to
Shareholders equity.
On April 12, 2002, ING Group acquired car lease company TOP Lease in the
Netherlands. The total purchase price of the acquisition amounted to EUR 111
million. The goodwill amounted to EUR 70 million, which was charged to
Shareholders equity.
On April 10, 2002, ING and ANZ, one of Australias major banks, formed a funds
management and life insurance joint venture in Australia. The joint venture,
ING Australia Ltd. is owned 51% by ING and 49% by ANZ, and has been
proportionally consolidated. ING Group contributed net assets to the new joint
venture, which resulted in a net book profit of EUR 469 million accounted for
in 2002, of which EUR 247 million was accounted for as non-operating net profit
and EUR 222 million was accounted for as operating net profit.
On December 21, 2001, ING announced that it signed an agreement with Piraeus
Bank in Greece, which sets out the final terms of a strategic alliance between
the two financial groups.
The strategic alliance combines the distribution power of the retail banking
network of Piraeus Bank and the agency network of INGs insurance subsidiary
Nationale-Nederlanden Greece (which comprises 300 branches and 2,500 agents in
total).
In June 2001, ING Group announced that it had signed an agreement with Savia
S.A. to acquire an
16
additional stake in Seguros Comercial América (SCA), the largest insurance
company in Mexico, for approximately USD 791 million. This transaction
increased INGs stake to a total of 87%. The acquisition was partly financed by
the sale of shares. In September 2001, ING made a tender offer for the
remaining 13% of SCA. In November 2001, ING announced that it had successfully
closed the tender offer to purchase the remaining outstanding shares of SCA.
The total acquisition price was approximately USD 180 million, and ING now owns
99.91% of the shares of SCA.
In March 2001, ING Group increased its shareholding in Bank Slaski to 82.8% for
an amount of EUR 187 million. Effective September 1, 2001, Bank Slaski merged
with ING Bank Warsaw. The combined bank, in which ING holds 88%, operates under
the brand name ING Bank Slaski. Goodwill amounted to EUR 118 million and was
charged to Shareholders equity.
RECENT DEVELOPMENTS
On March 11, 2004, the Supervisory Board of ING Group announced it intends to
appoint Eric Bourdais de Charbonnière (1939, French) as a member of the
Supervisory Board with effect from April 27, 2004. He was the former Chief
Financial Officer of Michelin and is currently the chairman of Michelins
Supervisory Board. Prior to his positions at Michelin he was managing director
of the bank JP Morgan.
On March 8, 2004, ING Group announced it reached an agreement with Macquarie
Bank Limited (Australia) on the sale of INGs Asian cash equities sales,
trading, research and capital market operations in 10 countries in Asia and key
locations in Europe and the United States. The transaction is expected to be
completed for most Asian countries by the end of July, 2004.
On March 2, 2004, ING announced that it appointed Cees Maas as Vice Chairman of
the Executive Board of ING Group effective on April 28, 2004. Cees Maas will
continue in his current role as Chief Financial Officer. Furthermore the
Supervisory Board of ING announced it intends to propose to the Annual
Shareholders Meeting on April 27, 2004 to appoint Hans Verkoren as a member of
the Executive Board of ING Group as of April 27, 2004. Hans Verkoren is
currently Global Head ING Direct, member of the Executive Committee Europe and
responsible for Retail Financial Services.
On November 19, 2003, ING announced that Ewald Kist will retire on June 1, 2004
having reached the retirement age of 60, as Chairman of the Executive Board of
ING Group. Ewald Kist has been Chairman of the Executive Board since June 1,
2000. The Supervisory Board appointed Michel Tilmant as successor to Ewald Kist
as Chairman of the Executive Board as of April 28, 2004. Michel Tilmant is
currently Vice-Chairman of the Executive Board of ING Group, Chairman of the
Executive Committee ING Europe and Chairman of ING Bank N.V. The Supervisory
Board announced it also intends to propose to the Annual Shareholders Meeting
on April 27, 2004 to appoint Eli Leenaars and Eric Boyer de la Giroday as
members of the Executive Board.
GROUP STRATEGY
Market conditions have changed significantly in recent years. Looking back on
2003, although we faced a weak economic climate and unstable geo-political
circumstances, we made good progress with regard to our five strategic
objectives.
Strengthen our capital base for a solid financial foundation
The stock markets, which fell sharply between 2001 and early 2003, heavily
impacted INGs financial position. At the end of 2002, a number of short-term
and long-term measures were announced, aimed at strengthening our capital base
and reducing the sensitivity of our financial position to market volatility. An
important long-term measure to strengthen our capital base was the introduction
of an optional stock dividend as of the final dividend 2002. Furthermore, in
2003, ING successfully issued two subordinated perpetual debt securities, one in
Europe and one in the United States, raising a total amount of EUR 1.1 billion.
Another measure to improve the capital base was the sale of shares and real
estate during the year. The proceeds were used to reduce the core debt of ING
and improve the debt/equity ratio. As a result, the debt/equity ratio of ING
Group decreased from 19.9% at the end of 2002 to 14.4% at the end of 2003.
17
Apart from the sale of shares, ING protected EUR 4 billion of its Dutch equity
portfolio against a sharp stock-market decline at the beginning of 2003 by
means of a cost-neutral collar. This accounts for approximately 40% of INGs
equity portfolio worldwide. In the course of 2003, ING decided to open up the
upside potential in the equity portfolio by reducing the total amount of
written call options to EUR 0.7 billion, while keeping approximately EUR 4.4
billion of the Dutch equity portfolio hedged against a potential decline.
All these measures resulted in a more favorable capital position for both the
insurance company and the bank. At the end of 2003, the capital base of INGs
insurance units amounted to EUR 15.8 billion, which is 180% of the legally
required level (year-end 2002: 169%). The Tier-1 ratio, indicating the
financial strength of our banking units, improved from 7.31% at the end of 2002
to 7.59% at the end of 2003. The revaluation reserve shares amounted to
approximately EUR 900 million as of December 31, 2003.
Optimize the existing portfolio
Focus and execution were the key words in 2003. The adverse economic
circumstances forced ING to increase focus in terms of activities and markets
it wants to be in. We continued our policy to refrain from making large
acquisitions. Furthermore, a more critical assessment of the business portfolio
has resulted in a number of actions. For instance, several business units were
sold in the course of 2003. Examples are ING Fatum (INGs insurance business on
the Netherlands Antilles and Aruba), ING Sviluppo in Italy, ING Life Indonesia
and its share of the AnShin Card Services Company (Taiwan). Furthermore, the
international wholesale branch network was restructured. We also announced the
management buy-out of Baring Private Equity Partners.
Create value for clients
The multi-product and multi-channel approach has been the core of INGs
strategy. In all markets where ING is active, INGs business units have
continued to improve services to its clients. ING in the Netherlands, for
example, combined its sales forces and made further progress integrating its
operations. Perfecting its click-call-face concept enabled ING to increase the
quality of customer service, giving clients in the Netherlands improved access
to the different distribution channels and products.
An example in Asia is the initial product launch of the China Merchant Antai
Open-ended Securities Series Funds. INGs clients in China invested over EUR
500 million in the fund. In the United States, ING Bank has formed a commercial
alliance with Bank of New York aimed at marketing, sales and delivery of global
custody and related services to international clients. A strong brand enhances
trust among customers. In 2003 ING made further progress in creating one global
brand. BBL in Belgium was re-branded to ING Belgium. As a result brand
awareness increased from 29% at launch date to 47% at year-end.
Develop our special skills
ING Direct continued to exceed expectations and contributed for the first time
to the Group profit in 2003, well ahead of schedule. In May, ING Direct
launched operations in the United Kingdom, the eighth country where it offers
attractive savings products to retail clients. The launch in the UK proved to
be the most successful ING Direct start-up so far. By the end of 2003, ING
Direct worldwide had close to 8.5 million customers (5.0 million at year-end
2002) and approximately EUR 100 billion in funds entrusted (EUR 55 billion at
year-end 2002).
The insurance operations in developing markets have been expanded as well. The
organic growth in premium income was 11% in 2003. In China, we expanded our
insurance business. Organic premium income in China rose by 50%. INGs joint
venture with China Pacific Insurance Company (CPIC), called PALIC (Pacific
Antai Life Insurance Company), received approval to
establish a branch in the city of Guangzhou, the third largest city in China.
This allows the many millions of potential customers in southern China to buy
insurance products from PALIC.
18
As a result of the global ageing of the population and pension reforms being
executed in many countries, ING selected pensions as a global strategic
priority. We developed business objectives for 2004 to expand current pension
activities and start up many new initiatives. In addition to working on the
realization of these commercial objectives, ING is stepping up its
pension-advisory services to governments and institutions that can benefit from
INGs pensions knowledge and experience.
Further lower the cost base
In Europe, the Americas and Asia/Pacific large cost-saving programs have been
executed in 2003. In the field of Operations/IT in Europe, the alignment of IT
architecture and the development of various shared service centres continued.
In the United States, ING has integrated its operations, resulting in yearly
cost savings of approximately EUR 300 million. US Financial Services has signed
a 7-year contract with IBM to provide information-technology infrastructure
services.
As a result of strict cost control, total operating expenses decreased by 3.1%.
Organic expenses increased by 3%. The principal explanatory factors for this
rise in costs are continued investments in new business (ING Direct and
insurance activities in developing countries), substantial investments in IT
infrastructure and investments to improve service (e.g. Nationale-Nederlanden).
At the insurance operations total operating expenses decreased by 5.9% (organic
change: +6.5%). The efficiency ratio of the banking operations improved from
71.0% to 68.4% in 2003 (excluding ING Direct and restructuring provisions).
CORPORATE ORGANIZATION
ING Groep N.V. has a Supervisory Board and an Executive Board. The Executive
Board is responsible for the day-to-day management of the Group, its three
major divisions (Executive Centers Europe, Americas, Asia/Pacific) and the
Asset Management platform. The function of the Supervisory Board is to
supervise the policy of the Executive Board and the general course of events in
the Companys business, as well as to provide advice to the Executive Board.
Corporate Governance
The year 2003 was an important year from a corporate-governance perspective.
ING amended its Articles of Association, the result of which was that holders
of Bearer Receipts and ADRs received increased powers. As described below, the
Tabaksblat Committees report on the principles of good corporate governance
and best practices was also published during the year. INGs response to the
recommendations of the Tabaksblat Committee, as well as information on capital
and control, the Executive Board, the Supervisory Board and the external
auditors are discussed in detail below.
Tabaksblat Code
The discussions of corporate governance in the Netherlands resulted in a new
corporate-governance code (the Tabaksblat Code) being published on December
9, 2003. From the 2004 financial year onwards, listed companies are required by
the Code to include a section on their corporate governance and compliance with
the Code in their annual report and to explain any non-compliance.
Listed companies are also being recommended to include information in their
2003 annual report on how they are planning to incorporate the Code into their
business activities and to indicate any problems they anticipate in this
respect. These issues are discussed below and will also be on the agenda for
INGs General Meeting of Shareholders on April 27, 2004.
Changes in 2003
In many respects, ING Groups corporate governance practices were already in
compliance with the principles introduced by the Code. A number of significant
changes relating to corporate governance were proposed to the General Meeting
of Shareholders in April 2003 and were subsequently included in new articles of
association. Certain limitations on the holding of shares were abolished and
holders of bearer receipts were granted full voting rights. These voting rights
can be exercised unconditionally, including in the event of a hostile takeover
bid. Steps were also taken to ensure that the Board of the Trust Office ING
Shares and the Trust Office ING Continuity remain independent of ING Group. The
19
2003 financial year also saw shareholders and holders of bearer receipts in the
Netherlands being granted the right, for the first time ever, to cast votes
indirectly via the Communication Channel to shareholders (Stichting
Communicatiekanaal Aandeelhouders). Shareholders in the United States and the
United Kingdom will also be able to vote by proxy on items included on the
agenda for meetings of shareholders as of the General Meeting of Shareholders
on April 27, 2004.
Changes in 2004
The Executive Board and Supervisory Board have decided to implement the Code to
the extent possible. The notice convening the General Meeting of Shareholders
on April 27, 2004 has, for example, been drawn up in compliance with the Code.
The remuneration policy for the Executive Board will be an agenda item.
Moreover, a proposal to amend the Articles of Association will be included on
the agenda for the meeting. The intention in this respect is that the Articles
of Association should this year be brought into line with the best practices
detailed in the Code. One of the most significant amendments is the proposal to
end the current requirement for a higher majority if a binding proposal for
nomination to the Executive Board or Supervisory Board is to be rejected or if
it is proposed to dismiss a member of either Board. The proposed amendment also
reduces the number of shareholders votes required for an item to be submitted
for inclusion on the agenda of the General Meeting of Shareholders (under the
new rules, votes representing 0.01% of the share capital or a market value of
EUR 50 million will be required). This amendment is being proposed in advance
of the Company Structure Reform Bill, which is currently being considered by
the Dutch Upper House of Parliament. In February 2004, the Supervisory Board
appointed a Company Secretary (the General Counsel) and adopted a set of
general regulations on whistleblowers, which were subsequently approved by
the Dutch Central Works Council.
In accordance with the Code, the General Meeting of Shareholders will be asked
to appoint new Executive Board members for a period of four years. Given that
the current nominees for the Executive Board, Eric Boyer de la Giroday, Eli
Leenaars and Hans Verkoren, are already employed by ING, their contracts of
employment, which are for unspecified periods of time, will continue. The
Supervisory Board has also taken account of their existing contractual rights
when determining the level of any severance pay that may become due. The
Tabaksblat Code recognizes that existing contractual agreements should continue
to be respected and that Dutch employment law needs to be amended if Board
appointments are to be for limited periods of time. The contracts of existing
Board members will not, therefore, be changed. Their appointments for an
unspecified period of time will continue, while the existing arrangements in
respect of severance pay will also be respected. In other words, they will
receive a maximum of three times their most recent fixed annual salary.
In line with the Code, INGs periodic meetings with analysts, such as those
held after publication of the quarterly, half-year and annual figures, will now
also be able to be followed simultaneously by telephone or webcast. The new
procedure was introduced at the meeting following publication of the 2003
results in February 2004.
Implementation of Tabaksblat Code
We will implement the Tabaksblat Code as much as possible. Depending on how the
best practices are interpreted, on any subsequent recommendations that may be
made by the Tabaksblat Committee, on legislation on various aspects of the Code
and on further discussions within ING, the Group is expected to diverge from
the best practices of the Code in some respects:
20
In the General Meeting of Shareholders on April 27, 2004, the application of
the Code by ING will be discussed. Subsequently, the Code will be implemented
to the extent possible, taking into account the above-mentioned factors and the
discussions in the General Meeting of Shareholders. The implementation will be
reported on via a continuously updated corporate-governance charter on the
website of ING Group, which will be published in print prior to the 2005
Shareholders Meeting. At the annual General Meeting of Shareholders in April
2005, the formal shareholders approval of INGs corporate-governance structure
related to the Tabaksblat Code will be sought. Providing the various items are
approved by the shareholders, ING will then be deemed to be in full compliance
with the Code.
Corporate Governance Differences
Under the New York Stock Exchanges listing standards, foreign private issuers
must disclose any significant ways in which their corporate governance
practices differ from those followed by US domestic companies under the NYSE
listing standards. We believe the following to be the significant differences
between our corporate governance practices and NYSE corporate governance rules
applicable to US companies:
21
Executive Centers
The Executive Board (supported by various corporate staff departments)
determines the Groups corporate strategy, prescribes capital base ratios and
reserving levels, allocates resources, sets financial performance targets and
risk profiles for the Executive Centers (ING Europe, ING Americas and ING
Asia/Pacific), appoints senior management, manages the Groups corporate image,
establishes information technology strategy, and monitors the realization of
the objectives established for the Group. Certain actions of the Executive
Board are subject to the approval of the Supervisory Board, including the
issuance or cancellation of shares, significant acquisitions, the declaration
of interim dividends, material capital expenditures and matters concerning
substantial changes in employee relations. The Executive Committees formulate
the strategic, commercial and financial policy for the Executive Centers in
conformity with the group strategy and performance targets set by the Executive
Board. Each Executive Committee is responsible for the preparation of the
annual budget of its Executive Center. This budget is approved and monitored by
the Executive Board. Each Executive Committee also approves the strategy,
commercial policy and the annual budgets of the business units in its Executive
Center and monitors the realization of the policies and budgets of that
Executive Center and its business units.
22
ING EUROPE
2003 HIGHLIGHTS
The profitability of INGs operations in Europe especially those in the
Benelux remained key to the results of the Group. As in 2002, the retail
businesses contributed to the strong performance. ING Direct had another strong
year and showed good profitability. In the wholesale business, Financial
Markets delivered excellent results as did wholesale banking in the Benelux.
International Corporate Financial Services recovered from the high loan loss
provisions taken in 2002. Additional restructuring measures were announced at
ING BHF-Bank in order to restore the profitability. Throughout ING Europe, good
progress was made during the year in increasing efficiency and improving
service levels.
The following table shows income and profit before taxation (both excluding
other asset management operations) by business segment:
FUNCTIONAL AREAS
Retail
On the retail side, the strategy focuses on retail wealth accumulation and
financial protection (i.e. retail banking, asset management, asset gathering,
life insurance and pensions) and private banking, supported by the
click-call-face (multi-product, multi-channel) distribution approach.
We serve three types of retail markets in Europe, each reflecting our different
market positions and thus requiring a slightly different approach to the retail
strategy. In the home markets of the Netherlands, Belgium and Poland, our goal
is wealth accumulation supported by an efficient mix of channels appropriate to
the client segments and products and focused on cost reduction. In other large
mature markets, we are developing our retail banking position around ING
Direct, selectively adding new activities and face channels as appropriate. In
the developing markets, particularly Central Europe, we are striving to become
a market leader in pensions, life and wholesale banking by leveraging our
market position, including via distribution alliances, to grow our position
over the long-term.
With the European organization in place, the management of Retail Europe works
together with the regions to set the priorities for future growth. In
particular, this includes developing a common set of retail value drivers to
get a better understanding of the quality and sustainability of profits. The
value drivers are: scale, cost, cross selling, value of new business and
customer satisfaction.
Private Banking
The restructuring of ING Private Banking, which began in 2002, continued during
2003, with a number of unprofitable business units either being closed or
transferred to lower-cost retail operations. We also began investing in a
number of key developing markets where we believe there are significant growth
opportunities, including India, China and Korea.
23
The rationalization of our product offering also began with the appointment of
pan-European product specialists and regional product managers, whose primary
objective is the creation of a more simplified and coherent set of products and
services, which are aligned to the specific requirements of our clients. We
have also begun developing a range of products and services with a strong
sustainability element and in this context we are leveraging the Groups
expertise in areas such as micro-lending and charities.
More effective client segmentation has also been a core objective for our
business units during the year, with much greater emphasis on the individual
needs of our clients and a clear move away from a strictly product-based
approach. We are also adopting a more globally consistent approach for our
top-tier international clients, through the creation of a new
super-high-net-worth segment.
For private banking clients, the face approach remains the most important of
the ING click-call-face channels. However, we have also introduced more
click and call channels for clients this year, with the introduction of
trading and advisory call centres in many units, including Belgium and Asia, as
well as enhanced internet banking, including execution capabilities and
portfolio valuations.
We have also been successful this year in controlling our costs and in starting
to maximize our operational efficiency across all five private banking regions.
Many initiatives are underway to capitalize on our existing strengths, creating
more synergy and coherence across all our units. Examples include portfolio
management, third party funds, wealth management and credit.
The financial impact of the more integrated approach to private banking at ING
has resulted in an almost trebling of our net profit compared to 2002. Asset
growth, when compared to the market, has also shown significant growth. Growth
in Asia has exceeded our expectations we have also made progress in key home
markets, including the Netherlands and Belgium.
We believe that the outlook for ING Private Banking remains very promising.
Asia is expected to continue to outperform most other units in growth,
particularly as we step up our investment in the high potential Chinese and
Indian markets. The home markets also offer significant growth potential for
private banking, particularly in the Netherlands, where a more focused and
client-centric private banking strategy is in the process of being rolled out.
ING Wholesale
The Wholesale Bank improved its profitability in 2003 while restructuring its
operational cost base and the international branch network, improving risk
management and, above all, unifying the client approach across regions and
functions to increase value for both ING and its clients. All functional and
regional commercial and support units contributed to the improved results and
Wholesale Banking pre-tax profits more than doubled compared to 2002, risk
costs were halved and the cost/income ratio improved substantially.
ING Wholesale will continue to focus on providing the highest level of service
to its clients in its five European regions (The Netherlands, South West
Europe, Germany, Central Europe and the UK), as well as its operations in the
Americas and Asia, in the year ahead. It will align commercial strategy within
Europe and core Emerging Markets in the three functional areas of Corporate
Financial Services (CFS), Investment Banking (IB) and Financial Markets (FM),
to benefit from the upturn in the local market economies and global economic
sentiment.
CFS is defining its client base, that is mid-corporates in the Benelux, Poland
and Germany, large international corporates globally, including local blue
chip companies in Emerging Markets and Financial Institutions (banks and
non-banks) worldwide, while delivering high added value to clients. This will
be achieved by applying superior relationship-management skills in human
capital and client information reporting, developing specific sector expertise
and cross-selling capabilities. Of strategic importance are anchor products, such as, payments
and cash management, general lending, structured finance (including acquisition
finance) and trade banking, plus employee benefits, mergers and acquisitions
advisory and asset management in specific markets. Investments will be made in
syndicated finance and securitization for the benefit of INGs customers and
its own capital management.
24
The key Financial Markets (FM) objective is to support the overall wholesale
client strategy, by providing target clients (and ING entities) with the full
range of FM products and services in both the developed and emerging markets.
To this end, FM will continue to put additional resources into developing a
closer alignment between product specialists and client relationship managers.
In the major developed market Hubs, FM is reorganizing and upgrading its sales
teams to focus on servicing the broad financial market needs of defined client
groups, such as corporates, financial institutions, fund managers, etc., rather
than focusing team efforts on single product groupings.
From a financial perspective, 2003 was a profitable year for ING Wholesale
overall but also a challenging one, due to recessions in many countries and a
number of serious global events, namely the Iraq war and the SARS outbreak in
Asia.
Operations and IT
During 2003, we focussed on further implementing the various programs launched
in 2001 and 2002. Those steps include:
The implementation continues to progress well and we are on track to meet our
financial target of EUR 760 million of cost reductions in the Operations and IT
arena by 2005.
Considerable attention was given to improving our operational efficiency,
especially in the insurance sector. An important IT investment program was
launched, covering both Life and non-Life, to support our insurance operations.
The first deliverable of this program became operational in 2003.
Responding to the increased potential for external risks, an EC Europe wide
program was started to enhance our IT Security environment. Significant
management attention was given to strengthening our IT Security Infrastructure
and to improving the IT Controls.
ING INVESTMENT MANAGEMENT EUROPE
ING Investment Management Europe (ING IM), is responsible for managing the
investments of the insurance companies of ING, as well as managing equity,
fixed income and structured investments for institutional investors and the
private label investment funds sold by various ING companies, including ING
Bank, ING Belgium, Postbank, Nationale-Nederlanden and third party
distributors. ING IM is also responsible for managing the treasury activities
of ING Insurance.
With ING Investment Management Europe integrated into the regional Executive
Centre Europe as of January 1, 2003, we set up a functional Global ING
Investment Management Board to preserve the efficiency of a global
manufacturing platform and to ensure global consistency of the investment
strategies adopted in each region.
During 2003, ING Group sold its Italian retail operation (including its Italian
mutual fund range) to Unicredito. ING IM will however remain active in Italy
managing institutional mandates and selling its Luxembourg mutual fund range
through third party distributors.
ING IM Europe also experienced both net inflow (EUR 2.0 billion) and positive
revaluation (EUR 4.9 billion) in 2003 due to moderately improving market
conditions. Both contributed to total assets under management increasing by
6.3% to EUR 110.8 billion.
The investment portfolios of ING Group companies managed by ING IM Europe
increased by 11.3% to EUR 41.1 billion in 2003. Assets under management of ING
IM on behalf of institutional clients increased by 7.6% to EUR 33.2 billion.
The portfolios managed on behalf of institutional
clients consist of fixed income securities (approximately 65.5%) and equities
(approximately 34.5%). Assets in investment funds managed by ING IM amounted to
EUR 36.6 billion, compared to EUR 36.5 billion as of the end of 2002.
25
ING DIRECT
Financial Results
The strategy of ING Direct is to be a low-cost provider of financial services
by achieving scale in large mature markets by offering the clients best value
for their money and excellent service via call centres, direct mail and the
internet. ING Direct uses a high-rate, no-fee, no-minimum savings account as
the entry product. Upon reaching the necessary minimum scale, ING Direct
complements the savings account by cross selling a focused range of other
wealth accumulation products such as mortgages, mutual funds, e-brokerage,
pensions and life insurance. After the savings products, mortgages are the most
important product. ING Directs primary distribution channels are the call
centre and the internet. The call centre is the pulse of the business for ING
Direct. The internet and the Intelligent Voice Response (IVR) are two other
main channels and they process an increasing number of transactions. On
average, 45% of the account openings are activated via the internet and more
than 70% of the incoming contacts with existing clients are fully automated
(IVR or the internet). ING Direct cafés and co-operation with intermediaries
and tied agents from sister companies and third parties form a third
supplementary channel. ING Direct makes use of intermediary networks to sell
more complex products. In the course of 2003, five business units (Canada,
Australia, Spain, Germany and the United States) contributed to the Groups
profit. We expect the youngest operations in France and Italy will break even
in the course of 2004, although our operation in the United Kingdom, which
started in May 2003, is expected to continue operating at a loss.
Growth and other developments
Due to overall commercial success in the business units, ING Direct almost
doubled its size in 2003, based on total funds entrusted (deposits). In each of
its markets, ING Direct has achieved a leading position in the direct banking
segment. In addition, it has achieved a top-ten position based on savings
balances in four of its markets.
Due in part, to the ongoing momentum and heavy usage of the internet and the
shift to favorable savings market conditions, approximately 3.5 million new
clients joined ING Direct in 2003 to bring the total to more than 8.5 million
clients. The total of funds entrusted increased by EUR 44 billion to EUR 99
billion. Brand awareness developed strongly in all countries and acquisition
costs declined from an average of EUR 140 per new account to an average of EUR
92 per new account, due in part to cost-effective marketing. In total, ING
Direct reached profitability in the fourth quarter of 2002, and made a profit
of EUR 151 million (before-tax) for 2003.
26
Expanding market positions
ING Direct UK was launched in May 2003. The launch was accompanied by a strong
media offensive. The growth-rate of ING Direct UK has been high. In nearly 8
months ING Direct UK has reached a level of over EUR 11 billion funds
entrusted. This makes ING Direct UK the fastest growing bank in the UK ever.
In the beginning of 2003, ING announced that it signed a letter of intent with
Fineco/Capitalia of Italy to acquire Entrium, Germanys second largest direct
bank. The closing of this acquisition took place in July 2003. Also in July
2003, ING acquired the remaining 30% of the shares in DiBa (Germany) from BGAG.
This way, ING owns all shares in DiBa In January 2003, ING Direct USA extended
its market to include California.
Outlook
ING Direct will continue to focus on growing all of its business units to reach
the necessary scale in savings, and bringing all of the business units to
profitability. Although competition in all markets remains fierce, ING Direct
expects to increase its profit in 2004, after including start-up losses of
newer business units, if any.
OTHER ASSET MANAGEMENT
Beginning January 1, 2003, the activities of ING Investment Management were
reorganized along regional lines and have been integrated into each of the
regional Executive Centers in the Americas, Asia/Pacific and Europe. As a
consequence, the financial results of ING Investment Management activities are
now reported within these Executive Centers, and the Executive Center Asset
Management no longer functions as a separate global profit center. The other
business units of the former Executive Center ING Asset Management continue to
report to the Executive Board member responsible for asset management.
In 2003, Other Asset Management comprised of the following five business units:
In 2003, Other Asset Management had an average of 3,022 employees, based on
full-time equivalents.
ING Real Estate
ING Groups real estate activities are conducted through ING Real Estate. With
a portfolio of more than EUR 42 billion at the end of 2003, ING Real Estate is
ranked as one of the three largest real estate companies in the world with
offices in Europe, the United States, Asia and Australia. ING Real Estate
operates as an investment manager, developer and financier. Its primary aim is
to make maximum use of the global expertise in the creation of valuable
products. Despite the softening of the real-estate markets, the 2003 results
exceeded expectations.
Investment management activities are carried out for institutional investors
who want to diversify their property investments. As an investment manager ING
Real Estate launched new funds in
2003, such as the ING Clarion Real Estate Income Fund and the ING Retail
Property Fund France Belgium. In 2003, the Investment Management portfolio
increased by 7% to EUR 26.3 billion.
27
ING Real Estate Development covers the development of shopping centres, offices
and residential units in response to market demand. It also continued creating
value through numerous real estate projects around the world like: Liget Park
Atrium (Hungary), Zloty Tarasy (Poland), New York Times Tower (USA), and the
Haarlem Court House (The Netherlands). As of the end of 2003, the global real
estate development portfolio amounted to EUR 2.0 billion.
Finance offers a wide range of products from mortgages, project finance,
construction finance and leasing arrangements to syndicated loans. The Finance
activities made a considerable contribution to ING Real Estates result with
significant portfolio growth. Another remarkable milestone was the
establishment of a syndication desk. This was made possible thanks to the
increasing demand for large transactions to be syndicated among other players..
Baring Asset Management
Baring Asset Management (BAM) provides a diversified spectrum of investment
management services to a variety of institutional and private clients. It
manages equity, fixed-interest and balanced portfolios for world-wide clients.
BAMs business is structured into two business lines: Investment Management
Group and Financial Services Group, which accounted for 54% and 46%,
respectively, of its total revenues in 2003.
In mid-2003 the investment management business of BAM implemented a new
strategy and structure in response to the fundamental changes that are taking
place in the industry. BAM changed from a market-driven company to an
investment product-oriented company and has focussed successfully on
strengthening the relationship between the investor and the client.
During 2003 the management structure of the BAM Financial Services Group was
re-organized along functional lines based around the three main businesses of
fund administration, offshore banking and custody, and trustee services. This
has enabled the businesses to differentiate themselves, be more responsive and
adaptable to client needs and create a greater focus on sales and business
development.
ING Trust
ING Trust specializes in trustee services and the formation and management of
offshore companies used for, among other things, tax planning, estate planning
and asset protection. ING Trust is a leading player in the Dutch market for
offshore trust services, serving both corporate and private clients. Throughout
2003, ING Trust focused on the implementation of new risk and compliance rules
and on strengthening the relationship with the advisors of clients.
Parcom Ventures and Baring Private Equity Partners
Parcom, INGs captive private-equity unit in the Netherlands, showed good sales
results in 2003 despite the difficult circumstances in the venture-capital
markets. The last quarter showed a noticeable improvement. The size of the
portfolio amounted to EUR 488 million. The 2003 profit contribution was quite
satisfactory and Parcom comfortably meets INGs profit targets. Parcom will
continue to focus on mid-corporate buy-outs in Europe.
In 2003 ING reached an agreement in principle with Baring Private Equity
Partners (BPEP) for a management buy-out. While ING continues to regard private
equity as an attractive asset class to invest in, this agreement is in line
with INGs strategy to focus on its core business. ING will not relinquish its
current investments in the existing funds of BPEP.
ING AMERICAS
The Executive Center (EC) ING Americas is comprised of business units operating
in three broad geographic-based units in the United States, Canada, and Latin
America (including Mexico). The
primary products and services provided in ING Americas business units are
various types of insurance, mutual funds, brokerage services and institutional
products, including reinsurance and
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principal protection products, as well as retail and institutional asset
management. In addition, we offer retail banking products and limited corporate
and investment banking products and services in certain countries in the
Americas through EC ING Europe.
ING Americas combined insurance operations place it among the top ten life
insurers in the United States in terms of life and annuity premiums. ING
Americas total assets under management at the end of 2003 amounted to EUR 167
billion. ING Americas ranks as the number one international insurer in Latin
America and is the largest property and casualty writer in Canada.
The following sets forth premium income for the operations in the United
States, Canada, and
Latin America by product for the years indicated:
A low interest environment and continued focus on sound pricing resulted in
substantially lower fixed annuity premiums. The strengthening of the Euro
versus other currencies substantially impacted gross written premiums.
Excluding currency impact, United States premiums declined only 7% in 2003,
whereas Canada increased 11% and Latin America declined 7% compared to 2002.
UNITED STATES
Through its US business operations, EC ING Americas offers a wide range of
products that include traditional life, variable universal life, interest
sensitive life, universal life, group life, stop loss, guaranteed investment
products, variable annuities, mutual funds, fixed annuities and
defined contribution products that meet the requirements of 401(k), 403(b) and
457 plans. Distribution channels include independent producers, career agents,
broker dealers and financial institutions.
The ING U.S. organization is engaged in a multi-year action to rationalize its
structure by reducing the numbers of legal entities to better integrate core
operations. While the bulk of these consolidation activities has been
accomplished, rationalization efforts are expected to continue beyond the end
of 2004.
At December 31, 2003, insurance company subsidiaries doing business under ING
America
Insurance Holdings, Inc., our U.S. insurance holding company, include the
following: ING Life
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Insurance and Annuity Company, ING Insurance Company of America, Security Life
of Denver Insurance Company, Equitable Life Insurance Company of Iowa, USG
Annuity & Life Company, United Life & Annuity Insurance Company, Life Insurance
Company of Georgia, Southland Life Insurance Company, Golden American Life
Insurance Company, ReliaStar Life Insurance Company and ReliaStar Life
Insurance Company of New York.
On January 1, 2004, Equitable Life Insurance Company of Iowa, USG Annuity &
Life Company and United Life & Annuity Insurance Company merged with and into
Golden American Life Insurance Company, which changed its name to ING USA
Annuity and Life Insurance Company. Other non-insurance entities include ING
Investment Management LLC, Investors Financial Group LLC, Lion Connecticut
Holdings, Inc., ING International, Inc., and Multi-Financial Securities
Corporation.
ING has a long history in the United States, and is committed to further
strengthening its existing US operations and optimizing their performance.
Although they are in the process of consolidating the US life and non-life
markets remain highly fragmented and subject to intense competition as clients
move towards investment, savings, and pure risk products. Increasing bank
participation in the insurance market will also intensify competition. Retail
business units in the US have been organized with either a manufacturing or
distribution focus to support the offering of the entire breadth of ING
products to INGs target markets, through the distribution channel of their
choice.
In 2003, ING Americas operated in the United States in three business segments:
US Financial Services (which includes both retail-oriented businesses and
worksite financial services), US Institutional Businesses, and ING Investment
Management. The activities of each segment are described below. Reorganization
of the businesses will be implemented in 2004 to develop a better focus on the
discrete needs of both retail and institutional customers.
United States Financial Services
ING US Financial Services (USFS), comprised of six primary lines of business
(Individual Life Insurance, Annuities, Retirement Services which includes
Defined Contribution Pensions and Rollover/Payout business, Group Insurance,
Mutual Funds and ING Advisors Network), provides a wide variety of financial
products and services to individuals both on a retail basis and through their
employers. An extensive distribution network, Internet, a Voice Response Unit
(VRU) and customer service representatives support products and services. The
primary customer target market is the mass affluent segment.
USFS markets a complete range of individual insurance and investment products
including variable universal life, universal life, and term insurance, fixed
and variable annuities and mutual funds. Group insurance and employee
benefit-related products and services are also offered, which include group
life and disability insurance, dental and vision plans, defined contribution
retirement plans, tax-sheltered annuities, voluntary employee-paid products and
stop-loss coverage. Products focused on the corporate-owned insurance markets
are also available. Additionally, USFS offers financial services such as
financial planning, investment advisory services, pension plan administrative
services and trust services primarily through the 10,000 financial
professionals affiliated with the wholly owned broker-dealers in ING Advisors
Network.
The focus of USFS is to market wealth accumulation, income and protection
products via product-focused wholesaling forces, which in turn service
distribution channels such as independent and career insurance agents, banks
and broker/dealers. Approximately 280 internal and external wholesalers market
individual insurance and investment products to more than 200,000 financial and
investment advisors throughout the United States. Approximately 80 wholesalers
market defined contribution retirement plan products in the small case
corporate, health, education and government markets. Group Insurance and
employee benefit-related
products are sold primarily to medium-sized businesses by an 88 person
wholesaling team through both major brokerage operations and via direct sales
to employers.
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ING US Institutional Businesses
ING US Institutional Businesses (USIB) focus on providing products to
institutional customers in two areas, reinsurance, through ING Re, and
principal protection products, through ING Institutional Markets.
ING Re is the professional life reinsurance arm of ING Americas and is one of
the top five life reinsurers in the United States. Its primary focus is
assisting its clients by providing knowledge based individual and group life,
as well as accident and health, reinsurance solutions. ING Res clients are
primarily United States domestic life and health insurance companies. Risks are
managed using per risk, per incident and per location exposure limits.
ING Institutional Markets offers principal protection products such as funding
agreements, guaranteed investment contracts (GICs) and other stable value
alternatives to defined contribution plans, fixed income money managers,
financial intermediaries and other institutional buyers. The products offered
by ING Institutional Markets can be traditional products, which guarantee a
fixed or floating rate of interest and a return of principal to the contract
holder, or alternative funding products such as synthetic and separate account
GICs and GIC-backed medium term notes. The risks of the business unit are
managed within very tight tolerances using sophisticated financial techniques
and processes.
ING Investment Management
As of 2003, ING Investment Management Americas became part of EC ING Americas
in order to better align investment manufacturing and distribution on a
regional level. ING Investment Management Americas was formed in 2002 from a
combination of INGs existing investment management operations in the United
States, Canada, Mexico, and Chile with those of ING Aeltus Investment
Management in Hartford, Connecticut, ING Furman Selz Asset Management based
primarily in New York, and ING Funds investment operations in New York and
Scottsdale, Arizona.
IIM Americas is comprised of five primary business lines: Proprietary Assets,
Mutual Funds, Institutional Portfolios, Alternative Assets, and Managed
Accounts. IIMs assets are managed in a wide range of investment styles and
portfolios including: domestic and international equity funds across the value,
blend and growth universes as well as the small, mid and large capitalization
spectrum; domestic and international fixed income funds across the major bond
sectors; balanced portfolios; real estate and private equity.
IIM manages Proprietary Assets for ING Americas insurance entities, investing
in a diverse mix of public fixed income, private placements, structured
products and commercial mortgages. IIMs third party products are distributed
through proprietary, affiliated and outside distribution channels. Its mutual
funds are distributed primarily through ING USFS products (including worksite
retirement products, individual annuity products, and life insurance products),
through ING and third party financial intermediaries, and through INGs
internet bank, ING Direct.
IIMs institutional funds primarily serve the defined benefit market and are
distributed directly to pension plans and through consultants by IIMs
dedicated institutional sales force. IIM Americas institutional funds are
also distributed through affiliated ING distribution channels in Europe and
Asia/Pacific.
IIMs Alternative products are targeted to high net worth individuals and
institutional investors. These products include single strategy hedge funds,
hedge fund of funds, private equity, and structured products and are
distributed primarily through proprietary distribution channels. IIMs managed
account business serves almost 40,000 high net worth customers by offering
individually managed portfolios through financial intermediaries.
IIM Americas business strategy is to further leverage the powerful
distribution existing in INGs affiliate businesses and expand the model of
maximizing the number of distribution channels for a given investment product
or capability.
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CANADA
ING Americas business strategy for Canada is centered around risk management
expertise delivered through strong manufacturing and distribution
capabilities. In addition, a wealth management capability supports the
distribution network.
ING Canada is the No. 1 insurer in the Canadian property and casualty market
with a market share in excess of 10%. The total volume of direct written
premiums in 2003 was EUR 2.2 billion representing an 11% increase over the
prior year (all organically).
ING markets property and casualty insurance products through multiple
distribution channels, including brokers, affinity programs as well as direct
to the customer. This multiple-channel strategy reaches a broad cross-section
of personal lines customers. In the commercial market, business is conducted
through brokers, and customers are primarily small and medium size
businesses. Commercial specialty lines products, such as marine, surety and
other niche products are also offered.
ING Insurance Company of Canada, capitalizing on the brand strength in Canada,
as well as INGs global brand positioning, serves brokers and their customers
across Canada; while ING Novex offers personal lines insurance to groups
throughout Canada.
ING Canada markets P&C insurance directly to customers through BELAIRdirect.
Its products are marketed and sold mainly through the Internet and by phone
through call-centers in Quebec and Ontario.
ING Advisor Network division operates with a mandate to further strengthen the
financial services network across the country. This division is dedicated to
support broker partners in building financial services capabilities within
their brokerages.
In addition to insurance operations, ING Canada also has a mutual fund
operation, ING Funds, and a registered mutual fund dealer, ING Wealth
Management. The teams focus is to deliver packaged financial solutions to our
brokers of the Advisor Network.
ING Canada has a customer base of over 3.6 million.
LATIN AMERICA
ING Americas seeks to be a leading player in emerging and other selected
markets outside North America that have the potential for attractive long-term
returns. Therefore, ING Americas, through subsidiaries and joint venture
affiliates, sells life insurance, health insurance, pensions, property and
casualty insurance, and financial services products in selected markets in
strategic Latin American countries. Activities are focused on the countries of
Brazil, Chile and Mexico. ING also has a presence in the AFP (privatized
pension) and annuities market in Peru. The evaluation of non-strategic
activities for divestment will continue throughout the Latin American
operations.
Mexico
ING Americas current presence in Mexico consists of the largest insurance
company, ING Comercial America (ING CA) and ING Comerical America Afore, a
top five pension companies. ING CA is the market leader in the Mexican
insurance industry with premium income of EUR 1.9 billion on an annual basis.
ING CA has its strongest market positions in autos (#1), commercial property &
casualty business (#1) and health insurance (#2). The growth focus will be on
personal lines with the emphasis on life and wealth accumulation products.
ING Comercial America Afore, a privatized pension savings fund business started
in 1997, has more than 2.7 million clients and AUM exceeding EUR 2.6 billion.
In 2003, ING sold its 49% interest in the Mexican bancassurance joint venture
Seguros Bital to HSBC.
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Argentina
Since 1996, ING has had a life insurance operation in Argentina that sold
primarily unit-linked individual life insurance products through a sales force
of tied agents. ING Argentina is experiencing an economic environment that was
not envisaged when the Board approved the business plan justifying the original
Argentinean investment. Through aggressive management actions the financial
risks of the insurance operations have been limited. On February 17, 2004 ING
announced that it made a decision to close ING Insurance in Argentina, and as a
result ING Insurance Argentina is closing its branch offices throughout the
country.
Chile
ING Americas has gained scale to become a leading financial services group in
Chile with the #1 market ranking for life premiums and the #2 ranking for
health premiums. 2003 total revenues (premium income and asset management fees)
in Chile were EUR 611 million and assets under management were EUR 6.6 billion.
Brazil
ING obtained a 49% share in the health insurance subsidiary of Sul America,
SulAet, with the acquisition in 2000 of Aetna International. In 2002, ING
expanded this relationship and acquired 49% in Sul America, positioning ING at
the forefront in the largest South American insurance market. As well as the #1
ranking health line, products now include life and personal accident, pension,
auto, other P&C, and fund management activities. A co-branding project was
launched in 2003.
Peru
ING has a 60% stake in AFP Integra, the leading private pension fund in Peru
with EUR 1.6 billion in assets under management. ING also has a minority stake
in InVita Life, which offers life, survivor and disability insurance, as well
as annuities. Non-life interests were divested in 2002.
Netherlands Antilles and Aruba
ING completed the sale of its life, non-life and health operations in the
Netherlands Antilles and Aruba (ING Fatum), with approval of the Central bank
of the Netherlands Antilles, in early 2003.
ING ASIA/PACIFIC
The Executive Centre (EC) ING Asia/Pacific is responsible for primarily retail
strategies in delivering insurance and wealth management product lines in the
key markets of Taiwan, Hong Kong, Australia/New Zealand, Japan, Korea and
Malaysia, while further developing greenfields in China, India and Thailand.
A regional office in Hong Kong supports all business units in the region,
ensures implementation of strategy and standards, encourages synergy both
regionally and globally, and produces regional management reports to
headquarters in Amsterdam.
With the exception of Japan and Australia, ING distribution in the region has
been dominated by tied or career agents, but this is changing with the growth
of independent agents, financial planners, and bancassurance, together with
e-business, which is making inroads in terms of both direct customer access and
supporting intermediary channels.
33
Market positioning has been strengthened in several countries through joint
ventures. In Australia and New Zealand, the life insurance and funds management
joint venture with ANZ is tracking according to plan. The Life Joint Venture
with Beijing Capital Group started business in Dalian at the beginning of 2003
The Shanghai joint venture received approval to open a new branch in Guangzhou.
Further we have begun bancassurance sales with Kookmin Bank in South Korea.
Australia and New Zealand
ING has two large joint ventures in Australia. ING Australia (the life and
wealth management joint venture with ANZ) ranks No. 4 in the life business and
No. 5 in the wealth management business). QBE Mercantile Mutual (the non-life
joint venture with QBE) ranks No. 6 in the non-life industry. ING Australia
continues to focus on leveraging its reach and scale to generate profitable
growth by lowering operational cost ratios, enhancing product platforms, and
growing ANZ distribution capacity and production via aligned distribution in
multiple channels. QBE Mercantile Mutual distributes a range of general
insurance products through professional general insurance intermediaries. In
New Zealand, ING acquired the life insurer, Club Life in 2003.
Taiwan
Taiwan remains one of the most important markets for ING in the Asia Pacific
region. INGs businesses in Taiwan include the No. 4 ranked life insurer, ING
Antai, and a mutual fund joint venture with Chang Hwa Bank. Career life agents
are the main distribution channel, although bancassurance has grown in
prominence. Priorities for the life business include the introduction of
innovative products with appropriate pricing, and the management of health
products in order to reduce risk and improve profitability. Managing the low
interest rate environment and improving investment performance within the
investment mandate are also critical.
Hong Kong
INGs Hong Kong strategies focus on growing market position, besides developing
alternative channels like bancassurance and financial planning to accelerate
growth for the life business. In particular, ING has deepened its relationships
with regional banks with sales support and training to enhance operating
efficiency and quality of sales. The non-life business aims to maximize synergy
and cross sell opportunities with other ING businesses operating in Hong Kong.
The pension business will seek to continue to reduce costs through various
initiatives.
China
The life insurance joint venture (PALIC) in Shanghai with China Pacific
Insurance Company now ranks No. 7 in new business premium and fourth in terms
of agency sales. It continues to focus on improving agency productivity and
developing alternative distribution channels such as bancassurance. The Dalian
life insurance joint venture (ICLIC) started operations in December 2002 and
now ranks No. 5 in Dalian. The fund management joint venture China Merchant
Funds launched Chinas first open ended fund and first money market fund during
2003, raising in total over EUR 500 million.
South Korea
ING Life Korea is one of the fastest growing international companies in the
country. In 2003 ING Life Korea was ranked No. 5 by total premium. Life premium
grew rapidly through the traditional tied agency distribution channel and
bancassurance activities with Kookmin Bank during 2003. To further strengthen
this position, INGs priorities in 2004 include deepening bancassurance
distribution and broadening the agency pool. The extended strategic investment
agreement with Kookmin Bank provides expanded distribution for life insurance
and asset management products. INGs 20% owned investment trust joint venture
with Kookmin Bank ended the year with assets under management of over EUR 6.8
billion.
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Japan
In Japan, ING plans to maintain its leadership positions in the Corporate Owned
Life Insurance (COLI) segment and the Single Premium Variable Annuity (SPVA)
segment. ING ranks No. 3 in the SPVA segment. ING will continue to be a
producer for independent agents and banks. Important new distribution alliances
with four mega banks have been successfully launched, and the product range
will be broadened. The pension joint venture with Principal Financial Group
(USA), which focuses on small and medium-sized companies, markets a
comprehensive range of products related to defined contribution pensions. The
pensions joint venture is the No. 7 ranked corporate defined contribution
pension plan provider in Japan. ING will support pensions and SPVA business by
continuing to build its asset management proprietary funds capability.
Malaysia
In Malaysia, ING ranks No. 4 in terms of life new business with a 10% market
share and, in 2003, became the No. 1 provider of employee benefits. In 2004 we
expect to broaden our product range, improve operational efficiency and expense
performance to drive profitability. Pension deregulation will permit pension
products to be added. ING Malaysia has rebranded itself successfully from Aetna
to ING leading to increased awareness of the ING brand.
India
In 2003, ING Vysya Life Insurance in India now is focusing on developing a
large, professional tied agency force, expanded its product portfolio and
bancassurance sales models for life and mutual fund products are also being
developed. ING Vysya Bank, where ING owns a significant minority shareholding,
continues to focus on enhancing its retail banking and distribution
capabilities for third party retail products and improving its portfolio of
corporate lending by leveraging on the ING Group connections
Thailand
In Thailand, INGs main focus is on growing and enhancing the productivity of
the traditional tied agency force, and meeting the sales targets of the
accelerated life greenfield business plan. The sales mix has been rationalized
to achieve higher profitability. Bancassurance opportunities are also being
actively pursued to diversify distribution.
Indonesia
The life business conducted by ING in Indonesia was divested in 2003.
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THE FOLLOWING TABLE SETS FORTH OUR PRINCIPAL GROUP COMPANIES:
36
Branches
In addition, ING Insurance and its subsidiaries have offices in Brazil, China,
Czech Republic, India, Luxembourg
* including ANZ (51%)
COMPANIES TREATED AS PART OF THE BANKING OPERATIONS
37
Branches
ING Bank N.V. has offices in most of the major financial centres, including
London, Frankfurt, Hong Kong and Tokyo. In addition, ING Bank and/or ING België
N.V. have offices in Asunción, Bangkok, Bratislava, Bucharest, Buenos Aires,
Curaçao, Dublin, Havana, Istanbul, Lima, Madrid, Manila, Milan, Paris, Prague,
São Paulo, Seoul, Shanghai, Singapore, Sofia, Taipei and Vienna among others.
* Proportionally consolidated
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REGULATION AND SUPERVISION
The insurance, banking and asset management business of ING are subject to
detailed comprehensive regulation in all the jurisdictions in which ING does
business. This regulation is based in a large part on European Union (EU)
directives, discussed more fully below. These directives have a significant
impact on the regulation of the insurance, banking, asset management and broker
dealer businesses in the EU.
A group of companies in the EU may be engaged in both insurance and banking,
although direct mergers between banking and insurance companies are not
permitted.
On December 16, 2002, the European Union adopted a directive on the
supplementary supervision of credit institutions, insurance undertakings and
investment firms in a financial conglomerate. This directive aims to address
the supervisory issues that arise from the blurring of distinctions between the
activities of firms in each of the banking, securities, investment services and
insurance sectors. The main objectives of the directive are to:
Member States have to adopt the provisions of this directive to the supervision
of accounts for the financial year beginning on January 1, 2005. ING does not
expect this directive to have a material impact on its business or on its
capital requirements or solvency position, as it already complies with
comparable national legislation.
ING Groep N.V. and its subsidiaries are in compliance in all material respects
with the applicable banking and insurance regulations and capitalization and
capital base requirements of each applicable jurisdiction.
39
INSURANCE
ING Europe
Insurance companies in the EU are subject to supervision and regulation by
insurance regulatory authorities. carrying out prudential and conduct of
business supervision.
The relevant national regulation is based on the 1992 EU Insurance Directives.
These are founded on the home country control principle, according to which
the ongoing regulation of insurance companies, including their foreign
insurance operations, is the responsibility of the home country insurance
regulatory authority. The home country insurance regulatory authority monitors
compliance with applicable regulations, the capital base of the insurer and its
actuarial reserves, as well as the assets of the insurer, which support such
reserves. As a result of the implementation of these directives, an insurance
company that has been licensed to conduct insurance business in one
jurisdiction of the EU may do business directly or through foreign branches in
all other jurisdictions of the EU without being subject to licensing
requirements under the laws of the other EU member-states.
In The Netherlands, the home country insurance regulatory authority is the
Pensions and Insurance Supervisory Authority, who ensures that the insurers and
pension funds that operate in the Netherlands are and remain financially sound.
In Belgium, our insurance operations are supervised by the Banking, Finance and
Insurance Commission, created as a result of the integration of the Insurance
Supervisory Authority (ISA) and the Banking and Finance Commission (CBFA) and
who since 1 January 2004 is the single supervisory authority for the Belgian
financial sector. In other European Union countries our insurance operations
are subject to regulation by similar regulatory authorities.
ING Insurances life and non-life subsidiaries in the EU are required to file
detailed annual reports with their home country insurance regulatory authority.
These reports are audited by ING Insurances independent auditors and include
balance sheets, profit and loss statements, actuarial statements and other
financial information. The authorization granted by the insurance regulatory
authority stipulates the class or classes of business that an insurer may
write, and is required for every proposed new class of business. In addition,
the home country insurance regulatory authority may require an insurer to
submit any other information it requests and may conduct an audit at any time.
On the basis of the EU-directives, European life insurance companies are
required to maintain at least a shareholders equity level of generally 4% of
insurance reserves (1% of separate account reserves) plus 0.3% of the amount at
risk under insurance policies. The required shareholders equity level for
Dutch non-life insurers is the greater of two calculations: one based on
premiums and the other on claims. The former is based on 16% of gross premiums
written for the year, the latter is based on 23% of a three-year average of
gross claims. As of December 31, 2003, the capital base, being EUR 7.2 billion
of ING Groups Dutch insurance subsidiaries substantially exceeded the minimum
standards amounting to EUR 2.9 billion, resulting in a surplus of EUR 4.3
billion.
In 1998, the directive of the European Parliament and Council on the
supplementary supervision of the insurance undertakings in an insurance group
was adopted. The directive enables the insurance regulatory authorities
involved to form a more sound judgement on the financial situation of insurance
undertakings that are part of a group, in order to provide additional safety to
policyholders. Furthermore, the directive aims to prevent distortion of
competition and contribute to the safety of the financial markets. 2002 has
been the first financial year in which was reported according to this
directive.
The supervision of our significant insurance businesses outside the EU is
described below.
ING Americas
ING Groups United States insurance subsidiaries are subject to regulation and
supervision in the individual states in which they operate. Supervisory
agencies in various states have broad powers to grant or revoke licenses to
transact business, regulate trade practices, license agents, approve policy
forms and certain premium rates, set standards of capital base and reserve
requirements, determine the form and content of required financial reports,
examine insurance companies and prescribe the
40
type and amount of investments permitted. Insurance companies are subject to a
mandatory annual audit of their statutory basis financial statements by an
independent certified public accounting firm and an insurance department
examination approximately every three to five years.
Insurers, including the companies comprising ING Insurances U.S. operations
are subject to Risk Based Capital (RBC) guidelines. These guidelines provide
a method to measure the adjusted capital (statutory capital and surplus plus
other adjustments) that insurance companies should have for regulatory
purposes, taking into account the risk characteristics of the companys
investments and products. The RBC ratio of an insurance company will vary over
time depending upon many factors, including its earnings, the mix of assets in
its investment portfolio, the nature of the products it sells and its rate of
sales growth, as well as changes in the RBC formulas required by regulators.
The RBC guidelines are intended to be a regulatory tool only, and are not
intended as a means to rank insurers generally. Each of the companies
comprising ING Insurances U.S. operations was above its target and statutory
minimum RBC ratios at year-end 2003.
Insurance holding company statutes and regulations of each insurers state of
domicile require periodic disclosure concerning the ultimate controlling person
(i.e., the corporation or individual that controls the domiciled insurer in
each state). Such statutes also impose various limitations on investments in
affiliates and may require prior approval of the payment of certain dividends
by the registered insurer to ING or several of its affiliates. ING is subject,
by virtue of its ownership of insurance companies, to certain of these statutes
and regulations.
Our insurance businesses in Canada are federal companies incorporated pursuant
to the Canada Business Corporations Act. The various provincial statutes are
almost identical. The law of Quebec, which is based on a Civil Code (modeled on
the Napoleonic Code of France), varies in form from that of the other
provinces. There are few significant differences between provinces in the
administration of the insurance statutes. Ontario has case law that makes
insurers absolutely liable for the actions of their agents, even if that agent
is acting outside the scope of his or her appointment. The only defense
available to the insurer is one of fraud. Due diligence may be pleaded;
however, unless the insurer can prove that its standards of education,
monitoring and auditing of agents are of the highest level, the insurer will be
held responsible for the agents action. Quebec also has a statute that
similarly makes the insurer responsible for the acts of its agents. As for
mutual funds and other investment products, the various provincial statutes are
almost identical and the rules are almost identical to the U.S. rules in this
regard.
ING Asia/Pacific
Significant changes have taken place in the Japanese financial sector prompted
by deregulation and the turmoil caused by the prolonged economic recession. The
Financial Services Agency (FSA) was established on July 1, 2000, by the
integration of the Financial Supervisory Agency and the Financial System
Planning Bureau of the Ministry of Finance.
New products, revision of existing products and changes in policy provisions
require approval by the FSA. Cabinet Office and FSA ordinances stipulate the
types of assets in which an insurance company can invest. In addition,
ordinances limit the proportion of assets that an insurance company may invest
in certain categories of investments. The Insurance Business Law further
requires that an insurance company set aside a liability reserve for each
policyholder every business period to provide for the fulfillment of the level
of expected mortality and other assumptions that are applied in calculating
liability reserves for long-term contracts. An insurance company shall appoint
a corporate actuary at a meeting of the board of directors and have such a
corporate actuary be involved in the method of calculating premiums and other
actuarial matters. An external audit is required for all insurers. The auditors
must report on whether the balance sheet and income statements show fairly the
status of the insurers assets and liabilities in conformity with relevant
laws, Cabinet Office or FSA ordinances and the insurers articles of
incorporation. In addition to the external audit, the statutory corporate
auditors must be elected to examine whether there have been any serious
violations of the law, relevant FSA ordinances or the insurers articles of
incorporation by the insurers directors. The statutory corporate auditors are
also responsible for accounting matters, depending on the results produced from
the external
audit and are required to draw up a report covering financial and non-financial
issues, which is included in the annual report to shareholders.
41
ING Groups Korean insurance subsidiaries, are subject to regulation and
supervision of the Financial Supervisory Commission (FSC) and its executive
arm, the Financial Supervisory Service (FSS). A second body, the Korean Life
Insurance Association advises the Ministry of Finance and Economy on policies
and systems related to life insurance such as the Insurance Business Act. In
August 2002, the Insurance Business Act was revised to deregulate the insurance
industry and to increase competition. The FSC announced a plan also aimed at
increased competition in the domestic financial sector, to be implemented in
three phases as of 2003.
The financial services activities of life insurance, investments,
superannuation, general insurance and banking are currently governed by
separate legislation under Australian law. The two main financial services
regulators are the Australian Securities and Investment Commission (ASIC) and
the Australian Prudential Regulation Authority (APRA). APRA is responsible
for the prudential regulation of banks and other deposit taking institutions,
life and general insurance companies, superannuation funds and Retirement
Savings Account Providers APRAs responsibilities include regulating capital
and liquidity requirements and monitoring the management functions of product
providers. ASIC is responsible for consumer protection and market integrity
across the financial systems, including the areas of insurance banking and
superannuation.
BANKING
ING Europe
Basel Standards
The Basel Committee on Banking Supervision of the Bank for International
Settlements (BIS) develops international capital adequacy guidelines based on
the relationship between a banks capital and its credit risks. In this
context, on July 15, 1988, the Basel Committee adopted risk-based capital
guidelines (the Basel guidelines), which have been implemented by banking
regulators in the countries that have endorsed them. The Basel guidelines are
intended to strengthen the soundness and stability of the international banking
system. The Basel guidelines are also intended to reduce an existing source of
competitive inequality among international banks by harmonizing the definition
of capital and the rules for the evaluation of asset risks and by establishing
a uniform target capital base ratio (capital to risk-weighted assets).
Supervisory authorities in each jurisdiction have, however, some discretion in
determining whether to include particular instruments as capital under the
Basel guidelines and to assign different weights, within a prescribed range, to
various categories of assets. The Basel guidelines were adopted by the European
Community. In June 1999, the Basel Committee proposed a review of the Basel
guidelines of 1988.
Since then the proposals of the consultative paper of the Basel Committee on
Banking Supervision were further discussed by several international working
parties. Once finalized, the implementation of the New Basel Capital Accord is
expected in 2007.
The purpose of Basel II is to lay down capital requirements that are more
risk-sensitive. There is also greater emphasis on internal methods of risk
control by banks. For example, the Accord further refines the system of risk
weightings and permits capital requirements to be calculated based upon the
ratings issued by recognized rating agencies. In addition, under certain
conditions, banks will be permitted to use their internal rating models to
determine the amount of capital that they must hold. It also adds capital
requirements for operating risk to those laid down for credit risk and market
risk.
The European Union will be drawing up a directive, the Third Capital Adequacy
Directive (CAD3), which will apply to both banks and investment firms. Through
this European directive, Basel II will be implemented in the legislation and
regulations and in supervisory practice in all EU member states.
European Union Standards
The European Community has adopted a capital adequacy regulation for credit
institutions in all its member states based on the Basel guidelines. In 1989,
the EC adopted the Council Directive of April 17, 1989 on the own funds of
credit institutions (the Own Funds Directive), defining qualifying capital
(own funds), and the Council Directive of December 18, 1989 on a capital base
ratio for credit
42
institutions (the Capital base Ratio Directive and, together with the Own
Funds Directive, the EC Directives), setting forth the required ratio of own
funds to risk-adjusted assets and off-balance sheet items. The EC Directives
required the EU member states to transform the provisions of the Capital base
Ratio Directive and the provisions of the Own Funds Directive into national law
directly binding on banks operating in the member states. The EC Directives
permit EU member states, when transforming the EC Directives into national law,
to establish more stringent requirements, but do not permit more lenient
requirements.
The EC Directives are aimed at harmonizing banking regulations and supervision
throughout the EU by laying down certain minimum standards in key areas, and
requiring member states to give mutual recognition to each others standards
of regulation. The concept of mutual recognition has also been extended to
create the passport concept: the freedom to establish branches in, and to
provide cross-border services into, other EU member states once a bank has been
licensed in its home state. The single market program for banking was
completed when the Capital Adequacy Directive, or CAD, was implemented in the
Netherlands with effect from January 1, 1996. In particular, CAD introduces a
new requirement for banks to provide capital for market risk.
An EU member state credit institution is not permitted to start operations
through a branch in another EU member state until it has received confirmation
from its home country banking regulatory authority that the information
required by the Second Directive on the Coordination of Legislation to the
Taking Up and Pursuit of the Business of Credit Institutions (the Second
Banking Coordination EC Directive) has been submitted to that regulator and
until, following this confirmation, a period of two months has elapsed or
until, before the expiry of this period, it has received confirming information
by that home country banking regulatory authority.
The EC Directives require a bank to have a capital base ratio of own funds to
risk-adjusted assets and certain off-balance sheet items of at least 8%. At
least one-half of the own funds in the numerator of the ratio must be original
own funds, or Tier 1 capital. The rest may be additional own funds, or
Tier 2 capital. As of January 1, 1997, Tier 1 capital consists solely of
paid-up capital plus share premium accounts, other reserves and the fund for
general banking risks less a deduction for goodwill. Tier 2 capital includes
revaluation reserves, value adjustments and certain other funds and securities
(such as fixed-term cumulative preferential shares and subordinated debt). The
aggregate of a banks subordinated loans and fixed-term cumulative preferential
shares may not exceed 50% of the banks Tier 1 capital.
In 2000, the EC Directives were brought together in the EC Directive 2000/12.
ING Bank files consolidated monthly and annual reports of its financial
position and results with the Dutch Central Bank. ING Banks independent
auditors audit these reports. Our banking operations in Belgium are supervised
by the Banking, Finance and Insurance Commission. Banking supervision in
Germany is carried out by the Federal Financial Supervisory Authority, working
in co-operation with the German Central Bank (Deutsche Bundesbank). Similar
authorities supervise INGs banking operations in other European Union
countries, such as the Financial Services Authority in the United Kingdom.
The supervision of our significant banking businesses outside the EU is
described below.
43
ING Americas
ING Bank does have a limited direct presence in the United States through the
facility of the ING Bank Representative Office in New York. Although that
offices activities are strictly limited, essentially to that of a marketing
agent of bank products and services and a facilitator (i.e., the office may not
take deposits or execute any transactions), that office is subject to the
jurisdiction of the State of New York Banking Department and the Federal
Reserve.
A major part of our banking activities in the United States, ING Direct USA, is
regulated by the Office of Thrift Supervision, a division of the United States
Department of the Treasury and, to a lesser extent, by the Federal Deposit
Insurance Corporation, an independent agency of the Federal government that
operates under the auspices of the Federal Deposit Insurance Act, a US federal
law.
ING Bank of Canada is a federally regulated financial institution that is
subject to the supervision of the Office of the Superintendent of Financial
Institutions (OSFI), which is the primary regulator of federally chartered
financial institutions (including banks) and federally administered pension
plans. ING Bank of Canada operates a wholly owned mortgage loan company
subsidiary, ING Mortgage Broker Services Inc., which is subject to provincial
regulation in the provinces in which it operates. ING MBSs home province
regulator is the Financial Services Commission of Ontario, which regulates
insurance, pensions, credit unions, caisses populaires, cooperatives, mortgage
brokers and loan & trust companies in the province of Ontario.
ING Asia/Pacific
The financial services activities of life insurance, investments,
superannuation, general insurance and banking are currently governed by
separate legislation under Australian law. No one piece of legislation
exclusively covers all financial services. The two main financial services
regulators are the Australian Securities and Investment Commission (ASIC) and
the Australian Prudential Regulation Authority (APRA). APRA is responsible
for the prudential regulation of banks and other deposit taking institutions,
life and general insurance companies, superannuation funds and Retirement
Savings Account Providers. APRAs responsibilities include regulating capital
and liquidity requirements and monitoring the management functions of product
providers
BROKER-DEALER AND INVESTMENT MANAGEMENT ACTIVITIES
INGs broker-dealer entities in the United States are regulated by the
Securities and Exchange Commission, the states, and the self-regulatory
organizations (e.g., the NASD and the NYSE) of which they individually are
members. The primary governing statutes for such entities are the Securities
Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and
state statutes and regulations, as applicable. Those laws, and the regulations
promulgated thereunder, impose requirements (among others) regarding minimum
net capital requirements, safeguarding of customer assets, protection and use
of material, non-public (inside) information, record-keeping requirements,
supervision of employee activities, credit to customers, suitability
determinations in the context of recommending transactions to customers and
clearance and settlement procedures. The rules of the self-regulatory
organizations in some respects duplicate the aforementioned legal requirements,
but also impose requirements specific to the marketplaces that those
organizations oversee. For example, the NASD imposes requirements relating to
activities by market-makers in the over-the-counter market in equity securities
and the NYSE imposes requirements regarding transactions effected in its listed
securities market. In addition, in December 2001, the Department of Treasury
proposed new anti-money laundering standards applicable to broker-dealers.
Certain ING entities in the United States (including certain of its
broker-dealers) also act in the capacity of a federally registered investment
advisor (i.e. providing transactional advice to customers for a fee), and are
governed in such activities by the Investment Advisers Act of 1940, as amended.
Moreover, certain ING entities manage investment funds (such as mutual funds);
the Investment Company Act of 1940, as amended, regulates the governance and
activities of those funds. These laws impose record-keeping and disclosure
requirements on ING in the context of such activities. Moreover, the laws
impose restrictions on transactions or require disclosure of transactions
involving advisory clients and the advisor or the advisors affiliates, as well
as transactions between advisory clients. In addition, the
44
Employee Retirement Income Security Act of 1974, as amended, imposes certain
obligations on investment advisors managing employee plan assets as defined in
this act.
The failure of ING to comply with these various requirements could result in
civil and criminal sanctions and administrative penalties imposed by the
Securities and Exchange Commission, the states, or self-regulatory
organizations upon those entities that have committed the violations. Moreover,
employees who are found to have participated in the violative activity, and
managers of such employees, also may be subject to penalties by governmental
and self-regulatory agencies.
SELECTED STATISTICAL INFORMATION ON BANKING OPERATIONS
The tables below set forth selected statistical information regarding the
Groups banking operations. Unless otherwise indicated, average balances, when
used, are calculated from monthly data and the distinction between domestic and
foreign is based on the location of the office where the assets and liabilities
are booked, as opposed to the domicile of the customer. However, the Company
believes that the presentation of these amounts based upon the domicile of the
customer would not result in material differences in the amounts presented
below.
The return on equity of the banking operations amounted to 11.0% in 2003
against 6.5% in 2002 and 10.2% in 2001, whereas the return on equity of ING
Group amounted to 21.5%, 17.4% and 15.3% for the years 2003, 2002 and 2001
respectively. The dividend pay-out ratio of ING Group amounted to 48.5% in
2003, 44.1% in 2002 and 44.1% in 2001.
AVERAGE BALANCES AND INTEREST RATES
The following tables show the banking operations, average interest-earning
assets and average interest-bearing liabilities, together with average rates,
for the periods indicated. The interest income, interest expense and average
yield figures include interest on non-accruing loans and do not reflect:
income on amortized results investments;
lending commissions;
interest income on off-balance sheet instruments;
other income not considered to be directly related to interest-earning assets;
interest expense on off-balance sheet instruments, or
other expense not considered to be directly related to interest-bearing liabilities,
all of which are reflected in the corresponding interest income, interest
expense and net interest result figures in the Consolidated Financial
Statements. A reconciliation of the interest income, interest expense and net
interest result figures to the corresponding line items in the Consolidated
Financial Statements is provided below.
45
ASSETS
46
LIABILITIES
47
ANALYSIS OF CHANGES IN NET INTEREST INCOME
The following table allocates changes in the Groups interest income and
expense and net interest result between changes in average balances and rates
for the periods indicated. Changes due to a combination of volume and rate have
been allocated to changes in average volume. The net changes in interest
income, interest expense and net interest result, as calculated in this table,
have been reconciled to the changes in interest income, interest expense and
net interest result in the Consolidated Financial Statements. See introduction
to Average Balances and Interest Rates for a discussion of the differences
between interest income, interest expense and net interest result as calculated
in the following table and as set forth in the Consolidated Financial
Statements.
48
49
LOAN PORTFOLIO
Loans and advances to banks and customers
Loans and advances to banks include all receivables from credit institutions,
except for cash, current accounts and deposits with other banks (including
central banks). Lending facilities to corporate and private customers encompass
among others, loans, overdrafts and finance lease receivables.
The following table sets forth the gross loans and advances to banks and
customers for the last five years.
The total net loans and advances to banks and customers amounted to EUR 316,785
million at December 31, 2003 and to EUR 307,100 million at December 31, 2002.
The difference between total net loans and advances to banks and customers on
the one hand and total gross loans and advances to banks and customers on the
other, amounting to EUR 4,671 million, EUR 4,870 million and EUR 4,474 million
at December 31, 2003, 2002 and 2001, respectively, represents the provisions
for loan losses.
50
Maturities and sensitivity of loans to changes in interest rates
The following table analyzes loans and advances to banks and customers by time
remaining until maturity as at December 31, 2003.
The following table analyzes loans and advances to banks and customers by
interest rate sensitivity by maturity as at December 31, 2003.
Risk elements
Non-accrual and past due loans
Each of the business units within the banking operations of ING Group maintains
its own system for servicing and monitoring past due loans. ING Groups
international banking offices and subsidiaries generally account for delinquent
loans in accordance with U.S. GAAP. When a loan is in default as to payment of
principal and interest for 90 days or when, in the judgment of management, the
accrual of interest should cease before 90 days, such a loan is placed on
non-accrual status. Any accrued but unpaid interest is reversed against current
period interest revenue. Interest payments received on a cash basis during the
period are recorded as interest income. Domestic banking offices follow the
same policy for consumer mortgage and private loans. All of the foregoing loans
are included in the table below under Non-accrual.
Under Accruing but past due 90 days, all loans are reported that are still
accruing but on which
51
principal or interest payments are contractually past due 90 days or more.
Domestic commercial loans combined with an overdraft facility, which make up
approximately 50% of the reported amount in the domestic Accruing but past due
90 days category, were included in the 2003, 2002 and 2001 table below if the
overdraft facility exceeded a specified limit for 90 days or more at December
31, 2003, 2002 and 2001, respectively. The amount of loans meeting these
criteria in prior years was estimated by management based on the size of the
underlying portfolio and specific risk factors.
Based on the foregoing, the following table sets forth managements estimate,
without giving effect to available security or related specific provisions, of
the amounts of its loan portfolio in each of the two categories indicated.
These loans are under constant review of the credit risk department.
Restructured loans
The following table sets forth the troubled debt restructuring loans consisting
of loans that are accruing interest but at rates different from the original
terms of such loans as a result of the terms of any such restructuring.
On receipt of cash, suspended interest is recovered prior to the principal
outstanding, except that, where amounts are outstanding for costs and other
late payment charges, the cash received is first used to recover these costs
and charges. When it becomes apparent that recovery of interest is unlikely,
interest ceases to be accrued and is suspended.
Interest income that would have been recognized in 2003 under the original
terms of the non-accrual and restructured loans amounted to an estimated EUR 48
million from loans granted by domestic offices and an estimated EUR 137 million
from loans granted by foreign offices. Interest income of approximately EUR 25
million from such domestic loans and approximately EUR 28 million from such
foreign loans was recognized in the profit and loss account for 2003.
At December 31, 2003, ING Group had loans amounting to EUR 3,627 million that
were not included in the risk elements schedule above. These loans are
considered potential problem loans as the credit review officers obtained
information that caused doubts as to the repayment of the loan by the borrower.
Of this total, EUR 1,676 million relates to domestic loans and EUR 1,951
million relates to
52
foreign loans. Appropriate provisions, following ING Groups credit risk rating
system, have been established for these loans.
Cross-border outstandings
Cross-border outstandings are defined as loans (including accrued interest),
acceptances, interest-earning deposits with other banks, other interest-earning
investments and any other monetary assets that are denominated in euro or other
non-local currency. To the extent that material local currency outstandings are
not hedged or are not funded by local currency borrowings, such amounts are
included in cross-border outstandings.
The following tables analyze cross-border outstandings as of the end of each of
the last three years, stating the name of the country and the aggregate amount
of cross-border outstandings to borrowers in each foreign country where such
outstandings exceed 1% of total assets, by the following categories.
Guaranteed or secured loans are deducted from gross outstandings to arrive at
net outstandings provided that political and transfer risks are also covered
explicitly by the agreement. Commitments such as irrevocable letters of credit
are not considered as cross border outstanding. Total outstandings are in line
with Dutch Central Bank requirements. At December 31, 2003, there were no
outstandings exceeding 1% of total assets in any country where current
conditions give rise to liquidity problems which are expected to have a
material impact on the timely repayment of interest or principal.
53
At December 31, 2003, 2002 and 2001, the following countries had cross-border
outstandings between 0.75% and 1% of total assets:
Loan concentration
The following industry concentrations were in excess of 10% of total loans as
at December 31, 2003:
(1) Excluding bank deposits given of approximately EUR 61 billion.
Bad and doubtful debts
A provision for loan losses is maintained for the banking operations that is
considered adequate to absorb losses arising from the existing portfolios of
loans. The provision for loan losses is made in accordance with the overall
supervisory direction of the Dutch Central Bank. Each operating company makes
provisions for bad and doubtful debts, based on centrally given instructions.
The provisions are reviewed on a quarterly basis by management. On the face of
the balance sheet, the provisions are deducted from Lending and Banks. The
net additions to or subtractions from such balance sheet provisions are
reflected in the Groups profit and loss account, principally under Value
adjustments to receivables of the Banking operations.
In determining the amount of the provisions, corporate loans are assessed on a
case-by-case basis, and the following factors are considered:
54
For certain groups of small private and corporate loans with similar
characteristics, provisions are also assessed using statistical techniques.
On certain foreign outstandings, a country provision is calculated for
regulatory purposes based on detailed instructions given by the Dutch Central
Bank. The amount is a function of the risk of the country as well as the risk
of the transaction itself. For accounting purposes, adequate provisions are
calculated for countries that are near default or have recently defaulted.
ING Group also maintains an unallocated provision for loan losses that is
required to adequately capture various subjective and judgmental aspects of
credit risk assessment that are not considered on an individual basis.
Considerable judgement is exercised in determining the extent of the provision
and is based on managements evaluation of the risk in the portfolio, current
economic conditions, recent years loss experience, and credit and geographical
concentration trends. When there is no prospect of recovering principal or
interest, the outstanding debt and any suspense balances are written off.
55
Summary of loan loss experience
The following table shows the movements in allocation of the provision for loan
losses on loans accounted for as loans and advances to banks and customers for
the past five years.
Additions to the provision for loan losses are based on managements judgment,
taking into account all available evidence, on borrower creditworthiness,
contractual loan terms, available judicial and other remedies, historical
patterns of losses and current economic developments.
Management regularly assesses the adequacy of the provision for loan losses by
performing ongoing evaluations of the loan portfolio. A formal analysis of
specifically identified loans takes place every quarter, including evaluation
of economic risks associated with each loan, the current financial
56
condition of the borrower, the economic environment in which the borrower
operates, the level of delinquent loans and the value of collateral. Credit
ratings are assigned to the borrowers by allocating all outstanding loans into
various Risk Rating categories on a regular basis.
The policy for determining the provision for loan losses is set out in more
detail under the heading Bad and Doubtful debts and in Note 1.6.2.5. to the
Financial Statements.
Additions to the provision for loan losses presented in the table above were
influenced by developments in general economic conditions as well as certain
individual exposures. Significant movements in the addition to the provision
for loan losses are explained in the paragraph Addition to the provision for
loan losses on page 100.
The following table shows the allocation of the provision for loan losses on
loans accounted for as loans and advances to banks and customers for the past
five years:
57
The following table shows the provision for loan losses on loans accounted for
as loans and advances to banks and customers as a percentage of the related
loan portfolio for the past five years:
DEPOSITS
The aggregate average balance of all the Groups interest-bearing deposits
(from banks and customer accounts) increased by 20.03% to EUR 378,347 million.
Interest rates paid reflect market conditions. The effect on net interest
income depends upon competitive pricing and the level of interest income that
can be generated through the use of funds.
Deposits by banks are primarily time deposits, the majority of which are raised
by the Groups Amsterdam-based money market operations in the worlds major
financial markets.
Certificates of deposit represent 31% of the category Debt securities (47% at
the end of 2002). These instruments are issued as part of liquidity management
with maturities generally of less than three months.
58
For the years ended December 31, 2003, 2002 and 2001, the aggregate amount of
deposits by foreign depositors in domestic offices was EUR 33,874 million, EUR
30,551 million and EUR 34,848 million, respectively.
At December 31, 2003, the maturity of domestic time certificates of deposit and
other time deposits, exceeding EUR 25,000, was:
59
The following table shows the amount outstanding for time certificates of
deposit and other time deposits exceeding EUR 25,000 issued by foreign offices
at December 31, 2003.
INVESTMENTS OF THE GROUPS BANKING OPERATIONS
The following table shows the balance sheet value under Dutch GAAP of the
investments of the Groups banking operations:
60
Banking investment strategy
INGs investment strategy for its investment portfolio related to the banking
activities is formulated by the Asset and Liability Committee (ALCO). The
exposures of the investments to market rate movements are managed by modifying
the asset and liability mix, either directly or through the use of derivative
financial products including interest rate swaps, futures, forwards and
purchased option positions such as interest rate caps, floors and collars. See
Item 11. Quantitative and Qualitative Disclosure of Market Risk.
The investment portfolio related to the banking activities primarily consists
of fixed-interest securities. Approximately 38% of the land and buildings owned
by ING Bank are wholly or partially in use by Group companies.
Portfolio maturity description
61
At December 31, 2003, ING Group also held the following securities for the
banking operations that exceeded 10% of shareholders equity:
COMPETITION
There is substantial competition in the Netherlands and the other countries in
which ING Group does business for the types of insurance, retail and wholesale
banking and other products and services provided by the Group. Such competition
is more pronounced in the mature markets of the Netherlands, the Rest of
Europe, the United States, Canada and Australia than in the developing markets.
In recent years, however, competition in developing markets has increased as
financial institutions from mature markets have sought to establish themselves
in markets that are perceived to offer higher growth potential. Like ING,
competitors have sought alliances, mergers or strategic relationships with
local institutions, which have become more sophisticated and competitive.
The Netherlands, which is the largest national market for our banking
operations and the second largest for our insurance operations, has
historically favored open markets. The presence of large domestic competitors
in both the insurance and banking sectors has resulted in fierce competition
for virtually all of the Groups products and services. In addition, the Dutch
market is a mature market and one in which the Group already maintains
significant market shares in most lines of business. Although certain parts of
the Dutch financial-services sector are growing, in recent years ING Bank has
been facing increasing competition from other principal Dutch banks in the
market segment of small and medium-sized enterprises, as well as in other parts
of its Dutch business. Management believes, however, that notwithstanding these
factors, there is still the potential for increased growth in the Dutch markets
in which the Group currently is active. Changes in government policy result in
government withdrawing from social security and various other programs,
shifting the coverage and services provided thereunder to the private sector.
In this regard, the distribution channels maintained in the Netherlands (direct
marketing, the Internet, intermediaries, branches and tied agents) allow the
Group to allocate resources to different sectors of the Dutch market as growth
opportunities arise and, in managements view, provide the Group with
significant competitive advantages. In the Netherlands, the insurance industry
has been affected by many changes in legislation (i.e. new tax law). Savings
for pensions continue to be tax-favored to some extent, but professional advice
is needed in the labyrinth of rules and regulations. The Dutch insurance
industry will be further shaped by the need to adapt to new technologies, bring
down costs and increase efficiency. With our large market share, we expect that
we will be able to benefit from these trends, especially by creating shared
service centers.
In the United States, due to the rebounding economic climate, a shift from
guaranteed products to unit-linked products, from fixed to variable annuities
and from savings products to stock-market products is evident. The inflow of
money into mutual funds has also rapidly increased. After several years of bear
market, customers in the United States are increasing their allocation to
equity products. The baby boomers are now moving closer toward retirement,
which creates new opportunities. For the insurance and asset management
business, we believe long-term opportunities continue to improve for INGs
wealth management businesses. Several further trends in the US market are
significant to our business. First, interest rates have remained at a 45-year
low which puts pressure on margins for fixed products. While the low interest
rates have helped to fuel the US economy, sustained low rates will challenge
our profit generation. In addition, distribution is shifting from career agents
to independent advisers and wholesalers, as more insurers come under pressure
to turn fixed costs into variable costs. Third, there is a clear shift in power
from manufacturers to distributors when it comes to the distribution of
financial products. To mitigate these changes in the market, ING has made a
concerted
62
effort to retain and forge strong relationships with our distribution partners.
Finally, the ING Brand has grown significantly in the US. In all, we believe
our US operations are well-positioned to benefit from these trends.
Competition with respect to the products and services provided by the Group in
both mature and developing markets is based on many factors, including brand
recognition, scope of distribution systems, customer service, products offered,
financial strength, price and, in the case of investment-linked insurance
products and asset management services, investment performance. Management
believes its major competitors are the larger Dutch, other European, U.S. and
Japanese commercial banks, insurance companies, asset management and other
financial-services companies.
RATINGS
ING Groep N.V.s long term senior debt rating is rated Aa3 by Moodys
Investors Service, with a stable outlook. ING Groep N.V.s long-term senior
debt rating is rated A+ by Standard & Poors Ratings Service, a division of
the McGraw Hill companies, Inc., or Standard & Poors, with a stable outlook.
ING Verzekeringen N.V.s long term senior debt is rated A+ by Standard &
Poors (with a stable outlook) and Aa3 by Moodys .
ING Bank N.V.s long term senior debt is rated AA- (with a stable outlook) by
Standard & Poors and Aa2 (with a stable outlook) by Moodys. The AA rating
is the second highest of the seven ratings assigned by Standard & Poors, which
range from AAA to C. Ratings from AA to B may be modified by the use of a
plus or minus sign to show relative standing of the issuer within those rating
categories. The Aa rating is the second highest of the nine ratings assigned
by Moodys, which range from Aaa to C. Ratings from Aaa to C may be
modified by the use of numerical modifiers 1, 2 and 3, to show the relative
standing of the issuer within those rating categories.
ING Verzekeringen N.V.s short-term term senior debt is rated A1 by Standard
& Poors and P-1 by Moodys . ING Banks N.V.s short-term debt is rated
A1+ by Standard & Poors and P-1 by Moodys. The A1+ rating is the
highest possible of the seven ratings assigned by Standard & Poors, which
range from A1+ to D. The P-1 rating is the highest possible of the three
ratings assigned by Moodys, which range from P-1 to Not Prime.
The following insurance subsidiaries all held AA (with a negative outlook)
insurer financial strength ratings by Standard & Poors at December 31, 2003:
Security Life of Denver Insurance Company, Southland Life Insurance Company,
USG Annuity and Life Company, Golden American Life Insurance Company,
Midwestern United Life Insurance Company, Equitable Life Insurance Company of
Iowa, ReliaStar Life Insurance Company, ING Life Insurance & Annuity Company,
ING Insurance Company of America, and ReliaStar Life Insurance Company of New
York. Additionally, on January 1, 2004, Equitable Life Insurance Company of
Iowa, USG Annuity and Life Company, and United Life and Annuity Insurance
Company merged with and into Golden American Life Insurance Company. This
entity was renamed ING USA Annuity and Life Insurance Company. Subsequently,
Standard & Poors assigned an AA (with a negative outlook) insurer financial
strength rating to this entity. Previously, United Life and Annuity Insurance
Company was not rated by Standard & Poors. Standard & Poors states that an
insurer rated AA has a very strong capacity to meet its financial
commitments. It differs from the highest rated insurers only in small degree.
The AA rating is the second highest of the eight claims-paying ratings
assigned by Standard & Poors, which range from AAA (Superior) to R
(Regulatory action). Life Insurance Company of Georgia has a A- (with a
stable outlook) insurer financial strength rating by Standard and Poors.
Standard and Poors states that an insurer rated A has a strong capacity to
meet its financial commitments but is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than insurers in
higher-rated categories.
The following insurance subsidiaries all held Aa3 (with a stable outlook)
financial strength ratings by Moodys as of December 31, 2003: ING Life
Insurance & Annuity Company, ING Insurance Company of America, Security Life of
Denver Insurance Company, , Southland Life Insurance Company, USG Annuity and
Life Company, Equitable Life Insurance Company of Iowa, ReliaStar Life Insurance Company, and ReliaStar Life Insurance Company
of New York. On January 1, 2004, Equitable Life Insurance Company of Iowa, USG
Annuity and Life Company, and United Life and Annuity Insurance
63
Company merged with and into Golden American Life Insurance Company. This
entity was renamed ING USA Annuity and Life Insurance Company. Subsequently,
Moodys assigned an Aa3 financial strength rating to this entity.
Previously, United Life and Annuity Insurance Company and Golden American Life
Insurance Company were not rated by Moodys. As of December 31, 2003 Life
Insurance Company of Georgia held a A2 (with a negative outlook) financial
strength rating by Moodys. On January 7, 2004 the financial strength rating of
Life Insurance Company of Georgia was downgraded to A3 (with a stable
outlook).Moodys states that the Aa3 rating is assigned to those companies
that, in its opinion, offer financial security. The Aa3 rating is the second
highest of the nine Financial strength ratings assigned by Moodys, which range
from Aaa (Exceptional) to C (Lowest).
ING Bank N.V.s long-term debt is rated AA- by Fitch Ratings Ltd., or Fitch
Ratings. The AA rating is the second highest of the nine ratings assigned by
Fitch Ratings, Ltd. which range from AAA to C. Ratings from AA to B may
be modified by the use of a plus or minus sign to show relative standing of the
issuer within those rating categories.
The following insurance subsidiaries, held an A+ rating by A.M. Best as of
December 31, 2003: Security Life of Denver Insurance Company, Southland Life
Insurance Company, USG Annuity and Life Company, ING Insurance Company of
America, ING Life Insurance and Annuity Company, Golden American Life Insurance
Company, Equitable Life Insurance Company of Iowa, ReliaStar Life Insurance
Company, and ReliaStar Life Insurance Company of NY. In addition, Midwestern United Life Insurance Company, United Life and Annuity Insurance Company, and
Life Insurance Company of Georgia held an A rating by A.M. Best as of
December 31, 2003. . On January 1, 2004, Equitable Life
Insurance Company of Iowa, USG Annuity and Life Company, and United Life and Annuity Insurance
Company merged with and into Golden American Life Insurance Company. This
entity was renamed ING USA Annuity and Life Insurance Company. Subsequently,
A.M. Best assigned an A+ rating to this entity. A.M. Best states that the
A+ rating is assigned to companies which have, on balance, superior balance
sheet strength, operating performance and business profile when compared to the
standards established by A.M. Best. These companies, in their opinion, have a
very strong ability to meet their ongoing obligations to policyholders. The
A+ rating is the second highest of 15 ratings assigned by A.M. Best, which
range from A++ (Superior) to F (In Liquidation).
None of the foregoing ratings is an indication of the historic or potential
performance of the Companys stock or other securities and should not be relied
upon with respect to making an investment in ING Groep N.V.s Ordinary shares,
Bearer receipts, ADSs or other securities.
INFORMATION TECHNOLOGY
ING Group has an ongoing project to improve the capabilities of the Information
Technology function. In a collaborative approach with the Executive Centers and
businesses, ING has been working to identify and realize opportunities for
IT-enabled improvements and value enhancing initiatives with lower costs.
ING is now starting to see the results of these activities. Medium Term Plan
(MTP) results are showing lower IT costs as a percentage of business in the
coming three years. ING has availed itself of opportunities in the area of
alternative sourcing such as leveraging offshore application development and
maintenance. In the business arena, ING has seen rationalization of the
infrastructure and applications portfolio to focus on the core business and
selective use of outsourcing with partners to gain access to scale and skills.
ING has also focussed on more actively partnering with some key IT suppliers
such as Microsoft, IBM, HP and Peoplesoft. The Global Infrastructure Services
department has a strategic goal of providing more seamless and cost effective
connectivity to INGs businesses across the globe.
Maintaining the appropriate balance between group and local ownership
(responsibility, accountability) is essential to ensure an accelerated rate of
more common application deployment as well as infrastructure rationalization.
Shared services and data centres have emerged through consolidation at
Management Committee (MC) and Executive Committee (EC) levels. A regional
service provider concept provides support services across ECs within each
region. For many businesses, the environment is proving challenging with a need
to better understand and manage the risk they face. INGs approach to information risk and security is also
evolving to reflect a changing
64
environment.
In order to continue to improve the speed of decision making and ensure tighter
alignment of business and IT focus, everything thats being done in IT is
working through the established corporate IT governance mechanisms. ING
continuously seeks to eliminate redundancy, reduce costs and ensure optimum
usage of the Groups IT assets. While keeping an eye on our customers,
shareholders and employees, ING will continue to offer efficient and effective
IT enabled solutions to help drive customer satisfaction and improve
profitability.
DESCRIPTION OF PROPERTY
In the Netherlands, ING Group owns substantially all of the land and buildings
used in the normal course of its business. Outside the Netherlands, ING Group
predominantly leases all of the land and buildings used in the normal course of
its business. At December 31, 2003, ING Group had more than 1,500 branch,
representative and similar offices worldwide of which approximately 500,
principally branch offices, were located in the Netherlands. In addition, ING
Group has part of its investment portfolio invested in land and buildings.
Management believes that the Groups facilities are adequate for its present
needs in all material respects.
Item 5. Operating and financial review and prospects
The following review and prospects should be read in conjunction with the
Consolidated Financial Statements and the related Notes thereto included
elsewhere herein. The Consolidated Financial Statements have been prepared in
accordance with Dutch GAAP, which differs in certain significant respects from
U.S. GAAP. Reference is made to Note 6 of Notes to the Consolidated Financial
Statements for a description of the significant differences between Dutch
GAAPand U.S. GAAPand a reconciliation of shareholdersequity and net profit to
U.S. GAAP. Unless otherwise indicated, financial information for ING Group
included herein is presented on a consolidated basis under Dutch GAAP.
FACTORS AFFECTING RESULTS OF OPERATIONS
ING Groups results of operations are affected by demographics (particularly
with respect to life insurance) and by a variety of market conditions,
including economic cycles, insurance industry cycles (particularly with respect
to non-life insurance), banking industry cycles and fluctuations in stock
markets, interest and foreign exchange rates.
General Market Conditions
Demographic studies suggest that over the next decade there will be growth in
INGs principal life insurance markets of the Netherlands, the rest of Europe,
the United States, Asia and Australia, in the number of individuals who enter
the age group that management believes is most likely to purchase
retirement-oriented life insurance products. In addition, in a number of its
European markets, including the Netherlands, retirement, medical and other
social benefits previously provided by the government have been, or are
expected to be, curtailed in the coming years, which management believes will
increase opportunities for private sector providers of life insurance, health,
pension and other social benefits-related insurance products. Management
believes that ING Insurances distribution networks, the quality and diversity
of its products and its investment management expertise in each of these
markets positions ING Insurance to benefit from such developments. In addition,
the emerging markets in Central and Eastern Europe, Asia and South America, in
which ING Insurance has insurance operations, generally have lower gross
domestic products per capita and gross insurance premiums per capita than the
countries in Western Europe and North America in which ING Insurance has
insurance operations. Management believes that insurance greenfield operations
in such emerging markets provide ING Insurance with the market presence that
will allow it to take advantage of anticipated growth in such regions.
Conditions in the non-life insurance markets in which ING Insurance operates
are also cyclical, and characterized by periods of price competition,
fluctuations in underwriting results and the occurrence of unpredictable
weather-related and other losses.
Fluctuations in equity securities markets
Our insurance and asset management operations are exposed to fluctuations in
equity securities markets. Our overall investment return and fee income from
equity linked products are impacted by equity markets and the fees we charge for managing portfolios are often
based on performance and
65
value of the portfolio. In addition, fluctuations in equity securities markets
may affect sales of life and pension products, unit-linked products, including
variable business and may increase the amount of withdrawals which will reduce
related management fees. Our banking operations are exposed to fluctuations in
equity securities markets. Given the fact that ING Banks policy is to maintain
an internationally diversified and mainly client-related trading portfolio,
market downturns are likely to lead to declines in securities trading and
brokerage activities that we execute for customers and therefore to declines in
related commissions.
Fluctuations in interest rates
Our insurance operations are exposed to fluctuations in interest rates through
impacts on sales and surrenders of life insurance and annuity products.
Declining interest rates may increase sales but may impact profitability as a
result of a reduced spread between the guaranteed interest rates to
policyholders and the investment returns on fixed interest investments. Rising
interest rates may increase surrenders of policies which may require
liquidation of fixed interest investments at unfavorable market prices. This
could result in realized investment losses. Our banking operations are exposed
to fluctuations in interest rates. Our management of interest rate sensitivity
affects the results of our banking operations. Interest rate sensitivity refers
to the relationship between changes in market interest rates and changes in net
interest income. The composition of our banking assets and liabilities results
in a structural mismatch which causes the banking operations net interest
income to be affected by changes in interest rates.
Fluctuations in exchange rates
We publish our consolidated financial statements in euros. Because a
substantial portion of our revenue and expenses are denominated in currencies
other than euros, fluctuations in the exchange rates used to translate foreign
currencies, particularly the U.S. dollar, the Australian dollar, the Canadian
dollar, the Japanese yen, the British pound and the Polish zloty into euros
will impact our reported results of operations and cash flows from year to
year. Fluctuations in exchange rates will also impact the value (denominated in
euro) of our investments in our non-Euro reporting subsidiaries. The impact of
these fluctuations in exchange rates is mitigated to some extent by the fact
that the revenues and related expenses, as well as assets and liabilities, of
each of our non-euro reporting subsidiaries are generally denominated in the
same currencies. ING Group policy is to hedge the translation risk of foreign
operations in order to minimize the impact of foreign currency movements (See
Note 7.11 of Notes to the Consolidated Financial Statements).
During 2003, the value of the euro strengthened against most currencies. The
impact on operating net profit was a negative EUR 49 million. This figure
includes the mitigating effect of the US dollar hedge result of EUR 119 million
after tax versus EUR 55 million in the same period last year. ING has hedged
the expected profits in US dollar and US dollar-linked currencies for 2004 and
2005. On the insurance side, profits were hedged at a EUR/USD exchange rate of
0.922 for 2004 and 1.253 for 2005. On the banking side, the EUR/USD exchange
rates were 1.222 for 2004 and 1.253 for 2005.
For each of the years 2003, 2002 and 2001, the year-end exchange rates (which
are the rates ING uses in the preparation of the Consolidated Financial
Statements for balance sheet items not denominated in euros) and the average
annual exchange rates (which are the rates ING uses in the preparation of the
Consolidated Financial Statements for income statement items and cash flows not
denominated in euros) were as follows:
66
Off-Balance-Sheet- Arrangements
Reference is made to pages F-40-F-42: Note 2.18.2
Off-Balance-Sheet-Arrangements.
Critical Accounting Policies
Dutch GAAP
Reference is made to page to F-9: Note 1.5 Critical Accounting Policies.
Transition to IAS/IFRS
As of January 1, 2005 we will be required to prepare our financial statements
and report our operating results in accordance with International Financial
Reporting Standards (IFRS), previously known as International Accounting
Standards (IAS). In June 2002, the Council of the European Union adopted a
67
regulation requiring listed companies in its Member States to prepare
consolidated financial statements based on IFRS. The full impact on financial
statements and results under IFRS is not able to be exactly predicted as
certain Standards have not yet been fully finalized, especially with respect to
accounting for insurance contracts and financial instruments.
Overview Group result 2003 versus 2002
Income
Total operating income decreased by 9.2% to EUR 69,073 million, due, in part,
to the fact that the euro strengthened against most currencies.
Efficiency
Total operating expenses decreased 3.1% from EUR 13,501 million in 2002 to EUR
13,081 million in 2003. This is a result of ongoing cost control measures, as
well as the many restructuring and integration efforts, which were partially
offset by an increase in expenses. This expense growth was a result of the
ongoing expansion of ING Direct and the insurance operations in developing
markets, higher pension costs, accelerated depreciation of capitalized
software, higher expenses to reduce backlogs and to improve the service level
at INGs Dutch insurance operations, and the new collective labor agreement in
the Netherlands.
Profit
The positive trend already visible in the first nine months of 2003 continued
in the fourth quarter, resulting in a full-year operating net profit of EUR
4,053 million, up 18.1% from 2002. Currency-rate differences, despite the
mitigating effect of the US-dollar hedge, had a negative impact of EUR 49
million. Excluding currency-rate differences and acquisitions/divestments,
operating net profit increased by 20.9%.
Net profit over 2003 fell EUR 457 million, or 10.2%, to EUR 4,043 million,
mainly due to the absence of net realized capital gains on shares in 2003 as a
result of a policy change. In 2002, net profit included EUR 820 million of net
realized capital gains on shares compared with a net realized loss of EUR 10
million in 2003. In addition, 2002 net profit included a EUR 247 million
non-operating profit on the sale of 49% of INGs life and mutual-fund
operations in Australia to the joint venture with ANZ.
The further recovery of the most important stock market indices in the fourth
quarter of 2003 resulted in a positive balance of more than EUR 0.9 billion in
the revaluation reserve shares as of 31 December 2003. This revaluation reserve
includes unrealized gains and losses on shares in INGs equity portfolio. On
February 17, 2004, the revaluation reserve in respect of shares amounted to
approximately EUR 1.4 billion. The revaluation reserve in respect of real
estate amounted to EUR 1.0 billion at year-end 2003, a decrease of EUR 0.2
billion compared with year-end 2002 as a result of sales in 2003.
Insurance operations
Operating net profit from the insurance operations decreased from EUR 2,538
million in 2002 to EUR 2,508 million in 2003 (1.2%). The strengthening of the
euro against other (major) currencies had a negative impact of EUR 92 million
despite the mitigating effect of the dollar hedge. Excluding the impact of the
strong euro, operating net profit from insurance rose 2.7%. Operating profit
before tax increased 10.0% compared with 2002.
Total premiums decreased by 12.9% to EUR 45,519 million. Excluding the impact
of the strong euro, premium growth was flat as a result of continued efforts to
properly balance profitability and market share. In the Netherlands, life
premiums grew by 13.3%.
Despite strict cost control in all regions total operating expenses increased
organically by 6.5% as a result of an increase in pension costs, higher
expenses to reduce backlogs and to improve the service level in the
Netherlands, one-time reorganization and IT outsourcing expenses in the US, as
well as the growth of developing-market activities.
Banking operations
Operating net profit from the banking operations increased by 72.6% to EUR
1,545 million in 2003, mainly driven by a higher interest result, lower
expenses and lower loan-loss provisions. One-off items
68
had a small mitigating effect on the improvement (EUR (34) million in 2002
versus EUR (65) million in 2003).
Profit before tax rose by EUR 903 million or 61.5%. Total income growth of 4.3%
(organically 7.2%) was caused by a EUR 469 million higher interest result
thanks to increased volumes (notably at ING Direct) and a higher average
interest margin in the Netherlands.
Operating expenses decreased by 1.4% (organically, +1.0%) despite higher
pension expenses, the impact of the collective labor agreement in the
Netherlands as well as the ongoing expansion of ING Direct. Compared to the
third quarter 2003, operating expenses in the fourth quarter rose by EUR 152
million to EUR 2,192 million. This exceptionally high expense level is due to a
number of non-recurrent expenses including the accelerated depreciation of
capitalized software especially in the fourth quarter, a catch-up in bonus
accruals and higher marketing costs. The addition to the provision for loan
losses decreased by EUR 310 million to EUR 1,125 million, which is equal to 46
basis points of average credit-risk weighted assets, compared with 59 basis
points in 2002.
Currency-rate fluctuations impacted operating net profit by +EUR 43 million,
mainly as a result of a US dollar-denominated loss in the fourth quarter of
2002.
Return on equity
The operating net return on equity increased from 17.4% in 2002 to 21.5% in
2003. The return on equity of the insurance operations was 22.7% against 18.6%
for 2002. The return on equity of the banking operations increased from 6.5% in
2002 to 11.1% in 2003.
CONSOLIDATED RESULTS OF OPERATIONS
The following table sets forth the consolidated results of operations of ING
Group for the years ended December 31, 2003, 2002 and 2001:
The following table sets forth the breakdown of our non-operating profits by
insurance and banking operations:
69
The following discussion is based on our consolidated financial statements (see
Item 18. Financial Statements) and should be read in conjunction with those
statements. ING Group evaluates the results of its insurance operations and
banking operations using non-GAAP financial performance measures called
operating result before taxation and operating (net) profit. Operating (net)
profit is defined as (net) profit, excluding:
- capital gains and losses on
equity securities,
- the impact of the negative revaluation reserve on equity
securities , and
- realized gains on divestments that are made with the purpose
of using the proceeds to finance acquisitions.
While these excluded items are significant components in understanding and
assessing the Groups consolidated financial performance, ING Group believes
that the presentation of operating results enhances the understanding and
comparability of its performance by highlighting net income attributable to
ongoing operations and the underlying profitability of the businesses. Trends
in the underlying profitability of ING Groups businesses can be more clearly
identified without the fluctuating effects of realized capital gains and losses
on equity securities and the impact of the negative revaluation reserve on
equity securities. These results are largely dependent on market cycles and can
vary across periods. The timing of sales that would result in gains or losses
is largely at the discretion of the company. The realized gains on divestments
that are made with the purpose of using the proceeds related to the divestments
to finance acquisitions are excluded because the timing of these gains is
largely subject to the companys discretion, influenced by market opportunities
and ING Group does not believe that they are indicative of future results.
Operating result before taxation and operating net profit are not a substitute
for profit before taxation and net profit as determined in accordance with
Dutch GAAP. ING Groups definition of operating result before taxation and
operating net profit may differ from those used by other companies and may
change over time. See Note 3.6.6 to the Consolidated Financial Statements for
a reconciliation of our segment operating results to our net profit.
The following table sets forth the operating profit before tax and after tax of
the Groups consolidated operations by geographic region for the years ended
December 31, 2003, 2002 and 2001:
The contribution of the insurance operations to the operating net profit of ING
Group, after tax and third-party interests, was 61.9%, 73.9% and 59.3% in 2003,
2002 and 2001, respectively.
Year ended December 31, 2003 compared to year ended December 31, 2002
Total operating income of ING Group decreased by EUR 7,028 million, or (9.2%)
to EUR 69,073 million, from EUR 76,101 million in 2002, reflecting an decrease
in income of the Groups insurance operations of (11.3%) and an increase in the
banking operations of 4.3%. Total operating expenditure decreased
70
EUR 8,247 million, or (11.5%), from EUR 71,463 million in 2002 to EUR 63,216
million in 2003, reflecting decreases of (12.4%) and (4.4%) respectively, in
total expenditure for the Groups insurance and banking operations. The Groups
operating profit before tax increased in The Netherlands, Rest of Europe, North
America, Latin America and Asia, but declined in Belgium and Australia.
Consolidated operating profit before tax increased EUR 1,219 million, or 26.3%,
to EUR 5,857 million in 2003 compared to EUR 4,638 million in 2002, reflecting
increases of 10.0% for the insurance operations and 61.5% for the banking
operations. Including non-operating results, profit before tax decreased EUR 44
million, or (0.7%), to EUR 5,877 million in 2003 compared to EUR 5,921 million
in 2002. The Groups consolidated taxes (operating) of EUR 1,460 million in
2003 and EUR 873 million in 2002 represented overall effective tax rates of
24.9% and 18.8%, respectively, compared to the statutory rates for the Groups
primary Dutch and other non-domestic operating subsidiaries that ranged from
16.5% to 47%, and averaged 35%. The increase was mainly due to higher
tax-exempt gains as well as the release of a tax provision in the insurance
operations in 2002. The difference between statutory and effective rates was
due primarily to a reduction in the taxes paid by the Groups Dutch
subsidiaries, for which the statutory rate was 34.5% and the effective rate was
19.1% in 2002.
Operating net profit increased EUR 620 million, or 18.1%, to EUR 4,053 million
in 2003 compared to EUR 3,433 million in 2002, reflecting the increased pre-tax
profits, although the effect of exchange rate movements between the euro and
certain of the Groups primary operating currencies decreased operating net
profit in 2003 by EUR 49 million, compared to an increase of EUR 76 million in
2002, both net of US-dollar hedging. Including non-operating profits, net
profits decreased EUR 457 million, or (10.2%), to EUR 4,043 million in 2003
compared to EUR 4,500 million in 2002.
Year ended December 31, 2002 compared to year ended December 31, 2001
Total operating income of ING Group increased by EUR 2,551 million, or 3.5% to
EUR 76,101 million, from EUR 73,550 million in 2001, reflecting an increase in
income of the Groups insurance operations of 3.9% and an increase in the
banking operations of 0.8%. Total operating expenditure increased EUR 2,875
million, or 4.2%, from EUR 68,588 million in 2001 to EUR 71,463 million in
2002, reflecting increases of 3.5% and 8.9% respectively, in total expenditure
for the Groups insurance and banking operations. The Groups operating profit
before tax increased in, Belgium, North America, Latin America and Australia,
but declined in The Netherlands, Rest of Europe and Asia.
Consolidated operating profit before tax decreased EUR 324 million, or 6.5%, to
EUR 4,638 million in 2002 compared to EUR 4,962 million in 2001, reflecting an
increase of 13.5% for the insurance operations and a decrease of 32.4% for the
banking operations. Including non-operating profits, profit before tax
decreased EUR 145 million, or 2.4%, to EUR 5,921 million in 2002 compared to
EUR 6,066 million in 2001. The Groups consolidated taxes (operating) of EUR
873 million in 2002 and EUR 1,099 million in 2001 represented overall effective
tax rates of 18.8% and 22.2%, respectively, compared to the statutory rates for
the Groups primary Dutch and other non-domestic operating subsidiaries that
ranged from 16.5% to 47%, and averaged 35%. The difference between statutory
and effective rates was due primarily to a reduction in the taxes paid by the
Groups Dutch subsidiaries, for which the statutory rate was 34.5% and the
effective rate was 12.1% in 2002.
Operating net profit decreased EUR 106 million, or 3.0%, to EUR 3,433 million
in 2002 compared to EUR 3,539 million in 2001, reflecting the decreased pre-tax
profit and lower overall tax rates described above, as well as the effect of
exchange rate movements between the euro and certain of the Groups primary
operating currencies, which increased operating net profit in 2002 by EUR 76
million, compared to an increase of EUR 12 million in 2001. Including
non-operating profits, net profits decreased EUR 77 million, or 1.7%, to EUR
4,500 million in 2002 compared to EUR 4,577 million in 2001.
71
CONSOLIDATED ASSETS AND LIABILITIES
The following table sets forth ING Groups consolidated assets and liabilities
for the years ended December 31, 2003, 2002 and 2001:
Year ended December 31, 2003 compared to year ended December 31, 2002
Total assets increased by 8.7% in 2003 to EUR 778.8 billion, due to increased
fixed income investments, bank lending and banks. Investments increased by EUR
37.4 billion, or 12.6%, to EUR 335.0 billion in 2003 from EUR 297.6 billion in
2002, representing a small increase of EUR 1.5 billion in insurance investments
and an increase of EUR 36.0 billion in banking investments mainly attributable
to ING Direct ( EUR 29.8 billion).
Bank lending grew EUR 8.2 billion, or 2.9%, rising to EUR 292.6 billion at the
end of 2003 from EUR 284.4 billion at the end of 2002. Of this amount, EUR
143.7 billion related to lending in the Netherlands and EUR 148.9 billion to
international lending. The total increase of EUR 8.2 billion was on balance due
to decreased corporate loans mainly as a result of negative currency rate
fluctuations, by EUR 5.2 billion and higher personal lending of EUR 13.4
billion.
Group shareholders equity increased by 16.9% or EUR 3,077 million to EUR
21,331 million at December 31, 2003 compared to EUR 18,254 million at December
31, 2002. On balance, net profit of EUR 4,043 million increased and exchange
rate differences lowered shareholders equity by EUR (1,123) million. In
addition, the portion of the 2002 final dividend and 2003 interim dividend paid
caused shareholders equity to decrease by EUR 943 million offset by the issue
of shares, of EUR 925 million, to fund the cash dividend.
Year ended December 31, 2002 compared to year ended December 31, 2001
Total assets increased by 1.6% in 2002 to EUR 716.4 billion, on balance due to
decreased fixed income investments and an increase in bank lending volume.
Investments declined by EUR 9.9 billion, or 3.2%, to EUR 297.6 billion in 2002
from EUR 307.4 billion in 2001, representing a reduction of EUR (25.7) billion
in insurance investments, which was offset in part by an increase of EUR 15.8
billion in banking investments.
Bank lending grew EUR 30.2 billion, or 11.9%, rising to EUR 284.4 billion at
the end of 2002 from EUR 254.2 billion at the end of 2001. Of this amount, EUR
145.4 billion related to lending in the Netherlands and EUR 139.0 billion to
international lending. The consolidation of DiBa, Toplease and ING Vysya Bank
added EUR 7.3 billion to bank lending. The total increase of EUR 30.2 billion
was mainly due to increased loans secured by mortgages, including Dutch
residential mortgages of EUR 19.9 billion,
72
and higher other personal lending of EUR 8.0 billion partly caused by a
reclassification from other corporate loans.
Group shareholders equity decreased by 15.2% or EUR 3,260 million to EUR
18,254 million at December 31, 2002 compared to EUR 21,514 million at December
31, 2001. Net profit of EUR 4,500 million and the changes in the value of ING
Group N.V. shares held by group companies of EUR 822 million caused
shareholders equity to increase. Write-offs of goodwill totaled EUR (1,176)
million, which write-offs have been directly charged in full to shareholders
equity. Realized revaluations released to the profit and loss account of EUR
(1,051) million and unrealized revaluations after taxation amounted to EUR
(3,343) million, mainly due to the revaluation of the equity portfolio due to
the economic downturn. Exchange rate difference lowered shareholders equity by
EUR (1,041) million. In addition, the portion of the 2001 final dividend and
2002 interim dividend paid caused shareholders equity to decrease by EUR 1,969
million.
SEGMENT REPORTING
ING Groups segments are based on the management structure of the Group, which
is different from its legal structure. Each Executive Center formulates its
strategic, commercial and financial policy in conformity with the strategy and
performance targets set by the Executive Board. Each Executive Center is also
responsible for the preparation of its annual budget and each Executive Center
monitors the realization of its policies and budgets and its business units.
The following table sets forth the contribution of our Executive Centers to our
Total operating income and Operating profit before tax for each of the years
2001-2003:
See Note 3.6.6 Segment Reporting to the Consolidated Financial Statements for a
reconciliation of our segment operating results to our net profits under Dutch
GAAP.
Year ended December 31, 2003 compared to year ended December 31, 2002
ING Europe
Gross premiums written in the life operations increased by EUR 639 million, or
7.5%, to EUR 9,199 million. Gross premiums written in the non-life operations
increased EUR 23 million, or 1.1%, to EUR 2,202 million. Total income from the
banking operations increased by EUR 137 million, or 1.3%, from EUR 10,693
million in 2002 to EUR 10,830 million in 2003, mainly due to an increase in the
interest result. Income from the asset management activities, being mainly real
property and venture capital activities rose by 13.4%, or EUR 97 million to EUR
822 million in 2003.
The operating profit before tax increased by 32.8% to EUR 4,305 million from
EUR 3,242 million in 2002. The operating profit before tax of the insurance
operations grew by 8.8%, although it was negatively affected by one-off items.
Pressure on investment income and higher expenses resulted in lower life
results in the Netherlands. The life operations in Belgium and Poland, however,
performed
73
well. The non-life results on the home markets in the Netherlands and Belgium
developed very favorably. Operating profit before tax of the banking operations
increased by 58.3% to EUR 2,253 million. Operating profit before tax from the
asset management businesses rose by 38.8% to EUR 336 million.
ING Americas
Gross premiums written in the life business decreased by EUR 6,550 million, or
23.1%, from EUR 28,380 million in 2002 to EUR 21,830 million in 2003, mainly
caused by decreased fixed annuities sales, which suffered from the depressed
interest rate environment. Gross non-life premiums decreased EUR 803 million,
or 14.7%, to EUR 4,660 million in 2003.
The operating profit before tax increased slightly by EUR 43 million from EUR
1,043 million to EUR 1,086 million, due to the impact of lower interest rates
causing margin compression and lower fixed annuity sales as well as unfavorable
mortality in the reinsurance business. Growth in the property and casualty
businesses and higher benefit costs combined with one-time US costs increased
total expenses with 2.9% . Excluding the impact of the currency hedge gain,
exchange rates and one-off items, operating profit before tax increased 28.9%
over 2002 to EUR 905 million. According to US GAAP operating profit before tax
would have been EUR 445 million higher in 2003 and EUR 11,559 million lower in
2002. This difference is mainly caused by the following reconciling items for
2003 impairment of goodwill of EUR (125) million (2002: EUR (10,942) million),
valuation of debt securities EUR (333) million (2002: EUR (375) million),
realized results on sales and amortization of premiums and discount of debt
securities EUR 833 million (2002: EUR 546 million), accounting for derivative
financial instruments held for risk management EUR 283 million (2002: EUR (538)
million). For an explanation of differences between Dutch GAAP and US GAAP
please refer to Notes 6.1 and 6.2 on pages F-102 to F-106.
ING Asia / Pacific
Gross premiums written in the life business decreased by EUR 243 million, or
(3.3%), from EUR 7,436 million in 2002 to EUR 7,193 million in 2003. Gross
premiums, life and non-life, of the developing markets operations (mainly Korea
and Taiwan) increased 23.6% in local currencies. In Japan, premium income
decreased by 1.4% in local currency due to the flat sales of single premium
variable annuity product. Gross premiums of the non-life operations increased
by 10.8% from EUR 362 million in 2002 to EUR 401 million in 2003.
The operating profit before tax of the insurance operations decreased by EUR
117 million, or 20.6%, primarily due to the operating gain of EUR 222 million
in 2002 from the transaction with ANZ, to EUR 452 million in 2003. The
operations in Australia, Japan, Hong Kong and Korea all showed improved results
in local currencies. Results from Taiwan were lower, mainly because of an
addition of EUR 50 million to the provision against a prolonged low interest
rate environment. Excluding this provision and at constant exchange rates,
profit increased.
The operating profit before tax of the banking operations decreased by EUR 33
million from EUR 34 million in 2002 to EUR 1 million in 2003, mainly because of
lower dividends in 2003, EUR (18) million received on the investment in Kookmin
Bank (South Korea) and lower results EUR (15) million regarding the 44% stake
in Vysya Bank (India)
74
Year ended December 31, 2002 compared to year ended December 31, 2001
ING Europe
Gross premiums written in the life operations decreased by EUR 41 million, or
0.5%, to EUR 8,560 million. Gross premiums written in the non-life operations
increased EUR 81 million, or 3.9%, to EUR 2,179 million. Total income from the
banking operations increased by EUR 38 million, or 0.4%, from EUR 10,390
million in 2001 to EUR 10,620 million in 2002, on balance due to an increase in
the interest result, which was almost fully offset by a strong decrease in
commission income, reflecting overall market declines.
The operating profit before tax decreased by 16.6% to EUR 3,242 million from
EUR 3,888 million in 2001. The operating profit before tax of the insurance
operations grew by 7.5% due to higher realized capital gains on real property
and lower operating expenses, while the operating profit before tax of the
banking operations decreased by 35.3%, due to lower commissions and other
income in the Belgian operations as well as substantial higher additions to the
provision for loan losses, mainly in the German and American wholesale
operations, partly offset by lower operating expenses. According to US GAAP
operating profit before tax would have been EUR 736 million lower in 2002 and
EUR 523 million lower in 2001. This difference is mainly caused by the
following reconciling items for 2002: goodwill of EUR (1,168) million (2001:
EUR (514) million) and mainly valuation of debt securities EUR 573 million
(2001: EUR 15 million. For an explanation of differences between Dutch GAAP and
US GAAP please refer to Notes 6.1 and 6.2 on pages F-102 to F-106.
ING Americas
Gross premiums written in the life business decreased by EUR 664 million, or
2.3%, from EUR 29,044 million in 2001 to EUR 28,380 million in 2002, mainly
caused by increased fixed annuities sales, which were more than offset by a
decrease in premium income from variable annuities, short term Guaranteed
Investment Contracts and reinsurance premiums. Gross non-life premiums
increased EUR 1,480 million, or 37.2%, to EUR 5,463 million in 2002, and mainly
caused by the acquisition of the retail insurance portfolio from Zurich in
Canada, as well as the integration of the additional 58.5% ownership of ING
Commercial America acquired in the second half of 2001 in Mexico.
The operating profit before tax increased by EUR 159 million from EUR 884
million to EUR 1,043 million, caused by lower operating expenses, decreased
interest expenses and higher investment income partly offset by substantially
higher investment losses and increased charges due to DAC unlocking. According
to US GAAP operating profit before tax would have been EUR 11,559 million lower
in 2002 and EUR 1,917 million lower in 2001. This difference is mainly caused
by the following reconciling items for 2002: impairment of goodwill of EUR
(10,942) million (2001: EUR (1,216) million), valuation of debt securities EUR
(375) million (2001: EUR (132) million), realized results on sales and
amortization of premiums and discount of debt securities EUR 546 million (2001:
EUR 230 million), accounting for derivative financial instruments held for risk
management EUR (538) million (2001: EUR (321) million) and provision for future
catastrophes and other accidental losses EUR (181) million (2001: EUR (329)
million). For an explanation of differences between Dutch GAAP and US GAAP
please refer to Notes 6.1 and 6.2 on pages F-102 to F-106.
ING Asia / Pacific
Gross premiums written in the life business increased by EUR 939 million, or
14.5%, from EUR 6,497 million in 2001 to EUR 7,436 million in 2002. Gross
premiums of the life business in Australia decreased by 17.5% primarily due to
the ING-ANZ joint venture formation, reducing INGs share of premium Gross
premiums of the ex-Greenfield operations (mainly Korea and Taiwan) increased
7.4% (14.6% in local currency). In Japan, premium income grew by 102% in local
currency due to the strong sales of a newly introduced single premium variable
annuity product. Gross premiums of the non-life operations increased by 15.3%
from EUR 314 million in 2001 to EUR 362 million in 2002.
The operating profit before tax of the insurance operations increased by EUR
268 million, or 89.0%, to EUR 569 million in 2002. The profit includes EUR 222
million profit relating to the formation of the joint
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venture life and mutual fund operations in Australia with ANZ (ING 51%
ownership). The operations in Australia, Japan, Taiwan and Korea all showed
improved results.
The operating profit before tax of the banking operations increased strongly by
EUR 31 million from EUR 3 million in 2001 to EUR 34 million in 2002, mainly
caused by higher results of the Australian operations and the first time
consolidation of ING Vysya Bank in India.
Investment portfolio impairments and unrealized losses
The carrying value of all investments in our investment portfolio is reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The review includes, amongst other, an
evaluation of the level and trends of interest rates, trends and level of
volatility in stock markets, financial condition of the issuer or counterparty,
economic developments and expectations in the business segment in which the
issuer or counterparty operates, the extent to which the fair value is below
the cost price, the period of time for which unrealized losses have existed and
ING Groups intent and ability to hold a security until fair value will
recover. For all investments for which, based on such review, the unrealized
losses are expected to be other than temporary, the amount of unrealized loss
is charged to the profit and loss account.
Unrealized losses
On a US GAAP basis, our consolidated investment portfolio included unrealized
gains of EUR 11,245 million and unrealized losses of EUR 1,408 million as of
December 31, 2003.
The table below provides a reconciliation of the net unrealized gains and
losses on equity securities of EUR 919 million to the net unrealized gains and
losses on a US GAAP basis as of December 31, 2003.
Under US GAAP, unrealized losses on equity securities are EUR 1,435 million
(2002: EUR 1,770 million) lower as set out in Note 6.1.e. on page F-103.
The table below provides the gross unrealized loss on a US GAAP basis of EUR
1,408 million as of December 31, 2003 broken down by type of security and by
the period of time for which the fair value was below cost price:
76
The company does not consider the securities with unrealized losses for over 12
months of EUR 254 million to be impaired, since either:
The unrealized losses on a U.S. GAAP basis of EUR 1,236 million as of December
31, 2002 are provided in the table below.
The table below provides the gross unrealized loss on a U.S. GAAP basis of EUR
1,236 million as of December 31, 2002 broken down by type of security and by
the period of time for which the fair value was below cost price:
Impairments
Impairments are measured as the difference between the carrying value of a
particular investment and the expected recoverable amount. Impairments are
charged to the profit and loss account.
In 2003, we recorded impairments of EUR 689 million on a US GAAP basis (2002:
EUR 2,248 million and 2001: EUR 1,136 million). Of such amount, EUR 474 million
is related to our portfolio of debt securities (2002: EUR 716 million and 2001:
EUR 451 million).
77
Impairment of debt securities under Dutch GAAP
Unrealized losses on debt securities consist of two components: interest
related unrealized losses and credit related unrealized losses. Interest
related unrealized losses, which fully relate to fluctuations in risk free
market interest rates, generally would not result in any impairments. Credit
related unrealized losses may relate to impairment if it is uncertain whether
future interest and principal payments will be collected.
Impairments on debt
securities, recorded at redemption value under Dutch GAAP, are accounted for as
a reduction of the carrying value of the debt security. This reduction is
reversed in a subsequent period if the recoverable amount increases and the
increase can be objectively related to an event occurring after the impairment
was recognized in income. The amount of the reversal is then included in the
profit and loss account for the period.
Developments in 2003
The 2003 impairment review of the debt securities in our investment portfolio
produced an impairment of EUR 141 million, of which EUR 135 million is related
to our portfolio in the United States.
Developments in 2002
Based on our review of the carrying value of the debt securities, we recorded
impairments of EUR 583 million under Dutch GAAP, related to our portfolio of
debt securities. The majority of the impairments related to our portfolio in
the United States, of which the most significant items were the following:
Impairment of debt securities under US GAAP
Under US GAAP impairments are determined similar to Dutch GAAP. In the case of
impairment, the related unrealized loss (included in the revaluation reserve)
is recorded through the profit and loss account. Under U.S. GAAP impairments
may not be reversed in future periods. Impairments are treated as a reduction
of cost price and are reversed upon sale of the asset. This difference has not
resulted in any differences between the cost price of securities under Dutch
GAAP and US GAAP in 2002 or 2003, as no impairments were reversed under Dutch
GAAP.
The most significant item is the EUR 285 million (2002: EUR 154 million)
impairment on asset-backed securities, collateralized debt obligations,
mortgage-backed and mortgage-backed derivative
78
securities was recorded based on EITF 99-20 requirements related to market
values being below carrying value and adverse changes in cash flows.
Impairment of equity securities under Dutch GAAP
Under Dutch GAAP, distinction is made between unrealized losses due to general
market fluctuations and unrealized losses due to issuer-specific developments.
Unrealized losses due to temporary fluctuations in equity markets do not lead
to impairment. The impairment review focuses on issuer specific developments
regarding financial condition and future prospects, taking into account the
intent and ability to hold the securities under the ING Groups long term
investment strategy. Issuer specific developments may include significant
financial difficulty of the issuer, a high probability of bankruptcy or other
financial reorganization of the issuer and the disappearance of an active
market for that financial asset due to financial difficulties. If, in a
subsequent period, the recoverable amount increases and the increase can be
objectively related to an event occurring after the impairment was recognized
in income, the loss should be reversed, with the reversal included in net
result for the period.
Developments in 2003
Of the EUR 1,324 million unrealized losses on equity securities under Dutch
GAAP that were in an unrealized loss position for more than six months as of
December 31, 2003, EUR 887 million related to the equity security portfolio of
our insurance operations in The Netherlands. The unrealized losses are
concentrated in the nutrition industry (EUR 174 million), chemical industry
(EUR 104 million), IT services (EUR 76 million), retail-wholesale (EUR 64
million), general industrials (EUR 57 million) and financials (EUR 25 million).
In 2003, ING Group recognized impairments of EUR 55 million under Dutch GAAP,
consisting of several minor impairments, concentrated in the general
industrials (EUR 16 million) and IT services (EUR 8 million).
Developments in 2002
Of the EUR 2,103 million of unrealized losses on equity securities under Dutch
GAAP that were in an unrealized loss position for more than six months as of
December 31, 2002, EUR 1,478 million related to the equity security portfolio
of our insurance operations in the Netherlands.
The impairment review process has resulted in EUR 292 million impairment
charges on a Dutch GAAP basis, mainly relating to the investment portfolio of
our insurance operations in The Netherlands, concentrated in the following
industries:
The share prices of telecommunications companies were under considerable
pressure in 2002 (see also comment on debt securities) which produced an
impairment of EUR 139 million as under the long term investment strategy, ING
Group did not have the intent to hold these securities.
ING Groups shareholding in Laurus, a large food retail company in The
Netherlands, produced an impairment of EUR 69 million in 2002. Concerns about
the continuity of Laurus if the company would not be able to attract new
funding dragged the share price of Laurus down to EUR 1.50 at the time of the
impairment.
Impairment of equity securities under US GAAP
Under US GAAP, based on strict SEC interpretations, additional impairments are
recognized for other than temporary unrealized losses on top of the impairments
already recognized under Dutch GAAP.
An additional impairment may be recognized under US GAAP after giving
additional consideration to the extent to which the fair value is below the
cost price and the period of time for which unrealized
79
losses have existed. Under US GAAP, impairments may not be reversed in future
periods. Impairments are treated as a reduction of cost price and are only
reversed upon sale of the asset. This difference has not resulted in any
differences between the cost price of securities under Dutch GAAP and US GAAP
in 2002 as no impairments were reversed under Dutch GAAP.
Developments in 2003
In 2003, under US GAAP, impairments of equity securities were EUR 335 million
lower, as the adjustment for realized losses (either sold or impaired) under
Dutch GAAP, which were already recognized under US GAAP in prior years, exceeds
the additional impairment on a US GAAP basis.
In 2003, we recorded an impairment of EUR 215 million related to other than
temporary losses on a US GAAP basis, concentrated in the temporary labor
industry (EUR 62 million), IT services (EUR 54 million), nutrition industry
(EUR 40 million) and retail-wholesale (EUR 11 million).
Developments in 2002
Under US GAAP, impairments of equity securities are EUR 1,085 million higher as
set out in Note 6.1.e on page F-103. We recorded an impairment of EUR 1,532
million related to other than temporary losses on a US GAAP basis. The
reconciling item relates to the impairment on a U.S. GAAP basis, adjusted for
equity securities for which under US GAAP an impairment was recognised in 2001
and on which under Dutch GAAP a realized loss was recorded in 2002 (either sold
or impaired under Dutch GAAP).
Of the impairment of EUR 1,532 million related to our portfolio of equity
securities, the majority related to the portfolio of our insurance operations
in The Netherlands. The impairments were concentrated in the nutrition industry
(EUR 330 million), retail-wholesale (EUR 310 million), chemical industry (EUR
204 million), IT services (EUR 84), financials (EUR 38 million) and temporary
labor industry (EUR 21 million).
Impact on future earnings
Although all individual securities were reviewed to ensure that no material
impairments or other than temporary losses were required to be charged to the
profit and loss account in 2003, the identification of impairment and other
then temporary losses and the determination of the recoverable amount are an
inherently uncertain process involving various assumptions and factors,
including the financial condition of the counterparty, expected future cash
flows, observable market prices and expected net selling prices. Further
developments after December 31, 2003 may indicate that certain unrealized
losses that existed as of December 31, 2003 will need to be considered other
than temporary, resulting in a negative impact on our profit and loss account.
Goodwill
In 2002, a significant difference existed between the result pursuant to Dutch
GAAP, which was a profit of EUR 4,500 million, and the net loss of EUR 9,627
million pursuant to US accounting principles. This difference was primarily the
result of the adoption of new goodwill requirements under US GAAP.
As of January 1, 2002 goodwill is no longer amortized but tested for impairment
if any events or a change in circumstances indicate that impairment may have
taken place, or at a minimum on an annual basis. See Note 7.12, Business
Combinations for additional information on the accounting treatment of
goodwill under US GAAP.
Under Dutch GAAP, goodwill paid on acquisitions is directly charged to
shareholders equity at the time of an acquisition. This difference between
Dutch and US accounting principles is explained in Note 6.1 to the financial
statements.
Transitional goodwill impairment test 2002
ING Group adopted SFAS 142 as of January 1, 2002 and performed the required
assessment of whether there was any indication that goodwill was impaired as of
the date of adoption. As a result,
80
certain goodwill was impaired and ING Group recognized a transitional goodwill
impairment charge of EUR 13.103 billion in the 2002 profit and loss account for
the cumulative effects of changes in accounting principles as required by SFAS
142.
The transitional goodwill impairment charge related to the following reporting
units:
In performing the transitional goodwill impairment test ING Group determined
the fair value of the reporting units using valuation techniques consistent
with market appraisals for insurance companies and banks. The fair value of our
insurance operations, including the reporting units US, Latin America and
Greater China, was determined using a discounted cash flow model, discounting
the future earnings arising on the books at December 31, 2001, requiring
assumptions as to a discount rate and expectations with respect to future
growth rates.
Goodwill allocated to the reporting units US, Latin America and Greater China
mainly relates to the goodwill paid on the acquisition of ReliaStar Financial
Corp., Aetna Financial Services and Aetna International in 2000. ING Group
acquired these companies in 2000 at the height of the acquisition market. At
the time of the acquisition, similar models were used to estimate the fair
value of these entities, using then prevailing assumptions. These assumptions
were significantly affected by the ongoing weakness in the overall economic
conditions. In 2001, market and business conditions deteriorated compared to
2000, which has adversely affected the assumptions used at the time of
acquisition and as a result, adversely affected the fair value of the reporting
units. Future earnings were discounted at the risk free rate, adjusted for the
basic risk premium that differs per country, which depends on the size of the
business, immature market conditions and economic and political conditions.
Discount rates used in the transitional goodwill impairment test are 11% for
US, 12.5% to 16% for Latin America and 13.5% for Greater China.
The fair value of our banking operations, including the reporting units Germany
and UK, was determined with a price/earnings multiple model, in which the 2002
forecasted profit was multiplied by the current price/earnings multiple for
similar acquisitions. Goodwill allocated to these reporting units relates
mainly to the acquisition of BHF-BANK A.G. in 1998. Since then, the
price/earnings multiple for similar acquisitions has decreased significantly
given the overall weakness in the economy set out above, which has adversely
affected the fair value of the reporting unit.
Annual goodwill impairment tests
The 2002 annual goodwill impairment test did not result in any impairment
charges. In 2003, the annual goodwill impairment test was performed in the
fourth quarter for all reporting units. With the exception of reporting unit
Latin America discussed below, there is no indication that goodwill was
impaired as of December 31, 2003.
Goodwill for reporting unit Latin America was almost fully impaired in the 2002
transitional goodwill impairment test. Remaining goodwill for reporting unit
Latin America was EUR 461 million, of which
81
EUR 439 million related to the 49% interest in Sul América, accounted for under
the equity method in the Dutch GAAP annual accounts. Goodwill allocated to
equity method investments is not tested for impairment in accordance with SFAS
142 but under APB 18, which requires that a other than temporary decline in
value of an equity method investments is recognized in the profit and loss
account.
As of December 31, 2003 the fair value, estimated using a discounted
cash flow model was below carrying value. Since the acquisition in 2002, the
local economic environment and business conditions deteriorated, leading to
higher interest rates and devaluation of the Real. The decline in fair value is
viewed as other than temporary and ING Group has recognized an impairment
charge of EUR 101 million for US GAAP purposes.
The following discussions are based on our consolidated financial statements
(see Item 18. Financial Statements) and should be read in conjunction with
those statements. ING Group evaluates the results of its insurance operations
and banking operations using non-GAAP financial performance measures called
operating result before taxation and operating (net) profit. See page 69,
Consolidated Results of Operations.
82
INSURANCE OPERATIONS
The following table sets forth selected financial information for the Groups
consolidated insurance operations for the years ended December 31, 2003, 2002
and 2001:
The following table sets forth the breakdown of gross premiums written and
profits before tax by geographic area for the Groups consolidated insurance
operations for each of the years indicated. The relationship between gross
premiums written and profits before tax varies significantly between geographic
areas and from year to year, based upon a variety of factors, including
differences in regulatory requirements, product mixes and levels of competition
in different countries, as well as our capital allocation and internal funding
policies.
83
Year ended December 31, 2003 compared to year ended December 31, 2002.
On a consolidated basis, the Groups insurance operations contributed EUR 3,486
million and EUR 3,170 million to the Groups profits before tax in 2003 and
2002, respectively, and EUR 2,508 million and EUR 2,538 million to the Groups
net profits in such years. Changes in income and profit were affected by
disposals in 2003 (i.e. Seguros Bital, Sviluppo), the joint venture with ANZ
(one of Australias major banks) which we entered into in 2002, and by a few
smaller acquisitions and divestitures.
Total income
Total income from insurance operations in 2003 decreased by EUR 7,357 million,
or 11.3%, to EUR 57,560 million, from EUR 64,917 million in 2002. The decrease
was fully caused by exchange rate movements, as the euro strengthened against
most other currencies. Gross premiums decreased by EUR 6,765 million mainly due
to currency effects. However, gross premiums in the Netherlands and Belgium
increased by 9.5% and 10.0% respectively. Investment income decreased by 7.5%
over 2002 levels due to currency effects, and the operating part of the ANZ
gain in 2002; however, realized capital gains on real estate were higher than
in 2002. Despite the currency effect, commissions and other income increased by
EUR 193 million, or 9.1%, amongst others due to a gain from, primarily
discontinued reinsurance activities (EUR 303 million) and the release of a
catastrophe provision (EUR 88 million), both in 2003, which was, in part,
offset by the profit on the surrender of a group life contract (EUR 120
million) in 2002.
Profit before tax
The profit before tax from the Groups insurance activities increased in 2003
by EUR 316 million, or 10.0%, to EUR 3,486 million, from EUR 3,170 million in
2002, reflecting a decrease in life operations of 4.8% and a growth in non-life
operations of 77.8%. The influence of exchange rate movements decreased the
profit before tax by EUR 220 million, mainly due to the depreciation of most
currencies against the euro, offset in part by EUR 98 million higher hedge
profits. Higher profits were generated especially in the Netherlands, Belgium,
rest of Europe, Asia and Other regions while North America, Latin America and
Australia showed lower profits compared with 2002.
Operating expenses for 2003 decreased by 5.9% over 2002, as personnel expenses
decreased by 1.0% and other operating expenses decreased by 11.4%. Excluding
exchange rate differences and acquisitions and divestments, total operating
expenses increased organically by 6.5%, mainly because of higher pension costs,
additional expenses with regard to the improvement of the service levels of the
Dutch operations, implementation costs of shared service centres,
reorganization costs in the US and Poland and increased claim handling expenses
in some business units. In addition, a strong expense growth in Canada and
Korea.
The difference between the (adjusted) premium and (adjusted) expense growth of
the life and non-life operations, excluding Australia (due to the influence of
the ANZ joint venture), was (7.8) percentage points compared to 16.1% in 2002.
The deterioration primarily reflects much higher expenses in the Netherlands
and lower fixed annuities sales and higher expenses in North America.
Taxation
The overall effective tax rate in 2003 for the Groups insurance operations was
24.7%, compared to a 17.0% rate in 2002. The tax rate increase was mainly
caused by the release of a tax provision in 2002 and lower tax-exempt gains in
2003.
Operating net profit
Operating net profit for the Groups insurance operations in 2003 amounted to
EUR 2,508 million, a decrease of EUR 30 million, or 1.2% compared with 2002.
84
Embedded value of life operations
At the end of 2003, the total embedded value of INGs life insurance operations
was EUR 21.7 billion compared to EUR 23.3 billion at year-end 2002. The primary
reasons for the decline in embedded value are the lower assumed investment
return especially in the Netherlands and Asia/Pacific and the impact of the
strengthening of the euro. The value of new business written decreased from EUR
519 million in 2002 to EUR 440 million in 2003. This decrease reflects lower
sales and lower returns on investment. During 2003 ING invested EUR 1,479
million to write new life insurance business. The overall rate of return
expected on this investment is 10.9%. This compares to an overall return of
11.5% in 2002. The expected rate of return in developing markets is 15.3%.
Year ended December 31, 2002 compared to year ended December 31, 2001.
On a consolidated basis, the Groups insurance operations contributed EUR 3,170
million and EUR 2,792 million to the Groups profits before tax in 2002 and
2001, respectively, and EUR 2,538 million and EUR 2,097 million to the Groups
net profits in such years. Changes in income and profit were affected by the
increased shareholding in Seguros Comercial América (SCA) in Mexico from 41.5%
in June 2001 to almost 100% at the end of 2001, the joint venture with ANZ (one
of Australias major banks) and by a few smaller acquisitions and divestments.
The profit of SCA for the first six months of 2001 has been consolidated on
equity accounting basis; since July 1, 2001 SCA has been fully consolidated. In
2002 the name of SCA was changed to ING Comercial América (ICA). The operating
part of the profit relating to the formation of the joint venture life and
mutual fund operations in Australia with ANZ amounted to EUR 222 million and is
included in investment income. The remaining EUR 247 million has been reported
as non-operating net profit
Total income
Total income from insurance operations in 2002 increased by EUR 2,453 million,
or 3.9%, to EUR 64,917 million, from EUR 62,464 million in 2001, mainly
reflecting the increased shareholding in ICA. Gross premiums increased by EUR
1,824 million of which EUR 1,509 million was due to the increased shareholding
in ICA in Mexico. Asia and Belgium were also higher but the Netherlands, Rest
of Europe, South America and Australia showed a decrease in gross premiums
written. Investment income increased by 8.1% over 2001 levels (higher realized
capital gains on real estate and the operational part of the ANZ gain were
partly offset by higher default losses) and commissions and other income
decreased by EUR 154 million, or 6.8%, amongst others due to depressed stock
markets and lower assets under management.
The total impact of exchange rate movements amounted to EUR (2,533) million.
Acquisitions and divestitures and the impact of ANZ Australia increased total
income by EUR 1,522 million. The organic growth of total income, disregarding
the influence of acquisitions, divestitures, ANZ Australia and exchange rate
movements, was EUR 3,464 million or 6.1%, reflecting increases in gross
premiums (Life and Non-life) of 6.1% and increases in investment income,
commissions and other income of 6.4%.
Profit before tax
The profit before tax from the Groups insurance activities increased in 2002
by EUR 378 million, or 13.5%, to EUR 3,170 million, from EUR 2,792 million in
2001, reflecting growth in life operations of 13.9% and non-life operations of
11.8%. The influence of exchange rate movements decreased the profit before
taxation by EUR 62 million, mainly due to the depreciation of the US dollar
versus the euro. However, this effect was fully offset by a EUR 63 million
higher (USD and CAD) hedge profit. Higher profits were generated especially in
North America, Latin America, Asia and Australia but the Netherlands, Belgium,
rest of Europe and Other region showed lower profits compared with 2001.
Operating expenses for 2002 decreased by 6.8% over 2001. Operating expenses
consist of personnel expenses, which grew by 1.2%, and other operating
expenses, which decreased by 14.5%; claims handling expenses are now included
in other operating expenses and rose from EUR 205 million in 2001 to EUR 391
million in 2002. The overall decline in operating expenses was mainly driven by
the significant expenses reductions in the United States in 2002 and the
restructuring charge relating to the integration of the Aetna/ReliaStar
acquisitions in 2001.
The positive difference between the (adjusted) premium and (adjusted) expense
growth of the life and non-life operations, excluding Australia (due to the
influence of the ANZ joint venture), was 16.1
85
percentage points compared to 2.8% in 2001. The improvement primarily reflects
increased fixed annuity sales in the United States and successful expense
reduction.
The overall effective tax rate in 2002 for the Groups insurance operations was
17.0%, compared to a 22.3% rate in 2001. Apart from the release of a tax
provision, the decrease stems from the tax-exempt gain on the formation of the
joint venture with ANZ and from the tax-exempt release of contingent provisions
in the United States. Tax free dividends on 5% interests decreased.
Operating net profit for the Groups insurance operations in 2002 amounted to
EUR 2,538 million, an increase of EUR 441 million, or 21.0% compared with 2001.
At the end of 2002, the total embedded value of INGs life insurance operations
was EUR 23.3 billion compared to EUR 25.8 billion at
year-end 2001. The primary
reasons for the decline in embedded value relate to the poor economic
environment, e.g. negative equity returns and low investment yields. The value
of new business written in 2002 was EUR 519 million, a substantial increase
over the 2001 level of EUR 336 million. During 2002 ING invested EUR 1,862
million to write new life insurance business. The overall rate of return
expected on this investment is 11.5%. This compares to an overall return of
11.2% in 2001. The expected rate of return in developing markets is 15.0%.
Life insurance operations
The following table sets forth certain summarized financial information for the
Groups life insurance operations for the years indicated.
86
The following table sets forth the Groups gross life premiums by geographic
area and type of product for the years indicated.
87
Year ended December 31, 2003 compared to year ended December 31, 2002
Gross premium income of the Groups life operations in 2003 decreased by EUR
6,136 million, or 13.8%, compared to 2002 levels. Disregarding the negative
effects of exchange rate movements (EUR (5,623) million) and
acquisitions/divestitures (EUR (217) million), gross premium income for the
Group decreased organically by EUR 296 million or 0.8%, due (primarily) to the uncertainty of consumers about the
economic climate, the fierce competition in the main insurance markets and the
choice of ING for profitability above market share. However, Life premiums in
the Dutch and Belgian Life market showed double digit growth. Excluding
guaranteed investment contracts (GICs) premium income in the United States
dropped organically by 7.4%, mainly due to lower sales of annuities.
88
Life policy benefits paid or provided for consist of life benefits paid to
policy owners and beneficiaries, increases in life insurance provisions and
profit sharing and rebates for policyholders. Total life policy benefits
decreased by EUR 5,568 million, or 12.4%, to EUR 39,236 million from EUR 44,804
million in 2002, in each case net of reinsurance. Life policy benefits paid and
insurance provisions decreased by EUR 5,764 million, or 13.0%, to EUR 38,481
million in line with the decrease in premiums. Profit sharing and rebates,
which consist of distributions (in the form of a reduction of premiums or
credits) to policyholders with respect to portfolio yield or the profits of the
policy issuing company, increased from EUR 60 million in 2002 to EUR 328
million in 2003; bonuses added to policies decreased from EUR 499 million in
2002 to EUR 426 million in 2003.
Life operating expenses decreased by EUR 142 million, or 5.5%, from EUR 2,601
million in 2002 to EUR 2,459 million in 2003. The decrease was fully due to
exchange rate movements.
The profit before tax from life insurance operations in 2003 decreased by 4.8%
or EUR 125 million compared with 2002 to EUR
2,478 million.
The following table sets forth a geographic breakdown of the profits before
taxation of the Groups life operations:
In the
Netherlands
, profit before tax decreased by EUR 26 million, or
2.1%, over 2002 levels due to lower interest income and lower dividend income
mainly as a consequence of measures to strengthen INGs capital base and to
reduce core debt. Higher realized capital gains on real estate partly offset
these effects. Operating expenses were higher, due to higher pension costs as
well as expenses to reduce backlogs and improve the service level. Mortality
and morbidity experience improved over 2002. One-time items amounted to EUR 160
million in 2003 (release of a catastrophe provision and a gain from previously
discontinued reinsurance business) versus EUR 120 million in 2002 (profit on
the surrender of a group life contract).
In
Belgium
, profit before tax rose by EUR 14 million or 19.4% from 2002
levels, mainly due to the strong retail profit on universal life products.
In the
Rest of Europe
, the profit before tax increased by EUR 71 million,
or 47.7%, to EUR 220 million, including part of the gain on the sale of ING
Sviluppo (EUR 56 million; an additional EUR 15 million was recorded in the
Other area). Almost all operations in Eastern Europe as well as Greece and
Spain posted higher profits than in 2002.
In
North America
, profit before tax decreased by EUR 59 million, or 9.2%,
to EUR 583 million. However, excluding currency impact, currency hedge gain and
the release in 2002 of contingent provisions associated with prior
acquisitions, the profit before tax in North America increased by EUR
89
69 million or 18.3%. Higher profits in the US were mainly caused by improved
equity markets and lower net credit related investment losses, partly offset by
lower investment spreads and unfavorable individual reinsurance product
experience.
In
Latin America
, profit before tax amounted to EUR 127 million, equal to
2002. Excluding the currency impact and the gain from the sale of the Seguros
Bital joint venture in Mexico the profit before tax decreased by EUR 12
million, mainly due to Argentina (currency gain from working capital
denominated in USD in 2002) and the impact of divestitures in 2002.
In
Asia
, profit before tax was EUR 281 million, EUR 30 million higher than
in 2002. The main contributors to this growth were Korea and Japan. Profits
from Japan increased mainly due to higher results on mortality and morbidity
and profits in Korea rose due to better results on mortality, interest,
expenses and surrenders. Businesses in the developing markets of China, India
and Thailand also posted substantial increases. Profits from Taiwan were lower,
mainly because of an addition of EUR 50 million to the provision against a
prolonged low interest rate environment.
In
Australia
, profit before tax decreased by EUR 189 million to EUR 101
million in 2003. Excluding the EUR 222 million of the operational part of the
ANZ gain in 2002, profit before tax rose by EUR 33 million, reflecting the
continuing strong underwriting environment, higher premium rates and favorable
claims experience.
Profit before tax in the area
Other
(for a large part consisting of paid
interest on core debt) improved amongst others due to EUR 15 million from the
gain on the sale of ING Sviluppo (reinsurance business).
Year ended December 31, 2002 compared to year ended December 31, 2001
Gross premium income of the Groups life operations in 2002 decreased by EUR
190 million, or 0.4%, compared to 2001 levels. Disregarding the negative effect
of acquisitions/ divestitures (EUR 118 million, especially ICA and ANZ) and the
effect of exchange rate movements (EUR (1,943) million), gross premium income
for the Group increased organically by EUR 1,871 million or 4.6%.
The decrease mainly reflects lower premiums in the Netherlands (due to changed
tax treatment, fierce competition and the surrender of a large life contract),
North America (mainly caused by lower sales of Guaranteed Investment Contracts
and lower sales of variable annuities) and Australia (caused by the ANZ joint
venture), which was partly offset by higher premiums in Belgium (due to
continued strong unit-linked sales) and Asia (mainly due to the strong sales of
a newly introduced single premium variable annuity product in Japan and
continued sales growth and high persistency in Korea).
Life policy benefits paid or provided for consist of life benefits paid to
policy owners and beneficiaries, increases in life insurance provisions and
profit sharing and rebates for policyholders. Total life policy benefits
increased by EUR 291 million, or 0.7%, to EUR 44,804 million from EUR 44,513
million in 2001, in each case net of reinsurance. Life policy benefits paid and
insurance provisions increased by EUR 452 million, or 1.0%, to EUR 44,245
million. The modest growth reflects the growth of business. Profit sharing and
rebates, which consist of distributions (in the form of a reduction of premiums
or credits) to policyholders with respect to portfolio yield or the results of
the policy issuing company, decreased from EUR 254 million in 2001 to EUR 60
million in 2002; bonuses added to policies increased from EUR 466 million in
2001 to EUR 499 million in 2002.
Life operating expenses decreased by EUR 558 million, or 17.7%, from EUR 3,159
million in 2001 to EUR 2,601 million in 2002. The strong decrease was mainly
caused by aggressive expense management in all regions (especially in the US)
resulting in a decrease which was substantially higher than the decrease in
premiums written (0.4%).
The profit before tax from life insurance operations in 2002 increased by 13.9%
or EUR 318 million
90
compared with 2001 (of which EUR 116 million was from realized capital gains on
real estate) to EUR 2,603 million.
This increase can be attributed primarily to the operational part of the ANZ
gain (EUR 222 million) in Australia and higher profits in the Netherlands,
North America, Latin America and Asia.
The following table sets forth a geographic breakdown of the profits before tax
of the Groups life operations:
In the
Netherlands
, profit before tax decreased by EUR 166 million, or
11.8%, over 2001 levels. In 2001, the Dutch life profit was supported by a
partial release of a catastrophe provision and a gain from old reinsurance
business. Interest received on an intercompany loan to the US operations was
lower than last year. Profits on venture capital activities were also lower
compared to 2001. In 2002 a profit on the surrender of a group life contract
was partly offset by a lower result on interest and mortality.
In
Belgium
, profit before tax increased by EUR 3 million or 4.3% from 2001
levels, mainly as a result of a strong growth in the Individual Life profits
due to a sharp increase in the sale of unit-linked products.
In the
Rest of Europe
, profit before tax decreased by EUR 26 million, or
14.9%, to EUR 149 million. Substantially lower profits in Greece (in 2001 EUR
50 million profit from the strategic alliance with Piraeus Bank) were partly
compensated by higher profits in Italy, Poland, Romania, Hungary and the Czech
Republic.
In
North America
, profit before tax increased by EUR 200 million, or
45.2%, to EUR 642 million. Excluding the release in 2002 of contingent
provisions associated with prior acquisitions, the profit in North America
increased by EUR 94 million. The increase reflects significant expense
reductions, higher investment income and lower financing costs. Accelerated
amortization of deferred acquisition costs (EUR 263 million), higher credit
related investment losses (net of DAC EUR 318 million) and lower revenues on
assets under management negatively impacted the profit. The World Trade Centre
losses (EUR 150 million) and a restructuring charge relating to the US
reorganization adversely impacted the 2001 profit. The hedge program of the US
and Canadian dollar contributed EUR 85 million before tax compared to EUR 22
million in 2001
In
Latin America
, profit before tax amounted to EUR 127 million, compared
with EUR 102 million in 2001. The increase was mainly due to higher profits in
Argentina (currency exchange gains from working capital denominated in USD),
Chile and lower allocated head office expenses, partly offset by lower profits
in Mexico.
In
Asia
, profit before tax was EUR 251 million, EUR 27 million higher than
the 2001 profit before tax. Higher profits in Taiwan (growth of business in
combination with tight cost control), Korea (ongoing strong production, better
persistency and improved claims) and Japan (lower claims and surrenders
91
as well as reduced costs due to changes in distribution), were partly offset by
the start-up loss of the joint venture Vysya Life India.
In
Australia
, profit before tax increased by EUR 231 million to EUR 290
million in 2002. EUR 222 million of the increase reflects the operational part
of the ANZ gain.
Profit before tax in the area
Other
(for a large part consisting of paid
interest on core debt) showed in 2002 a loss before tax of EUR 166 million and
in 2001 a loss of EUR 190 million.
Non-life insurance operations
The following table sets forth certain summarized financial information for the
Groups non-life operations for the years indicated:
The following table sets forth the Groups non-life gross written premiums by
geographic area:
92
Year ended December 31, 2003 compared to year ended December 31, 2002
Gross premium income of the Groups non-life operations in 2003 decreased by
EUR 629 million, or 7.9%, over 2002 levels. Disregarding the negative effects
of exchange rate movements (EUR (873) million) and acquisitions/divestitures
(EUR (48) million), gross premium income for the Group increased organically by
EUR 292 million or 4.2%.
Net non-life premiums written in 2003 and 2002 reflected premiums ceded to
reinsurers of EUR 930 million and EUR 1,275 million, respectively, resulting in
overall retention levels of 87.2% in 2003 and 83.9% in 2002. Net non-life
premiums written amounted to EUR 6,358 million in 2003 compared to EUR 6,642
million in 2002.
Claims and claims expenses for the Groups non-life business decreased by EUR
445 million, from EUR 4,390 million in 2002 to EUR 3,945 million in 2003, due
to nearly all business lines, especially Health EUR (123) million, Automobile
EUR (128) million and Accident EUR (115) million. Claims and claims expenses in
the reinsurance business were EUR 60 million lower than in 2002. For a more
detailed discussion of unpaid claims and claims adjustment expenses and
developments between years, see Note 7.7 of Notes to the Consolidated Financial
Statements contained in this Annual Report.
The development of net premiums earned and claims and claims expenses resulted
in a lower overall non-life loss ratio (69.3% versus 75.0%). All regions
contributed to this improvement. By business line, the loss ratio of Fire
improved by 3.7 percentage points to 55.7% in 2003, the loss ratio of Loss of
Income/Accident improved by 12.1 percentage points to 66.9% and the loss ratio
of Automobile improved by 5.0 percentage points to 72.4%.
Operating expenses decreased by EUR 62 million or 6.8% from EUR 911 million in
2002 to EUR 849 million in 2003, fully due to exchange rate movements.
The profit before tax from non-life insurance operations in 2003 increased by
EUR 441 million, or 77.8%, compared with 2002, to EUR 1,008 million. This
increase was due to all regions, except Latin America (caused by currency
influences). The following table sets forth the profit before taxation of the
Groups non-life operations by geographic area:
93
The following table sets forth loss, expense and combined ratio information for
the Groups non-life operations by geographic area for the years 2003 and 2002:
In the
Netherlands
, non-life profit before tax increased by EUR 106
million from EUR 153 million in 2002 to EUR 259 million in 2003. Especially the
result of loss of income/accident rose strongly, mainly as a result of a
favorable run-off of outstanding claims from former years and the release of a
redundant insurance provision. The results from motor insurance also developed
favorably.
In
Belgium
, non-life profit before tax increased from EUR 2 million in
2002 to EUR 23 million in 2003, due to premium rate increases and an improved
claims ratio in both the retail and wholesale business.
In the
Rest of Europe
, non-life profit before tax rose in 2003 by EUR 4
million to EUR 10 million due to higher results in fire.
In
North America
, non-life profit before tax increased by EUR 41 million,
or 23.0%, to EUR 219 million in 2003. Excluding currency effects the organic
increase was EUR 59 million, mainly due to Canada (EUR 52 million). Canada
delivered a record combined ratio of 94.9% in 2003 improving from 97.7% in
2002. Strong underwriting performance combined with organic premium growth of
10.9% mainly caused these higher profits. Non-life profits in the US rose
organically by EUR 7 million due to increased health results.
In
Latin America
, non-life profit before tax decreased from EUR 180
million in 2002 to EUR 165 million in 2003. However, excluding the currency
impact and the gain from the sale of the Seguros Bital joint venture in Mexico
the profit before tax increased by EUR 24 million, mainly due to higher profits
in Mexico (EUR 11 million, mainly investment income), Brazil (EUR 6 million)
and Chile (EUR 4 million).
In
Asia
, non-life profit before tax increased from a loss of EUR 6 million
in 2002 to a loss of EUR 1 million in 2003. The increase was mainly due to
health, partly offset by miscellaneous.
In
Australia
, non-life profit before tax increased by EUR 36 million to
EUR 75 million in 2003, mainly due to higher results in the loss of income,
accident and miscellaneous lines, largely caused by higher premiums, improved
claims ratios and in the release of prior year provisions.
The non-life profit before tax of Other areas, mainly the in-house
reinsurance activities (ING Reinsurance), was strongly affected by the
unallocated one-off gain from previously discontinued reinsurance activities in
2003 (EUR 228 million). In addition the higher results reflected on improved
claims ratio in the fire lines as a result of lower catastrophe claims.
Year ended December 31, 2002 compared to year ended December 31, 2001
Gross premium income of the Groups non-life operations in 2002 increased by
EUR 2,014 million, or
94
34.1%, over 2001 levels. Disregarding the positive effect of
acquisitions/divestitures (EUR 1,327 million, mainly the impact of the
increased shareholding in ICA) and the effect of exchange rate movements (EUR
(178) million), gross premium income for the Group increased organically by EUR
865 million or 19.0%.
The increase mainly reflects higher premium income in the Netherlands (largely
reflecting higher premiums in Health and Loss of income/Accident and Fire),
Belgium (all lines of business contributed to the growth), North America (in
Canada the increase was partly due to the acquisition of the Zurich business at
the end of 2001 and in the US due to higher reinsurance premiums) and Latin
America (in Mexico ING Comercial América (ICA) contributed EUR 1,300 million to
the growth, due to the increased shareholding, partly offset by decreased
premium income due to the sale of Columbia Aetna and the non-life business in
Argentina).
The increase of the non-life premium income in Other areas is fully due to
reinsurance premiums relating to the acquired Zurich business, ceded by the
Canadian operations to the Groups in-house reinsurance company, which in turn
part of the business ceded to the operations in the United States.
Net non-life premiums written in 2002 and 2001 reflected premiums ceded to
reinsurers of EUR 1,275 million (increase due to reinsurance construction re
the acquisition Zurich business) and EUR 614 million, respectively, resulting
in overall retention levels of 83.9% in 2002 and 89.6% in 2001. Net
non-life
premiums written amounted to EUR 6,642 million in 2002 compared to EUR 5,289
million in 2001.
Claims and claims expenses for the Groups non-life business increased by EUR
673 million, from EUR 3,717 million in 2001 to EUR 4,390 million in 2002 for
the greater part due to the increased shareholding in ICA. Claims and claims
expenses in the business line Automobile were EUR 300 million higher than in
2001 and in Health EUR 186 million higher. Claims and claims expenses in the
reinsurance business were EUR 241 million higher than in 2001. For a more
detailed discussion of unpaid claims and claims adjustment expenses and
developments between years, see Note 7.7 of Notes to the Consolidated Financial
Statements contained in this Annual Report.
The development of net premiums earned and claims and claims expenses resulted
in a higher overall non-life loss ratio (75.0% versus 73.8%). This
deterioration was a result of an increase in the Netherlands, North America,
Asia and Other regions, partly offset by a decrease in the loss ratio in
Belgium, rest of Europe, Latin America and Australia. The deterioration of the
loss ratio in Other areas (2002: 94.4%, 2001: 63.9%) was primarily due to in
house reinsurance activities (ING Reinsurance). By business line, the loss
ratio of Fire decreased by 2.2 percentage points to 59.4% in 2002. The loss
ratio of Health increased by 6.8 percentage points to 83.2 and loss ratio Loss
of Income/Accident decreased by 3.9 percentage points to 79.0% in 2002, the
loss ratio of Automobile decreased by 0.8 percentage points to 77.4%.
Operating expenses rose by EUR 103 million or 12.7% from EUR 808 million in
2001 to EUR 911 million in 2002. Part of the increase was due to the impact of
increased shareholding in ICA in Mexico.
The profit from non-life insurance operations in 2002 increased by EUR 60
million, or 11.8%, compared with 2001, to EUR 567 million. This increase was
due to The Netherlands, Rest of Europe, Latin America and Australia, partly
offset by the Belgium, North America, Asia and Other. The following table sets
forth the profits before tax of the Groups non-life operations by geographic
area:
95
The following table sets forth loss, expense and combined ratio information for
the Groups non-life operations by geographic area for the years 2002 and 2001:
In the
Netherlands
, non-life profits before tax increased by EUR 18
million from EUR 135 million in 2001 to EUR 153 million in 2002. Higher profits
Loss of Income/Accident due to favorable claims experience were partly offset
by lower results from Fire (number of claims increased, among others following
the storm in October) and Automobile (due to higher additions to the technical
provision).
In
Belgium
, non-life profits before tax decreased from EUR 6 million in
2001 to EUR 2 million in 2002, due to adverse claims experience in Health, Loss
of Income/Accident and Miscellaneous, partly offset by lower losses in
Automobile.
In the
Rest of Europe
, non-life profits before tax rose in 2002 by EUR 5
million to EUR 6 million due to higher results in Automobile and Loss of
Income/Accident.
In
North America
, non-life profits decreased by EUR 32 million, or 15.2%,
to EUR 178 million in 2002. The non-life profits in the United States decreased
by EUR 39 million mainly due to lower Health results. The Canadian operations
reported a profit before tax of EUR 123 million, an increase of EUR 10 million
compared to 2001, mainly due to favorable loss ratios.
In
Latin America
, non-life profits increased from EUR 72 million in 2001
to EUR 180 million in 2002. The increase of the profits was caused by a higher
profit in Mexico (EUR 157 million, due, in part, to increased shareholding in
ICA, favorable loss ratios in car insurance and effective cost management,
which was partially offset by hurricane losses in 2002). However, losses from a
business acquired in Brazil in 2002 and lower profits in Chile and the
Netherlands Antilles. The 2001 profits included a one time gain on sale of
operations in Colombia (EUR 6 million).
96
In
Asia
, non-life profits decreased from EUR 2 million in 2001 to a loss
of EUR 6 million in 2002. The decrease was mainly a result of run-off expenses
in Indonesia and Singapore (disposal of non-life operations in the second
quarter of 2002 and the second quarter of 2001, respectively).
In
Australia
, non-life profits increased by EUR 18 million to EUR 39
million in 2002. The profit improved due to better claims ratios (particularly
in Fire) and cost control initiatives.
The non-life profits of
Other areas
, mainly regarding the in-house
reinsurance activities (ING Reinsurance), decreased by EUR 45 million, to EUR
15 million in 2002, primarily due to a one-time gain from old reinsurance
operations in 2001 (EUR 27 million), as well as lower results Fire due to
hurricanes Isidore and Kenna (both in Mexico) and the October storms in the
Netherlands.
Allocation of income from investments and commission and other income
As of 2001 profits of Insurance Operation-General is no longer reported
separately. The profits previously accounted for under this heading are now
more in line with international practice and depending on their activities
included in either the profit life or the profit non-life. The profits of the
non-insurance companies, mainly asset management and mutual fund companies, are
allocated to life. The following table sets forth the profit of the allocation
for the years indicated:
97
Insurance investments
The following table sets forth the components of the investment portfolio of
the Groups insurance operations at the end of the years indicated:
The decrease in Land and buildings mainly reflects the sale of real estate in
2003 as part of measures to improve Group solvency. The component of the
investment portfolio Fixed interest securities consists of 69.5% debentures and
fixed-interest securities (68.4% year-end 2002), 19.9% mortgage loans (20.4%
year-end 2002), 5.7% private loans (5.8% year-end 2002) and 4.8% other fixed
interest securities (5.4% year-end 2002). The change in the Fixed interest
securities portfolio was negatively affected by exchange rate movements
(approximately EUR 14 billion).
98
Year ended December 31, 2003 compared to year ended December 31, 2002
In 2003, income from investments, commission and other income of the Groups
insurance operations decreased in total by EUR 592 million, or 4.7%, to EUR
12,041 million, from EUR 12,633 million in 2002. This decrease was due to lower
income from investments (EUR 785 million), partly offset by higher commission
and other income (EUR 193 million). However, disregarding the effect of
acquisitions and divestitures and the effect of exchange rate movements, income
from investments, commission and other income increased by EUR 645 million, or
5.7%.
Income from investments decreased by EUR 785 million from EUR 10,506 million in
2002 to EUR 9,721 million in 2003. Income from disposal of group companies
decreased by EUR 128 million reflecting the gain on the ANZ joint venture in
2002 (EUR 222 million), partly compensated by disposals in 2003 (amongst others
Seguros Bital, Sviluppo). Income from land and buildings in 2003 was EUR 50
million lower than in 2002, mainly due to EUR 102 million lower rental income
caused by the sale of real estate, partly compensated by higher realized real
estate capital gains. Income from fixed interest securities decreased by EUR
489 million or 5.6% to EUR 8,299 million, due to lower interest levels (mainly
in the United States). The income in investments in shares and convertible
debentures decreased by EUR 118 million to EUR 490 million amongst others due
to the decreased value of the portfolio.
Income from commissions decreased by EUR 32 million, or 2.4%, to EUR 1,313
million from EUR 1,345 million. Except the regions the Netherlands (EUR 18
million), North America (EUR 10 million) and Asia (EUR 4 million) all regions
showed a decrease in income from commissions, especially Latin America EUR (31)
million, mainly currency impact) and Rest of Europe EUR (24) million).
Other income, including profits on sale of equity participations and financial
transactions, increased by EUR 225 million, from EUR 782 million to EUR 1,007
million, due to a gain from old reinsurance activities (EUR 303 million) and
the release of a catastrophe provision (EUR 88 million) both in 2003, which
was, in part, offset by the profit on the surrender of a group life contract
(EUR 120 million) and a gain from previously discontinued reinsurance
activities both in 2002.
Investment expenses decreased in 2003 by EUR 72 million, or 2.7%, to EUR 2,557
million. The addition to the provision for investment losses decreased from EUR
664 million in 2002 to EUR 163 million in 2003. For both years these losses are
almost fully attributable to the US. The losses equal to 13 basis points of the
total fixed interest securities in 2003 (in 2002 50 basis points).
Year ended December 31, 2002 compared to year ended December 31, 2001
In 2002, income from investments, commission and other income of the Groups
insurance operations increased in total by EUR 629 million, or 5.2%, to EUR
12,633 million, from EUR 12,004 million in 2001. This increase was due to the
income from investments (EUR 783 million), partly offset by lower commission
and other income (EUR 154 million). Disregarding the effect of acquisitions and
divestitures and the effect of exchange rate movements, the increase amounted
to EUR 728 million, or 6.4%.
Income from investments increased by EUR 783 million from EUR 9,723 million in
2001 to EUR 10,506 million in 2002. Income from disposal of group companies
increased by EUR 221 million reflecting gain on the ANZ joint venture. Income
from land and buildings in 2002 was EUR 207 million higher than in 2001, mainly
thanks to higher realized capital gains real estate (from EUR 226 million in
2001 to EUR 353 million in 2002) explaining the improved yield on land and
buildings (10.4% in 2002 and 8.3% in 2001). Income from fixed interest
securities increased by EUR 574 million or 7.0% to EUR 8,788 million, due in
part to higher private loans. Income from investments in shares and convertible
debentures decreased by EUR 43 million from EUR 651 million to EUR 608 million
in 2002.
Income from commissions decreased by EUR 86 million, or 6.0%, to EUR 1,345
million. Except the region Australia (EUR 13 million) all regions showed a
decrease in income from commissions,
99
especially North America (EUR 59 million), South America (EUR 21 million) and
the Netherlands (EUR 9 million). These decreases mainly reflect depressed stock
markets and lower assets under management.
Other income, including profits on sale of equity participations and financial
transactions, decreased by EUR 68 million, from EUR 850 million to EUR 782
million, due to lower profits from old reinsurance activities and joint venture
activities (Netherlands), which was, in part, offset by the profit on the
surrender of a group life contract.
Investment expenses decreased in 2002 by EUR 28 million, or 1.1%, to EUR 2,629
million. The addition to the provision for investment losses increased from EUR
157 million in 2001 to EUR 664 million in 2002, mainly due to large losses in
the US (i.e. WorldCom). The losses equal to 50 basis points of the total fixed
interest securities in 2002 (in 2001 14 basis points).
100
BANKING OPERATIONS
The following table sets forth certain summary financial data for the Groups
banking operations for the years indicated:
Year ended December 31, 2003 compared to year ended December 31, 2002
The operating profit before taxation from INGs banking operations for 2003
increased by EUR 903 million, or 61.5%, to EUR 2,371 million from EUR 1,468
million for 2002. Net of the EUR 310 million lower addition to the provision
for loan losses due in part to the National Century Financial Enterprises
provisioning in the fourth quarter of 2002), the operating result before
addition to the provision for loan losses increased by EUR 593 million or
20.4%. Although 2002 income was boosted by an exceptional gain of EUR 94
million on the sale of Cedel shares, total income in 2003 rose by EUR 479
million or 4.3%. The increase was on balance caused by a EUR 469 million higher
net interest result as a result of increased volumes (notably ING Direct) and a
higher average interest margin in the Netherlands. Operating expenses decreased
by EUR 114 million or 1.4%. Included in the operating expenses are
restructuring provisions of respectively EUR 128 million in 2002 (for the
international wholesale banking activities) and EUR 82 million in 2003 (whereof
EUR 30 million for ING BHF-Bank, EUR 15 million for ING Bank France and EUR 37
million for the international wholesale banking activities).
Both income and operating expenses were furthermore affected by the
appreciation of the euro against most currencies. Excluding currency
fluctuations and the acquisition of Toplease and ING Vysya Bank in 2002,
operating profit before taxation rose organically by 59.1% (income +7.2%,
operating expenses +1.0%). Also excluding the aforementioned gain on the sale
of Cedel-shares and restructuring provisions, the operating profit before
taxation improved by 60.9%.
Most banking units reported improved results. The operating profit before
taxation of ING Direct turned from a loss of EUR 48 million in 2002 to a profit
of EUR 151 million in 2003. The main driver of this success was the increasing
number of customers and funds entrusted resulting in a strong growth of the net
interest result. The operations in Canada, Australia, USA, Spain and Germany
reported profits.
101
Although slightly improved compared to prior year, the result of ING BHF-Bank
is still far from break-even, mainly due to continued high risk costs.
Exchange rate movements increased the total operating profit before taxation by
EUR 56 million, mainly as a result of a US dollar-denominated loss in the
fourth quarter of 2002 (NCFE).
Total income from the banking operations increased by EUR 479 million, or 4.3%,
to EUR 11,680 million from EUR 11,201 million for 2002. Adjusted for currency
translation and excluding the consolidation effect of Toplease and ING Vysya
Bank, total income increased by EUR 776 million, or 7.2%.
Operating expenses decreased by EUR 114 million, or 1.4%, to EUR 8,184 million,
from EUR 8,298 million for 2002. Adjusted for currency translation and
excluding the consolidation effect of Toplease and ING Vysya Bank, operating
expenses increased by EUR 84 million, or 1.0%. Also excluding restructuring
provisions (in 2002 EUR 128 million and in 2003 EUR 82 million) and the
continuously expanding ING Direct, operating expenses decreased by EUR 84
million or 1.2%.
Excluding the continued rapidly expanding ING Direct operations and the
restructuring provisions, the efficiency ratio (total operating expenses as a
percentage of total income) was 68.4% for 2003, an improvement compared to
71.0% for 2002. Including ING Direct and the restructuring provisions, the
efficiency ratio was 70.1% for 2003, compared to 74.1% for 2002.
Within the banking operations, the net interest result for 2003 increased by
EUR 469 million, or 6.1%, to EUR 8,115 million from EUR 7,646 million for 2002,
reflecting a higher average balance sheet total (notably ING Direct) and an
improvement of the interest margin in the Netherlands. The widening of the
interest margin in the Netherlands can be attributed to improved product
margins and a steepening of the average yield curve.
Commissions for 2003 decreased by EUR 151 million, or 5.8%, to EUR 2,464
million, from EUR 2,615 million for 2002. In particular, securities commissions
and management fees were lower, reflecting the lower activity level on the
stock markets and the continued reluctance of private clients to invest in
securities.
Other income for 2003 increased by EUR 161 million, or 17.1%, to EUR 1,101
million, from EUR 940 million for 2002. Income from securities and
participating interests dropped EUR 47 million, while the results from
financial transactions and other revenue increased by EUR 108 million and EUR
100 million respectively.
The addition to the provision for loan losses decreased by EUR 310 million, or
21.6%, to EUR 1,125 million, from EUR 1,435 million for 2002. The addition in
2003 equaled 46 basis points of average credit risk weighted assets against 59
basis points in 2002.
102
The consolidation of Toplease (as of May 1, 2002) and ING Vysya Bank (as from
October 1, 2002) contributed to the Groups 2003 total income, total operating
expenses and profit before taxation as follows:
Year ended December 31, 2002 compared to year ended December 31, 2001
The operating profit before taxation from INGs banking operations for 2002
decreased by EUR 702 million, or 32.4%, to EUR 1,468 million from EUR 2,170
million for 2001. This decrease was entirely a result of substantially higher
risk costs, resulting in an increase of the addition to the provision for loan
losses by EUR 685 million to EUR 1,435 million. In the fourth quarter 2002, a
significant provision was created with respect to a potential loss on National
Century Financial Enterprises in the United States. Included in the full year
2002 result are the exceptional profit of EUR 94 million on the sale of Cedel
shares and the creation of a EUR 128 million provision for the restructuring of
the international wholesale banking activities outside the Benelux. In spite of
the restructuring provision, the operating profit before addition to the
provision for loan losses decreased only marginally by EUR 17 million, or 0.6%,
to EUR 2,903 million. Total income rose by EUR 90 million, or 0.8%, thanks to
strongly increased interest results, while the other income components suffered
severely from the disappointing market circumstances. Operating expenses
increased by EUR 107 million, or 1.3%, due to the further expansion of ING
Direct (including the consolidation of DiBa), the restructuring provision and
the increased investments in synergy projects. Although most banking units were
hit by the deterioration of economic conditions, both Postbank and ING Direct
reported a strongly improved profit before taxation.
For the first time and ahead of plan, ING Direct (including DiBa as from 2002)
reported a positive pretax profit of EUR 13 million over the fourth quarter
2002. For the full year 2002, the loss before taxation amounted to EUR 67
million, which was much better than expected and a strong improvement compared
to the loss of EUR 199 million in 2001. The strong growth in funds entrusted
and client base combined with the current steep yield curve led to a
substantial increase in income, exceeding the rise in expenses. The operations
in Canada, Australia and the United States reported profits for the full year
(after cost of capital).
Exchange rate movements increased the profit before taxation by EUR 44 million.
103
Total income from the banking operations increased by EUR 90 million, or 0.8%,
to EUR 11,201 million from EUR 11,111 million for 2001. Adjusted for currency
translation and excluding the consolidation effect of DiBa, Toplease and ING
Vysya Bank, total income decreased by EUR 87 million, or 0.8%.
Operating expenses increased by EUR 107 million, or 1.3%, to EUR 8,298 million,
from EUR 8,191 million for 2001. Adjusted for currency translation and
excluding the consolidation effect of DiBa, Toplease and ING Vysya Bank,
operating expenses increased by EUR 4 million. Excluding the EUR 128 million
restructuring provision for international wholesale banking, operating expenses
decreased by EUR 124 million or 1.5%.
Excluding the continued rapidly expanding ING Direct operations and the EUR 128
million restructuring provision for international wholesale banking, the
operating efficiency ratio (operating expenses as a percentage of total income)
was 71.0% for 2002, a slight improvement compared to 71.7% for 2001. Including
ING Direct and the restructuring provision, the operating efficiency ratio was
74.1% for 2002, compared to 73.7% for 2001.
Within the banking operations, the net interest result for 2002 increased by
EUR 1,574 million, or 25.9%, to EUR 7,646 million from EUR 6,072 million for
2001, reflecting a higher average balance sheet total and an improvement of the
interest margin. The widening of the interest margin can be attributed to
improved product margins, a steepening of the average yield curve and strong
growth in retail savings.
Commissions for 2002 decreased by EUR 150 million, or 5.4%, to EUR 2,615
million, from EUR 2,765 million for 2001. In particular, securities commissions
and management fees were lower, reflecting the sharp fall of the stock markets
and the reluctance of private clients to invest in securities.
Other income for 2002 decreased by EUR 1,334 million, or 58.7%, to EUR 940
million, from EUR 2,274 million for 2001. The decrease occurred in all
components. Income from securities and participating interests was EUR 329
million lower, while the results from financial transactions and other revenue
dropped by EUR 626 million and EUR 379 million respectively.
The addition to the provision for loan losses increased by EUR 685 million, or
91.3%, to EUR 1,435 million, from EUR 750 million for 2001. The deterioration
of economic conditions and the significant provision with respect to a
potential loss on National Century Financial Enterprises in the US caused the
strong increase in 2002 compared to 2001.
The consolidation of DiBa (as of January 1, 2002), Toplease (as of May 1, 2002)
and ING Vysya Bank (as from October 1, 2002) contributed to the Groups 2002
total income, total operating expenses and profit before taxation as follows:
104
Net interest result
The following table sets forth certain information concerning the total net
interest result of the Groups banking operations. The interest income and net
interest result figures in the following table (other than Other net interest
result and Total net interest result) include interest on non-accruing loans
and do not reflect (i) interest income on amortized results investments; (ii)
lending commissions; (iii) interest income on off-balance sheet instruments;
(iv) other interest income not considered to be directly related to
interest-earning assets; (v) interest expense on off-balance sheet instruments;
or (vi) other interest expense not considered to be directly related to
interest-bearing liabilities, all of which are reflected in the Other net
interest result and Total net interest result below, which corresponds to the
net interest result line item in the Consolidated Financial Statements. A
reconciliation of the interest income, interest expense and net interest result
figures below to the corresponding line items in the Consolidated Financial
Statements is contained in the table under Item 4. Information on the Company
Selected Statistical Information on Banking Operations Average Balances and
Interest Rates.
105
Year ended December 31, 2003 compared to year ended December 31, 2002
The Groups total net interest result in 2003 increased by EUR 469 million,
from EUR 7,646 million in 2002 to EUR 8,115 million in 2003, representing a EUR
46.4 billion, or 10.3%, increase in volume, combined with a narrowing of the
interest margin by 6 basis points. Both domestic and international operations
recorded volume growth, of 6.2% and 12.9% respectively. The narrowing of the
total interest margin by 6 basis points is the result of the 6 basis points
lower interest margin in the Netherlands and the 3 basis points lower interest
margin in the international operations, combined with the increased
106
stake of the interest-earning assets outside the Netherlands (mainly triggered
by ING Direct), with a substantially lower interest margin than within the
Netherlands. The EUR 10.9 billion increase in volume of average
interest-earning assets in the domestic operations was mainly caused by an
increase of EUR 8.7 billion in average loans and advances and an increase of
EUR 4.9 billion in interest-earning securities. The increase in volume of the
average interest-earning assets in the international operations of EUR 35.5
billion, attributable primarily to ING Direct, was mainly caused by an increase
of EUR 23.5 billion in average interest-earning securities and an increase of
EUR 11.4 billion in average loans and advances.
The change in total net interest result in 2003 can be allocated by average
rate and volume effects as follows:
Year ended December 31, 2002 compared to year ended December 31, 2001
The Groups total net interest result in 2002 increased by EUR 1,574 million,
from EUR 6,072 million in 2001 to EUR 7,646 million in 2002, representing a EUR
33.5 billion, or 8.1%, increase in volume, combined with an increase of the
interest margin by 19 basis points. Both domestic and international operations
recorded volume growth, of 6.9% and 8.8%, respectively. The increase in the
interest margin was especially attributable to the domestic operations (42
basis points); in the international operations there was a slight increase of 5
basis points. The EUR 11.2 billion increase in volume of average
interest-earning assets in the domestic operations was mainly caused by an
increase of EUR 13.6 billion in average loans and advances, partly offset by a
decrease of EUR 1.9 million in average time deposits to banks. The increase in
volume of the average interest-earning assets in the international operations
of EUR 22.3 billion, attributable primarily to the consolidation of DiBa, was
mainly caused by an increase of EUR 14.0 billion in average interest-earning
securities and an increase of EUR 11.9 billion in average loans and advances.
The change in total net interest result in 2002 can be allocated by average
rate and volume effects as follows:
107
Commissions
The following table sets forth the components of commission income for the
years indicated:
Year ended December 31, 2003 compared to year ended December 31, 2002
Total commissions for 2003 decreased by EUR 151 million, or 5.8%, to EUR 2,464
million, from EUR 2,615 million for 2002.
Commissions from funds transfer decreased slightly by EUR 5 million, or 0.8%,
to EUR 587 million from EUR 592 million for 2002. ING Banks commission from
domestic funds transfer increased by EUR 4 million, or 1.0%. Commission from
international funds transfer decreased by EUR 9 million, or 4.5%, mainly at ING
Bank Slaski, partly compensated by ING Vysya Bank.
Commissions from the securities business decreased by EUR 66 million, or 9.0%,
to EUR 665 million from EUR 731 million for 2002, mainly due to the lower
activity level on the stock markets. The decrease occurred entirely outside the
Netherlands (decrease of EUR 69 million or 11.4%). In the Netherlands
commissions from securities transactions increased by EUR 3 million or 2.4%.
The commissions from insurance brokerage decreased by EUR 2 million, or 1.7%,
to EUR 115 million from EUR 117 million for 2002. The increase in ING Belgium
was fully offset by lower commissions in the Netherlands.
Management fees decreased by EUR 94 million, or 13.7%, to EUR 594 million from
EUR 688 million for 2002, caused by the on average lower stock market levels
and the reluctance of private clients to invest in securities. In particular,
ING Belgium, Baring Asset Management, ING Bank Netherlands and ING Furman Selz
reported lower management fees.
Brokerage and advisory fees decreased by EUR 51 million, or 25.9%, to EUR 146
million from EUR 197 million for 2002. The decrease can be fully attributed to
the international wholesale banking units. The brokerage and advisory fees in
the Netherlands and ING Belgium were higher.
The 23.1% increase in other commission income (from EUR 290 million in 2002 to
EUR 357 million in 2003) can mainly be attributed to the international
wholesale banking units.
108
Year ended December 31, 2002 compared to year ended December 31, 2001
Total commissions for 2002 decreased by EUR 150 million, or 5.4%, to EUR 2,615
million, from EUR 2,765 million for 2001.
Commissions from funds transfer increased by EUR 66 million, or 12.5%, to EUR
592 million from EUR 526 million for 2001. ING Banks commissions from domestic
funds transfer, primarily at Postbank, increased by EUR 30 million, or 8.4%.
Commissions from international funds transfer increased by EUR 36 million, or
21.7%, notably DiBa and BBL.
Commissions from the securities business decreased by EUR 153 million, or
17.3%, to EUR 731 million from EUR 884 million for 2001. The decrease occurred
both in the Netherlands (decrease of EUR 34 million or 21.4%) and outside the
Netherlands (decrease of EUR 119 million or 16.3%), following the sharp fall of
the stock markets and the continuing reluctance of private clients to invest in
securities.
The commissions from insurance brokerage increased by EUR 29 million, or 33.0%,
to EUR 117 million from EUR 88 million for 2001. The increase can be attributed
to BBL, reflecting increased sales in Belgium.
Management fees decreased by EUR 63 million, or 8.4%, to EUR 688 million from
EUR 751 million for 2001, also caused by the sharp fall of the stock markets
and the reluctance of private clients to invest in securities. In particular,
Baring Asset Management and ING Furman Selz Asset Management reported lower
management fees.
In 2002, brokerage and advisory fees of EUR 197 million were EUR 6 million, or
3.0%, lower compared to EUR 203 million for 2001.
Other commission income decreased by EUR 23 million, or 7.3%, to EUR 290
million from EUR 313 million for 2001.
Other Income
The following table sets forth the components of other income for the years
indicated:
109
Year ended December 31, 2003 compared to year ended December 31, 2002
Other income increased by EUR 161 million, or 17.1%, to EUR 1,101 million from
EUR 940 million.
Income from securities and participating interests
Income from securities and participating interests consists of dividends, other
income from shares held in the investment portfolio and the results from
participating interests. Income from securities and participating interests
decreased by EUR 47 million, or 23.4%, to EUR 154 million from EUR 201 million
in 2002. Last years figure included an exceptional profit of EUR 94 million on
Cedel shares.
Result from financial transactions
The result from financial transactions includes exchange rate differences and
capital gains and losses on securities held in the trading portfolio. Also
included in this item are exchange rate differences in connection with holding
assets and liabilities in foreign currencies, the results of the associated
forward contracts and the results from financial instruments other than those
serving to hedge interest rate risks. Asset trading results are also included
in this item. The accounting principles for recognition of result from
financial transactions under Dutch and US GAAP are different. See Note 6.1.d of
Notes to the Consolidated Financial Statements.
The result from financial transactions can be analyzed as follows:
On balance, result from financial transactions increased by EUR 108 million, or
23.8%, to EUR 562 million from EUR 454 million for 2002. There are strong
fluctuations between the separate lines, which are to a large extent
interrelated. The increase of the total result from financial transactions can
be mainly attributed to ING BHF-Bank, ING Furman Selz (mainly lower losses on
seed capital) and ING Bank Netherlands. The main contributors to the result
from financial transactions (i.e. the international wholesale banking units and
ING Belgium) realized only slightly higher results compared to 2002.
Result from securities trading portfolio
. The result from the securities
trading portfolio for 2003 increased by EUR 25 million, or 12.4%, to EUR 226
million from EUR 201 million for 2002. On balance, the increase was caused by
ING Furman Selz (lower losses on seed capital investments).
Result from currency trading portfolio.
The result from the currency
trading portfolio for 2003 decreased by EUR 196 million, or 81.0%, to EUR 46
million from EUR 242 million for 2002. The decrease occurred mainly in the
international wholesale banking units and ING Belgium. This development was
largely offset by higher related results from derivatives trading (part of
Other results).
Other results
. Other results, (which include asset trading, results from
derivatives trading and the effects of revaluations in hyperinflationary
countries), for 2003 improved by EUR 279 million to EUR 290 million from EUR 11
million for 2002. The improvement can mainly be attributed to higher results
from derivatives trading in ING Belgium and the international wholesale banking
units.
Other revenue
. Income from Other revenue for 2003 rose by EUR 100 million, or
35.1%, to EUR 385 million from EUR 285 million for 2002. The increase was to a
large extent caused by higher results from real estate. It should be noted that
Other revenue in 2002 was relatively low due to one-off losses relating to
operational problems in car leasing and securities brokerage at ING Bank.
110
Year ended December 31, 2002 compared to year ended December 31, 2001
Other income decreased by EUR 1,334 million, or 58.7%, to EUR 940 million from
EUR 2,274 million.
Income from securities and participating interests
Income from securities and participating interests consists of dividends, other
income from shares held in the investment portfolio and the results from
participating equity interests. Income from securities and participating
interests decreased by EUR 329 million, or 62.1%, to EUR 201 million from EUR
530 million. This strong decrease is mainly attributable to ING BHF Bank and
the international wholesale banking units.
Result from financial transactions
The result from financial transactions includes exchange rate differences and
capital gains and losses on securities held in the trading portfolio, as well
as valuation differences on equity participations. Also included in this item
are exchange rate differences in connection with holding assets and liabilities
in foreign currencies, the results of the associated forward contracts and the
results from financial instruments other than those serving to hedge interest
rate risks. Asset trading results are also included in this item. The
accounting principles for recognition of result from financial transactions
under Dutch and US GAAP are different. See Note 6.1.d of Notes to the
Consolidated Financial Statements. The result from financial transactions can
be analyzed as follows:
Result from securities trading portfolio.
The result from the securities
trading portfolio for 2002 decreased by EUR 416 million, or 67.4%, to EUR 201
million from EUR 617 million for 2001. The ongoing fall in equity prices
impacted the result from securities trading negatively. The decrease mainly
reflects lower trading results at BBL, international wholesale banking and the
former ING Furman Selz Asset Management (revaluation of seed capital
investments).
Result from currency trading portfolio.
The result from the currency
trading portfolio for 2002 decreased by EUR 223 million, or 48.0%, to EUR 242
million from EUR 465 million for 2001. The decrease occurred mainly in the
Americas, (reflecting in part the impact of the devaluation of the Brazilian
Real) and Central Europe.
Other results.
Other results, (which include asset trading, equity
participations, interest derivatives and the effects of revaluations in
hyperinflationary countries), for 2002 improved by EUR 13 million to EUR 11
million from EUR (2) million for 2001. The improvement can be attributed to a
smaller downward revaluation of equity participations in 2002 compared to the
downward revaluation in 2001.
Other revenue.
Income from Other revenue for 2002 decreased by EUR 379 million,
or 57.1%, to EUR 285 million from EUR 664 million for 2001. The decrease is
due, among others, to losses relating to operational problems in car leasing
and securities brokerage at ING Bank. Furthermore, notably BBL, international
wholesale banking and Postbank reported lower Other revenue compared to the
high level in 2001.
111
Operating expenses
The following table sets forth the components of Operating expenses:
Year ended December 31, 2003 compared to year ended December 31, 2002
Total operating expenses of INGs banking operations decreased by EUR 114
million, or 1.4%, to EUR 8,184 million, from EUR 8,298 million for 2002.
Included in the operating expenses are restructuring provisions of respectively
EUR 128 million in 2002 (for the international wholesale banking activities)
and EUR 82 million in 2003 (whereof EUR 30 million for ING BHF-Bank, EUR 15
million for ING Bank France and EUR 37 million for the international wholesale
banking activities). Adjusted for currency translation and excluding the effect
of the consolidation of Toplease and ING Vysya Bank, operating expenses
increased by EUR 84 million, or 1.0%. Also abstracted from the restructuring
provisions created in 2002 and 2003 and the continuously expanding ING Direct
(which saw operating expenses rise by EUR 214 million at constant exchange
rates) expenses decreased by EUR 84 million, or 1.2%. This decrease reflects
stringent cost control despite higher pension expenses, the impact of the
collective labor agreement in the Netherlands and accelerated depreciation of
capitalized software.
Despite the impact of the collective labor agreement in the Netherlands and
higher pension costs, total staff costs decreased by EUR 93 million, or 1.9%,
to EUR 4,694 million in 2003, reflecting lower expenses for third-party staff,
lower stock option expenses and a change in the staff composition (fewer staff
in international wholesale banking, more in ING Direct and newly acquired ING
Vysya Bank). In the Netherlands, the average number of staff (full time
equivalents) decreased by 3.3% from 22,639 in 2002 to 21,886 in 2003. Outside
the Netherlands, the average number of staff employed increased by 2,950, or
7.7%, from 38,550 in 2002 to 41,500 in 2003. Excluding the consolidation of ING
Vysya Bank and excluding the continuously expanding ING Direct, the average
foreign headcount in 2003 decreased by approximately 2,500.
Other administrative expenses decreased by EUR 23 million, or 0.7%, to EUR
3,150 million from EUR 3,173 million in 2002. The impact of cost containment
actions and the depreciation of most currencies against the euro was to a large
extent offset by the strong growth of ING Direct, the consolidation of Toplease
and ING Vysya Bank and the accelerated depreciation of capitalized software.
Total depreciation (on equipment and other operating assets) increased by EUR 2
million, or 0.6%, from EUR 338 million in 2002 to EUR 340 million in 2003.
Year ended December 31, 2002 compared to year ended December 31, 2001
Total operating expenses of INGs banking operations increased by EUR 107
million, or 1.3%, to EUR 8,298 million, from EUR 8,191 million for 2001.
Expenses were increased by the EUR 128 million restructuring provision for
international wholesale banking created in the third quarter 2002. Adjusted for
currency translation and excluding the effect of the consolidation of DiBa,
Toplease and ING Vysya
112
Bank and excluding the restructuring provision, operating expenses decreased by
EUR 124 million, or 1.5%. If the further expansion of ING Direct (which saw
operating expenses excluding DiBa rise by EUR 106 million) and the increased
investments in a number of synergy projects (EUR 138 million) are also
excluded, the decrease was 4.7%. This decrease reflects the sale of the US
investment banking activities in April 2001 on the one hand and stringent cost
control and lower bonus accruals in 2002 on the other.
Despite the impact of the collective labor agreement and higher pension costs
mainly in the Netherlands, total staff costs decreased by EUR 277 million, or
5.5%, to EUR 4,787 million in 2002, reflecting lower bonus accruals and a
change in the staff composition (fewer staff in investment banking, more in ING
Direct and newly acquired ING Vysya Bank). In the Netherlands, the average
number of staff (full time equivalents) decreased by 3.6% from 23,473 in 2001
to 22,639 in 2002. Outside the Netherlands, the average number of staff
employed increased by 1,252, or 3.4%, from 37,298 in 2001 to 38,550 in 2002.
Excluding the consolidation of DiBa and ING Vysya Bank average foreign
headcount decreased in 2002 by approximately 1,200.
Other administrative expenses increased by EUR 411 million, or 14.9%, to EUR
3,173 million from EUR 2,762 million in 2001. This increase was mainly due to
ING Direct, the consolidation of DiBa, Toplease and ING Vysya Bank and the
restructuring provision for international wholesale banking.
Total depreciation decreased by EUR 27 million, or 7.4%, from EUR 365 million
in 2001 to EUR 338 million in 2002.
Addition to the provision for loan losses
In 2003, the total addition to the provision for loan losses amounted to EUR
1,125 million, a decrease of EUR 310 million compared to the level in 2002 (EUR
1,435 million). The addition equaled 46 basis points of average credit risk
weighted assets, against 59 basis points in 2002. In the fourth quarter 2003,
ING Bank added EUR 270 million to the provision for loan losses, a EUR 30
million increase compared to the third quarter 2003. Included in the fourth
quarter addition are a provision for Parmalat and an extra addition for NMB
Hellers credit portfolio.
The continued weak economic conditions combined with the bankruptcy of National
Century Financial Enterprises (NCFE) in the United States required an addition
to the provision for loan losses of EUR 510 million in the fourth quarter 2002,
compared to EUR 300 million in the third quarter 2002. The total addition to
the provision for loan losses in 2002 rose by EUR 685 million, or 91.3%, to EUR
1,435 million from EUR 750 million for 2001, corresponding with 59 basis points
of average credit risk weighted assets against 33 basis points for the full
year 2001.
Taxation
The effective taxation rate for the operating net profit of the banking
operations was 25.3% (EUR 599 million), 22.7% (EUR 333 million) and 22.0% (EUR
477 million) in 2003, 2002 and 2001 respectively, compared to a statutory rate
of 34.5% in 2003 and 2002 and 35% in 2001 in the Netherlands. The difference
between the effective and statutory rates reflected the effect of foreign tax
rates and other items. The relatively low taxation rates in these years were
mainly caused by non-taxable gains and to a substantially lower tax ratio of
the Belgian banking operations.
113
Operating net profit
Operating net profit for 2003 increased by EUR 650 million, or 72.6%, to EUR
1,545 million, from EUR 895 million for 2002. Operating net profit for 2002
decreased by EUR 547 million, or 37.9%, to EUR 895 million, from EUR 1,442
million for 2001.
Total net profit
Due to the absence of non-operating items in 2003, 2002 and 2001 operating net
profit from banking operations equaled total net profit.
Geographical breakdown
The following table sets forth the geographic distribution of operating income
and operating profit before taxation of the banking operations:
Year ended December 31, 2003 compared to year ended December 31, 2002
In
the Netherlands
, operating income for 2003 increased by EUR 288
million, or 5.8%, to EUR 5,270 million, from EUR 4,982 million for 2002. The
net interest result rose by EUR 259 million, or 6.7%. The average interest
margin improved by 13 basis points to 2.00%, mainly due to higher product
margins. Commissions rose by EUR 42 million, or 5.4%. Higher brokerage and
advisory fees and other commission income, were partly offset by lower
management fees. Other income decreased by EUR 13 million, or 3.8%. Operating
expenses rose by EUR 91 million, or 2.8%. The impact of a reduced average
number of staff and lower expenses for third-party staff was more than offset
by higher pension costs, higher marketing costs and the accelerated
depreciation of capitalized software. The addition to the provision for loan
losses increased by EUR 119 million, among others at NMB Heller. The operating
profit before taxation rose by EUR 78 million, or 5.2%, to EUR 1,588 million,
from EUR 1,510 million for 2002.
In
Belgium
, operating income for 2003 decreased by EUR 32 million, or
1.6%, to EUR 2,012 million, from EUR 2,044 million for 2002. Excluding the
exceptional gain on the sale of Cedel-shares in 2002 of which EUR 64 million
was booked in Belgium, income rose by 1.6% due to a higher interest result.
Operating expenses increased by EUR 50 million, or 3.6%. Compared to 2002, loan
loss provisioning increased by EUR 53 million, but is still relatively low. The
operating profit before taxation decreased by EUR 135 million, or 22.0%, to EUR
478 million, from EUR 613 million for 2002.
In the
Rest of Europe
, operating income for 2003 rose by EUR 224 million,
or 8.1%, to EUR 2,997 million, from EUR 2,773 million for 2002. Higher interest
results (mainly ING Direct) and higher results on real estate and leasing were
partly offset by lower commissions. Despite the strong growth of ING Direct,
operating expenses decreased by EUR 164 million, or 6.3%, mainly in the
international wholesale banking units. Included in the expenses are
restructuring provisions of respectively EUR 60
114
million in 2002 (as part of the EUR 128 million for the total of the
international wholesale banking activities) and EUR 82 million in 2003 (whereof
EUR 30 million for ING BHF-Bank, EUR 15 million for ING Bank France and EUR 37
million for the international wholesale banking activities). The addition to
the provision for loan losses increased by EUR 92 million, mainly due to higher
risk costs of ING BHF-Bank, the international wholesale banking activities and
ING Direct. As a result, the operating profit before taxation improved by EUR
296 million to EUR (15) million, from EUR (311) million for 2002. Especially
the performance in Germany (ING BHF-Bank) and Poland (ING Bank Slaski) was
disappointing. The results of the international wholesale banking units, ING
Direct, ING Real Estate and ING Belgium in this geographical region improved
considerably.
In
North America
, operating profit before taxation turned from a loss of
EUR 509 million in 2002 to a profit of EUR 110 million in 2003. The strong
improvement was mainly caused by EUR 364 million lower loan loss provisioning
(which was exceptionally high in 2002 amongst others due to the provisioning
for National Century Financial Enterprises). Operating income for 2003
increased by EUR 195 million, or 36.4%, to EUR 731 million, from EUR 536
million for 2002. This increase can be mainly attributed to ING Direct, ING
Furman Selz and ING Real Estate. Operating expenses decreased by EUR 60
million, or 11.0%. Lower operating expenses for the international wholesale
banking units and ING Furman Selz were partly offset by higher expenses ING
Direct.
In
Latin America
, operating income for 2003 decreased by EUR 153 million,
or 48.6%, to EUR 162 million, from EUR 315 million for 2002. The sharp decrease
in income was compensated by EUR 19 million lower operating expenses and a EUR
178 million lower addition to the provision for loan losses (in 2002 high due
to Argentina provisioning). The operating profit before taxation increased by
EUR 44 million to EUR 118 million, from EUR 74 million for 2002.
In
Asia
, in spite of the consolidation of ING Vysya Bank, operating income
for 2003 decreased by EUR 60 million, or 13.8%, to EUR 376 million, from EUR
436 million for 2002. The decrease was entirely due to lower income from the
international wholesale banking activities partly compensated by ING Vysya
Bank. Operating expenses decreased by EUR 15 million, or 3.9%. The lower
expenses of the international wholesale banking activities (in 2002 high due to
the Asian share of the restructuring provision for international wholesale
banking) was largely offset by the consolidation effect of ING Vysya Bank. The
addition to the provision for loan losses decreased by EUR 45 million, due to a
release of provisions in 2003. As a result, the operating profit before
taxation remained unchanged on EUR 38 million.
In
Australia
, operating income for 2003 increased by EUR 25 million, or
23.4%, to EUR 132 million, due to an increase of EUR 27 million in net interest
result (mainly ING Direct Australia). Operating expenses increased by EUR 7
million, or 12.7%, while the addition to the provision for loan losses rose by
EUR 13 million. The operating profit before taxation increased by EUR 5 million
to EUR 60 million, from EUR 55 million for 2002.
Year ended December 31, 2002 compared to year ended December 31, 2001
In
the Netherlands
, operating income for 2002 increased by EUR 161
million, or 3.3%, to EUR 4,982 million, from EUR 4,821 million for 2001. The
net interest result rose by EUR 661 million, or 20.7%, due to increased
interest margins and growth of the average balance sheet total. Commissions
rose by EUR 7 million, or 0.9%. Higher funds transfer commission (mainly
Postbank) was largely offset by lower securities commission. Other income
decreased by EUR 507 million, or 60.0%, among others due to substantial lower
results from financial transactions and a one-off loss relating to operational
problems in securities brokerage at ING Bank. Operating expenses increased by
EUR 80 million, or 2.5%. The addition to the provision for loan losses
increased by EUR 94 million, as result of the deteriorated economic climate.
The operating profit before taxation decreased by EUR 13 million, or 0.9%, to
EUR 1,510 million, from EUR 1,523 million for 2001.
In
Belgium
, operating income for 2002 rose by EUR 87 million, or 4.4%, to
EUR 2,044 million, from EUR 1,957 million for 2001. This increase was mainly
due to higher interest results and the exceptional profit on the sale of Cedel
shares (EUR 64 million booked in Belgium). Result from financial transactions
and commission income was lower. Operating expenses decreased by EUR 77
million, or 5.3%, mainly due to lower staff numbers and tight cost control.
Compared to a release in 2001, loan
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loss provisioning increased by EUR 72 million, but is still relatively low. The
operating profit before taxation increased by EUR 92 million, or 17.7%, to EUR
613 million, from EUR 521 million for 2001.
In the
Rest of Europe
, in spite of the consolidation of DiBa, operating
income for 2002 decreased by EUR 245 million, or 8.1%, to EUR 2,773 million,
from EUR 3,018 million for 2001. In addition to lower results from financial
transactions and lower commissions, income from securities and participating
interests also dropped sharply (mainly at ING BHF Bank). The interest result,
however, increased by EUR 347 million, of which EUR 182 million can be
attributed to DiBa. Operating expenses increased by EUR 251 million, or 10.7%,
mainly due to the consolidation of DiBa (EUR 211 million) and the restructuring
provision for the international wholesale banking activities, partly charged to
this geographical region. The addition to the provision for loan losses
increased by EUR 179 million, mainly due to higher risk costs of ING BHF Bank
and the international wholesale banking activities. As a result, the operating
profit before taxation decreased by EUR 675 million to EUR (311) million, from
EUR 364 million for 2001.
In
North America
, operating income for 2002 increased by EUR 6 million, or
1.1%, to EUR 536 million, from EUR 530 million for 2001. This increase was
caused by higher interest results (mainly ING Direct USA and Canada), which was
largely offset by lower results from financial transactions and lower income
from securities and participating interests (in 2001 EUR 40 million gain on the
sale of the US investment banking activities). Operating expenses decreased by
EUR 173 million, or 24.0%, to EUR 547 million. This decrease was due to the
sale of the US investment banking activities in April 2001, which was partly
offset by higher expenses of ING Direct USA and the regional part of the
restructuring provision. The addition to the provision for loan losses
increased sharply by EUR 238 million, in part due to the provisioning for
National Century Financial Enterprises. The operating profit before taxation
decreased by EUR 59 million to EUR (509) million, from EUR (450) million for
2001. In 2002 the ING Direct operations in the United States and Canada
reported positive results for the full year.
In
Latin America
, operating income for 2002 increased by EUR 70 million,
or 28.6%, to EUR 315 million, from EUR 245 million for 2001. Higher interest
results were partly offset by lower results from financial transactions.
Despite the restructuring provision for international wholesale banking,
operating expenses decreased by EUR 1 million due to cost containment actions.
The addition to the provision for loan losses increased by EUR 25 million
compared to the already high level in 2001, due to ongoing high Argentina
provisioning. The operating profit before taxation increased by EUR 46 million
to EUR 74 million, from EUR 28 million for 2001.
In
Asia
, in spite of the consolidation of ING Vysya Bank, operating income
for 2002 decreased by EUR 40 million, or 8.4%, to EUR 436 million, from EUR 476
million for 2001. The decrease was mainly due to lower commission income.
Operating expenses increased by EUR 24 million, or 6.6%, to EUR 389 million,
entirely due to the Asian share of the restructuring provision for
international wholesale banking and ING Vysya Bank. Compared to the release of
country risk provisions in 2001, the addition to the provision for loan losses
increased by EUR 91 million, but is still relatively low. As a result, the
operating profit before taxation decreased by EUR 155 million, or 80.3%, to EUR
38 million, from EUR 193 million for 2001.
In
Australia
, operating income for 2002 increased by EUR 52 million, or
94.5%, to EUR 107 million, due to an increase of EUR 54 million in net interest
result (mainly ING Direct Australia). Operating expenses increased by EUR 4
million, or 7.8%, while the addition to the provision for loan losses decreased
by EUR 14 million. The operating profit before taxation improved by EUR 62
million to EUR 55 million, from EUR (7) million for 2001.
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LIQUIDITY AND CAPITAL RESOURCES
ING Groep N.V. is a holding company whose principal assets are its investments
in the capital stock of its primary insurance and banking subsidiaries. The
liquidity and capital resource considerations for ING Groep N.V., ING Insurance
and ING Bank vary in light of the business conducted by each, as well as the
insurance and bank regulatory requirements applicable to the Group in the
Netherlands and the other countries in which it does business. ING Groep N.V.
has no employees and substantially all of ING Groep N.V.s operating expenses
are allocated to and paid by its operating companies.
As a holding company, ING Groep N.V.s principal sources of funds are funds
that may be raised from time to time from the issuance of debt or equity
securities and bank or other borrowings, as well as cash dividends received
from its subsidiaries. ING Groep N.V.s total debt outstanding to third parties
at December 31, 2003 was EUR 8,956 million, and at December 31, 2002 and 2001
was EUR 8,116 million and EUR 6,304 million, respectively. The EUR 8,956
million of debt outstanding at December 31, 2003 consisted of EUR 600 million
principal amount of 6.5% perpetual subordinated debt securities issued in
September 2001, US$ 800 million principal amount of 7.05% perpetual debt
securities issued in July 2002, which have a balance sheet value of EUR 634
million, US$ 1,100 million principal amount of 7.20% perpetual debt securities
issued in December 2002, which have a balance sheet value of EUR 872 million,
EUR 750 million principal amount perpetual debt securities with a variable
interest rate issued in June 2003, US$ 500 million principal amount of 6.20%
perpetual debt securities issued in October 2003, which have a balance sheet
value of EUR 396 million and EUR 5,704 million debentures. The detail with
respect to the debentures is as follows:
At December 31, 2003, 2002 and 2001, ING Groep N.V. also owed EUR 655 million,
EUR 376 million, EUR 837 million, respectively, to ING Group companies pursuant
to intercompany lending arrangements. Of the EUR 655 million owed by ING Groep
N.V. to ING Group companies at December 31, 2003, EUR 92 million was owed to
ING Insurance companies, EUR 12 million was owed to ING Bank companies and EUR
551 million was owed to direct subsidiaries of ING Group companies, as a result
of normal intercompany transactions.
At December 31, 2003, 2002 and 2001, ING Groep N.V. had EUR 204 million, EUR
269 million and EUR (433) million, respectively, of cash. Dividends paid to
the Company by its subsidiaries amounted to EUR 1,102 million, EUR 1,604
million and EUR 1,499 million in 2003, 2002 and 2001, respectively, in each
case representing dividends declared and paid with respect to the reporting
calender year and the prior calendar year. Of the amounts paid to the Company,
EUR 519 million, EUR 1,262 million and EUR 560 million were received from ING
Insurance in 2003, 2002 and 2001, respectively; EUR 583 million, EUR 258
million and EUR 939 million were received from ING Bank in 2003, 2002 and 2001
respectively, and for 2003 EUR 0 million was received from other ING Group
companies. Repayments to ING by its subsidiaries amounted to EUR 40 million,
EUR 1,453 million and EUR 50 million in 2003, 2002 and 2001, respectively, of
the amounts paid to the Company, EUR 40 million was received from ING Bank in
2003, EUR 1,453 million and EUR 50 million were received from ING Bank in 2002
and 2001, respectively. ING and its Dutch subsidiaries are subject to legal
restrictions on the amount of dividends they can pay to their shareholders. The
Dutch Civil Code provides that dividends can only be paid by Dutch companies up
to an amount equal to the excess of a companys shareholders equity over the
sum of (i) paid-up capital and (ii) shareholders reserves required by law.
Further, certain of
117
the Group companies are subject to restrictions on the amount of funds they may
transfer in the form of cash dividends or otherwise to ING Groep N.V.
In addition to the restrictions in respect of minimum capital and capital base
requirements that are imposed by insurance, banking and other regulators in the
countries in which the Groups subsidiaries operate, other limitations exist in
certain countries. For example, the operations of the Groups insurance company
subsidiaries located in the United States are subject to limitations on the
payment of dividends to their parent company under applicable state insurance
laws. Dividends paid in excess of these limitations generally require prior
approval of the Insurance Commissioner of the state of domicile.
In order to strengthen the capital base, the Annual General Meeting of
Shareholders of ING Group N.V. approved, in April 2003, the introduction of
optional cash/stock dividend as from the final dividend 2002, and fully fund
the cash element by issuing and selling to the market the depositary receipts
that would have been issued if stock would have been chosen instead of cash.
ING Groep N.V. made dividend payments of EUR 21 million, EUR 21 million and EUR
21 million on its Preference shares and declared dividends of EUR 2,024
million, EUR 1,930 million and EUR 1,914 million on its Ordinary shares, in
2003, 2002 and 2001, respectively. Of the amounts paid as dividends on ING
Groep N.V.s Ordinary shares in 2002 and 2001 EUR 429 million and EUR 1,914
million, respectively, were paid in the form of cash dividends and the
remainder was paid in the form of stock dividends. For the optional dividend
2003, payable in May 2004, the cash component is not yet known.
ING Group Consolidated Cash Flows
Year ended December 31, 2003 compared to year ended December 31, 2002
Net cash provided by operating activities amounted to EUR 60,179 million for
the year ended December 31, 2003, compared to EUR 26,022 million for the year
ended December 31, 2002. The increase in cash flow generated through the
insurance funds of EUR 24,563 and through the funds entrusted to and debt
securities of the banking operations of EUR 58,321 million was partly used for
the lending and investment portfolio. The cash flow employed in lending
decreased from a cash outflow of EUR 30,277 million in 2002 to a cash outflow
of EUR 9,233 million in 2003. The year 2003 reflects mainly a lower level of
advances regarding corporate lending due to the deterioration of the economic
circumstances. Interbank lending showed a cash flow in 2003 of EUR 8,463
million against a cash flow of EUR 5,895 million in 2002. The cash outflow for
taxation increased from EUR 381 million in 2002 to EUR 1,181 million in 2003
partly due to a tax refund received in 2002 and also due to the timing of
payments to various taxation authorities, including finalization of tax
assessments for prior years.
Net cash used in investment activities in 2003 was EUR 65,558 million, compared
to EUR 26,556 million in 2002, reflecting on balance higher investments in
fixed-interest securities and investments for account and risk of
policyholders.
Net cash flow from financing activities was EUR 973 million in 2003, compared
to EUR 3,184 million in 2002. The decrease of EUR 2,211 million in net cash
flow from financing activities mainly reflects a decrease in the issuance of
bonds and subordinated loans and lower cash dividend due to the change in
dividend policy from cash dividends to stock dividends.
The operating, investing and financing activities described above resulted in
net cash and cash equivalents at year-end 2003 of EUR 7,338 million, compared
to EUR 7,830 million at year-end 2002, a small decrease of EUR 492 million from
2002 levels.
Year ended December 31, 2002 compared to year ended December 31, 2001
Net cash provided by operating activities amounted to EUR 26,022 million for
the year ended December 31, 2002, compared to EUR 23,424 million for the year
ended December 31, 2001. The increase in cash flow generated through the funds
entrusted to and debt securities of the
banking operations of EUR 45,580 million was partly used for the lending
portfolio. The cash flow employed in
118
lending increased from a cash outflow of EUR 8,154 million in 2001 to a cash
outflow of EUR 30,277 million in 2002. The cash outflow in respect of lending
in the year 2001 was impacted by the sale of the United States investment
banking activities (effect approximately EUR 20 billion). The year 2002
reflects mainly a high level of advances regarding corporate lending and
mortgages in the Netherlands as well as the growth in international (wholesale)
banking.
Net cash used in investment activities in 2002 was EUR 26,556 million, compared
to EUR 27,152 million in 2001, reflecting on balance higher investments in
fixed-interest securities and lower investments in shares and property to
diminish the sensitivity for market circumstances of the investment portfolio.
Net cash flow from financing activities was EUR 3,184 million in 2002, compared
to EUR 5,283 million in 2001. The decrease of EUR 2,099 million in net cash
flow from financing activities mainly reflects a decrease in the cash flow
regarding bonds, loans contracted and deposits by reinsurers in 2002.
The operating, investing and financing activities described above resulted in
net cash and cash equivalents at year-end 2002 of EUR 7,830 million, compared
to EUR 4,681 million at year-end 2001, an increase of EUR 3,149 million from
2001 levels.
ING Insurance Cash Flows
The principal sources of funds for ING Insurance are premiums, net investment
income and proceeds from sales or maturity of investments, while the major uses
of these funds are to provide life policy benefits, pay surrenders and profit
sharing for life policyholders, pay non-life claims and related claims
expenses, and pay other operating costs. ING Insurance generates a substantial
cash flow from operations as a result of most premiums being received in
advance of the time when claim payments or policy benefits are required. These
positive operating cash flows, along with that portion of the investment
portfolio that is held in cash and highly liquid securities, have historically
met the liquidity requirements of ING Insurances operations, as evidenced by
the growth in investments, see also Item 11, Quantitative and Qualitative
Disclosure on Market Risk.
Premium income and income from investments totaled EUR 45,519 million and EUR
9,523 million in 2003, EUR 52,284 million and EUR 11,716 million in 2002 and
EUR 49,800 million and EUR 10,753 million in 2001, respectively. Uses of funds
by ING Insurance include underwriting expenditures (reinsurance premiums,
benefits, surrenders, claims and profit sharing by life policyholders) and
employee and other operating expenses, as well as interest expense on
outstanding borrowings. Underwriting expenditures, employee and other operating
expenses and interest expense for ING Insurance totaled EUR 47,723 million, EUR
4,897 million and EUR 1,291 million in 2003, EUR 54,575 million, EUR 5,203
million and EUR 1,305 million in 2002 and EUR 52,642 million, EUR 5,583 million
and EUR 1,286 million in 2001, respectively.
ING Insurances liquidity requirements are met on both a short- and long-term
basis by funds provided from insurance premiums collected, investment income
and collected reinsurance receivables, and from the sale and maturity of
investments. ING Insurance also has access to the commercial paper, medium-term
note and other credit facilities. ING Insurances balance of cash and cash
equivalents was EUR 1,859 million at December 31, 2003, EUR 3,237 million at
December 31, 2002 and EUR 1,534 million at December 31, 2001, respectively.
Net cash provided by operating activities was EUR 25,028 million, EUR 10,567
million and EUR 12,232 million in 2003, 2002 and 2001, respectively.
Net cash used by ING Insurance in investment activities was EUR 26,781 million,
EUR 8,583 million and EUR 17,706 million in 2003, 2002 and 2001, respectively.
Cash provided by ING Insurances financing activities amounted to EUR 521
million, EUR 61 million and EUR 5,495 million in 2002, 2001 and 2000,
respectively.
119
Capital Base Margins and Capital Requirements
In the United States, since 1993, insurers, including the companies comprising
ING Insurances U.S. operations, have been subject to risk based capital
(RBC) guidelines. See Item 4. Information on the Company Regulation and
Supervision Insurance ING Americas.
ING Bank Cash Flows
The principal sources of funds for ING Banks operations are growth of the
retail funding, which mainly consists of current accounts, savings and retail
deposits, repayments of loans, disposals and redemptions of investment
securities (mainly bonds), sales of trading portfolio securities, interest
income and commission income. The major uses of funds are advances of loans and
other credits, investments, purchases of investment securities, funding of
trading portfolios, interest expense and administrative expenses (see also Item
11, Quantitative and Qualitative Disclosure on Market Risk). At December 31,
2003, 2002 and 2001, ING Bank had EUR 5,735 million, EUR 5,191 million and EUR
3,467 million, respectively, of cash and cash equivalents.
ING Banks operating activities had a EUR 36,130 million cash inflow for the
year ended December 31, 2003, compared with a EUR 16,900 million cash inflow
for the year ended December 31, 2002, a cash inflow of EUR 10,307 million for
the year ended December 31, 2001. The EUR 19,230 million increase in cash
provided from operations from 2003 to 2002 was largely attributable to the
decrease of banks available on demand and the increase of loans and advances
and the increase of the trading portfolio which were partially offset by an
increase in growth of funds entrusted.
The EUR 6,593 million increase in cash provided from operations from 2002 to
2001 was largely attributable to the increase of loans and advances and the
decrease of trading portfolio which was partially offset by an increase in
growth of funds entrusted. In the year 2002, the cash outflow employed in loans
and advances compared with the year 2001 increased partly due to the
consolidation of DiBa and Vysya Bank and a strong increase of reverse
repurchases and corporate and residential mortgages.
On the other hand, the depreciation of most currencies against the euro had a
negative effect on bank lending.
Savings accounts, as part of the funds entrusted, grew strongly in the year
2002 mainly because of increased thrift as a result of the uncertain economic
climate.
Net cash generated from investment activities was EUR 38,639 million cash
outflow, EUR 17,759 million cash outflow and EUR 8,657 million cash outflow in
2003, 2002 and 2001, respectively, mainly reflecting the investment in
interest-earning securities exceeding the dispositions and redemptions of
interest-earning securities. Investment in interest-earning securities was EUR
90,811 million, EUR 70,273 million and EUR 68.522 million in 2003, 2002 and
2001, respectively. Dispositions and redemptions of interest-earning securities
was EUR 52,799 million, EUR 52,537 million and EUR 59,921 million in 2003, 2002
and 2001, respectively.
Net cash flow from financing activities amounted to EUR 510 million, EUR 1,750
million and EUR 1,571 million in 2003, 2002 and 2001, respectively.
The operating, investment and financing activities described above resulted in
a negative net cash flow of EUR 1,999 million in 2003, EUR 891 million in 2002
and a net cash flow of EUR 3,221 million in 2001, respectively.
Capital Adequacy
Capital adequacy and the use of capital are monitored by ING Bank and its
subsidiaries, employing techniques based on the guidelines developed by the
Basel Committee on Banking Supervision and
120
implemented by the EU and the Dutch Central Bank for supervisory purposes (see
Item 4, Information on the Company).
The following table sets forth the risk-weighted capital ratios of ING Bank
N.V. as of each of December 31, 2003, 2002 and 2001.
ING Groups management believes that working capital is sufficient to meet the
current and reasonably foreseeable needs of the Company.
Item 6. Directors, Senior Management and Employees
ING Groep N.V. has a Supervisory Board and an Executive Board. The Executive
Board is responsible for the day-to-day management. The function of the
Supervisory Board is to supervise the policy of the Executive Board and the
general course of events in the company, as well as to provide advice to the
Executive Board. In the performance of their duties, the members of the
Supervisory Board must serve the interests of ING Group and should not serve
specific interests to the exclusion of other interests involved. Certain
decisions of the Executive Board affecting ING Group as a whole such as
issuance or acquisition of shares, profit appropriation, major investments and
capital expenditures and major changes in the working conditions of a
substantial numbers of employees require the approval of the Supervisory
Board or the General Meeting of Shareholders.
The current members of the Executive Board are employees of ING Groep N.V. and
are appointed by the Supervisory Board. Following the amendments of the
Articles of Association in 2003, new members will be appointed by the General
Meeting of Shareholders. Members of the Executive Board are appointed for an
indefinite period. They retire by the end of the month in which they reach the
age of 60. By mutual agreement the retirement date can be extended to the end
of the month in which they reach the age of 61 or 62.
121
Following the amendments of the Articles of Association in 2003, new
Supervisory Board members shall be appointed by the General Meeting of
Shareholders from a binding nomination of at least two candidates for each
vacancy. No employee of ING Group is eligible for appointment to the
Supervisory Board. Members of the Supervisory Board are appointed for a term of
four years and may be reappointed for two terms. The current members of the
Supervisory Board were appointed by the Supervisory Board with a right of
objection for the Central Works Council and the General Meeting of
Shareholders.
Set forth below is certain information concerning the members of the
Supervisory and the Executive Board of ING Groep N.V.
SUPERVISORY BOARD OF ING GROEP N.V.
122
123
Mr. Hoffmann is of German nationality. Mrs. Gross Goldberg is of US
nationality. Mr. Baron De Meester is of Belgian nationality. The other members
are of Dutch nationality.
Messrs. Hoffmann and Kok were appointed in the General Meeting of Shareholders
on 15 April 2003. At that meeting Lutgart van den Berghe, Hans Tietmeyer and
Mijndert Ververs retired from the Board. In January 2003, Johan Stekelenburg,
member of the Supervisory Board, contracted a serious illness from which he
died nine months later, on September 22, 2003. We will remember him as an
exceptional and passionate man, always looking for solutions. In that role he
has been of great value to ING.
In the Shareholders Meeting of April 27, 2004, Mr. Eric Bourdais de
Charbonnière (1939, French nationality) will be proposed for appointment to the
Supervisory Board.
EXECUTIVE BOARD OF ING GROEP N.V.
Ewald Kist, Chairman
Ewald Kist joined Nationale-Nederlanden in 1969. In 1986 he was appointed
President of NN-US Corporation in the United States. In 1989 he became a member
of the general management of Nationale-Nederlanden for the Netherlands, of
which he was appointed Chairman in 1991. Since 1993 he has been a member of the
Executive Board of ING Group, of which he was appointed Vice-Chairman as of
April 1, 1999. Ewald Kist was appointed Chairman of the Executive Board as of
May 2, 2000. His main responsibilities are Strategy, Communications and Audit
Services. He will retire as of June 1, 2004. Mr. Kist is also a board member of
VNO/NCW (Federation of Netherlands Employers).
124
Michel Tilmant, Vice-Chairman
Michel Tilmant started his career with Morgan Guaranty Trust Company in New
York. In 1992 he joined Bank Brussels Lambert, where he was appointed Chairman
of the Executive Board in 1997. After the acquisition of BBL by ING in 1998, he
was appointed a member of the Executive Board of ING Group. He was appointed
Vice-Chairman as of May 2, 2000. His main responsibilities are ING Europe
including the global wholesale activities and ING Direct. Following the annual
General of Meeting of Shareholders on April 27, 2004 he will succeed Ewald Kist
as Chairman of the Executive Board. Mr. Tilmant is also a member of the
Supervisory Board of the University of Louvain.
Frederick S. Hubbell
Fred Hubbell was Chief Executive Officer (CEO) and President of the US life
insurance company Equitable of Iowa, which was acquired by ING in mid-1997.
Following his responsibility for the international insurance activities, he was
appointed a member of the Executive Board of ING Group on May 2, 2000. His main
responsibilities are ING Americas and asset management. Mr. Hubbell is also a
member of the Board of Directors of the Macerich Company.
Cees Maas, Chief Financial Officer
After completing his degree in engineering physics and economics at the Erasmus
University of Rotterdam in 1976, Cees Maas joined the Ministry of Finance. From
1986 to 1992 he was Treasurer-General. In July 1992, he joined ING Group and
became a member of the Executive Board. In July 1996, Cees Maas was appointed
Chief Financial Officer of the Executive Board. His main responsibilities are
Control & Finance, Tax, Legal & Compliance, Investor Relations and Risk
Management. Mr. Maas is also a member of the Advisory Board of Euronext.
Alexander Rinnooy Kan
Since 1977, Alexander Rinnooy Kan has held various positions with the Erasmus
University of Rotterdam, of which he was appointed Rector-Magnificus in 1986.
In 1991, he became President of the Federation of Netherlands Industry and
Employers (VNO). After the merger in 1995 with the Netherlands Christian
Employers Federation (NCW) he became President of VNO-NCW. In September 1996,
Alexander Rinnooy Kan became a member of the Executive Board of ING Group. His
main responsibilities are ING Asia/Pacific, ING Real Estate, Information
Technology, Human Resources & Management Development and Procurement.
New appointments
At the Annual General Meeting of Shareholders on April 27, 2004, the
Supervisory Board will propose appointing Eric Boyer de la Giroday (1952,
Belgian nationality), Eli Leenaars (1961, Dutch nationality) and Hans Verkoren
(1947, Dutch nationality) to the Executive Board. Eric Boyer is a member of the
Management Committee South-West Europe, with responsibility for Financial
Markets and Wholesale Banking, and a member of the Board of ING Belgium S.A.
Eli Leenaars is chairman of ING Central Europe and a member of the Executive
Committee ING Europe. Hans Verkoren is Global Head of ING Direct and member of
the Executive Committee for ING Europe, responsible for Retail Financial
Services.
Ewald Kist, the current chairman of the Executive Board, will retire on June 1,
2004. As chairman, he will be succeeded by Michel Tilmant as of April 28,
2004. Cees Maas will become vice-chairman as of that date, in addition to his
role as Chief Financial Officer
125
COMPENSATION OF DIRECTORS AND OFFICERS
For compensation of directors and officers reference is made to Note 3.2.3 to
the Consolidated Financial Statements on pages F-58 to F-73.
Committees
The Supervisory Board has three Committees: the Audit Committee, the
Remuneration and Nomination Committee and the Corporate Governance Committee.
Audit Committee
The Audit Committee consists of four members and meets at least four times a
year of which at least one meeting a year with the external auditors, without
the members of the Executive Board being present. The Committee consists of Aad
Jacobs (chairman), Claus Dieter Hoffman, Paul Baron de Meester and Jan Timmer.
The Audit Committee advises the Supervisory Board in observing its
responsibility for ensuring that the Groups financial systems provide accurate
and up-to-date information on its financial position and that the Groups
published financial statements represent a true and fair reflection of this
position. It also advises the Supervisory Board in ensuring that appropriate
accounting policies, internal controls, risk management and compliance
procedures are in place. The meetings are attended by the chairman and
vice-chairman of the Executive Board as well as the chief financial officer.
The general manager of Corporate Control & Finance, the General Counsel, the
internal auditor and the external auditors attend its meetings.
Remuneration and Nomination Committee
The Remuneration and Nomination Committee meets at least two times a year. It
consists of four members Cor Herkströter (chairman), Luella Gross Goldberg,
Paul van der Heijden and Jan Timmer. The Committee advises the Supervisory
Board on compensation policies and the composition of the Supervisory Board and
Executive Board. The committee advises the Supervisory Board, also supported by
external consultants, on the compensation packages of the members of the
Executive Board. From the Executive Board the meetings are attended by the
chairman, vice-chairman and the Executive Board member responsible for Human
Resources and Management development.
Corporate Governance Committee
The Corporate Governance Committee meets at least once a year and consists of
four members. The current members are Cor Herkströter (chairman), Luella Gross
Goldberg, Paul van der Heijden and Jan Timmer. The primary tasks of the
Corporate Governance Committee are to perform an annual evaluation of INGs
corporate governance as a whole and the governance of the Executive Board, to
make proposals to the Supervisory Board and to the Annual General Meeting for
improvements and to ensure that the corporate governance of ING as a whole and
the policy on which its is based is fully transparent and communicated in the
Annual Report and to the Annual General Meeting. From the Executive Board the
meetings are attended by the chairman and vice-chairman.
EMPLOYEES
The number of staff employed on a full time equivalent basis of ING Group
averaged 115,218 in 2003, of which 34,154, or 30%, were employed in the
Netherlands. The geographical distribution of employees with respect to the
Groups insurance operations and banking operations over the past three years
was as follows (average full time equivalents):
126
In addition, the number of staff employed by joint ventures included in the
Groups consolidated accounts averaged 2,275 in 2003, 2,147 in 2002 and 1,019
in 2001. The Group does not employ significant numbers of temporary workers.
The percentage of the Groups employees allocated to the three Executive
Centers was as follows for each of the years 2003, 2002 and 2001:
Substantially all of the Groups Dutch employees are subject to collective
labor agreements covering the banking and insurance industries. The Group
believes that its employee relations are generally good.
Item 7. Major shareholders and related party transactions
As of December 31, 2003, Stichting ING Aandelen (the Trust) held
2,114,961,163 Ordinary shares of ING Groep N.V., which represents 99.9% of the
Ordinary shares outstanding. These holdings give the Trust voting control of
ING Groep N.V. The following is a description of the material provisions of the
Articles of Association (Statuten) and the related Conditions of Administration
(Administratievoorwaarden) (together the Trust Agreement), which governs the
Trust, and the applicable provisions of Netherlands law. This description does
not purport to be complete and is qualified in its entirety by reference to the
Trust Agreement and the applicable provisions of Netherlands law referred to in
such description.
As of December 31, 2003, there were 109,414,194 ADSs outstanding, representing
an equal number of Bearer receipts. The ADSs were held by 915 record holders.
Because certain of the ADSs were held by brokers or other nominees and the
Bearer Depositary receipts are held in bearer form and due to the
impracticability of obtaining accurate residence information for all such
shareholders, the number of holders of record or registered holders in the
United States is not representative of the number of beneficial holders or of
the residence of the beneficial holders.
Bearer receipts, which are negotiable instruments under Netherlands law, are
issuable by the Trust pursuant to the terms of the Trust Agreement. Each Bearer
receipt represents financial interests in one Ordinary share held by the Trust,
as described herein. Holders of Bearer receipts (including those Bearer
receipts for which ADSs have been issued) do not have any voting rights with
respect to the Ordinary shares underlying the Bearer receipts owned by the
Trust. Such rights belong only to the Trust and will be exercised by the Trust
pursuant to the terms of the Trust Agreement. Bearer depositary receipts are
also issued by the Trust for Preference shares.
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The Bearer receipts are in the form of bearer Centrum voor
Fondsenadministratie certificates (CF Certificates), with a dividend sheet
without coupons or talons. The Centrum voor Fondsenadministratie provides
central administration for the dividend sheets of the CF Certificates. The
dividend sheets of CF Certificates, which do not trade separately from the CF
Certificates, must be held by an eligible custodian. Transfer of title in the
Bearer receipts in the form of CF Certificates together with the dividend sheet
is effected by book-entry through the facilities of the Netherlands Central
Institute for Securities Book-Entry Transactions (NECIGEF) and its
participants pursuant to the Netherlands Act on book-entry transactions (Wet
giraal effectenverkeer). Owners of Bearer receipts participate in the NECIGEF
system by maintaining accounts with NECIGEF participants. There is no
limitation under Netherlands law on the ability of non-Dutch citizens or
residents to maintain such accounts that are obtainable through Dutch banks.
Voting of the Ordinary shares by holders of Bearer receipts as proxy of the
Trust
Holders of Bearer receipts are entitled to attend and speak at general meetings
of shareholders of ING Groep N.V. but do not have any voting rights.
However, the Trust will, subject to certain restrictions, grant a proxy to a
holder of Bearer receipts to the effect that such holder may, in the name of
the Trust, exercise the voting rights attached to the number of its Ordinary
shares that corresponds to the number of Bearer receipts held by such holder of
Bearer receipts.
On the basis of such a proxy, the holder of Bearer receipts may vote according
to his own discretion. The requirements with respect to the use of the voting
rights on the Ordinary shares that apply for the Trust (set out in the
paragraph below) do not apply for the holder of Bearer receipts voting on the
basis of such a proxy.
The restrictions under which the Trust will grant a voting proxy to holders of
Bearer receipts are:
Voting instructions of holders of Bearer receipts of Ordinary shares to the
Trust
Holders of Bearer receipts are entitled to give binding instructions to the
Trust, concerning the Trusts exercise of the voting rights attached to its
Ordinary shares. The Trust will follow such instructions for a number of
Ordinary shares equal to the number of Bearer receipts held by the relevant
holder of Bearer receipts.
Voting of the Ordinary shares by the Trust
The Trust will only determine its vote with respect to the Ordinary shares of
ING Groep N.V., held by the Trust, that correspond with Bearer receipts:
For the Ordinary shares for which the Trust may determine its vote, the Trust
is required, under the terms of the Trust Agreement, to make use of the voting
rights associated with these Ordinary shares, in such a manner that the
interest of holders of Bearer receipts and the interests of holders of shares
of ING Groep N.V. be served, taking into account the interests of (i) ING Groep
N.V., (ii) the enterprises sustained by ING Groep N.V. and the companies
affiliated as a group with ING Groep N.V, and (iii) all other parties connected
with ING Groep N.V., in such a way that all these interests be balanced and
safeguarded.
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Administration of the Trust
The Management Board will determine the number of its members itself, subject
to the restriction that there may be no more members than seven and no less
than three. Managing Directors will be appointed by the Management Board itself
without any approval from ING Groep N.V. or any of its corporate bodies being
required. Members of any corporate body of ING Groep N.V. are no longer
eligible for appointment as a Managing Director.
Valid resolutions may be passed only if all Managing Directors have been duly
notified, except that in a case where there is no such notification valid
resolutions may nevertheless be passed by unanimous consent at a meeting at
which all Managing Directors are present or represented. A Managing Director
may be represented only by a fellow Managing Director who is authorized in
writing. All resolutions of the Management Board shall be passed by an absolute
majority of the votes.
The legal relationship between holders of Bearer receipts and the Trust is
governed entirely by Netherlands law.
Termination of the Trust
Should the Trust be dissolved or wish to terminate its function under the Trust
Agreement, or should ING Groep N.V. wish to have such function terminated, ING
Groep N.V. shall, in consultation with the Trustee and with the approval of the
meeting of holders of Bearer receipts, appoint a successor to whom the
administration can be transferred. The successor shall have to take over all
commitments under the Trust Agreement. Within two months of the decision to
dissolve or terminate the Trust, the Trust shall have the shares which it holds
for administration transferred into its successors name. For a period of two
months following notification of succession of the administration, holders of
Bearer receipts may elect to obtain free of charge, shares of type of which
they hold Bearer receipts. In no case shall the administration be terminated
without ING Groep N.V.s approval.
Holders of Bearer receipts with a stake of 5% or more
According to filings under the Dutch Act on the Disclosure of Significant
Interests, only three shareholders held more than 5% of the Bearer receipts of
ING Groep N.V. as of December 31, 2003. They were ABN AMRO, Aegon and Fortis.
To the best of our knowledge, there are no other shareholders who own a more
than 5% interest in Bearer receipts of ING Groep N.V. Because shareholders are
permitted to report their cumulative holdings of Bearer Receipts and are not
required to separately identify which are with respect to preferred shares and
which are with respect to ordinary shares, we are not able to accurately
identify holders who own more than a 5% interest in Bearer Receipts for
ordinary shares.
The following table sets forth the share ownership of each 5% holder of ING
issued capital.
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Under the Dutch Act on the Disclosure of Significant Interests, shareholders
are not required to provide updated information or make regular additional
filings. As a result, we are not, nor would we be likely to be, aware of any
significant changes in the ownership of ING Groep N.V. Bearer receipts.
None of these major shareholders possesses voting rights different from those
possessed by other shareholders. The voting rights of the majority of ING
ordinary shares are held by the Trust. As of December 31, 2003, shareholders in
the Netherlands held approximately 353 million Bearer receipts, or 19% of the
total number of Bearer receipts then outstanding. As of December 31, 2003,
shareholders in the United States held approximately 430 million Bearer
Receipts (including ADSs), or 23% of the total number of Bearer receipts then
outstanding.
As of December 31, 2003, other than the Trust, no other person is known to the
Company to be the owner of more than 10% of the Ordinary shares or Bearer
receipts. As at December 31, 2003, members of the Supervisory Board held 16,487
ING Group Bearer receipts and 387 ING Group warrants. If Supervisory Board
members hold ING options that were granted in their former capacity as member
of the ING Executive Board, these options are part of the ING Stock option plan
described in Note 3.2.3. to the Consolidated Financial Statements.
Related Party Transactions
As of December 31, 2003, the amount outstanding in respect of loans and
advances made to members of the Supervisory Board was EUR 1.8 million, at an
average interest rate of 4.7%. The amount outstanding in respect of loans and
advances, mostly mortgages, to members of the Executive Board was EUR 2.2
million, at an average interest rate of 4.6%. The largest aggregate amount of
loans and advances outstanding to members of the Supervisory Board and the
Executive Board during 2003 was EUR 4.4 million.
The loans and advances mentioned in the preceding paragraph (i) were made in
the ordinary course of business, (ii) were granted on conditions that are
comparable to those of loans and advances granted to people in peer groups and
(iii) did not involve more than the normal risk of collectibility or present
other unfavorable features. For the members of the Supervisory Board this means
that the conditions have been set according to prevailing commercial
conditions. For members of the Executive Board this means that the conditions
have been set according to the prevailing conditions for ING personnel.
As described under Item 6. Directors, Senior Management and Employees, some
members of the Supervisory Board are current or former senior executives of
leading multi-national corporations based primarily in The Netherlands. ING
Group may at any time have lending, investment banking or other financial
relationships with one or more of these corporations in the ordinary course of
business on terms which we believe are no less favorable to ING than those
reached with unaffiliated parties of comparable creditworthiness.
Item 8. Financial information
Legal Proceedings, Consolidated Statements and Other Financial Information
See item 18, Financial Statements on pages F-1 through F-138.
ING Group companies are involved in litigation and arbitration proceedings in
the Netherlands and in a number of foreign jurisdictions, including the United
States, involving claims by and against them which arise in the ordinary course
of their businesses, including in connection with their activities as insurers,
lenders, employers, investors and taxpayers. In certain of such proceedings,
very large or indeterminate amounts are sought, including punitive and other
damages. While it is not feasible to predict or determine the ultimate outcome
of all pending or threatened legal and regulatory proceedings, management does
not believe that their outcome will have a material adverse effect on the
Groups financial position or results of operations.
These legal proceedings include a claim filed by the Mexican fertilizer
producer Fertinal against ING Comercial América, a wholly owned subsidiary of
ING Group. Fertinal claims EUR 238 million (USD
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300 million) from ING Comercial América, the maximum coverage under the
insurance policy of their mining operations. The case is disputed before a
judge in Mexico; we cannot assess the final outcome. Fertinal has also filed a
criminal complaint of fraud against ING Comercial América and some of its
employees, the outcome of which is also yet unclear.
In The Netherlands ING Bank, together with all other major Dutch banks and
their joint venture Interpay, are the subjects of an examination by the Dutch
competition authority Nederlandse Mededingings-autoriteit or NMa. Allegedly
the Dutch banks and Interpay have artificially kept the prices for the use of
electronic payment systems higher than necessary. This investigation could
result in a fine to be paid, but whether such fine will be imposed and, if so,
what the amount of the fine will be, is still uncertain.
Like many other companies in the U.S. mutual fund and insurance industries,
several of our U.S. companies have received informal and formal requests for
information from various U.S. and state governmental and self-regulatory
agencies in connection with investigations related to trading of mutual funds
and variable insurance products. ING is responding to the requests and is also
conducting its own review with the assistance of outside counsel. While the
investigations have not been concluded, we believe that any questionable
arrangements or trading that have been identified thus far do not represent a
systemic problem in the businesses involved and that the outcome of the
investigations will not be material to ING Group.
DIVIDENDS
ING Groep N.V. has declared and paid dividends each year since its formation in
1991. Each year, a final dividend in respect of the prior year is generally
declared at and paid after the annual General Meeting of Shareholders generally
held in April of each year. An interim dividend is generally declared and paid
in September, based upon the results for the first six months. The declaration
of interim dividends is subject to the discretion of the Executive Board of ING
Groep N.V., whose decision to that effect is subject to the approval of the
Supervisory Board of the Company. The Executive Board decides, subject to the
approval of the Supervisory Board of ING Groep N.V., which part of the annual
profits (after payment of dividends on Preference shares and Cumulative
Preference shares) will be added to the reserves of ING Groep N.V. The part of
the annual profits that remains after this addition to the reserves and after
payment of dividends on Preference shares and Cumulative Preference shares is
at the disposal of the General Meeting of Shareholders, which may declare
dividends therefrom and/or add additional amounts to the reserves of ING Groep
N.V. A proposal of the Executive Board with respect thereto is submitted to the
General Meeting of Shareholders. The declaration and payment of dividends and
the amount thereof is dependent upon the Companys results of operations,
financial condition, cash requirements, future prospects and other factors
deemed relevant by the Executive Board in determining the appropriate amount of
reserves and there can be no assurance that the Company will declare and pay
any dividends in the future.
ING Groep N.V. has historically provided shareholders with the option of
receiving dividends either in cash or in the form of additional Ordinary
shares. Until the final dividend for the year 1998 (paid in May 1999), if a
shareholder opted to receive the dividend in cash, Ordinary shares were
consequently not issued to such shareholder but were sold by ING Groep N.V. on
the open market in the form of Bearer receipts. Beginning with the interim
dividend for 1999, ING changed its dividend policy, and will only issue new
shares for its shareholders that have opted to receive a stock dividend.
At the
end of 2000 ING announced that starting with the final 2000 dividend, dividends
will be paid in cash only. This decision was based on two reasons: First, it
will prevent dilution, and second, the tax benefit for individual shareholders
in the Netherlands resulting from the stock dividend choice no longer applied
as a result of the Income Tax Act that was effective from January 1, 2001.
In order to further strengthen the capital base, the Annual General Meeting of
Shareholders on April 15, 2003 approved the reintroduction of the option of
receiving dividends either in cash or in the form of additional Ordinary
shares. If a shareholder opts to receive the dividend in cash, Ordinary shares
will be issued but not to such shareholders. These will be sold by or on behalf
of ING Groep N.V. on the open market in the form of Bearer receipts.
Shareholders will have five AEX stock-exchange days, beginning with the
ex-dividend date, to indicate their preference for dividend payment in cash or
in (bearer receipts for) Ordinary shares. The exact value of the
(interim) dividend in (bearer receipts for) Ordinary shares will be established
based on the weighted average price of ING shares on the AEX
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during this five-day period. Based on this price, ING will determine the value
difference between the payment in shares and the payment in cash. The payment
in shares can be slightly higher than the payment in cash. ING has deliberately
chosen this five-day period for the value determination in order to avoid being
dependent on chance price fluctuations of ING shares on one particular day.
Cash distributions on ING Groep N.V.s Ordinary shares and Bearer receipts are
generally paid in euros. However, the Executive Board may decide, with the
approval of the Supervisory Board, to declare dividends in the currency of a
country other than the Netherlands in which the Bearer receipts are trading.
Amounts payable to holders of ADSs that are paid to the Depositary in a
currency other than dollars will be converted to dollars and subjected to a
charge by the Depositary for any expenses incurred by it in such conversion.
The right to cash dividends and distributions in respect of the Ordinary shares
will lapse if such dividends or distributions are not claimed within five years
following the day after the date on which they were made available.
If a distribution by ING Groep N.V. consists of a dividend in Ordinary shares,
such Ordinary shares will be held by the Trust, and the Trust will distribute
to the holders of the outstanding Bearer receipts, in proportion to their
holdings, additional Bearer receipts issued for the Ordinary shares received by
the Trust as such dividend. In the event the Trust receives any distribution
with respect to Ordinary shares held by the Trust other than in the form of
cash or additional shares, the Trust will adopt such method as it may deem
legal, equitable and practicable to effect such distribution.
If ING Groep N.V. offers or causes to be offered to the holders of Ordinary
shares the right to subscribe for additional shares, the Trust, subject to
applicable law, will offer to each holder of Bearer receipts the right to
subscribe for additional Bearer receipts of such shares on the same basis.
If the Trust has the option to receive such distribution either in cash or
shares, the Trust will give notice of such option by advertisement and give
holders of Bearer receipts the opportunity to choose between cash and shares
until the fourth day before the day on which the Trust must have made such
choice. Holders of Bearer receipts may receive an equal nominal amount in
Ordinary shares, provided that they are natural persons, they do not hold more
than 1% of issued share capital of ING Groep N.V., in the form of Ordinary
shares, and they meet any other criteria set forth in the Articles of
Association. These transfer and holding restrictions will be abolished under
the Proposal.
There are no legislative or other legal provisions currently in force in the
Netherlands or arising under ING Groep N.V.s Articles of Association
restricting the remittance of dividends to holders of Ordinary shares, Bearer
receipts or ADSs not resident in the Netherlands. Insofar as the laws of the
Netherlands are concerned, cash dividends paid in Euro may be transferred from
the Netherlands and converted into any other currency, except that for
statistical purposes such payments and transactions must be reported by ING
Groep N.V. to the Dutch Central Bank (De Nederlandsche Bank N.V.) and, further,
no payments, including dividend payments, may be made to jurisdictions or
persons, that are subject to certain sanctions, adopted by the Government of
the Netherlands, implementing resolutions of the Security Council of the United
Nations, or adopted by the European Union. Dividends are subject to withholding
taxes in the Netherlands as described under Item 10. Additional Information
Taxation Netherlands Taxation.
Since December 31, 2003 no significant changes have occurred in the financial
statements of the Group included in Item 18, Financial Statements of this
document.
Item 9. The offer and listing
Bearer receipts representing Ordinary shares (nominal value EUR 0.24 per share)
are traded on the Official Market of Euronext Amsterdam N.V.s Stock Exchange,
the principal trading market for the Bearer receipts. The Bearer receipts are
also listed on the stock exchanges of Euronext Brussels, Euronext Paris,
Deutsche Börse as well as on the Swiss Exchange. As of December
31, 2003, ING Group was the second largest company quoted on the Euronext
Amsterdam Stock Exchange, based on market capitalization. ING Bank is one of
the principal market-makers for the Bearer receipts on the Euronext Amsterdam
Stock Exchange.
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Since June 13, 1997, American Depositary Shares (ADS), each representing one
Bearer receipt in respect of one Ordinary share, have traded on the New York
Stock Exchange under the symbol ING, and are the principal form in which the
Bearer receipts are traded in the United States. Prior to June 13, 1997, there
was no active trading market for the ADSs. The ADSs are issued by JP Morgan
Chase Bank, as Depositary, pursuant to an Amended and Restated Deposit
Agreement dated March 16, 2004, among the Company Stichting ING Aandelen, as
Trustee, such Depositary and the holders of ADSs from time to time. Stichting
ING Aandelen (the Trust) holds all voting rights over the Ordinary shares,
and pursuant to the Trust Constitution and Trust Conditions, the Trust will
grant proxies to holders of the Bearer receipts. See Item 7 Major
shareholders and related party transactions. Under the Amended and Restated
Deposit Agreement holders of ADSs may instruct the Depositary as to the
exercise of proxy voting rights associated with the ADSs. As of December 31,
2003, there were 109,488,152 ADSs outstanding, representing an equal number of
Bearer receipts. The ADSs were held by 915 record holders. Because certain of
the ADSs were held by brokers or other nominees and the Bearer Depositary
receipts are held in bearer form and due to the impracticability of obtaining
accurate residence information for all such shareholders, the number of holders
of record or registered holders in the United States is not representative of
the number of beneficial holders or of the residence of the beneficial holders.
As of December 31, 2003, approximately 19% of the Bearer receipts were held by
Dutch investors, approximately 25% by investors in the U.K. and approximately
23% by investors in the United States and Canada (including as represented by
ADSs).
The following are the high and low sales prices of the Bearer receipts on the
Euronext Amsterdam Stock Exchange, and the ADSs on the New York Stock Exchange,
for the period 1999 February 27, 2004:
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Item 10. Additional information
Memorandum and Articles of Association
ING Groep N.V. is a holding company organized under the laws of The
Netherlands. Our object and purpose, as set forth in Article 3 of our Articles
of Association, is to participate in, manage, finance, provide personal or real
security for the obligations of, and provide services to other business
enterprises and institutions of any kind whatsoever, but in particular business
enterprises and institutions which are active in the field of insurance,
banking, investment and/or financial services, and to do anything which is
related to the foregoing or may be conducive thereto. ING Groep N.V. is
registered under the number 33231073 in the Company Registry of Amsterdam and
our Articles of Association are available there.
Certain Powers of Directors
The Supervisory Board determines the compensation of the members of the
Executive Board and the compensation of members of the Supervisory Board is
determined by the General Meeting of Shareholders. Neither members of the
Executive Board nor members of the Supervisory Board will vote on compensation
for themselves or any other member of their body.
Our Articles of Association do not contain any age limits for retirement of the
members of the Executive Board and members of the Supervisory Board.
Nevertheless, it has become standard practice for Executive Board members to
retire at the age of 60. Pursuant to the Articles of Association, members of
the Supervisory Board are appointed for a four-years term and may be
re-appointed for no more than two additional four-year terms.
Members of the Executive Board and the Supervisory Board are not required to
hold any shares of ING Groep N.V. to qualify as such.
Description of Shares
A description of our securities, and other information with respect to
shareholders, annual meetings, changes in capital and limitations on changes in
control can be found in our registration statements filed with the Commission
on Form F-1 on June 12, 1997 and in this Annual Report under the heading Item
7 Major Shareholders and Related Party Transactions.
Material contracts
There have been no material contracts (outside the ordinary course of business)
to which ING is a party in the last two years.
Documents on Display
We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended. In accordance with these requirements, we file reports and
other information with the Securities and Exchange Commission. These materials,
including this annual report and its exhibits, may be inspected and copied at
the SECs public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for more information about the
public reference room and the copy charges. You may also inspect our SEC
reports and other information at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005, or on our website at http://www.ing.com.
Exchange controls
Cash distributions, if any, payable in euros on Ordinary shares, Bearer
receipts and ADSs may be officially transferred from the Netherlands and
converted into any other currency without violating Dutch law, except that for
statistical purposes such payments and transactions must be reported by
134
ING Groep N.V. to the Dutch Central Bank and, further, no payments, including
dividend payments, may be made to jurisdictions subject to certain sanctions,
adopted by the government of the Netherlands, implementing resolutions of the
Security Council of the United Nations.
Restrictions on voting
The ADSs represent interests in the Bearer receipts of the Trust, which holds
the Ordinary shares for which such Bearer receipts are issued. See Item 7.
Major Shareholders and Related Party Transactions. The Trust is the holder of
all Ordinary shares underlying the Bearer receipts. Only holders of shares
(including the Trust) may vote at General Meetings of Shareholders.
Holders of Bearer receipts are entitled to attend and speak at General Meetings
of Shareholders of the Company; however holders of Bearer receipts (including
the Depositary on behalf of the holders of ADSs) as such are not entitled to
vote at such meetings. However, as set out in Item 7. Major Shareholders and
Related Party Transactions, the Trust will grant a proxy to the effect that
such holder of Bearer receipts may, in the name of the Trust, exercise the
voting rights attached to a number of its Ordinary shares that corresponds to
the number of Bearer receipts held by him. On the basis of such a proxy the
holder of Bearer receipts may vote according to its own
discretion.
Obligations of shareholders to disclose holdings
The Netherlands Act on Disclosure of Holdings in Listed Companies (the Major
Holdings Act) applies to any person who, directly or indirectly, acquires or
disposes of an interest in the voting rights and/or the capital of a public
limited company incorporated under the laws of the Netherlands with an official
listing on a stock exchange within the European Economic Area, as a result of
which acquisition or disposal the percentage of voting rights or capital
interest acquired or disposed of reaches, exceeds or falls below 5%, 10%, 25%,
50% or 66 2/3%. With respect to ING Groep N.V., the Major Holdings Act would
require any person whose interest in the voting rights and/or capital of ING
Groep N.V. reached, exceeded or fell below those percentage interests, whether
through ownership of Bearer receipts, Ordinary shares, ADSs, Preference shares,
Options or Warrants, to notify in writing both ING Groep N.V. and the Financial
Markets Authority of the Netherlands (Autoriteit Financiële Markten)
immediately after the acquisition or disposal of the triggering interest in ING
Groep N.V.s share capital.
Upon ING Groep N.V.s receipt of the notification, the information will be
disclosed, as notified, forthwith to the public by means of an advertisement in
a newspaper distributed throughout the Netherlands. Noncompliance with the
obligations of the Major Holdings Act can lead to criminal prosecution. In
addition, a civil court can issue orders against any person who fails to notify
or incorrectly notifies the Financial Markets Authority or ING Groep N.V., in
accordance with the Major Holdings Act, including suspension of the voting
right in respect of such persons Ordinary shares.
TAXATION
The following is a summary of the Netherlands tax consequences, and the United
States Federal income tax consequences, of the ownership of Bearer receipts or
American Depositary Shares (ADSs) by U.S. Shareholders (as defined below).
For purposes of this summary a U.S. Shareholder is a beneficial owner of
Bearer receipts or ADSs that is:
The summary is a general description of the present Netherlands and United
States Federal income
135
tax laws and practices as well as the relevant provisions of the present double
taxation treaty between the Netherlands and the United States (the Treaty).
It should not be read as extending to matters not specifically discussed, and
investors should consult their own advisors as to the tax consequences of their
ownership and disposal of Bearer receipts or ADSs. In particular, the summary
does not take into account the specific circumstances of any particular
investors (such as banks, insurance companies, dealers in securities, traders
in securities that elect to mark-to-market their securities holdings, investors
liable for alternative minimum tax, investors whose functional currency is not
the U.S. dollar, investors that actually or constructively own 10% or more of
the voting stock of ING Groep N.V. or investors that hold Bearer receipts or
ADSs as part of a straddle or a hedging or conversion transaction), some of
which may be subject to special rules. The Netherlands rules applying to
holders of a substantial interest in broad terms, individuals who hold or
have held directly or indirectly either independently or jointly with certain
close relatives at least 5% of the nominal paid-up capital or of any class of
shares in ING Groep N.V. are not addressed in this summary. With respect to
U.S. Shareholders, this summary generally applies only to holders who hold
Bearer receipts or ADSs as capital assets. The summary is based in part upon
the representations of the Depositary and the assumption that each obligation
in the Deposit Agreement and any related agreement will be performed in
accordance with its terms.
In general, for United States Federal income and Netherlands tax purposes,
holders of Bearer receipts will be treated as the owners of the Ordinary shares
underlying the Bearer receipts, holders of American Depositary Receipts
(ADRs) evidencing ADSs will be treated as the owners of the Ordinary shares
evidenced by Bearer receipts, and exchanges of Ordinary shares for Bearer
receipts and then for ADSs, and exchanges of ADSs for Bearer receipts and then
for Ordinary shares, will not be subject to United States Federal or
Netherlands income tax.
It is assumed, for purposes of this summary, that a U.S. shareholder is
eligible for the benefits of the Treaty and that a U.S. Shareholders
eligibility is not limited by the limitations on benefits provisions of article
26 of the Treaty.
NETHERLANDS TAXATION
Withholding tax on dividends
The Netherlands imposes a withholding tax on a distribution of a dividend at
the rate of 25%. Stock dividends paid out of ING Groep N.V.s paid-in share
premium recognized for Netherlands tax purposes as such are not subject to the
above withholding tax.
Under the Treaty, dividends paid by ING Groep N.V. to a resident of the United
States (other than an exempt organization or exempt pension trust, as defined
in the Treaty) who is the beneficial owner of the dividends are generally
eligible for a reduction of Netherlands withholding tax to 15%, provided that
such resident does not have an enterprise which carries on a business in the
Netherlands through a permanent establishment or a permanent representative or
performs independent personal services from a fixed base situated in the
Netherlands to which or to whom the Bearer receipts or ADSs are attributable.
Such reduced dividend withholding rate can be applied for at source upon
payment of the dividend submitting a form IB 92 USA prior to the dividend
payment date, which form includes a bankers affidavit stating that the Bearer
receipts or ADSs are in the banks custody in the name of the applicant, or
that the Bearer receipts or ADSs have been exhibited to the bank as being the
property of the applicant. A U.S. Shareholder who is unable to claim
withholding tax relief in this manner can obtain a refund or excess tax
withheld by filing a Form IB 92 USA and describing the circumstances that
prevented a claim for withholding tax relief at source. In case above-mentioned
beneficial owner of the dividends is a company which holds directly at least 10
percent of the voting power of ING Groep N.V. a further reduction of Dutch
dividend withholding tax to 5% can be applied for.
The Treaty provides for a complete exemption from withholding for dividends
received by exempt pension trusts and other exempt organizations, as defined in
the Treaty. Qualifying exempt pension trusts may claim the benefits of a
reduced withholding tax rate pursuant to article 35 of the Treaty. Qualifying
exempt pension trusts normally remain subject to withholding at the rate of 25%
and are required to file for a refund of the tax withheld. Only if certain
conditions are fulfilled,
such pension trusts may be eligible for relief at source upon payment of the
dividend. Qualifying exempt
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organizations (other than qualifying exempt pension trusts) are subject to
withholding at the rate of 25% and can only file for a refund of the tax
withheld.
There is currently an arrangement with the Netherlands Ministry of Finance
under which U.S. Shareholders of outstanding ADSs (but not holders of Bearer
receipts) of ING Groep N.V. may obtain the lower 15% withholding rate under the
Treaty without filing forms described above. The arrangement also applies to
qualifying exempt pension trusts but not to other exempt organizations.
On August 29, 2002 dividend-stripping rules have been introduced in Netherlands
tax law. These rules have retroactive effect per April 27, 2001. The rules
provide that in the case of dividend-stripping, the 25% dividend withholding
tax cannot be reduced or refunded. Dividend-stripping is deemed to be present
if the recipient of a dividend is, different from what has been assumed above,
not the beneficial owner thereof and is entitled to a larger credit, reduction
or refund of dividend withholding tax than the beneficial owner of the
dividends. Under these rules, a recipient of dividends will not be considered
the beneficial owner thereof if as a consequence of a combination of
transactions a person other than the recipient wholly or partly benefits form
the dividends, whereby such person retains, whether directly or indirectly, an
interest in the share on which the dividends were paid.
Currently ING Groep N.V. may, with respect to certain dividends received from
qualifying non-Netherlands subsidiaries, credit taxes withheld from those
dividends against the Netherlands withholding tax imposed on certain qualifying
dividends that are redistributed by ING Groep N.V., up to a maximum of the
lesser of
The reduction is applied to the Dutch dividend withholding tax that ING Groep
N.V. must pay to the Dutch tax authorities and not to the Dutch dividend
withholding tax that ING Groep N.V. must withhold. Taxes on income and capital
gains
A U.S. Shareholder will not be subject to Netherlands income tax or corporation
tax, other than the withholding tax described above, or capital gains tax,
provided that:
Gift, estate or inheritance tax
No Netherlands gift, estate or inheritance tax will be imposed on the
acquisition of Bearer receipts or ADSs by gift or inheritance from a holder of
Bearer receipts or ADSs who is neither resident nor deemed resident in the
Netherlands, provided that the ADSs or Bearer receipts are not attributable to
an enterprise which in its entirety or in part is carried on through a
permanent establishment or a permanent representative in the Netherlands.
Furthermore, Dutch gift and inheritance tax is due if the holder of Bearer
receipts or ADSs dies within 180 days of making the gift, and at the time of
death is a resident or deemed resident of the Netherlands. A non-resident
Netherlands citizen, however, is still treated as a resident of the Netherlands
for gift and inheritance tax purposes for ten years after leaving the
Netherlands. An individual with a non-Dutch nationality is deemed to be a
resident of the Netherlands for the purposes of Dutch gift tax if he or she has
been resident in the Netherlands at any time during the 12 months preceding the
date of the gift.
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UNITED STATES TAXATION
Taxes on income
For United States Federal income tax purposes, a U.S. Shareholder will be
required to include in gross income the full amount of a cash dividend
(including any Netherlands withholding tax withheld) as ordinary income when
the dividend is actually or constructively received by the Trust in the case of
Bearer receipts, or the Depositary in the case of ADSs. For this purpose, a
dividend will include any distribution paid by ING Groep N.V. with respect to
the Bearer receipts or ADSs, but only to the extent such distribution is not in
excess of ING Groep N.V.s current and accumulated earnings and profits as
defined for United States Federal income tax purposes. Such a dividend will
constitute income from sources outside the United States. A dividend will not
be eligible for the dividends received deduction generally allowed to United
States corporations in respect of dividends received from other United States
corporations. If you are a noncorporate U.S. Shareholder, dividends paid to you
in taxable years beginning after December 31, 2002 and before January 1, 2009
that constitute qualified dividend income will be taxable to you at a maximum
tax rate of 15% provided that you hold the Bearer receipts or ADSs for more
than 60 days during the 120-day period beginning 60 days before the ex-dividend
date and meet other holding period requirements. On February 19, 2004, the IRS
announced that it will permit taxpayers to apply a proposed legislative change
to the holding period requirement described in the preceding sentence as if
such change were already effective. This technical correction would change
the minimum required holding period, retroactive to January 1, 2003, to more
than 60 days during the 121-day period beginning 60 days before the ex-dividend
date. Dividends we pay with respect to the Bearer receipts or ADSs generally
will be qualified dividend income.
Subject to the limitations provided in the United States Internal Revenue Code,
a U.S. Shareholder may generally deduct from income, or credit against its
United States Federal income tax liability, the amount of any Netherlands
withholding taxes under the Treaty. The Netherlands withholding tax will likely
not be creditable against the U.S. Shareholders United States tax liability,
however, to the extent that ING Groep N.V. is allowed to reduce the amount of
dividend withholding tax paid over to the Netherlands Tax Administration by
crediting withholding tax imposed on certain dividends paid to ING Groep N.V.
ING Groep N.V. will endeavor to provide to U.S. Shareholders information
concerning the extent to which it has applied the reduction described above
with respect to dividends paid to U.S. Shareholders. In addition, special rules
apply in determining the foreign tax credit limitation with respect to
dividends that are subject to the maximum 15% tax rate.
Because payments of dividends with respect to Bearer receipts and ADSs will be
made in euros, a U.S. Shareholder will generally be required to determine the
amount of dividend income by translating the euro into United States dollars at
the spot rate on the date the dividend distribution is includable in the
income of the U.S. Shareholder. Generally, any gain or loss resulting from
currency exchange fluctuations during the period from the date the dividend
distribution is includable in the income of the U.S. Shareholder to the date
such payment is converted into United States dollars will be treated as
ordinary income or loss. Such gain or loss will generally be income or loss
from sources within the United States for foreign tax credit limitation
purposes.
Taxes on capital gains
Gain or loss on a sale or exchange of Bearer receipts or ADSs by a U.S.
Shareholder will generally be a capital gain or loss for United States Federal
income tax purposes. If such U.S. Shareholder has held the Bearer receipts or
ADSs for more than one year, such gain or loss will generally be long term
capital gain or loss. Long term capital gain of a non-corporate U.S.
Shareholder that is recognized on or after May 6, 2003 and before January 1,
2009 is generally subject to a maximum tax rate of 15%. In general, gain or
loss from a sale or exchange of Bearer receipts or ADSs by a U.S. Shareholder
will be treated as United States source income or loss for United States
foreign tax credit limitation purposes.
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Passive foreign investment company
ING Groep N.V. believes that it is not a passive foreign investment company (a
PFIC) for United States Federal income tax purposes. This is a factual
determination that must be made annually and thus may change.
If ING Groep N.V. were to be treated as a PFIC, unless a U.S. Shareholder makes
an effective election to be taxed annually on a mark-to-market basis with
respect to the Bearer receipts or ADSs, any gain from the sale or disposition
of Bearer receipts or ADSs by a U.S. Shareholder would be allocated ratably to
each year in the holders holding period and would be treated as ordinary
income. Tax would be imposed on the amount allocated to each year prior to the
year of disposition at the highest rate in effect for that year, and interest
would be charged at the rate applicable to underpayments on the tax payable in
respect of the amount so allocated. The same rules would apply to excess
distributions, defined generally as distributions exceeding 125% of the
average annual distribution made by ING Groep N.V. over the shorter of the
holders holding period or the three preceding years.
A U.S. Shareholder who owns Bearer receipts or ADSs during any year that ING
Groep N.V. is a PFIC must file Internal Revenue Service Form 8621.
Item 11 Quantitative and Qualitative Disclosure of Market Risk
Introduction
The Executive Board gives a high priority to risk management and risk control.
By virtue of the Groups size and its wide variety of activities, types of
clients and geographic regions, ING seeks to maintain the highest quality of
risk management and control and to apply the most up-to-date and reliable
methods available, not only to protect the Group itself but also its clients
and shareholders. ING has comprehensive risk management and control procedures
in place at all levels within the Group, which enable the Group to control and
monitor risks and the accumulation of risks. The risk governance and systems of
controls in use ensure management that risks are being measured, monitored and
reported adequately and effectively. The principal risks are credit risk,
market risk, insurance risk, liquidity risk and operational risk.
Risk Policy Committee (RPC)
The RPC evaluates and sets ING Groups overall risk profile, aiming for a
balance between risk, return and capital. The Committee advises the Executive
Board on:
RPC ensures that the risk-management organization adequately supports the risks
ING incurs, that the risk-management process is properly audited and that
improvements in this process are completed to meet regulatory and internal
requirements. INGs risk profile, risk-management processes and systems of
internal controls in relation to market developments are assessed in quarterly
RPC meetings. The RPC consists of members of the Executive Board, as well as
the heads of Corporate Audit Services, Corporate Control & Finance, Corporate
Market Risk Management, Corporate Credit Risk Management and Corporate
Insurance Risk Management.
The below-mentioned risk committees act within the overall risk-policy
guidelines and delegated authorities granted by the RPC. These committees also
ensure a close link with the business units through representation of business
heads on the committees.
Central Credit Committee ING Bank (CKC)
The CKC is the highest credit approval body within ING Bank. It establishes
country limits, country ratings, credit limits and counterparty limits and
advises the Executive Board on provisions. CKC
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oversees other credit committees covering the entire business of ING Bank. The
CKC meets on a weekly basis and is chaired by the CFO.
ING Group Risk Concentration Committee (IRCC)
The IRCC advises the Executive Board about ING Groups largest credit-risk
concentrations across portfolios of corporate customers, industries, financial
institutions and sovereign customers and provides recommendations on the
direction of the exposure, but not on specific limits. The IRCC meets on a
monthly basis and is chaired by the CFO.
ING Bank Provisioning Committee (IPC)
The IPC decides on ING Banks specific debtor- and country- provisioning levels
based on formal analyses of the credit portfolio, which take place on a
quarterly basis. The IPC meets on a quarterly basis and is chaired by the CFO.
Asset & Liability Committee ING Group (ALCO ING Group)
ALCO ING Group sets the overall risk profile of the parent company ING Groep
N.V. ALCO ING Group defines the policy regarding funding, liquidity,
interest-rate mismatch and foreign-exchange risks of the parent company. ALCO
ING Group meets on a monthly basis and is chaired by the CFO.
Asset & Liability Committee ING Bank (ALCO Bank)
ALCO Bank sets the overall risk profile of all ING Banks non-trading market
risk that occurs in its banking activities. ALCO Bank defines the policy
regarding funding, liquidity, interest-rate mismatch and solvency of ING Bank.
ALCO Bank monitors balance-sheet developments, the funding structure, the
liquidity position, contingency funding and the interest-rate sensitivity of
interest margin. ALCO Bank is also responsible for the hedging of translation
risk of investments in foreign entities. ALCO Bank meets on a monthly basis and
is chaired by the CFO.
ING Bank Market Risk Committee (IMRC)
The IMRC sets the overall trading-risk profile of ING Bank. The IMRC sets
trading limits for normal market conditions (Value-at-Risk) and for events
(Event Risk) for all trading-risk categories (Foreign Exchange, Interest Rate
and Equity), as well as trading-issuer limits and underwriting limits. IMRC
also decides on new trading products and associated limits and on risk factors.
The IMRC meets on a monthly basis and is chaired by the CFO.
Asset & Liability Committee Insurance (ALCO Insurance)
ALCO Insurance is responsible for monitoring market risks (with relevant links
to actuarial risks) for all ING insurance activities. This includes volatility
(affecting earnings and value), exposure (required capital and market risk) and
translation risk (hedging). ALCO Insurance monitors and set standards for the
interest-rate risk of products sold, signs off on the investment mandates and
reviews the actual asset allocation and performance against the mandate. ALCO
Insurance meets six times during the year and is chaired by the CFO.
Operational Risk Committee ING Group (ORC)
The ORC advises the Executive Board on the operational-risk profile and
determines ING Groups policies concerning security and IT risk, compliance,
regulatory, legal and litigation issues, crisis and business continuity risk,
reputational risk, as well as management-information systems. The ORC meets on
a quarterly basis and is chaired by the CFO.
RAROC Directors Committee (RDC)
The RDC is responsible for the overall consistency of methodologies and methods
used in the banking
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RAROC framework. The RDC meets on a quarterly basis and is chaired by the head
of Corporate Control & Finance/Management Accounting.
Risk Management Departments
Risk management (measurement, monitoring and reporting) within ING is managed
by three departments at Group level: Corporate Credit Risk Management (CCRM),
Corporate Market Risk Management (CMRM) including Corporate Operational Risk
Management (CORM), and Corporate Insurance Risk Management (CIRM). The heads of
these departments (Corporate Risk Managers) report to the CFO. The risk
departments advise the risk committees and are responsible for the
harmonization and standardisation of risk-management practices, risk
definitions and standards, policies, procedures, models and methodologies.
The regional and local risk managers in the business entities have a functional
reporting line to the Corporate Risk Managers; the regional risk managers/local
risk managers ensure day-to-day risk analysis, proper measurement and controls,
aggregation of risks, policy development and standards within the overall
risk-governance framework.
Risk Adjusted Return on Economic Capital
ING Group applies the Risk Adjusted Return on Capital (RAROC) framework as a
management tool for its banking operations to consistently measure operational
performance on a risk-adjusted basis (which is linked to shareholder-value
creation). RAROC increases focus, in the decision-making process, on rewards
versus risk and consequently the use of scarce capital in the most efficient
way. Risk-adjusted pricing tools are used as a basis for the pricing of
transactions and as an important determinant in the credit-approval procedures.
RAROC is calculated as the risk-adjusted return divided by economic capital.
The risk-adjusted return is based on similar valuation principles as applied in
the financial accounts, with two important exceptions: the actual credit-risk
provisioning is replaced by expected losses reflecting statistically calculated
average credit losses over the entire economic cycle; secondly, the Profit and
Loss account is adjusted for effects that relate to replacing actual book
capital by economic capital.
Economic capital is defined as the amount of capital required to bear the
economic risks created by the activities of the company at the companys
desired level of comfort. ING uses a one-sided confidence interval of 99.95% -
consistent with our target debt rating (AA/Aa2 long term) - and a one-year time
horizon.
RAROC for banking operations (excluding ING Direct) by Management Centre
Other include items of Corporate lines, EC Americas, EC Asia Pacific and
Other Asset Management. 2002 figures have been restated.
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The total pre-tax RAROC for the banking operations corresponds to an after-tax
RAROC of 13.1% (excluding ING Direct) that can be compared with 10.2% for 2002.
Economic capital break-down by risk category ING Bank
The percentages shown by risk category reflect all diversification effects,
including risk reduction between the risk categories.
Diversification effects as a result of combining bank and insurance activities
are not taken into account.
ING Group continues to develop and refine the models supporting the RAROC
calculations. The overall consistency of methodologies and methods used is
governed by the RDC. All risks, except for business risk, are subject to an
independent control process with a functional reporting line to the Corporate
Risk Managers. Although business risk is factored into the planning and
budgeting process, business risk is not subject to an independent control
process, but is the responsibility of the relevant business units.
Credit Risk
INGs policy is to maintain an internationally diversified loan and bond
portfolio, while avoiding large risk concentrations. The emphasis is on
managing business developments within the regions by means of top-down
concentration limits for countries, individual borrowers and industries. The
aim is to expand relationship-banking activities, while maintaining stringent
internal risk/return guidelines and controls. For the investment portfolios
backing the insurance liabilities, INGs policy is to maintain a diversified
credit fixed-income investment portfolio within acceptable internally and
externally driven parameters.
Credit risk ING Bank
Credit risk is the risk of loss from the default by a debtor or counterparty.
Credit risks arise in INGs lending and investment activities, as well as in
its trading activities. Credit-risk management is supported by general
information systems and internal rating methodologies for debtor and
counterparties.
Risk analysis
Credit analysis is risk/reward-oriented whereby the level of
credit analysis is a function of the risk amount, tenor, structure (e.g. covers
received) of the facility, and the risks entered into. Continually more
sophisticated RAROC-based tools are used internally to ensure a proper balance
of risk and reward within the portfolio and concentration parameters
established by the RPC and the Credit Risk Committee (CRC is dedicated to the
harmonization of credit risk management practices through credit risk
definitions and standards, policies, procedures, models and methodology). INGs
credit analysts make use of publicly available information in combination with
in-house analysis based on information provided by the customer, peer-group
comparisons, industry comparisons and other quantitative tools.
Risk concentration monitoring
Corporate Credit Risk Management (CCRM) is
responsible for developing and maintaining common credit risk and country risk
policies and procedures throughout the Group. Additionally, CCRM is responsible
for evaluating country-, borrower- and counterparty-concentration risk issues
by applying senior risk management level oversight to the credit review and
monitoring activities of all business units. Lastly, CCRM is responsible for
consolidated credit risk reporting and improving risk-measurement techniques.
To achieve these goals, CCRM is responsible for standardizing tools and systems
used at all levels of credit risk management.
Delegated authorities
Within globally established procedures all banking units
of ING Bank have their own bodies for the approval of credits within a system
of delegated authorities. The RPC
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determines which authorities are delegated to various credit committees and
approval bodies. The credit-approval hierarchy is separate from line functions,
but has balanced participation from both senior credit risk and senior
commercial personnel.
Credit exposure The credit exposure of ING Bank is mainly related to
traditional lending to private individuals and businesses. Loans to private
individuals are mainly mortgage loans secured by residential property. Loans to
businesses are often collateralised, but can be unsecured based on internal
analysis of the borrowers creditworthiness. Credit exposure arises also from
trading activities, for instance in derivatives, repurchase transactions and
securities lending/borrowing.
Risk classes are defined based upon the quality of the lending portfolio in
terms of creditworthiness, varying from investment grade to problem grade.
Risk classes ING Bank in % of total outstandings (1)
(1) Based on the retail and wholesale lending activities and investments
The proportional increase in investment grade outstandings as a percent of
total outstandings is principally related to the growth of ING Direct.
Risk concentration ING Bank by Economic Sector
Debtor provisioning
The credit portfolio is under constant review. A formal
analysis takes place on a quarterly basis to determine the provisions for
possible bad debts, using a bottom-up approach. Conclusions are discussed in
IPC, which decides on specific provisioning levels. ING Group identifies
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as impaired loans those loans for which it is probable that the principal and
interest amounts contractually due will not be collected in a timely manner.
ING is of the opinion that its loan-loss provisions as of December 31, 2003 are
adequate to absorb losses from ING Banks credit risk taking activities.
Additions to the provision for loan losses ING Bank (based on risk country) (1)
(1) The regions are related to the risk country of the underlying credit risk.
Country risks ING Bank
Country risk is the risk that ING faces which is specifically attributable to
events in a specific country (or group of countries). Country risk is
identified in lending (corporate and counterparty), trading and investment
activities. All transactions and trading positions generated by ING include a
country risk. Country risk is further divided into economic and transfer risk.
Economic risk is the concentration risk relating to any event in the risk
country which may affect transactions and other exposure in that country,
regardless of the currency. Transfer risk is the risk incurred through the
inability of ING or its counterparties to meet their respective foreign
currency obligations due to a specific country event.
Limit setting and monitoring
In countries where ING is active, the risk profile
is regularly evaluated, resulting in a country rating. Country limits are based
on this rating and INGs risk appetite. Exposures derived from lending and
investment activities are then measured and reported against these country
limits on a daily basis. Country-risk limits are assigned for transfer risk,
generally only in emerging markets. The emerging-markets transfer risk as a
percentage of total retail and wholesale activities decreased from 6% in 2002
to 4.6% in 2003. Exposure is closely monitored for economic country risk,
although no formal limits are established. The table below shows the largest
economic country risks as of year-end 2003 compared with 2002.
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Largest economic exposures ING Bank by country (1) (amounts in billions of
euros)
Country-risk capital allocation
The methodology of calculating risk capital is
linked to the risk definitions with respect to determining where the country
risk occurs. Emerging market countries with low and medium risk that have not
defaulted, require no mandatory provisions for transfer risk. Instead of
provisions, additional capital is allocated to transactions that incur country
risk, the amount of which is a function of the risk of the country as well as
the risk of the transaction itself. For high risk countries that are near
default or have recently defaulted, adequate provisioning is a requirement.
INGs policies with respect to capital allocation and provisioning for country
risk are in line with the country-risk directives issued by the Dutch Central
Bank.
Largest cross border lending exposures ING Bank in emerging markets in excess
of EUR 750 million (1)
Settlement risks ING Bank
Settlement risk arises when there is an exchange of value (funds, instruments
or commodities) for the same or different value dates and receipt is not
verified or expected until ING has paid or delivered its side of the trade. The
risk is that ING delivers, but does not receive delivery from the counterparty.
Settlement risk can most commonly be contained and reduced by entering into
transactions with delivery-versus-payment (DVP) settlement methods, as is
common with most clearing houses, or settlement netting agreements. A recent
example is INGs participation in CLS Bank, a clearing house for FX trades.
For those transactions where DVP settlement is not possible, ING establishes
settlement limits through the credit approval process. Settlement risk is then
monitored and managed through the credit risk management units. The risk is
further mitigated by operational procedures requiring trade confirmations to
the counterparties with all transaction details, and entering into
internationally
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accepted documentation, such as International Swaps and Derivatives Association
(ISDA) Master Agreements for derivative transactions. Additionally, ING
regularly participates in projects with other banks to improve and develop new
clearing systems and clearing mechanisms to further reduce the level of
settlement risk.
Implementation of Basel II
In anticipation of the planned introduction of new global capital regulations
from the Basel Committee, ING has commenced a bankwide Basel project led by
CCRM. The goal of this project is to ensure INGs compliance with the new
regulations by the required implementation date of December 31, 2006. A key
element of the project is the continued development, implementation and
back-testing of in-house objective risk rating and loss-given default models
for use in the credit-approval process, risk reporting, performance monitoring
and portfolio management. Simultaneously, ING is refining its credit-risk
management governance and practices to conform to industry best practices and
regulatory requirements.
Credit Risk ING Insurance
Within the insurance companies the investment mandates specify credit-risk
appetite by type, quality and duration of security. For the investment
portfolios backing the insurance liabilities, INGs policy is to maintain a
diversified fixed-income investment portfolio within acceptable internally and
externally driven parameters.
The credit exposure of ING Insurance is mainly related to investments in debt
securities and traditional lending to private individuals. Loans to private
individuals are mainly mortgage loans secured by residential property. Credit
exposure arises also from derivatives, repurchase transactions, securities
lending/borrowing and reinsurance contracts.
The average credit rating of the general account fixed-income portfolios, as at
December 31, 2003, is shown in the table below.
ING Insurance Fixed-income securities by rating class
Total amount of the general account portfolio was EUR 98.4 billion (2002: EUR
96.5 billion) which excludes mortgages, policy loans and other
fixed-income investments.
Debtor provisioning For credit risks, a provision for loan losses is
maintained that is considered adequate to absorb losses arising from the
existing insurance investment portfolios. The provisions are reviewed on a
quarterly basis and amounted to EUR 178.5 million at the end of 2003 compared
with EUR 155 million at the end of 2002.
Market Risk and Liquidity Risk ING Bank
Market Risk
Market risk exists in ING Bank as a result of trading activities, which arises
primarily from market making, client facilitation and proprietary trading in
the equities, fixed income, interest-rate and foreign exchange markets and the
direct related derivatives markets. ING Bank has no material commodity
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portfolios. Market risk also exists as a result of non-trading activities. The
non-trading risk positions are mainly concentrated within Financial Markets
Treasury as a result of the transfer of interest-rate risk and (structural)
foreign exchange positions from the business units to Financial Markets
Treasury.
Trading risk
ING Banks policy is to maintain an internationally diversified and mainly
client-related trading portfolio, while avoiding large risk concentrations. ING
Bank uses the Value-at-Risk (VaR) methodology as the primary risk measure. An
event risk policy is implemented to estimate market-risk exposures in case of
extreme market movements.
Daily Value-at-Risk (VaR)
VaR for market risk quantifies, with a one-sided confidence level of 99%, the
maximum overnight loss that could occur due to changes in risk factors (e.g.
interest rates, foreign-exchange rates, equity prices) if positions remain
unchanged for a time interval of one day. The impact of historical market
movements on todays portfolio is estimated, based on market movements of the
previous 250 business days. The VaR also serves as a basis for the calculation
of the regulatory capital that ING Bank needs to hold to cover possible losses
from trading activities.
The average exposure over 2003 was slightly lower than 2002 (average VaR 2003:
EUR 25.3 million and average VaR 2002: EUR 26.5 million). The consolidated VaR
remained well within the Group consolidated VaR limit of EUR 50 million. More
details on the VaR of the ING Bank trading portfolio for 2003 and 2002 are
provided in the table below.
Consolidated Trading VaR ING Bank
Backtesting
Although VaR models estimate potential future results, estimates are based on
historical market data. ING continuously monitors the plausibility and
effectiveness of the VaR model in use. The technique for this purpose is
generally known as backtesting in which the actual daily result is compared
with the daily VaR. When the actual loss exceeds the VaR a back-test
occurence has taken place. Based on ING Banks one-sided 99% confidence level
a backtest occurence is expected, on average, once in a 100 business days. In
2003, there has been no occurence where a daily trading loss exceeded the daily
consolidated VaR of ING Bank.
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Event Risk
Since VaR in general does not produce an estimate of the potential losses that
can occur as a result of extreme market movements, ING uses highly structured
stress testing for monitoring the market risk under these extreme conditions.
Stress scenarios are based on historical and hypothetical extreme events. The
result of the stress testing is an Event Risk number, which is an estimate of
the P&L caused by a potential event and its world-wide impact for ING. The
event-risk policy (and its technical implementation) is specific for ING as
there is no calculation method that is generally accepted by other banks and
regulators (like the Value-at-Risk model). The ING event risk model for
event-risk calculation is approved by the Dutch Central Bank. The ING event
risk policy basically consists of stress parameters per country and per market
(foreign exchange, interest rate, equity, credit spread). The parameters
indicate historical maximum market movements within the time frame of one
month. The scenarios and stress parameters are backtested against extreme
market movements that actually occur in the markets.
Banking risk
Interest-rate risk
For the non-trading books of ING Bank there is a strong focus on interest-rate
risk. The structural interest mismatch of ING Bank and the changes in the
maturity profile of ING Banks assets and liabilities are reviewed every month
by the regional or local business unit ALCOs. ALCO Bank sets the overall
interest mismatch limits of ING Bank. The management of interest mismatch
positions is, within limits set by the respective ALCO, performed within the
treasury function. Commercial units are not allowed to run mismatch positions.
Therefore, all interest-rate risks must be transferred by way of internal
transactions with the treasury servicing the respective commercial unit. The
treasury uses interest-rate swaps and other derivatives for managing the
mismatch position.
Local market-risk management measures and monitors
interest-rate risk and reports positions and limit utilization to the
appropriate ALCO. For consolidation purposes, local market-risk management also
produces a gap report. Corporate Market Risk Management consolidates all gap
reports and reports the consolidated figures to both the ALCO Bank and the
Dutch Central Bank.
Maturity gaps are based upon the contractual maturity or
interest-rate re-pricing dates. The maturity-gap analysis for mortgages takes
into account historical prepayment rates. For the gap analysis of the current
accounts and savings accounts, the behavioral re-pricing characteristics of
these products are taken into account. Several methods like historical
simulation and volatility/correlation analysis are used for the analysis of the
assumptions of the investment rules for current and savings accounts. The funds
are invested in such a way that the interest rate margin is stable for a long
period.
ING Bank uses several measures to control interest-rate risk. The most
important ones are Earnings-at-Risk (EaR) and Value-at-Risk (VaR). EaR measures
the potential loss in the expected (interest) earnings over the next 12 months
resulting from an instantaneous rise of interest rates by 1%. VaR measures the
maximum overnight loss that could occur due to changes in interest rates if
positions remain unchanged for a time interval of one day with a one-sided
confidence interval of 99%. The table below provides risk figures for 2002 and
2003.
Interest-rate sensitivity ING Bank
The EUR 198 million increase in the EaR is due to changes in the gap profile
and the implementation of a more advanced dynamic simulation approach, which is
now used for a substantial part of the savings portfolios. The EUR 46 million
increase in VaR is due to changes in the gap profile.
The consolidated interest-rate position of ING Bank is presented below in gap
format as at December 31, 2003. This condensed format outlines the net of
repricing and maturing notional amounts from both the end-of-year asset and the
liability portfolios. The report comprises on-balance- and off-balance-
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sheet items (mainly interest-rate swaps) and only covers INGs banking
operations. This consolidated gap report is similar to the regulatory report on
interest-rate positions.
GAP profile of the main currencies within ING Bank non-trading books (December
31, 2003)
Foreign Exchange Risk
ING takes on exposure to foreign-exchange fluctuations on its financial
position and cash flows. Currency exposures in the non-trading books are
largely transferred by way of internal transactions to Financial Markets
Treasury which performs the day-to-day management of all foreign-currency
positions.
The most material foreign-exchange risk in the non-trading books relates to
translation risk due to foreign investments and USD-denominated Tier-1 capital.
For INGs main foreign currencies, US dollar, Pound sterling and Polish zloty,
the translation risk is managed by ALCO Bank, taking into account the effect of
translation results on the Tier-1 ratio. For all other currencies the
translation risk is managed by Financial Markets Treasury Amsterdam.
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Overnight translation exposure ING Bank for the main currencies and the overall
exposure (amounts in millions of euros)
At December 31, 2003 INGs USD-denominated Tier-1 securities amounted to EUR
3,289 million and have an impact on the open FX exposure of EUR 1,055 million.
To quantify the foreign exchange risks, the same Value-at-Risk (VaR) approach
is used as for the trading activities.
Consolidated FX VaR non-trading books ING Bank
Liquidity risk
Liquidity risk is the risk that ING Bank or one of its entities cannot meet its
financial liabilities when due. The ALCO Bank bears overall responsibility for
the liquidity strategy. ALCO Bank has delegated day-to-day management to the
treasury function. Treasury Amsterdam is responsible for managing the overall
liquidity-risk position, while regional and local treasuries are responsible
for managing liquidity in the respective regions. ING Banks policy is to
maintain an adequate cushion to meet its financial liabilities when due.
Liquidity management within ING Bank has two primary aspects. The first is the
day-to-day funding. The treasury monitors all maturing cash flows along with
expected changes in core-business funding requirements. This includes
replenishment of existing funds as they mature, expected withdrawals from
retail current accounts, savings and additional borrowings. The second building
block is to maintain an adequate mix of funding sources and liquid assets. ING
Bank aims for a well-diversified funding mix in terms of instrument types, fund
providers and geographic markets. ING Bank also maintains a broad portfolio of
highly marketable assets that can be easily used to bear disruptions in the
cash-flow profile. ING Bank has positions in multiple currencies. Positions
maintained in G-7
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currencies may, within VaR and country-risk limits, be funded in other
currencies. Positions maintained in non-G-7 currencies should as much as
possible be funded in the same currency.
Sources of liquidity are widely distributed over the entire ING Bank. ING Bank
has a broad base of core retail funding, which mainly consists of current
accounts, savings and retail deposits. Although these accounts are repayable on
demand or at short notice, the accounts are considered to form a stable
resource of funding because of the broad customer base. The retail funding is,
from a geographical point of view, widely spread, with most of the funding
located in the Euro zone. Especially the business units Postbank, ING Belgium,
ING Bank Netherlands and the European entities of ING Direct provide
significant amounts of retail funding. The marketable assets form another
important source of liquidity. ING Bank has relative large portfolios of
marketable assets of which the majority again is located in the Euro zone.
Please note that the reported figures in the tables below are based on specific
risk classifications and therefore deviate from the figures included in the
notes to the consolidated balance sheet.
Marketable assets (December 31, 2003)
Marketable assets originate from both trading and non-trading portfolios.
Retail funding (December 31, 2003)
In 2003, the classification of retail deposits has been aligned with financial
accounting- and internal liquidity risk management principles causing
a shift to savings.
The guidelines for the measurement of liquidity risk within ING Bank are fully
aligned with the requirements set by the Dutch Central Bank. The key focus is
on the periods of one week and one month. Positions are split by type of
product and counterpart. All positions with a known maturity date
are included in the maturity calendar based on their contractual maturity date.
Positions with an unknown maturity date and marketable assets are included on a
stock basis. Standby facilities, undrawn irrevocable credit facilities,
guarantees and other contingent liabilities are also included. The positions in
the week and the month bucket are weighted under several scenarios. The total
available liquidity values are corrected for liquidity surpluses in
intransferable locations and in inconvertible currencies, most of these
positions are located outside the euro zone. Within ING Bank a framework is
implemented that sets limits on the weekly and monthly liquidity risk
positions.
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Insurance Risk
ING is exposed to life and non-life insurance risks. Life risks include a broad
range of traditional life products, unit-linked, annuities, universal life,
group life and pension products and guaranteed investment products. Non-life
risks include all lines of non-life business fire, automobile, accident and
health, third-party liability and disability.
Insurance risks arise with respect to the adequacy of insurance premium-rate
levels and provisions with respect to insurance liabilities and capital
position. When assessing these risks different factors are taken into account:
Specific
attention is given to the adequacy of provisions for the life business. In
2003, specific focus has been on the low-interest-rate levels in a number of
countries in which ING operates. Particularly in respect of our insurance
operations in Taiwan. ING has strengthened reserves by EUR 50 million annually
and expects to continue this annual strengthening while interest rates remain
below historic levels. For those insurance contracts that contain high
interest-rate guarantees, stochastic modeling is used to assess the adequacy of
the insurance liabilities and to evaluate pricing. Stochastic modeling involves
projecting the adequacy of provisions under many future interest-rate and/or
equity scenarios. ING believes that its insurance provisions are adequate.
Insurance risks are controlled at ING Group level, with Corporate Insurance
Risk Management (CIRM) being responsible for monitoring the actuarial and
underwriting risks. CIRM provides guidelines for product design, reserving,
underwriting, pricing criteria and reinsurance strategy. Its responsibilities
also include the monitoring of risk profiles and the review of
insurance-related risk control and asset-and liability management. CIRM has
developed a factor based capital model to replace the prior formula which was
based on EU requirements. The new ING capital formula includes more specific
factors for asset and liability risks. This capital will be used by ING to
measure performance of business units in 2004.
Market Risk
Insurance market risks are monitored through asset -and- liability management
(ALM) policies and procedures with an ALCO Insurance structure established at
business unit, executive centre/management centre and corporate levels. At ING
Group level, CIRM is responsible for implementing and monitoring ALM practices
and for consistency in such techniques world-wide.
The risk of loss occurring through adverse changes of prices in the financial
markets is quantified in extensive ALM analyses. These ALM analyses are used to
determine the adequacy of the assets supporting reserves, to find the optimal
asset (investment) mix complementing the (insurance) liabilities, to determine
appropriate risk-based capital levels and to quantify market movements effects
on the P&L. The market risk of ING Insurance is mainly related to interest rate
risk and equity risk.
Interest-rate risk
The insurance operations are exposed to interest-rate movements with respect to
guaranteed interest rates as interest rates fall and with the need to meet
policyholders expectations with respect to interest credited to policies as
interest rates change. Asset portfolios backing these insurance liabilities are
managed accordingly. The current product portfolio also comprises products
where interest-rate risks are entirely or partially passed on to the
policyholder, thereby reducing INGs exposure to interest movements. Changes in
interest rates can impact present and future earnings of the insurance
operations and can affect the levels of new sales, surrenders or withdrawals.
Through scenario analyses ING Insurance measures the potential changes in the
expected earnings of the insurance operations over the next 12 months from an
instantaneous increase/decrease in interest rates of 1%. These changes to
income can relate to investment income, interest paid to policyholders,
market-value adjustments, amortization of Deferred Acquisition Costs (DAC),
sales levels, or any other net-income
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item that would be affected by interest-rate changes. The effect of interest
rate changes is different by region and by product.
Interest-rate sensitivity and effect on net profit
Equity risk
The insurance operations are exposed to movements in equity markets on two
levels: 1) those business units that have direct equity holdings in the general
accounts; and 2) those products where the revenues to the insurance operations
are linked to the value of the equity funds, since this has an impact on the
level of charges deducted for unit-linked and variable business. Through
scenario analyses ING Insurance measures the potential changes in the expected
earnings of the insurance operations over the next 12 months resulting from an
instantaneous increase/decrease in equity markets of 10%. These changes to
income can relate to fee income, unrealized or realized gains and losses,
amortization of DAC, sales levels, or any other net-income item that would be
affected by a substantial change to equity markets. The effect of equity market
changes is different by region and by product.
Equity sensitivity and effect on net profit
The equity sensitivity has been changed slightly from 2002. The sensitivity
represents a one-time increase\decrease in equity markets as of December 31,
and the related effect on net income for the following year. The 2002
comparatives have been adjusted to be consistent with the current sensitivity.
Foreign-Exchange risk
Foreign-exchange risk in the investments backing the insurance liabilities is
dealt with in the investment-management processes. Locally required capital
levels are invested in local currencies in order to satisfy regulatory
requirements and to support local insurance business regardless of currency
movements. These capital levels may affect the consolidated balance sheet when
translated to euros. Depending on hedging costs and the capital exposure, up to
85% of the capital over locally required margins is currency-hedged. With
respect to net income, the short-term effects of the currency exchange rates of
the US dollar against the euro have been hedged (for P&L purposes) for the
years 2003 to 2005. With respect to other currencies, the impact is immaterial.
Actuarial and underwriting risk
Underwriting risks are inherent in the process whereby applications submitted
for insurance coverage are reviewed. The maximum underwriting exposure is
limited through exclusions, cover limits and reinsurance.
The events of September 11, 2001 prompted ING Group to reassess its risk
profile in certain specific areas of its insurance operations. For our material
non-life units (in The Netherlands, Belgium, Canada, Mexico and Australia) the
risk tolerance is set at 2.5% of the Groups after-tax earnings. For 2003, the
amount was set to EUR 105 million after-tax, consistent with 2002. The
assessment of potential losses in this business is done on the basis of events
that occur once in 250 years. With respect to the Fire-line of business this
assessment is based upon models that are widely accepted in the industry. For
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our smaller non-life units, the risk tolerance level is set at EUR 2.3 million
after-tax per event per business unit.
With respect to life business the risk tolerance for events effecting multiple
lives is not limited. While life- insurance risks are considered to be
naturally diversifiable by virtue of each life being a separate risk, group
contracts may result in significant exposures. For new group contracts
underwriting guidelines have been revised, particularly for concentrations of
risk by city and/or building. As there are no industry models available to
assess this concentration risk, ING made its own assessment and believes that
the potential loss from a mortality event occurring in the normal course of our
business will not exceed an amount higher than 12% of the Groups after tax
earnings. ING Groups maximum risk retention per insured life is set at USD 20
million. In case of the existence of exposures higher than the risk tolerance
as defined above, appropriate risk-management procedures are in place.
Particularly for the property -and- casualty portfolio, ING purchases
catastrophe-reinsurance protection through which the exposure due to natural
catastrophes is substantially mitigated. ING believes that the credit risks to
which it is exposed under reinsurance contracts are minor.
Regarding catastrophic losses arising from man-made events, ING takes the view
that it is not possible to develop a business model that takes into account the
possibility of very high losses resulting from man-made events. For our
non-life business, losses that result from man-made events are generally not
covered unless required by law. In various countries industry pools are
established to mitigate the risk of the individual insurers. ING participates
in such pools.
Liquidity risk
Liquidity problems arise if an insurance business does not have enough cash or
liquid assets to meet its cash obligations. Demands for funds can usually be
met through ongoing normal operations, the sale of assets or borrowing.
Unexpected demands for liquidity may be triggered by a credit-rating downgrade,
negative publicity, deterioration of the economy, reports of problems of other
companies in the same or similar lines of business, or other unexpected cash
demands from policyholders.
The analysis of liquidity focuses on the relationship between an insurance
companys liquid assets and those liabilities that are subject to a sudden
shortening of term, as opposed to focusing on an insurance companys total
liquid assets in isolation. Insufficient liquidity could occur when the
relationship between the two becomes unbalanced.
Typically, there are three different levels of liquidity management, each
focussing on a different time horizon. There is day-to-day management of the
companys cash position, done by the treasury department. There is ongoing
cash-flow management typically monitoring cash needs for periods longer than
one month. Finally, there is stress liquidity management focusing on the
companys ability to manage a run-on-the-bank scenario. Stress-testing looks
at a companys ability to respond to a potential crisis situation, implying
that any response is more of a reactionary one. The above mentioned day-to-day
and ongoing cash management allows for a more proactive response to a potential
problem.
Liquidity risk decreases as the time frame allowed for generating cash
increases. Longer time frames allow for more assets to mature and increase the
probability of finding a buyer for some of the companys non-maturing or less
liquid assets or securing external financing. Expected liquidity demands within
ING Insurance are managed through a combination of treasury, investment and
asset-liability management guidelines, which are monitored on an ongoing basis.
Unexpected liquidity demands are managed through a combination of product
design, diversification limits on liabilities, investment strategy, systematic
monitoring and advance contingency planning. During 2003, Corporate Insurance
Risk Management issued formal guidelines requiring all insurance businesses to
regularly assess, monitor and report on their liquidity-risk profile. The
guidelines require an analysis of liabilities that increase liquidity risk, a
review of the investment portfolio to ensure adequate liquidity, and analysis
of the expected asset and- liability cash flows in regards to the ability of
the business to meet cash demands.
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Operational risk
In 2003 ING has extended the operational risk management infrastructure by
setting up an Operational Risk Management department in the large and medium
size business units. Meanwhile the Operational Risk Committee (ORC) structure
has been extended. On corporate level, as well as on Executive Centre level, an
ORC has been established. Several ORCs have started on Management Centre and
Business Unit levels of the Executive Centres Americas and Asia-Pacific. The
operational risk management responsibility is delegated to line management,
which has its ORC to identify, measure, monitor and manage the operational
risks of its business activities and to ensure that appropriate management
action is taken by their responsible line managers. Corporate Operational Risk
Management is responsible for the implementation of the operational risk
management framework throughout the organization.
ING has defined operational risk as the risk of direct or indirect loss
resulting from inadequate or failed internal processes, people and systems or
from external events. It includes the risk of reputational loss which is an
indirect effect of operational risk. ING distinguishes the following event
types (based on the Basel Committee level 1 and 2 event types):
Each of these risks has a related function (e.g. Compliance, IT, Legal,
Information Security, Finance, Human Resources, Operations) responsible for the
management process and oversight of that risk. Furthermore operational risk
sometimes overlaps with the other risks, like market risk, credit risk,
insurance risk, etc.
The internal audit functions retain a status apart from all of these functions
in that they perform independent and periodic investigations to the quality of
the system of internal controls and procedures of business units and recommend
actions to solve any identified weaknesses.
Operational Risk Management framework
The aim for the Group and local operational risk management departments is to
support general management, which is responsible for managing operational risk,
by raising operational risk awareness and insight, increasing operational risk
and loss transparency, improving early warning information and allocating risk
ownership and responsibilities. This should result in a more stable business
process and in lower operational risk costs. Furthermore, implementing an
appropriate operational risk management will prepare ING for the Basel
regulations. For Basel II implementation a project program has been setup,
which will take effect in 2006 with the aim to allow ING to apply for the most
favorable regulatory capital charge.
Risk & Control Self-Assessment
Shareholders, regulators and rating agencies require that ING consistently and
periodically identifies, measures and monitors the key operational risks that
the business runs in achieving its objectives. One of the required tools is
Risk & Control Self-Assessment (R&CSA).
This generic framework allows for the specifics of our businesses, but still
creates a certain level of uniformity where possible and desired. Maximum
benefit, in terms of economic capital reduction and implicit process-quality
improvement, will accrue from integral business assessment. The R&CSA framework
meets the available regulatory standards. The framework also secures the
linkage of the R&CSA process with other risk management processes, i.e.
development of Key-Risk Indicators, operational incident & loss data
collection, audit findings and action tracking. Currently the process is being
piloted within the various Executive Centres.
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Key-Risk Indicators Reporting
Based on the R&CSA or a more rudimentary key-risks analysis, a business or
function should set up Key-Risk Indicators (KRI) reporting that enables
management to monitor and mitigate risks that are reaching less acceptable
levels.
This can be achieved via the frequent measurement of, and reporting on, the key
risk areas of the business through selected Key-Risk Indicators with predefined
tolerance levels. At the moment several business units have implemented full
KRI reporting, while others are setting up the KRI reporting.
Incident reporting
Incident Reporting is key to increase risk awareness, achieve an adequate
insight in the actual costs of operational risk, specify ones risk profile and
assist management in taking appropriate action in order to avoid adverse
surprises. Improving insight in the costs of operational risk helps in
accomplishing INGs objectives of achieving operational excellence, lowering
the costs and capital charges and improving risk management.
A robust operational incident reporting process with at least a three-year
history will be one of the requirements to qualify for a more favorable
operational risk capital charge regime under the new Basel II/EU regulations
To comply with the above, INGs banking business units have implemented a
structural quarterly incident reporting process to collect the operational risk
incidents on a structural basis. A similar process is being developed for the
insurance business units.
Audit findings action tracking
Action tracking tools monitor the progress on solving outstanding audit,
regulatory and INGs own key-risk control actions. Especially in the larger and
medium-size business units, operating in various locations, such tools have
proven essential in keeping track of action progress, enabling management to
solve risk-control problems. ING has a system in place that allows an
individual ING officer in any part of the world to monitor and update the
progress report of his audit findings.
New-product review
The new-product review process is a joint business and risk management driven
process to ensure that new products or major changes to products are introduced
in a well-prepared, (management) controlled and timely way.
Insurance
In order to protect ING against financial consequences of uncertain operational
events ING acquired (Computer) Crime, Professional Liability, Directors &
Officers Liability, Employment Practices Liability and Fiduciary Liability
policies with worldwide cover. The portion of the risks which ING retains is of
similar magnitude as INGs retention in respect of property and casualty
business related catastrophe exposures.
Capital-At-Risk
ING measures Operational Risk Capitals using the Advanced Measurement Approach
(AMA). The AMA-approach starts with the collection of loss data. Using an
actuarial model the operational risk capital is calculated for ING Group as a
whole and all of its individual business units. The loss-based capital for the
business units is adjusted for the quality of the controls within these
business units. The quality of controls is being assessed using an extensive
scorecard approach which reflects the quality of the key operational risk
management processes within the business units.
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Item 12. Description of Securities Other Than Equity Securities
Not applicable.
PART II.
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
On February 12, 2004, an evaluation was performed under the supervision and
with the participation of the Companys management, including the CEO and CFO,
of the effectiveness of the design and operation of the Companys disclosure
controls and procedures. Based on that evaluation, the Companys management,
including the CEO and CFO, concluded that the Companys disclosure controls and
procedures were effective. There have been no significant changes in the
Companys internal controls or in other factors that could significantly affect
internal controls subsequent to February 12, 2004.
Item 16A. Audit Committee Financial Expert
ING Groups Supervisory Board has determined that ING Group has two financial
experts serving on its Audit Committee. These two financial experts are Messrs.
Hoffmann and Jacobs. Both have gathered their experience by serving as
executive officers and on the Boards of international conglomerates, Mr.
Hoffmann serving as the CFO of Robert Bosch GmbH, Mr. Jacobs serving as
chairman and CEO of ING Group.
Item 16B. Code of Ethics
ING Group has since many years adopted a code of ethics, called the Business
Principles, that applies to all our employees, including our principal
executive officer, principal financial officer and our principal accounting
officer. These Business Principles have undergone minor changes to adapt them
to the requirements of the Sarbanes-Oxley Act as a code of ethics for certain
officers. A copy of the Business Principles, being the code of ethics, is filed
with the Commission as Exhibit 16 to this annual report. The Business
Principles also have been posted on ING Groups website at (http://www.ing.com,
under the heading ING in Society). During the most recently completed fiscal
year no waivers, explicit or implicit, from these Business Principles have been
granted to any of the officers described above.
Item 16C. Principal Accountant Fees and Services
In 2003 and 2002, Ernst & Young has served as the principal external auditing
firm for ING Groep N.V. and subsidiaries (ING Group). Ernst & Young did not
serve as principal auditor of the consolidated financial statements of ING Bank
N.V., a wholly owned subsidiary. KPMG Accountants N.V. has served as the
principal external auditing firm for ING Bank N.V. Fees payable to both Ernst &
Young and KPMG in 2003 and 2002 are detailed below (in millions).
157
Audit fees
Audit fees were paid for professional services rendered by the auditors for the
audit of the consolidated financial statements of ING Group and statutory
financial statements of INGs subsidiaries or services provided in connection
with the audit of Form 20-F and other filings for regulatory and supervisory
purposes as well as the review on interim financial statements.
Audit-related fees
Audit-related fees were paid for assurance and related services that are
reasonably related to the performance of the audit or review of the
consolidated financial statements and are not reported under the audit fee item
above. These services consisted primarily of IT audits, work performed relating
to comfort letters issued in connection with prospectuses, audit of SEC product
filings, advice on accounting matters and progress review on IFRS and
Sarbanes-Oxley projects.
Tax fees
Tax fees were paid for tax compliance, tax advice and tax planning professional
services. These services consisted of: tax compliance including the review of
original and amended tax returns, assistance with questions regarding tax
audits, the preparation of employee tax returns under the INGs expatriate tax
services program and tax planning and advisory services relating to common
forms of domestic and international taxation (i.e., income tax, capital tax and
value added tax).
All other fees
Fees disclosed in the table above under all other fees were paid for products
and services other than the audit fees, audit-related fees and tax fees
described above, and consisted primarily of non-recurring support and advisory
services.
Pre-approval policies and procedures
The Audit Committee has a policy in place, which is established to ensure the
independence of INGs external auditors, both in fact and in appearance. In the
frame of external auditors independence, the policy distinguishes 4 types of
services: (1) audit services, (2) audit related services, (3) non-audit
services and (4) prohibited services (as described in the Sarbanes-Oxley Act).
A recently revised pre-approval procedure forms part of the independence
policy. ING has to comply with the pre-approval procedure if ING intends to
engage its external auditors to provide audit, audit related or non-audit
services. The ING pre-approval procedure consists of a general pre-approval
procedure and a specific pre-approval procedure.
General pre-approval procedure
The Audit Committee shall separately pre-approve audit, audit related and
non-audit services to be provided by INGs external audit firms on an annual
basis, provided that the annual amount for such pre-approved services may not
be exceeded. The Audit Committee receives a full overview of all services
provided by the external auditors to ING, including related fees and supported
by sufficiently detailed information. The Audit Committee will evaluate this
overview retrospectively on a semi-annual basis.
158
Specific pre-approval procedure
All audit related and non-audit engagements that are expected to generate fees
in excess of EUR 100,000 need specific approval of INGs CFO. These engagements
have to be submitted in advance to the General Manager of ING Corporate Audit
Services, who will advise INGs CFO on the compatibility of such services with
the independence policy. The Audit Committee will have to approve on a
case-by-case basis:
In 2003, 100% of each of the audit related services, tax services and all other
services were pre-approved. No engagement required specific pre-approval by the
Audit Committee in 2003.
Item 16E Purchases of Registered Equity Securities of the Issuer by the Issuer
and Affiliated Purchasers
Movements in the number of Bearer Receipts or ADRs for Ordinary shares held by
ING Group N.V. and its subsidiaries to hedge the option rights granted to the
Executive Board and other employees in 2003:
1) Of which number of ADRs outstanding as at December 31, 2002 1,581 million
and at December 31, 2003, 1,367 million.
Purchases of shares are based on delta hedging, which indicates that the number
of ING shares in portfolio depends on the delta of the aggregate of the total
employees options outstanding, as a consequence ING holds a variable number of
ING shares. See page F-70 of Note 3.2.3 Salaries, Pension and Social Security
Costs Stock Option plan.
PART III.
Item 18. Financial Statements
See pages F-1 to F-138 and the Schedules on F-139 to F-150
Item 19. Exhibits
The following exhibits are filed as part of this Annual Report:
159
160
SIGNATURES
The registrant hereby certifies that it meets all the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
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INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT AUDITORS
The Supervisory Board and the Executive Board of ING Groep N.V.
We have audited the accompanying consolidated balance sheets of ING Groep N.V.
and subsidiaries (the ING Group) as of December 31,
2003 and 2002, and the
related consolidated profit and loss accounts, consolidated statements of
comprehensive net profit and consolidated statements of cash flows for each of
the three years in the period ended December 31, 2003. Our audits also included
the financial statement schedules listed in the Index at Item 18. These
financial statements and schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits. We did not serve as principal
auditor of the consolidated financial statements of ING Bank N.V. a wholly
owned subsidiary. In our position we did not audit capital base, as defined in
note 2.18.7 of the notes to the consolidated financial statements, constituting
41% in 2003 and 42% in 2002 and net profit constituting 23% in 2003, 9% in 2002
and 18% in 2001 of the related consolidated totals of ING Groep N.V. These data
were reported on by other auditors whose report has been furnished to us, and
our opinion, insofar as it relates to data included for ING Bank N.V. which we
did not audit, is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts (including the
conversion of the financial statements of ING Group to US generally accepted
accounting principles and the conversion of the financial statements of Bank
Brussels Lambert N.V./S.A. to accounting principles generally accepted in the
Netherlands) and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of the other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the ING Group as of
December 31, 2003 and 2002, and the consolidated results of its operations, its
comprehensive net profits and its cash flows for each of the three years in the
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the Netherlands. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
Accounting principles generally accepted in the Netherlands vary in certain
significant respects from accounting principles generally accepted in the
United States of America. Information relating to the nature and effect of such
differences is presented in Note 6 of the Notes to the Consolidated Financial
Statements.
Amsterdam, the Netherlands
Ernst & Young
F-2
CONSOLIDATED BALANCE SHEET OF ING GROUP AS AT DECEMBER 31,
The numbers against the items refer to the notes starting on page F-21.
F-3
CONSOLIDATED PROFIT AND LOSS ACCOUNT OF ING GROUP
The numbers against the items refer to the notes starting on page F-54.
F-4
CONSOLIDATED STATEMENT OF
Comprehensive net profit for the period includes all movements in shareholders
equity during the year, except for the cumulative effect of changes in the
principles of valuation and determination of results and those resulting from
the write-off of goodwill, the enlargement of share capital and distributions
to shareholders.
Realized revaluations previously recognized in shareholders equity are
released from shareholders equity to the profit and loss account. As these
revaluations have already been included in comprehensive net profit of the year
under report and previous years, under the caption unrealized revaluations, and
are also included in net profit for the period in the year of realization,
these realized results are adjusted in the comprehensive net profit for the
period.
F-5
CONSOLIDATED STATEMENT OF CASH FLOWS OF ING GROUP
The numbers against the items refer to the notes starting on page F-91.
F-6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING PRINCIPLES FOR THE CONSOLIDATED BALANCE SHEET AND PROFIT AND
LOSS ACCOUNT OF
1.1. Consolidation principles
ING Group comprises ING Groep N.V., ING Verzekeringen N.V., ING Bank N.V. and
their group companies. The consolidated financial statements of ING Group
include the financial statements of all companies that form an organizational
and economic entity and which are controlled by ING Group. Control is presumed
to exist when ING Group has, directly or indirectly through group companies,
more than one half of the voting power or otherwise exercises effective
control. The financial statements of these group companies are consolidated in
full on a line-by-line basis, using uniform accounting principles. Third-party
interests are presented separately in the consolidated balance sheet and profit
and loss account.
The financial data of joint ventures are included in proportion to the groups
interest where it is relevant to the understanding of ING Groups shareholders
equity and results. Intercompany financial relationships between the insurance
and the banking operations ensuing from financing commitments are eliminated.
1.2. Changes in principles of valuation and determination of results
The principles of valuation and determination of results are unchanged compared
with 2002.
1.3. Changes in presentation
Investment losses
As from 2003, Additions to the provision for investment losses are reported on
a separate line within Total expenditure. Previously these additions were
reported as an element of Income from investments of the insurance operations
and Other expenses. The comparable figures have been adjusted accordingly.
Claims handling expenses
As from 2003, claims handling expenses are counted for as part of the Other
expenses. Until 2002, these expenses were counted for as part of the
underwriting expenditure. This new classification better represents the nature
of the claims handling expenses. The comparable figures have been adjusted
accordingly.
1.4. Changes in the composition of the group
Impact of most significant changes in composition of the group:
F-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The impact of a change in the composition of the group is defined as the change
in assets, liabilities, shareholders equity or net profit resulting from the
acquisition or disposal of a group company, compared to the situation where no
acquisition or disposal took place. The impact is included in the financial
year in which the acquisition or disposal took place.
In 2003, ING Group acquired a 100% stake in Entrium, Germanys second largest
direct Bank. ING Group acquired Entrium from Fineco/Capitalia (Italy). The
goodwill amounted to EUR 100 million and is charged to
Shareholders equity.
In 2003, ING Group acquired an additional 30% stake in DiBa (Allgemeine
Deutsche Direktbank) from BGAG, the investment company of a number of German
trade unions. In this way, ING owns all shares in DiBa. The goodwill amounted
to EUR 9 million and is charged to Shareholders equity.
In 2003, ING Group sold its 49% shareholding in Seguros Bital to Grupo
Financiero Bital S.A. The value of the transaction was EUR 126 million. The
result on the sale amounted to EUR 44 million.
In 2003, ING Group sold ING Sviluppo and the affiliated Italian life insurance,
asset management and private banking activities to UniCredito Italiano and
Aviva. The value of the transaction was EUR 170 million. The result on the sale
amounted to EUR 71 million.
In 2002, ING Group acquired a 49% stake in SulAmérica, a leading insurance
company in Brazil thus strengthening the existing partnership. As a result of
the transaction INGs total investment in SulAmérica consists of EUR 188
million in cash, plus its 49% stake in SulAet (a joint venture formed in 1997)
as well as the combined asset management operations (ING Investment Management
Brazil). The goodwill amounted to EUR 245 million and is charged to
Shareholders equity. The interest in SulAmérica is included as a participating
interest.
In 2002, ING Group increased its 49% stake in DiBa to a 70% interest by
acquiring a further share participation in DiBa from BGAG. The figures of DiBa
are fully consolidated, without deduction of a third-party
interest.
In 2002, ING Group and ANZ, one of Australias major banks, have formed a funds
management and life insurance joint venture called ING Australia. The company
is 51%-owned by ING and 49%-owned by ANZ. The joint venture has been
proportionally consolidated.
As part of the transaction, the new joint venture acquired net assets from ANZ.
This resulted in goodwill of EUR 169 million that is charged to Shareholders
equity. Furthermore, ING Group contributed net assets to the new joint venture,
which resulted in a net result of EUR 469 million.
In 2002, ING Group closed the purchase of an additional 24% stake in ING Vysya
Bank in India increasing its interest to 44%. The total purchase price of the
additional acquisition amounted to EUR 73 million. The goodwill amounted to EUR
55 million and is charged to Shareholders equity. As ING Group currently
enjoys management control, ING Vysya Bank has been consolidated.
In 2002, ING Group acquired car lease company Toplease. The total purchase
price of the acquisition amounted to EUR 111 million. The goodwill amounted to
EUR 70 million and is charged to Shareholders equity.
F-8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.5. Critical accounting policies
ING Group has identified the accounting policies that are most critical to its
business operations and the understanding of its results. These critical
accounting policies are those which involve the most complex or subjective
decisions or assessments, and relate to insurance provisions and deferred
acquisition costs, provisions for loan losses, the determination of the fair
values of financial assets and liabilities, and the determination of
impairments. In each case, the determination of these items is fundamental to
the financial condition and results of operations, and requires management to
make complex judgements based on information and financial data that may change
in future periods. As a result, determinations regarding these items
necessarily involve the use of assumptions and subjective judgements as to
future events and are subject to change, as the use of different assumptions or
data could produce materially different results. For a further discussion of
the application of these accounting policies, reference is made to the
applicable notes to the consolidated financial statements and the information
below.
Insurance provisions and DAC
Insurance provisions represent estimates of future payouts that will be
required in respect of life and non-life insurance claims, including expenses
relating to such claims.
Insurance provisions on traditional life policies are calculated using various
assumptions, including assumptions on mortality, morbidity, expenses,
investment returns and surrenders. Assumptions for insurance provisions on
traditional life insurance contracts, including traditional whole life and term
life insurance contracts, are based on best estimate assumptions including
margins for adverse deviations. The assumptions are set initially at the policy
issue date and remain constant throughout the life of the policy, except in
case of loss recognition.
Insurance provisions for universal life, variable life and annuity contracts,
unit linked contracts, etc. are generally set equal to the balance that accrues
to the benefit of the policyholders. Certain variable annuity products contain
minimum guarantees on the amounts payable upon death and/or maturity. The
insurance provisions include the impact of these minimum guarantees, taking
into account the difference between the potential minimum benefit payable and
the total account balance, expected mortality and surrender.
Claims reserves on non-life insurance are determined on a case-by-case basis,
based on the facts known at the time provisions are established, and are
periodically adjusted to recognize the estimated ultimate cost of a claim. In
addition, so-called IBNR reserves are set to recognize the estimated cost of
losses that have occurred but which have not yet been notified.
Deferred acquisition costs (DAC) are an asset and represent costs of acquiring
insurance business that are deferred and amortized. The deferred costs, all of
which vary with and are primarily related to the production of new and renewal
business, consist principally of commissions, certain underwriting and contract
issuance expenses, and certain agency expenses. DAC is amortized over the life
of the underlying contracts. Included in DAC is also Value of Business Acquired
(VOBA), which is in nature similar to DAC. VOBA is an asset that represents the
present value of estimated net cash flows embedded in the contracts of an
acquired company, which existed at the time the company was acquired by ING
Group.
For traditional life insurance contracts DAC is amortized over the premium
payment period in proportion to the premium revenue
recognition.
DAC and VOBA are evaluated for recoverability at issue/acquisition and
subsequently at the end of each reporting period. The value of these assets is
reduced to the extent that the evaluation of recoverability indicates that
these are not fully recoverable in future years. For DAC on flexible insurance
contracts the approach is that in determining the estimate of future gross
profits ING assumes the short-term and long-term separate account growth rate
assumption to be the same. The growth rate assumption is currently 8.5% gross
(7.5% net). Lower expected profits e.g. reflecting
F-9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
stock market weakness and a lower level of assets under management may cause
a higher amortization of DAC due to the catch-up of amortization in old and
future years. This process is known as DAC unlocking. The impact of the DAC
unlocking is recorded in the profit and loss account of the period in which the
unlocking occurs.
In each case, the establishment of insurance provisions and DAC is an
inherently uncertain process, involving assumptions about factors such as court
decisions, changes in laws, social, economic and demographic trends, inflation,
investment returns and other factors, and, in the life insurance business,
assumptions concerning mortality and morbidity trends.
Provisions for loan losses
Management regularly assesses the adequacy of the provisions for loan losses by
performing ongoing evaluations of the loan portfolio. A formal analysis of
specifically identified loans takes place every quarter, including evaluation
of economic risks associated with each loan, the current financial condition of
the borrower, the economic environment in which the borrower operates, the
level of delinquent loans and the value of collateral. Credit ratings are
assigned to the borrowers by allocating all outstanding loans into various Risk
Rating categories on a regular basis.
In determining the amount of the provisions, corporate loans are assessed on a
case-by-case basis and the following factors are considered:
For certain homogeneous groups of small personal and corporate loans,
provisions are assessed using statistical techniques.
ING Group also maintains an unallocated provision for loan losses that is
required to adequately capture various subjective and judgmental aspects of
credit risk assessment that are not considered on an individual basis.
Considerable judgement is exercised in determining the extent of the provision
and is based on the managements evaluation of the risk in the portfolio,
current economic conditions, loss experience in recent years and credit and
geographical concentration trends. Changes in such judgements and analyses may
lead to changes in provisions over time.
Fair value determinations for financial assets and liabilities are based
generally on listed market prices or broker or dealer price quotations. If
prices are not readily determinable or if liquidating the positions is
reasonably expected to affect market prices, fair value is based on either
internal valuation models or managements estimate of amounts that could be
realized under current market conditions, assuming an orderly liquidation over
a reasonable period of time. Certain financial instruments, including OTC
derivative instruments, are valued using pricing models that consider, among
other factors, contractual and market prices, correlations, time value, credit,
yield curve volatility factors and/or prepayment rates of the underlying
positions. The use of different pricing models and assumptions could produce
materially different estimates of fair value.
Impairments
The carrying value of all assets is reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. The identification of impairment and the determination of the
recoverable amount are an inherently uncertain process involving various
assumptions and factors, including the financial condition of the counterparty,
expected future cash flows, observable market prices and expected net selling
prices. The determination of impairment is specifically relevant to the
investments in equity securities and fixed interest securities.
In order to determine whether negative revaluations on equity securities
represent impairment, all equity securities for which the market value has been
significantly below cost price for a considerable period of time are
individually reviewed. A distinction is made between negative revaluations due
to
F-10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
general market fluctuations and due to issuer-specific developments. The
impairment review focuses on issuer specific developments regarding financial
condition and future prospects, taking into account the intent and ability to
hold the securities under the Groups long term investment strategy. In order
to determine whether investments in fixed interest securities are impaired, all
fixed interest securities for which the market value has been significantly
below cost price for a considerable period of time are individually reviewed.
Distinction is made between negative revaluations due to general interest rate
and other market fluctuations and due to issuer-specific developments. The
impairment review focuses on issuer specific developments regarding financial
condition and prospects of the issuer identifying whether repayment of interest
and principal is expected, taking into account the intent and ability to hold
the securities under the Groups long term investment strategy.
Although all individual securities are reviewed to ensure that no material
impairments are required to be charged to the profit and loss account, the
identification of impairment and the determination of the recoverable amount
are an inherently uncertain process involving various assumptions and factors,
including the financial condition of the counterparty, expected future cash
flows, observable market prices and expected net selling prices. Further
developments after the balance sheet date may indicate that certain unrealized
losses that existed as of the balance sheet date will result in impairment in
future periods, resulting in a negative impact on the profit and loss account
for future periods.
1.6. PRINCIPLES OF VALUATION AND DETERMINATION OF RESULTS
1.6.1. General principles
1.6.1.1. Recognition
An asset is recognized in the balance sheet when it is probable that the future
economic benefits will flow to the enterprise and the asset can be measured
reliably. A liability is recognized in the balance sheet when it is probable
that an outflow of resources embodying economic benefits will result from the
settlement of a present obligation and the amount at which the settlement will
take place can be measured reliably. If the criteria for recognition are no
longer met, the assets and liabilities are derecognized.
Income is recognized in the profit and loss account when an increase in future
economic benefits related to an increase in an asset or a decrease of a
liability has arisen that can be measured reliably. Expenses are recognized in
the profit and loss account when a decrease in future economic benefits related
to a decrease in an asset or an increase of a liability has arisen that can be
measured reliably.
1.6.1.2. Valuation
Assets and liabilities are shown at face value except where a different
valuation principle is stated below.
1.6.1.3. Use of estimates
The preparation of the annual accounts necessitates the use of estimates and
assumptions. These estimates and assumptions affect the reported amounts of the
assets and liabilities and the amounts of the contingent liabilities as at
balance sheet date as well as reported income and expenses for the year. The
actual outcome may differ from these estimates.
1.6.1.4. Foreign currencies
General
The euro is the reporting currency of ING Group. Assets and liabilities in
foreign currencies are translated at the spot mid-rates (Amsterdam exchange
rates) prevailing on the balance sheet date.
F-11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Non-monetary items which are expressed in terms of historical cost denominated
in a foreign currency are reported using the exchange rate at the date of the
transaction. Income and expenses arising from foreign currency transactions are
translated at the rates prevailing on the transaction date.
The following exchange differences are credited or debited, net of any related
taxes, to Shareholders equity:
All other exchange differences are taken to the profit and loss account.
Forward foreign exchange contract
Forward foreign exchange contracts connected to borrowing and lending positions
are translated at the spot mid-rates prevailing on the balance sheet date.
Differences between the spot rates prevailing on the balance sheet date and on
the contract date are taken to the profit and loss account. Differences between
the valuations at the forward rate and the spot rate at the contract date are
amortized and charged to the profit and loss account in proportion to the
expired part of the terms of the contracts concerned.
The other forward foreign exchange contracts are valued at the market
quotations for their remaining terms at the balance sheet date. In general,
differences resulting from revaluations are taken to the profit and loss
account.
Exchange differences on forward foreign exchange contracts serving to hedge
exchange rate risks on participating interests and investments are taken to
Shareholders equity.
Business units outside the euro zone
Assets and liabilities of business units outside the euro zone are translated
at the closing rate prevailing on the balance sheet date. Income and expenses
of business units outside the euro zone (excluding business units in countries
with hyperinflation) are translated at average exchange rates for the year. The
financial statements of a business unit that reports in the currency of a
hyperinflationary economy, are restated for the influences of inflation before
translation into euros. Income and expenses of business entities in countries
with hyperinflation are translated at the closing rate prevailing on the
balance sheet date.
Exchange differences on assets and liabilities of business units outside the
euro zone are credited or debited, net of any related taxes, to Shareholders
equity, except for exchange differences on monetary assets and liabilities of
business units in countries with hyperinflation. These differences are taken to
the profit and loss account.
Exchange differences on results arising from differences between the spot rates
on the balance sheet date and the average rates for the year are taken to
Shareholders equity.
1.6.1.5. Geographical analyses
The geographical analyses of assets, liabilities, income and expenses in the
notes to the consolidated balance sheet and profit and loss account are based
on the location of the office from which the transactions are originated.
1.6.1.6. Analysis of insurance business
Where amounts in respect of insurance business are analyzed into life and
non-life, health and disability insurance business is included in non-life.
F-12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.6.1.7. Derivatives
Derivatives are stated at fair value. Changes in the fair value are included in
the profit and loss account. However, derivatives serving to hedge the risks on
own positions are recognized in accordance with the accounting principles of
the hedged items.
1.6.1.8. Hedge accounting
Transactions qualify as hedges if these transactions are identified as such and
there is a negative correlation between the hedging results and the results of
the positions being hedged. Hedging instruments are accounted for in accordance
with the accounting principles of the hedged item.
1.6.1.9. Impairments
The carrying value of Tangible fixed assets, Participating interests and
Investments is reviewed to ascertain whether there has been a permanent
diminution in value. These impairments are assessed on an individual basis and
are taken to the profit and loss account immediately. However, impairments of
assets carried at revalued amounts are first charged directly to any
revaluation reserve for these assets.
1.6.1.10. Receivables
Receivables are carried at the face value less any diminution in value deemed
necessary to cover the risk of uncollectibility.
1.6.1.11. Investment and trading portfolios
The investment portfolio comprises those assets which are intended for use on a
continuing basis and have been identified as such. These investments are held
in order to cover the insurance provisions and to manage interest rate, capital
and liquidity risks.
Positions held with trading intent are those held intentionally for short-term
resale and/or with the intent of benefiting from actual or expected short-term
price movements or to lock in arbitrage profits, and positions held through
matched principal broking and market making.
If, due to a change in managements intent, transfers are made between
investment and trading portfolios, these assets are remeazured to fair value
and gains and losses are accounted for in accordance with the accounting
principles applicable to the portfolio in which the assets were originally
held.
1.6.1.12. Leases
Assets held under a lease for which substantially all the risks and rewards are
transferred to the lessee (finance lease) are reported in the balance sheet at
net present value. Income from a finance lease is recognized in the profit and
loss account over the lease term in proportion to the funds
invested.
1.6.1.13. Reinsurance
Reinsurance premiums, commissions and claim settlements, as well as provisions
relating to reinsurance, are accounted for in the same way as the original
contracts for which the reinsurance was concluded. Receivables as a consequence
of reinsurance are deducted from the liabilities relating to the original
insurance contracts.
F-13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.6.2. Specific principles
1.6.2.1.
Acquisition and disposal of group companies and goodwill
Adjustments to the fair value as of the date of acquisition of acquired assets
and liabilities that are identified before the end of the first annual
accounting period commencing after acquisition are recorded as an adjustment to
goodwill; any subsequent adjustment is recognized as income or
expense.
1.6.2.2. Tangible fixed assets
Tangible fixed assets are stated at cost less accumulated depreciation. The
cost of these assets is depreciated on a straight-line basis over their
estimated useful lives, which are as follows: data processing equipment 2 to 5
years and other movable fixed assets 4 to 10 years. Expenditures for
maintenance and repair are charged to the profit and loss account as incurred.
Expenditure incurred on major improvements is capitalized and
depreciated.
Investments in associates
Participating interests in which a significant influence is exercised over the
financial and operating policy are stated at net asset value. ING Groups share
in the results of these investments in associates is recognized in the profit
and loss account.
Investments in other participating interests
Investments in other participating interests are stated at fair value. Each
year, the net asset value of the investment is determined, which approximates
the fair value. Dividends received are credited to the profit and loss account.
Changes due to revaluation are credited or debited to Shareholders equity.
1.6.2.4. Investments
Realized gains and losses on investments
Realized gains and losses on investments are determined as the difference
between the sale proceeds and cost. Cost is determined systematically (weighted
average or specific identification) on a consistent basis per portfolio.
Land and buildings and shares and convertible debentures
Investments in land and buildings as well as shares and convertible debentures
held for the groups own risk, are stated at fair value as at balance sheet
date. Changes in the carrying amount resulting from revaluations of these
investments are credited or debited to Shareholders equity, allowing for
taxation where necessary. On disposal of these investments, the difference
between the sale proceeds and cost is recognized in the profit and loss
account.
Valuations of investments in land and buildings are made by rotation in such a
way as to ensure that all properties are appraised at least once every five
years. Value-enhancing investments in existing
F-14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
properties made since the last valuation are capitalized at the cost of the
investment until the next valuation. Land and buildings are not
depreciated.
Fixed-interest securities
Fixed-interest securities are stated at redemption value less any diminuation
in value (impairment) deemed necessary to cover the risk of uncollectibility.
The difference between redemption value and purchase price is amortized over
the weighted average remaining term of the investments concerned, either
credited or debited to the profit and loss account.
Fixed-interest securities on which interest is not received annually and on
which the redemption value is paid out as a lump sum on maturity (such as
climbing loans, zero-coupon bonds and savings certificates) are included at
purchase price plus the proportion of the difference between purchase price and
redemption value related to the period elapsed since the date of
purchase.
Investments in principal-only securities are stated at purchase price plus the
proportion of the difference between purchase price and redemption value
related to the period elapsed since the date of purchase, calculated on the
basis of compound interest. The increase in value is included in the profit and
loss account as interest income.
Yield differences
The results on disposal of fixed-interest securities, i.e. the differences
between the proceeds on disposal and the carrying amount of the investments
sold, are shown as yield differences. Results on disposal of derivatives
related to the investments concerned are likewise shown as yield differences.
Allowing for the weighted average remaining term of the investment portfolio,
these yield differences are included in the profit and loss account as interest
income. Results on disposal due to a structural reduction of investments are
included directly in the profit and loss account, including the results on
disposal of the related derivatives.
Interests in investment pools
Interests in investment pools are stated in accordance with the valuation
principles of the pools concerned.
Investments for risk of policyholders
In the valuation of these investments, the same principles are generally
applied as those pertaining to the valuation of investments held for the
groups own risk. However, fixed-interest securities directly linked to life
policy liabilities are stated at fair value plus accrued interest where
relevant.
Life insurance products
In the case of life insurance products, where there is a relationship between
the value of the investments and the level of the insurance provisions,
differences resulting from revaluations, realized or unrealized, are initially
taken to the profit and loss account. Subsequently, these revaluations are
included either in Provision for life policy liabilities or Insurance
provisions for policies for which the policyholders bear the investment risk.
Repurchase transactions and reverse repurchase transactions
Fixed-interest securities, shares and convertible debentures, which have been
sold with an agreement to repurchase (repurchase transactions), are included as
assets in the balance sheet.
Fixed-interest securities, shares and convertible debentures, which have been
acquired in reverse sale and repurchase transactions, are not recognized in the
balance sheet.
F-15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Securities borrowing and lending
Fixed-interest securities, shares and convertible debentures, which are lent
out, are included in the balance sheet. Fixed-interest securities, shares and
convertible debentures, which are borrowed, are not recognized in the balance
sheet.
Provision for investment losses
The net amounts added to or withdrawn from the provision for default losses of
investments (credit losses and impairments) are included in the profit and loss
account.
1.6.2.5. Lending and Banks
Lending and Banks refer to receivables from non-banks and banks that are
carried at face value less any diminution in value (impairment) deemed
necessary to cover the risk of uncollectibility. Receivables are impaired if it
is probable that the principal and interest contractually due will not be
collected.
In general, to determine the amount of this impairment (provision for loan
losses), the degree of risk of uncollectibility is assessed:
The net amounts added to or withdrawn from these provisions are included in the
profit and loss account.
When a borrower is in default as regards repayment of principal or payment of
interest for 90 days or when, in the judgement of management, the accrual of
interest should cease before 90 days, such a loan is given non-accrual status.
Any accrued but unpaid interest is reversed and charged to current period
interest revenue. Interest payments received during the period are recorded as
interest income on a cash basis.
Receivables are written off and charged against the provision for loan losses
when all the necessary legal procedures have been completed and the amount of
the loss is finally determined.
1.6.2.6. Other assets
Assets that are part of the trading portfolio are stated at fair value, which
generally means quoted prices. Changes in the fair value, both realized and
unrealized, on these assets are included in the profit and loss
account.
Computer software that has been purchased or generated internally for internal
use is capitalized and amortized on a straight-line basis over its useful life.
This period will generally not exceed three years.
Property under development is held with the intention to sell to third parties
and is valued at direct construction cost incurred up to the balance sheet
date, including interest during construction and the groups own development
and supervision expenses. Rented property and infrastructure works are valued
at the estimated proceeds on private sale or the contractually agreed selling
price. The difference between the net proceeds on disposal and cost of property
under development, rented property and infrastructure works and any downward
value adjustments are reflected in the profit and loss account.
F-16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred tax assets
Deferred corporate tax assets are stated at face value and are calculated for
the carryforward of unused tax losses and for temporary valuation differences
between carrying amounts of assets and liabilities in the balance sheet and tax
base based on tax rates that are expected to apply in the period when the
assets are realized.
Deferred corporate tax assets in relation with the carryforward of unused tax
losses are recognized only to the extent that it is probable that future
taxable profits will be available for compensation. Deferred tax assets are
reported net of adjustable deferred tax liabilities.
1.6.2.7. Accrued assets
Direct variable costs for the acquisition of life insurance policies, for which
periodic premiums will be receivable, are deferred and amortized over the
average period for which these premiums will be received, with allocation to
such periods being made on an annuity basis. Costs of acquiring non-life
insurance business which vary with and are primarily related to the production
of such business are deferred and amortized equally over the period of the
insurance.
1.6.2.8. General provisions
General
A general provision involves a present obligation arising from past events, the
settlement of which is expected to result in an outflow from the company of
resources embodying economic benefits, whereas the timing or the amount is
uncertain. Unless stated otherwise below, general provisions are discounted
using a pre-tax discount rate to reflect the time value of money.
Deferred tax liabilities
Deferred corporate tax liabilities are stated at face value and are calculated
for temporary valuation differences between carrying amounts of assets and
liabilities in the balance sheet and tax base based on tax rates that are
expected to apply in the period when the liabilities are settled.
Deferred tax liabilities are reported net of adjustable deferred tax assets.
Pension liabilities and other staff-related liabilities
Provisions for pension liabilities and other staff-related liabilities are
calculated using the projected unit credit method of actuarial cost allocation.
In accordance with this method, the discounted value of the pension liabilities
and other staff-related liabilities is determined on the basis of the active
period of service up to the balance sheet date, the projected salary at the
expected retirement date and the market yields at the balance sheet date on
high quality corporate bonds.
In order to distribute expenses for pensions and other staff-related expenses
evenly over the years, these expenses are calculated using the expected rate of
return on plan assets. Differences between this expected return and the actual
return on these plan assets and actuarial changes are not recognized in the
profit and loss account, unless the accumulated differences and changes exceed
10% of the greater of the defined benefit obligation and the fair value of the
plan assets. The excess is amortized and charged to the profit and loss account
over employees remaining working lives.
Weighted averages of basic actuarial assumptions in annual % as at December 31:
F-17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The expected rate of return for 2003 on plan assets was 7.25% (2002: 7.50%;
2001: 7.75%).
The expected rate of return on plan assets was weighted by the fair value of
these assets. All other assumptions were weighted by defined benefit
obligations.
1.6.2.9. Insurance provisions
Provision for life policy liabilities
The Provision for life policy liabilities is calculated on the basis of a
prudent prospective actuarial method, taking into account the conditions for
current insurance contracts.
The as yet unamortized interest-rate rebates on periodic and single premium
contracts are deducted from the Provision for life policy liabilities.
Interest-rate rebates granted during the year are capitalized and amortized in
conformity with the anticipated recovery pattern and are debited to the profit
and loss account.
The adequacy of the Provision for life policy liabilities is evaluated each
year and adjusted if necessary with a provision for any shortfall due to the
applied principles. The adequacy test takes into account future developments
and allows for remaining unamortized interest-rate rebates and deferred
acquisition costs.
Provision for unearned premiums and unexpired insurance risks
The provision is calculated in proportion to the unexpired periods of risk. For
insurance policies covering a risk increasing during the term of the policy at
premium rates independent of age, this risk is taken into account in
determining the provision. Further provisions are made to cover claims under
unexpired insurance contracts which may exceed the unearned premiums and the
premiums due in respect of these contracts.
Claims provision
The Claims provision is calculated either on a case-by-case basis or by
approximation on the basis of experience. Provisions have also been made for
claims incurred but not reported and for future claims handling expenses. The
adequacy of the Claims provision is evaluated each year using standard
actuarial techniques.
Insurance provisions for policies for which the policyholders bear the
investment risk
The Insurance provisions for policies for which the policyholders bear the
investment risk are for the segregated investment deposits calculated on the
same basis as the provision for life policy liabilities. For insurances for
which policyholders bear the investment risk, the insurance provisions are
generally shown at the balance sheet value of the associated investments.
1.6.2.10. Other liabilities
Liabilities that are part of the trading portfolio are stated at fair value,
which generally means quoted prices. Changes in the fair value, both realized
and unrealized, on these liabilities are included in the profit and loss
account.
1.6.2.11. Contingent liabilities
Contingent liabilities are commitments or risks of which it is more likely than
not that no outflow from ING Group of resources embodying economic benefits
will occur. The underlying value of these commitments or risks is not recorded
as a liability in the balance sheet.
1.6.2.12. Revenue recognition
Premium income
Premiums from life insurance policies are recognized as revenue when due from
the policyholder. For non-life insurance policies, premium income is recognized
on a pro-rata basis over the term of the related policy coverage.
F-18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Interest income
Interest income is recognized in the profit and loss account for all
interest-bearing instruments on an accrued basis. Interest income includes
coupons earned on fixed-income investment and trading securities and
amortization of accrued discounts and premiums and yield differences.
Commission
Fees and commissions from banking and asset management services are recognized
in the profit and loss account over the period in which the related services
are performed. Fees and commissions with the nature of interest are deferred
and amortized on a time-proportionate basis that takes into account the
effective yield on the related asset, and are recognized under interest income.
1.6.2.13. Taxation
Taxation is calculated on the profit before tax shown in the annual accounts,
taking into account tax-allowable deductions, charges and exemptions.
F-19
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1.7. Accounting principles for the consolidated statement of cash flows of ING
Group
The cash flow statement has been drawn up in accordance with the indirect
method, distinguishing between cash flows from operating, investing and
financing activities.
Cash flows in foreign currencies are translated at the average exchange rates
for the year. Where the balance of items in the cash flow statement does not
correspond to the movements in the relevant balance sheet items, this is mainly
due to differences on translation.
In the net cash flow from operating activities, the profit before tax is
adjusted for those items in the profit and loss account and movements in
balance sheet items which do not result in actual cash flows during
the year.
The investments in and disposals of participating interests have been included
in the cash flow from investing activities at cost/sales price, insofar as
payment was made in cash. The cash assets of the consolidated participating
interests concerned have been eliminated from the cost/sales
price.
The difference between the net cash flow in accordance with the cash flow
statement and the movement in Cash in the balance sheet is due to exchange
differences and is separately accounted for as part of the reconciliation of
the net cash flow and the balance sheet movement in cash.
F-20
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. NOTES TO THE CONSOLIDATED BALANCE SHEET OF ING GROUP
ASSETS
2.1. Tangible fixed assets
2.2. Participating interests
F-21
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The balance sheet value of Participating interests as at December 31, 2003
included revaluations of EUR 268 million (2002: EUR 177 million). The cost of
these Participating interests amounted to EUR 3,411 million (2002: EUR 2,963
million).
Movements in participating interests:
2.3. Investments
Investments per type
F-22
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Movements in investments (except for Other investments):
Non-income-producing investments
Investments in connection with the insurance operations with a combined
carrying value of EUR 224 million (2002: EUR 340 million) were
non-income-producing for the year ended December 31, 2003.
Concentrations
As at December 31, 2003 no investments were held in securities of individual
issuers that exceeded 10% of ING Groups Shareholders equity. As at December
31, 2002 ING Group had investments in securities issued by ABN Amro Holding
N.V. that exceeded 10% of ING Groups Shareholders equity. The total
investment in ABN Amro Holding N.V. securities per December 31, 2002 comprised
EUR 2,719 million in shares and EUR 168 million in fixed interest securities.
Land and buildings by insurance and banking operations:
The balance sheet value as at December 31, 2003 included revaluations of EUR
1,487 million (2002: EUR 1,806 million). The cost or purchase price amounted to
EUR 7,507 million (2002: EUR 9,145 million).
F-23
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Appraisal of land and buildings during the last five years (in percentages):
Shares and convertible debentures by insurance and banking operations:
Revaluation of shares and convertible debentures:
As at December 31, 2003, the balance sheet value included shares and
convertible debentures which were lent or sold in repurchase transactions
amounting EUR 5 million (2002: nil) and nil (2002: EUR 1 million),
respectively.
Borrowed shares and convertible debentures are not recognized in the balance
sheet and amounted EUR 25 million as at December 31, 2003 (2002: EUR 9
million).
F-24
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fixed-interest securities by insurance and banking operations:
The cost of investments in Fixed-interest securities amounted to EUR 247,330
million as at December 31, 2003 (2002: EUR 210,123 million).
As at December 31, 2003, an amount of EUR 225,919 million (2002: EUR 192,722
million) was expected to be recovered or settled after more than one year from
the balance sheet date.
The balance sheet value of Debentures and options in connection with the
banking operations as at December 31, 2003 included EUR 3,159 million (2002:
EUR 2,674 million) in respect of short-dated government paper.
The balance sheet value as at December 31, 2003 included EUR 139 million (2002:
EUR 528 million) in respect of listed securities issued by the group.
As at December 31, 2003, the balance sheet value included fixed-interest
securities which were lent or sold in repurchase transactions amounting to EUR
2,473 million (2002: EUR 1,007 million) and EUR 21,639 million (2002: EUR
16,595 million), respectively.
Borrowed fixed-interest securities are not recognized in the balance sheet and
amounted to EUR 4,139 million as at December 31, 2003 (2002: EUR 114 million).
Investments for risk of policyholders:
The cost of Investments for risk of policyholders as at December 31, 2003 was EUR 70,723 million
(2002: EUR 64,646 million).
F-25
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.4. Lending
Lending is subject to credit risk, which means the risk of suffering losses
following default by a debtor or counterparty. Concentrations of credit risk
exist when changes in economic, industry or geographical factors similarly
affect groups of counterparties whose aggregate exposure is material in
relation to ING Groups total exposure. Although ING Groups portfolio of
financial instruments is broadly diversified along industry and product lines,
material transactions are completed with other financial institutions.
Additionally, mortgages and loans in the Netherlands represent areas of
significant credit exposure.
Lending analyzed by security:
Lending analyzed by non-subordinated and subordinated receivables:
Lending analyzed by industry:
As at December 31, 2003, assets held under finance lease contracts amounted to
EUR 8,310 million (2002: EUR 6,864 million) and assets held under operating
lease contracts amounted to EUR 3,215 million (2002: EUR 4,248 million).
F-26
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2003, the balance sheet value of receivables included in
Lending, of which interest income was not recognized in the profit and loss
account because realization of the interest income is almost certainly not to
be expected, amounted to EUR 3,564 million (2002: EUR 4,137 million).
As at December 31, 2003, Lending included receivables with regard to securities
which have been acquired in reverse sale and repurchase transactions related to
the banking operations amounting to EUR 35,703 million (2002: EUR 38,282
million).
Provision for loan losses
The provision for loan losses is allocated to Lending, Banks and other assets.
Allocation of the provision for loan losses to the various lending categories:
Movements in provision for loan losses included in lending, Banks and other
assets:
2.5. Banks
F-27
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2003, Banks included receivables with regard to securities,
which have been acquired in reverse sale and repurchase transactions amounting
to EUR 14,494 million (2002: EUR 13,942 million).
As at December 31, 2003, the non-subordinated receivables amounted to EUR
60,514 million (2002: EUR 45,041 million) and the subordinated receivables
amounted to EUR 546 million (2002: EUR 641 million).
As at December 31, 2003, assets held under finance lease contracts amounted to
EUR 134 million (2002: EUR 101 million) and assets held under operating lease
contracts amounted to EUR 158 million (2002: EUR 60 million).
2.6. Cash
As at December 31, 2003, Cash and bank balances included cash and balances with
central banks of EUR 8,838 million (2002: EUR 7,591 million).
2.7. Other assets
As at December 31, 2003, an amount of EUR 3,905 million (2002: EUR 18,912
million) was expected to be recovered or settled after more than one year from
the balance sheet date.
An analysis of pension assets/liabilities and other staff-related
assets/liabilities is included under General provisions.
F-28
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred tax assets as at December 31 by origin:
Deferred tax assets in connection with unused tax losses carried forward:
Total unused tax losses carried forward as at December 31 analyzed by
expiration terms:
2.8. Accrued assets
As at December 31, 2003, Other accrued assets included options held by the
group for the account and risk of customers amounting to EUR 64 million (2002:
EUR 68 million). These are customers options, which are not segregated from
the assets and liabilities of the group and, therefore, included in the balance
sheet. The associated liability is included in Other liabilities.
As at December 31, 2003, an amount of EUR 9,971 million (2002: EUR 10,915
million) was expected to be recovered or settled after more than one year from
balance sheet date.
F-29
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred acquisition costs of insurance business by geographical area:
The region Latin America comprises South America and Mexico. Until 2002 Mexico
was included in the region North America. This revised regional split is more
in line with the internal management reporting structure. The comparable
figures have been adjusted accordingly.
Movements in Deferred acquisition costs of insurance business:
EQUITY AND
LIABILITIES
F-30
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.10. Preference shares of group companies
Preference shares of group companies consists of noncumulative guaranteed Trust
Preferred Securities which are issued by wholly owned subsidiaries of ING Groep
N.V. These securities have a liquidation preference of a certain amount plus
any accrued interest and unpaid dividend. Dividends with regard to these
preferred securities are accounted for, after tax, in Third-party interests in
the profit and loss account. These Trust Preferred Securities generally have no
voting rights.
Preference shares of group companies :
These Trust Preferred Securities have been issued to raise Tier 1 capital for
ING Bank NV. The proceeds of USD 2,250 million have been used to contribute EUR
2,402 million (translated against historical exchange rates) to the share
premium reserve of ING Bank NV.
2.11. Subordinated loans
Subordinated loans consists of perpetual subordinated bonds issued by ING Groep
N.V. These bonds have been issued to raise hybrid capital for ING Verzekeringen
N.V. and Tier 1 capital for ING Bank N.V.
Subordinated loans:
EUR 2,256 million (2002: EUR 1,336 million) of these loans has been on lent as
subordinated loans by ING Groep N.V. to ING Bank N.V. under the same conditions
as the original bonds.
EUR 600 million (2002: EUR 600 million) of these loans has been contributed to
the capital of ING Bank N.V. (share premium reserve).
EUR 396 million (2002: EUR 476 million) has been on lent on as subordinated
loan by ING Groep N.V. to ING Verzekeringen N.V. under the same conditions as
the original bonds.
F-31
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.12. General provisions
As at December 31, 2003, an amount of EUR 2,271 million (2002: EUR 2,764
million) was expected to be settled after more than one year from balance sheet
date.
Movements in General provisions:
2.12.1. Deferred tax liabilities
Provision for deferred tax liabilities by origin:
F-32
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred tax asset (offset by deferred tax liabilities) in connection with
unused tax losses carried forward:
Total unused tax losses carried forward as at December 31 by expiration terms:
2.12.2. Pension liabilities and other staff-related liabilities
ING Group maintains defined benefit retirement plans in the major countries in
which it operates. These plans generally cover all employees and provide
benefits that are related to the remuneration and service of employees upon
retirement. On condition the plan assets are sufficient, the benefits from many
of these plans are subject to some form of indexation.
ING Group provides other post-employment and post-retirement employee benefits
to certain employees. These are primarily post-retirement healthcare benefits
and post-employment defined benefit early-retirement plans provided to
employees and former employees.
Certain group companies sponsor defined contribution pension plans. These do
not give rise to balance sheet provisions, other than relating to short-term
timing differences included in current liabilities.
Summary of Pension liabilities and other staff-related liabilities:
F-33
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Movements in Pension liabilities and other staff-related liabilities:
As at December 31, 2003, the defined benefit obligation consisted of funded
plans amounting to EUR 11,226 million (2002: EUR 10,636 million) and unfunded
plans amounting to EUR 1,433 million (2002: EUR 1,383 million).
The assets of funded plans primarily consist of debt securities, equity and
real estate funds, of which as at December 31, 2003 to EUR 60 million (2002:
EUR 55 million) was invested in securities issued by the employer and related
parties, including shares of ING Groep N.V.
Because the balance of Pension liabilities and other staff related liabilities
at December 31, 2003 is an asset, the amount is included in the balance sheet
under Other assets.
2.13. Insurance provisions
Until 2002, Other insurance provisions included a provision to cover the risk
of possible catastrophes. In 2003, the catastrophe provision of EUR 88 million
has been released. Further in 2003 EUR 56 million has been realocated to
Provision for life policy liabilities.
As of 2003, certain liabilities for long-term disability contracts are reported
under the Claims provision. In 2002, these were reported under Provision for
unearned premiums and unexpired insurance risks. The 2002 comparatives have
been restated resulting in a reclassification from Provision for unearned
premiums and unexpired insurance risks to Claims provision of EUR 909 million.
In the movement schedule of the Claims provision, EUR 232 million was
reclassified from Additions for prior years to Additions for the current year
as a result of the reclassification of these long-term disability contracts
F-34
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and a reclassification of claims that were incorrectly classified as prior year
claims in 2002. There is no impact on total Insurance provisions and on the net
profit for the year.
The insurance provisions are generally of a long-term nature.
Insurance provisions own account by geographical area:
The region Latin America comprises South America and Mexico. Until 2002 Mexico
was included in the region North America. This revised regional split is more
in line with the internal management reporting structure. The comparable
figures have been adjusted accordingly.
Movements in the Claims provision for own account:
F-35
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.14. Funds entrusted to and debt securities of the banking operations
Funds entrusted to the banking operations by type:
No funds have been entrusted to ING Group by customers on terms other than
those prevailing in the normal course of business. As at December 31, 2003,
Funds entrusted to and debt securities of the banking operations included
liabilities with regard to securities sold in repurchase transactions amounting
to EUR 13,723 million (2002: EUR 11,481 million).
2.14.1. Savings accounts
Savings accounts relates to the balances on savings accounts, savings books,
savings deposits and time deposits of personal customers. The interest payable
on Savings accounts, which is contractually added to the accounts, is also
included.
2.14.2. Other funds entrusted
2.14.3. Funds entrusted to the banking operations
Funds entrusted to the banking operations relates to non-subordinated debts to
non-banks, other than in the form of debt securities.
2.14.4. Debt securities
Debt securities includes debentures and other issued debt securities with
either fixed-interest rates or interest rates dependent on prevailing
interest-rate levels, such as certificates of deposit and accepted bills issued
by the group, where not subordinated.
F-36
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.15. Banks
Banks includes non-subordinated debt to banks, other than in the form of debt
securities. As at December 31, 2003, liabilities with regard to securities sold
in repurchase transactions amounted to EUR 20,979 million (2002: EUR 22,316
million).
Banks by type:
2.16. Other liabilities
Other liabilities by type:
Other liabilities by remaining term:
F-37
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other liabilities by activity:
Non-subordinated debenture loans, loans contracted and deposits of the banking
operations are included in Funds entrusted to and debt securities of the
banking operations and in Banks.
Subordinated loans of group companies relates to capital debentures and private
loans, which are subordinated to all current and future liabilities of ING Bank
N.V., Postbank N.V. or Westland/Utrecht Hypotheekbank N.V. The average interest
rate on the subordinated loans is 6.1% (2002: 6.1%).
Debenture loans have been issued with an average interest rate of 5.7% (2002:
5.6%) and are repayable in the years 2004 to 2036. The loans are denominated in
various currencies. Some of the loans have been converted into U.S. dollars by
means of currency swaps. Others have been converted into loans with a
variable-interest rate by means of interest-rate swaps. As at December 31,
2003, loans amounting to EUR 8,810 million (2002: EUR 9,621 million) bore an
average fixed-interest rate of 5.9% (2002: 5.9%). The remaining EUR 1,151
million (2002: EUR 1,739 million) bore an average variable-interest rate of
4.0% (2002: 4.5%).
The average interest rate of Loans contracted with fixed-interest rates, with a
remaining principal amount of EUR 1,087 million (2002: EUR 1,591 million), was
6.5% (2002: 6.9%). The remaining EUR 4,413 million (2002: EUR 5,024 million)
bore an average variable-interest rate of 1.1% (2002: 1.2%). These loans are
repayable in the years 2004 to 2019.
The average interest rate of Loans from credit institutions with fixed-interest
rates, with a remaining principal amount of EUR 2,556 million (2002: EUR 2,896
million), was 2.7% (2002: 3.2%). The remaining EUR 1,116 million (2002: EUR 859
million) bore an average variable-interest rate of 1.2% (2002: 2.8%). As at
December 31, 2003, loans totalling EUR 5 million (2002: EUR 7 million) were
secured by mortgages.
2.17. Accrued liabilities
As at December 31, 2003, an amount of EUR 616 million (2002: EUR 1,697 million)
was expected to be settled after more than one year from the balance sheet
date.
F-38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.18. Additional information relating to the consolidated balance sheet of ING Group
Analysis of certain assets and liabilities by maturity:
F-39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.18.1. Assets not freely disposable
The assets not freely disposable primarily consist of interest-bearing
securities pledged to secure deposits from the Dutch Central Bank and other
banks, serve to secure margin accounts and are used for other purposes required
by law. Of these assets EUR 5,658 million (2002: EUR 3,586 million) relates to
guarantees provided for certain liabilities included in the balance sheet as
well as off-balance sheet contingent liabilities.
Assets not freely disposable:
2.18.2. Off-Balance sheet arrangements
Contingent liabilities
In the normal course of business ING Group is a party in activities whose risks
are not reflected in whole or part in the consolidated financial statements. In
response to the needs of its customers, ING Group offers financial products
related to loans. These products include traditional off-balance sheet
credit-related financial instruments.
Contingent liabilities:
Guarantees relate both to credit and non-credit substitute guarantees.
Credit-substitute guarantees are guarantees given by ING Group in respect of
credit granted to customers by a
third party. Many of them are expected to expire without being drawn on and
therefore do not necessarily represent future cash outflows. The guarantees are
generally of a short-term nature. In addition to the items included in
F-40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
contingent liabilities, ING Group has issued guarantees as a participant in
collective arrangements of national industry bodies and as participant in
government required collective guarantee schemes which apply in different
countries. The decrease of the guarantees of insurance operations was caused by
the expiration of guarantees for a derivative portfolio.
Irrevocable letters of credit mainly secure payments to a third party for a
customers foreign and domestic trade transactions in order to finance a
shipment of goods. ING Groups credit risk in these transactions is limited
since these transactions are collalteralized by the commodity shipped and are
of a short duration.
Other contingent liabilities mainly relate to acceptances of bills and are of a
short-term nature.
Irrevocable facilities mainly constitute unused portions of irrevocable credit
facilities granted to corporate clients. Many of these facilities are for a
fixed duration and bear interest at a floating rate. ING Groups credit risk in
these transactions is limited. Most of the unused portion of irrevocable credit
facilities is secured by customers assets or counter-guarantees by the central
government and exempted bodies under the regulatory requirements. Irrevocable
facilities also include commitments made to purchase securities to be issued by
governments and private issuers.
Special Purpose Entities (SPE)
ING Group has established a number of SPEs and engages in activities with SPEs,
for example as investor, administrator or provider of other financial services.
A number of SPEs which are controlled by ING Group are included in the
consolidated financial statements.
Asset-backed commercial-paper conduits
In the normal course of business, ING Group structures financing transactions
for its clients assisting them in obtaining sources of liquidity by selling the
clients receivables or other financial assets to an SPE. The SPE issues
asset-backed commercial paper to the market to fund the purchases. ING Group,
in its role as administrative agent, facilitates these transactions by
providing structuring, accounting, funding and operations services. As ING
Group has no ownership and controlling interest in the SPE nor does it service
the transferred assets, the SPE is not included in the consolidated financial
statements.
ING Group supports the commercial paper programs by providing the SPE with
short-term stand-by liquidity facilities. Primarily these liquidity facilities
are meant to cover temporarily disruptions in the commercial-paper market. Once
drawn these facilities bear normal credit risk. A number of programmes are
supported by granting structured liquidity facilities to the SPE, in which ING
Group in addition to normal liquidity facilities to a certain extent covers
the credit risk incorporated in these programs itself, and as a consequence
might suffer credit losses from it. Furthermore, under a Program Wide Credit
Enhancement ING Group guarantees to a limited amount all remaining losses
incorporated in the SPE to the commercial-paper investors. All facilities,
which vary in risk profile, are granted to the SPE subject to normal ING Group
analysis procedures regarding credit risk and liquidity risk. The fees received
for services provided and for facilities are charged on market conditions. The
normal non-structured stand by liquidity facilities and the structured
facilities are reported under irrevocable facilities.
Collateralized Debt Obligations (CDO)-transactions
Within ING Group, SPEs are used for CDO transactions. In a typical CDO
transaction an SPE is used to issue structured, rated securities which are
backed (or collateralized) by a pool of transferable debt securities. In these
transactions ING often has different roles:
ING Group receives market-rate fees for structuring, (asset) managing and
distributing CDO-securities to investors.
F-41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Entities
ING Group is also party in other SPEs used in for instance structured finance
and leasing transactions.
2.18.3. Future rental commitments
Future rental commitments for lease contracts as at December 31, 2003:
2.18.4. Legal proceedings
ING Group companies are involved in lawsuits and arbitration cases in a number
of countries, relating to claims by or against these companies arising in the
course of ordinary activities, and also from acquisitions, including the
activities as insurer, lender, employer, investor and taxpayer. Several of
these cases involve claims of either large or indefinite amounts. Although it
is not feasible to predict or to determine the outcome of current or impending
legal proceedings, the Executive Board is of the opinion that the outcome is
unlikely to have any material adverse effects on the financial position or
results of ING Group.
These legal proceedings include a claim filed by the Mexican fertilizer
producer Fertinal against ING Comercial América, a wholly owned subsidiary of
ING Group. Fertinal claims EUR 238 million (USD 300 million) from ING Comercial
América, the maximum coverage under the insurance policy of their mining
operations. The case is disputed before a judge in Mexico; we cannot assess the
final outcome. Fertinal has also filed a criminal complaint of fraud against
ING Comercial América and some of its employees, the outcome of which is also
yet unclear.
In The Netherlands ING Bank, together with all other major Dutch banks and
their joint venture Interpay, are subject of an examination by the Dutch
competition authority Nederlandse Mededingings-autoriteit or NMa. Allegedly
the Dutch banks and Interpay have artificially kept the prices for the use of
electronic payment systems higher than necessary. This investigation could
result in a fine to be paid, but whether such fine will be imposed and, if so,
what the amount of the fine will be, is still uncertain.
2.18.5. Derivatives
Use of derivatives
ING Group uses derivative financial instruments in the normal course of
business for non-trading and trading purposes. Derivatives are financial
instruments, which include forwards, futures, options and swaps, whose value is
based on an underlying asset, index or reference rate.
Non-trading activities
ING Groups principal objective in holding or issuing derivatives for
non-trading purposes is risk management. To achieve its risk-management
objective, ING Group uses a combination of interest-rate instruments, primarily
interest-rate swaps. Net positions in foreign currencies are subject to changes
in value as exchange rates change. These fluctuations are managed by entering
into currency swaps, forwards and options.
F-42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Notional amounts and the positive and negative fair values of derivative
financial instruments used for non-trading purposes:
ING Groups use of these instruments is changed from time to time in response
to changing market conditions as well as changes in the mix of the related
assets and liabilities.
Trading activities
ING Group trades derivative financial instruments on behalf of clients and for
its own account. Derivative financial instruments used for risk-management
purposes to control risks of trading portfolios are reported as being held for
trading purposes.
Notional amounts, the average fair values and year-end fair values of trading
derivative financial instruments:
Numerical information about derivatives activities
The following tables give numerical information about the derivatives
activities, detailing types of derivatives, credit risks, counterparties and
use of the derivatives transactions.
The first table illustrates the relative importance of the various types of
derivative products, showing the notional amounts at year-end 2003 and year-end
2002. Notional amounts represent units of account which, in respect of
derivatives, reflect the relationship with the underlying assets (bonds, for
example, in the case of interest-rate futures). What they do not reflect,
however, is the credit risk assumed by entering into derivatives transactions.
Listed derivatives are standardized and include futures and certain option
contracts. Over-the-counter derivatives contracts are individually negotiated
between contracting parties and include forward contracts, options and swaps.
Forward contracts are commitments to exchange currencies or to buy or sell
other financial instruments at specified future dates. Futures contracts are
similar to forwards. However, major exchanges act as intermediaries and require
daily cash settlement and collateral deposits.
Option contracts give the purchaser, for a premium, the right, but not the
obligation, to buy or sell within
F-43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
a limited period of time a financial instrument or currency at a contracted
price that may also be settled in cash. Written options give the issuer the
obligation to buy or sell within a limited period of time a financial
instrument or currency at a contracted price that may also be settled in cash.
This subjects ING Group to market risk, but not to credit risk, since the
counterparties have already performed in accordance with the terms of the
contract by paying a cash premium up front.
Swap contracts are commitments to settle in cash at a specified future date,
based on differentials between specified financial indices as applied to a
notional amount. Generally, no cash is exchanged at the outset of the contract
and no principal payments are made by either party.
The year-end positive fair value represents the maximum loss that ING Group
would incur on its derivatives transactions if all its counterparties at year
end defaulted. This fair value can and will fluctuate from day to day due to
changes in the value of the underlying assets. In order to arrive at an
estimate of credit risk at any given time, a margin is added to the fair value
figures to arrive, in accordance with internationally accepted criteria, at
what is called the unweighted credit equivalents.
The weighted credit equivalents are the unweighted credit equivalents
multiplied by the weighting factors determined in accordance with standards of
the international supervisory authorities. Under certain conditions, the credit
risk can be reduced by entering into bilateral netting agreements. In the case
of non-observance of the obligation by the counterparty, this kind of agreement
gives the right to net off receivables and payables in respect of open
derivatives contracts. The effect of reducing the risk by means of bilateral
netting agreements is shown at the bottom of the first table.
F-44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Open contracts as at year-end:
Collateral held but not meeting the criteria for contractual netting, would
additionally reduce the total weighted credit equivalent as at December 31,
2003 with an amount of EUR 362 million (2002: EUR 498 million).
F-45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Open contracts by remaining term, based on the notional amounts, as at December
31:
F-46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Open contracts by remaining term, based on the notional amounts, as at December
31:
Open contracts by counterparty:
F-47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.18.6. Fair value of financial assets and liabilities
The following table presents the estimated fair values of ING Groups financial
assets and liabilities. Certain balance sheet items are not included in the
table as they do not comply with the definition of a financial asset or
liability. The aggregation of the fair values presented hereunder does not
represent, and should not be construed as representing, the underlying value of
ING Group.
Fair value of financial assets and liabilities:
The estimated fair values correspond with the amounts at which the financial
instruments could have been traded on a fair basis at the balance-sheet date
between knowledgeable, willing parties in arms-length transactions. The fair
value of financial assets and liabilities is based on quoted market prices,
where available. Because substantial trading markets do not exist for most of
these financial instruments various techniques have been developed to estimate
their approximate fair values. These techniques are subjective in nature and
involve various assumptions about the discount rate and the estimates of the
amount and timing of the anticipated future cash flows. Changes in these
assumptions could significantly affect the estimated fair values. Consequently,
the fair values presented may not be indicative of the net realizable value. In
addition, the calculation of the estimated fair value is based on market
conditions at a specific point in time and may not be indicative of future fair
values.
F-48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following methods and assumptions were used by ING Group to estimate the
fair value of the financial instruments.
Financial assets
Participating interests
The fair values of the shares of participating interests are based on quoted
market prices or, if unquoted, on estimated market values based on quoted
prices for similar securities. Fair values of the receivables from
participating interests are determined using the same methods as described
below for Fixed-interest securities.
Investments
The fair values of Shares and convertible debentures are based on quoted market
prices or, if unquoted, on estimated market values generally based on quoted
prices for similar securities. Fair values for Fixed-interest securities other
than mortgage and policy loans are based on quoted market prices, where
available. For those securities not actively traded, fair values are estimated
using values obtained from private pricing services or by discounting expected
future cash flows using a current market rate applicable to the yield, credit
quality and maturity of the investment. The fair values of mortgage loans are
estimated by discounting future cash flows using interest rates currently being
offered for similar loans to borrowers with similar credit ratings. The fair
values of fixed-rate policy loans are estimated by discounting cash flows at
the interest rates charged on policy loans of similar policies currently being
issued. Loans with similar characteristics are aggregated for purposes of the
calculations. The fair values of variable-rate policy loans approximate their
carrying values.
Lending
For loans that are repriced frequently and have had no significant changes in
credit risk, carrying amounts represent a reasonable estimate of fair values.
The fair values of other loans are estimated by discounting expected future
cash flows using interest rates offered for similar loans to borrowers with
similar credit ratings. The fair values of nonperforming loans are estimated by
discounting the expected cash flows of recoveries.
Banks
The fair values of receivables from banks are estimated based on discounting
future cash flows using available market interest rates offered for receivables
with similar characteristics.
Cash
The carrying amount of cash approximates its fair value.
Other assets
The fair values of securities in the trading portfolio and equity
participations are based on quoted market prices, where available. For those
securities not actively traded, fair values are estimated based on internal
discounted cash flow pricing models taking into account current cash flow
assumptions and the counterparties credit standings. The carrying amount of
Other receivables approximates its fair value.
Accrued assets
The carrying amount of accrued assets approximates its fair value.
Financial liabilities
Subordinated loans
The fair value of the Subordinated loans is estimated using discounted cash
flows based on interest rates that apply to similar instruments.
Insurance provisions related to investment-type contracts (included in
insurance provisions)
For guaranteed investment contracts the fair values have been estimated using a
discounted cash
F-49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
flow approach based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued. For other investment-type contracts, fair values are estimated
based on the cash surrender values.
Funds entrusted to and debt securities of the banking operations
The carrying values of demand deposits and other deposits with no stated
maturity approximate their fair values. The fair values of other deposits with
stated maturities have been estimated based on discounting future cash flows
using the interest rates currently applicable to deposits of similar
maturities.
Banks
The fair values of payables to banks are estimated based on discounting future
cash flows using available market interest rates for payables to banks with
similar characteristics.
Other liabilities
For publicly traded debt, the fair values are based on quoted market prices.
For non-traded, variable-rate debt, the carrying amounts approximate their fair
values. For non-traded, fixed-rate debt, the fair values have been estimated
using discounted cash flow calculations based on interest rates charged on
similar instruments currently being issued.
Accrued liabilities
The carrying amount of accrued liabilities approximates its fair value.
Derivatives
The fair values of derivatives held for non-trading purposes are based on
broker/dealer valuations or on internal discounted cash flow pricing models
taking into account current cash flow assumptions and the counterparties
credit standings. The fair values of derivatives held for non-trading purposes
generally reflect the estimated amounts that ING Group would receive or pay to
terminate the contracts at the balance sheet date.
Fair value of other off-balance sheet financial instruments:
For the other off-balance sheet financial instruments the following methods are used in order to
determine the fair value.
F-50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Insurance operations
The fair values of the commitments for investments in land and buildings and
commitments concerning investments in fixed-interest securities are the same as
their contract amounts on account of their short-term nature.
Banking operations
Risk-weighted amounts of the banking operations have been calculated in
accordance with the Dutch Central Bank guidelines which are based on the
solvency ratio directives of the European Commission. In view of the lack of an
established market and difficulties involved in segregating the value of these
instruments from their underlying degree of uncertainty, it is not considered
to be meaningful to provide an estimate of the fair value for these
instruments.
2.18.7. Capital base
Breakdown capital base :
2.18.8. Regulatory requirements
ING Bank
Capital adequacy and the use of regulatory required capital are based on the
guidelines developed by the Basel Committee on Banking Supervision (the Basel
Committee) and European Community Directives, as implemented by the Dutch
Central Bank (DNB) for supervisory purposes. The minimum tier 1 ratio is 4% and
the minimum total capital ratio (known as the BIS ratio) is 8% of all
risk-weighted assets, including off-balance sheet items and market risk
associated with trading portfolios.
F-51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Capital position of ING Bank:
ING Insurance
European Union directives require insurance companies established in member
states of the European Union to maintain minimum capital positions. The capital
position of ING Insurance has been measured on the basis of this EU
requirement.
Capital position of ING Insurance:
F-52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ING Group
According to an agreement (Protocol) between the Dutch Central Bank and the
Pension & Insurance Board regarding the supervision of financial conglomerates,
ING Group is required to have an amount of capital, reserves and subordinated
loans which are at least equal to the sum of:
the required capital for the banking activities and
the required capital for the insurance activities.
For regulatory purposes certain (external) subordinated loans of ING Bank N.V.
and ING Verzekeringen N.V. are included.
Regulatory required capital ING Group:
2.18.9. Related parties
In the normal course of business, ING Group enters into various transactions
with related companies. Related companies comprise non-consolidated
participating interests and the non-consolidated part of joint-ventures. These
transactions are not considered material to ING Group, either individually or
in the aggregate. Parties are considered to be related if one party has the
ability to control or exercise significant influence over the other party in
making financial or operating decisions. Transactions have taken place on an at
arms length basis.
Related party transactions:
Income received from and expenses paid to associates were EUR 7 million
respectively EUR 2 million (2002: EUR 12 million respectively EUR 3 million).
F-53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. NOTES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT OF ING GROUP
3.1. Income
3.1.1. Premium income
Premium income has been included before deduction of reinsurance and
retrocession premiums granted.
Premium income includes EUR 20,585 million (2002: EUR 26,928 million; 2001: EUR
23,738 million) relating to investment type policies of the US, Latin America
and Asia-Pacific operations. These policies mainly consist of individual and
group fixed and variable annuities, universal life contracts and guaranteed
investment contracts.
3.1.2. Income from investments of the insurance operations
As from 2003, Additions to the provision for investment losses are reported on
a separate line within Total expenditure. Previously these additions were
reported as an element of Income from investments of the insurance operations.
The comparable figures have been adjusted accordingly.
Income from land and buildings includes an amount in respect of rental income
allocated to business units of ING Group (the same amount is included in Other
expenses) of EUR 57 million (2002: EUR 50 million; 2001: EUR 51 million).
Income from investments in land and buildings and shares and convertibles
includes realized results on disposal of EUR 425 million (2002: EUR 1,357
million; 2001: EUR 1,005 million).
F-54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income from investments by counterparty:
Income from investments for risk of policyholders of EUR 9,973 million (2002:
EUR (10,642) million; 2001: EUR (7,864) million) is not included in Income from
investments of the insurance operations.
3.1.3. Interest result from the banking operations
In 2003, interest income includes an amount of EUR 5,559 million (2002: EUR
5,075 million; 2001: EUR 4,116 million) in respect of interest-bearing
securities. Interest expense includes an amount of EUR 3,187 million (2002: EUR
3,964 million; 2001: EUR 3,458 million) in respect of interest-bearing
securities.
Despite the existence of a legal claim, interest income of EUR 123 million
(2002: EUR 105 million; 2001: EUR 122 million) is not recognized in the profit
and loss account because the realization of the interest income is almost
certainly not to be expected.
Interest income and expenses:
F-55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Interest margin, analyzed on a percentage basis of the Netherlands and
international operations:
In 2003 the growth of the average total assets caused an increase of the
interest result with EUR 689 million (2002: EUR 541 million). The decrease of
the interest margin with 4 basis points caused a decrease of the interest
result with EUR 220 million (in 2002 the increase of the interest margin with
23 basis points caused an increase of the interest result with EUR 1,033
million).
3.1.4. Commission
In 2003, the banking operations received EUR 3,085 million (2002: EUR 3,231
million; 2001: EUR 3,308 million) and paid EUR 621 million (2002: EUR 616
million; 2001: EUR 543 million) in respect of commission.
3.1.5. Other income
Income from participating interests and equity participations
F-56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Results from financial transactions
Other results
Other results includes income which cannot be classified with any of the above
items, including rental income, results on the sale of property and leasing
income which is not classified as interest.
3.2. Expenditure
3.2.1. Underwriting expenditure
Profit sharing and rebates:
As from 2003, claims handling expenses are counted for as part of the Other
expenses. Until 2002, these expenses were counted for as part of the
Underwriting expenditure. This new
classification better represents the nature of the claims handling expenses.
The comparable figures have been adjusted accordingly.
F-57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Underwriting expenditure includes an amount of EUR 3,714 million in 2003 (2002:
EUR 3,974 million; 2001: EUR 3,705 million) in respect of commission paid and
payable with regard to the insurance operations. Amortization of deferred costs
of acquiring new business amounted to EUR 1,362 million in 2003 (2002: EUR
1,548 million; 2001: EUR 1,526 million).
Underwriting expenditure regarding investment income for risk of policyholders
of EUR 9,973 million (2002: EUR (10,642) million; 2001: EUR (7,864) million) is
not included in Underwriting expenditure.
3.2.2. Other interest expenses
Other interest expenses mainly consist of interest in connection with the
insurance operations, including interest on the subordinated debenture issued
by ING Groep N.V. in 1991, which has been fully redeemed on March 15, 2001 and
interest on the perpetual subordinated loans issued by ING Groep N.V. in
September 2001, July 2002, December 2002 and July 2003.
Other interest expenses includes eliminations of EUR 167 million (2002: EUR 17
million; 2001: EUR 25 million).
3.2.3. Salaries, pension and social security costs
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pension, healthcare and early-retirement costs:
Contributions to defined contribution plans are generally determined as a
percentage of pay.
The actual return on the plan assets amounted to EUR 849 million (2002: EUR
(718) million; 2001: EUR (372) million).
General policy senior-management remuneration
Background
Based on the outcome of a study, started in 2002, conducted by an external
consultant on the market competitiveness of INGs remuneration levels and mix,
the Supervisory Board decided to progressively introduce a new remuneration
structure for INGs senior management. The introduction of this new structure
was started in 2003. In the 2003 General Meeting of Shareholders it was
announced that the new policy would be up for discussion in the General Meeting
of Shareholders on April 27, 2004 and to seek approval for the new long-term
incentive plan.
The prime objective of the study was to formulate a new remuneration policy for
INGs senior management allowing the company to recruit and retain qualified
and expert managers. The design of the new remuneration should tie in with
INGs strategic objectives and support a performance-driven culture that aligns
INGs objectives with those of its stakeholders. ING intends to continue to
reward performance on the basis of previously-determined, measurable and
manageable short-term and long-term targets, using clear and understandable
performance criteria. The variable part of the remuneration is designed to
strengthen the commitment to the company and its objectives.
Remuneration structure
Total compensation throughout ING consists of three basic
components:
Fixed or base salary, the guaranteed annual income component;
Short-term incentive (STI) in cash, compensates for past performance measured
over one year;
Long-term incentive (LTI) in stock options and/or performance
shares, compensates for performance measured over multiple years and is
forward-looking.
F-59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In addition to the base salary, senior management members enjoyed benefits
similar to most other employees of ING Group.
These include benefits like private medical insurance, the use of company cars
and, if applicable, expatriate allowances.
INGs remuneration structure is based on five key principles that will apply
across ING. These principles are:
Short-term incentive plan
The short-term incentive is paid in cash. The at target bonus opportunity is
expressed as a percentage of base salary. The target levels are based on
benchmarks reflecting external market competitiveness as well as internal
objectives. Three financial measures were used in the 2003 short-term incentive
plan (STIP) for the senior management to measure performance at Group level.
These financial measures are: net operating profit, total operating expenses
and return on economic capital.
By combining a profit, a cost and a return measure, the overall performance of
ING is properly reflected. Each element is weighted equally to determine the
final award. The three performance targets are set by the Supervisory Board at
the beginning of the performance period. Under the short-term incentive plan,
the actual payout in any year may vary between 0% and 200% of the target level.
In addition to the financial targets, part of the short-term incentive award is
based on individual performance, assessed on the basis of predefined measurable
targets set for each senior executive. These targets depend on the specific
responsibilities of the individual and are determined and assessed by the
Supervisory Board for the Executive Board. The Executive Board sets the targets
for the members of the Executive Committees and Management Council members.
As the table below shows, the emphasis on ING Group results is reduced for each
layer below the Executive Board as the direct accountability of these managers
for the Group results declines.
Short-term incentive: relative weight of Group and individual performance
Long-term incentive plan
In the overall evaluation of the remuneration components, the Supervisory Board
analyzed the original long-term incentive plan (LTIP) in 2003. The analysis
assessed whether the instrument used (stock
F-60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
options only) supported the INGs objectives. As a result of this study, the
Supervisory Board decided to introduce an additional instrument to the LTIP for
the Executive Board, the performance share. Performance shares are granted to
ensure alignment of senior management with the interests of shareholders, and
to retain top management over a longer period of time. Thus, the LTI awards
will be granted with the total nominal value split equally between stock
options and performance shares. The Executive Board members are not allowed to
sell shares obtained either through the stock-option or the performance-shares
plan within a period of five years from the grant date. Participants will only
be allowed to exercise options or sell part of the shares at the date of
vesting to pay tax over the vested award.
The ING stock options have a total term of ten years and a vesting period of
three years. After three years, the options will only vest if the option holder
is still employed by ING (or retired). The exercise price of the stock options
is equal to the Euronext Amsterdam opening price on the first day after the
General Meeting of Shareholders.
Performance shares will be conditionally granted. The number of shares that
will ultimately be awarded at the end of a 3-year performance period depends on
the ING Group performance. The Supervisory Board decided to use Total
Shareholder Return over three years (return in the form of capital gains and
reinvested dividends that shareholders receive in that period) relative to the
performance of a predefined peer group. The criteria used to determine the
performance peer group were: a) considered comparable and relevant by the
Supervisory Board, b) representing INGs current portfolio of businesses (e.g.
banking, insurance and asset management) and INGs geographical spread, c)
global players, d) listed and a substantial free float.
On the basis of these criteria the performance peer group was
composed as follows:
INGs ranking within this group of companies will determine the final number of
shares that will vest at the end of the three-year performance period. The
initial number of performance shares is defined as 100%, which number will
follow linear increase or decrease on the basis of the position after the
three-year performance period as specified in the table:
Number of shares after three-year performance period related to peer group:
The Supervisory Board will review the peer group before each new three-year
performance period. The performance test itself will be carried out at the end
of every three-year performance period by an independent third party.
As announced in the 2003 General Meeting of Shareholders, the Supervisory Board
will table this plan as described above for approval at the General Meeting of
Shareholders on April 27, 2004.
Compensation level Executive Board
As part of the study on the future remuneration, a comparative assessment on
compensation levels and mix of fixed and variable components had to be made.
Therefore, in 2002 a compensation peer group was composed. This peer group is a
mix of European financial-services companies and Dutch-
F-61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
based multinationals. The peer group reflects INGs business structure and
environment. ING competes with these companies for executive talent. The
following companies were part of this compensation peer group: ABN Amro, Aegon,
Ahold, AXA, BNP Paribas, Credit Suisse, Fortis, KPN, Royal Bank of Scotland,
Société Générale.
The report identified a significant compensation gap at total direct
compensation level, between INGs Executive Board and its peer group
counterparts. Key recommendations from the report included that in order to
close the gap, in particular the variable (performance-driven) pay component
should be increased.
In line with INGs overall remuneration policy, the Supervisory Board decided
to introduce a gradual convergence of Executive Board salaries to the
European/Dutch median benchmark over a three-year period, starting in 2003.
This will be achieved by raising the target bonus levels of both the short-term
and long-term incentives. This ensures that future payout will more directly
reflect performance. As a result, the mix between base salary, short-term and
long-term incentives is assumed to change such that over time the total
remuneration will be divided equally between each component (i.e. 1/3rd base
salary, 1/3rd short-term incentives, and 1/3rd long-term incentives) in case of
at-target performance.
Pensions Executive Board members
The pensions of the Dutch members of the Executive Board are based on defined
benefit plans, which are insured through a contract with Nationale-Nederlanden
Levensverzekering Maatschappij N.V. The Employment Contract will terminate by
operation of law in case of retirement (Standard Retirement), which in
general will take place on June 1 of the year that the incumbent has reached or
will reach the age of 60. By mutual agreement the retirement date can be
extended to the end of the month in which Executive Board members reach the age
of 61 or 62. Prospective pensions amount to a maximum of 60% of base salaries.
According to existing employment contracts, the pension rights of the members
of the Executive Board are free of premium. The non-Dutch members of the
Executive Board have a pension plan related to their home base.
Employment contract for newly appointed board members
The contract of employment for new Executive Board members states that these
Executive Board members are appointed for a period of four years (the
appointment period) and that they can then be re-appointed by the General
Meeting of Shareholders.
For newly appointed Executive Board members the amount they would be entitled
to in case of an involuntary exit has been set at a multiple of their new
Executive Board member base salary, such that their existing rights are
preserved. For the three Executive Board members that are nominated for
appointment in the 2004 General Meeting of Shareholders these rights slightly
exceed the exit arrangement as prescribed by the Tabaksblat Code, i.e. no more
than two times base salary (first appointment period) or one time base salary
(all other situations). For the existing Executive Board members the exit
clause has been set at three years base salary.
The term of notice for new and existing Executive Board members is three months
for the employee and six months for the employer.
Remuneration Executive Board 2003
Base salary Executive Board 2003
Until recently, the base salaries of the Executive Board were reviewed every
two years through a comparison with peer companies. Following the 2001 review,
it was decided not to change the salary levels. As a result, the Executive
Board retained the base-salary levels set in 1999. Based on the aforementioned
study, the Supervisory Board decided to increase the base-salary levels for the
Executive Board members by 7.5% with effect from January 1, 2003, also taking
into
account that the Collective Labour Agreement (CAO) for all Dutch employees
resulted in an increase of base salary by approximately 15% over the period
1999-2003.
F-62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Short-term incentive Executive Board 2003
As in 2002, the target STI plan payout over 2003 was set at 30% of the
individual Executive Board members base salary. The final award is based for
70% on the achievement of the three Group financial targets mentioned above and
for 30% on individual objectives set at the beginning of the year by the
Supervisory Board.
Early in 2004, the Remuneration and Nomination Committee reviewed the actual
results of ING against the 2003 targets set at the beginning of that year. Over
2003, ING significantly exceeded the three targets set, resulting in a payout
of 175% of target. The difference between actual STI payout over 2003 and
actual STI payout over 2002 is largely influenced by the fact that in 2002
Group Performance did not meet the targets set, so that over 2002 no short-term
performance-related bonuses were paid (contrary to 2003).
The individual targets for the Executive Board members were agreed with the
chairman of the Remuneration and Nomination Committee and approved by the
Supervisory Board. Individual performance has been assessed by the chairman of
the Remuneration and Nomination Committee for the final award. The outcome
below is based on a payout related to the individual performance element that
equals that of the Group financial element (175% of target). Hence, STI payout
over 2003 equals 1.75 x 30% = 52.5% of base salary.
Long-term incentive Executive Board 2003
Under the proposed new long-term incentive plan (LTIP) for the Executive Board,
two instruments are used: stock options and performance shares. As mentioned
earlier, an identical plan has been adopted by the Executive Board for the top
senior managers across ING. As a result, more than 7,000 senior managers will
participate in a similar plan.
Subject to the shareholders approval, the Supervisory Board has provisionally
determined the LTI award to be granted to the Executive Board members. For
2003, the Supervisory Board set the target LTI award at 30,000 stock options
and 10,000 performance shares (based on a ratio of 3 options to 1 performance
share). The actual number of stock options and provisional performance shares
to be granted to the Executive Board members will be based on the performance
over the financial criteria used to determine the short-term incentive award
(i.e. Group profit, expenses and return on economic capital). The payout was
set to vary between 50% of target (if STI payout would be equal to 0%) and 150%
of target (if STI payout would be 200%).
F-63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Based on Group STI performance outcome over 2003 of 175%, the resulting
provisional LTI award would be 137.5% of target, being 41,250 options and
13,750 performance shares (compared with the target level of 30,000 options and
10,000 performance shares). The option grant is fixed and linked to the 2003
performance. The exercise price of the options will be fixed at the Euronext
Amsterdam Stock Market opening price of the ING Group share on April 28, 2004.
The performance shares are granted provisionally; the final number will depend
on the ranking within the performance peer group after the first three-year
period on the basis of 13,750 shares equals 100%.
Compensation in cash of the individual members and former members of the
Executive Board:
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Long-term incentives of the individual members and former members of the
Executive Board:
Pension costs of the individual members and former members of the Executive
Board (1):
F-65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Loans
The table below presents the loans provided to the Executive Board members.
These loans are in the normal course of business and on terms applicable to the
personnel as a whole and approved by the Supervisory Board.
Loans and advances to the members of the Executive Board:
No loans and advances have been granted to other members of the Executive
Board.
F-66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Information on the options outstanding and the movements during the financial
year of options granted to the members of the Executive Board as at December
31, 2003:
(1) Waived at vesting date or expired at expiry date
ING Group shares held by members of the Executive Board
As at December 31, 2003, Fred Hubbell (including direct family) held 1,104,100
ING Group shares (2002 and 2001: 1,053,000) of which 405,455 (2002 and 2001:
405,000) are held in a trust. Other members of the Executive Board (including
direct family) did not hold ING Group shares.
Remuneration structure Executive Board 2004
Policy for 2004
With regard to the remuneration policy for 2004, the Supervisory Board plans to
further build on the new remuneration policy initiated in 2003, further
emphasizing the movement toward a more
F-67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
performance-oriented culture. The intention is to continue the gradual
convergence to the European/Dutch benchmark through a gradual increase in the
short and long-term incentive target levels (as a percentage of base salary).
Base salary Executive Board 2004
The base salary of the Executive Board members will be frozen for 2004, in the
light of the Dutch Sociaal Akkoord.
Short-term incentive Executive Board 2004
Continuing with the intended focus on variable, performance-related
remuneration, the Supervisory Board has decided to increase the target
short-term incentive to 50% of base salary. The actual payout may vary between
0% and 200% of the target level (e.g. between 0% and 100% of base salary).
The mix for the 2004 short-term incentive award will remain the same as in
2003: 70% will be determined by pre-defined ING Group financial performance
measures and 30% will be based on individual performance objectives set for
each Executive Board member and agreed by the Supervisory Board.
The Supervisory Board believes that for 2004, the Executive Boards short-term
incentive award for the Group performance should again be measured using the
same three financial criteria as in 2003: net operating profit, total operating
expenses and return on economic capital, equally weighted. The targets set are
challenging.
Long-term incentive Executive Board 2004
The Supervisory Board proposes to set the nominal LTI target value at 50% of
base salary (same target percentage as the STI). The range may vary between 50%
and 150% of the target level (e.g. between 25% and 75% of base salary). The
structure for the 2004 long-term incentive award will remain the same as the
proposed 2003 structure (50% of the total LTI value in stock options and 50% in
performance shares).
As was the case in 2003, the total LTI value in stock options and provisional
performance shares to be granted to the Executive Board will be determined by
the Supervisory Board at the end of 2004, based on the achievement of the three
pre-defined financial objectives set out in the 2004 short-term incentive plan.
Remuneration Supervisory Board
In 2003, the remuneration of the members and former members of the Supervisory
Board amounted to EUR 0.5 million (2002 and 2001: EUR 0.6 million). The
remuneration of the chairman amounted to EUR 68,100; other members received a
remuneration of EUR 38,600. Members of a Supervisory Board Committee, not being
chairman of the Supervisory Board, received a remuneration of EUR 1,360 for
that membership as well as an expense allowance of EUR 450 per attended
meeting.
F-68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Remuneration of the members and former members of the Supervisory Board:
As at December 31, 2003, the amount of loans and advances outstanding to the
Supervisory Board was EUR 1.8 million at an average rate of 4.7%. This amount
concerns a loan to Aad Jacobs EUR 1.6 million at an average rate of 4.7% and a
loan to Paul Baron de Meester EUR 0.2 million at an average rate of 4.8%. No
loans and advances were outstanding to other members of the Supervisory Board.
As at December 31, 2002, the amount of loans and advances outstanding to the
Supervisory Board was EUR 1.6 million at an average rate of 4.7%. This amount
concerns a loan to Aad Jacobs. No loans and advances were outstanding to other
members of the Supervisory Board.
As at December 31, 2003 two members of the Supervisory Board held option rights
that were granted in earlier years when they were members of the Executive
Board, specified in the table on the next page.
F-69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Information on the options outstanding and the movements during the financial
year of options rights held by members of the Supervisory Board as at December
31, 2003:
ING Group shares held by members of the Supervisory Board (1):
Stock option plan
ING Group has granted option rights on ING Group shares to a number of senior
executives (members of the Executive Board and the Executive Committees,
general managers and other officers nominated by the Executive Board), to all
ING Group staff in the Netherlands and to a considerable number of employees
outside the Netherlands. The purpose of the option scheme, apart from promoting
a lasting growth of ING Group, is to attract, retain and motivate senior
executives and staff.
ING Group purchases direct or indirect its own shares at the time options are
granted in order to fulfil the obligations with regard to the existing stock
option plan and to hedge the position risk of the options concerned. The
purpose of this policy is to avoid an increase in the number of ING Group
shares, causing a dilution of the net profit per share. As at December 31,
2003, 28,068,191 own shares were held in connection to the option plan (2002:
28,437,105). As a result the granted option rights were hedged, taking into
account the following parameters: strike price, opening price, zero coupon
interest rate, dividend yield, expected volatility and employee behaviour.
The option rights are valid for a period of five or ten years. Option rights,
that are not exercised within this period, lapse. Each year, the ING Group
Executive Board will take a decision as to whether the option scheme is to be
continued and, if so, to what extent. Option rights granted will remain valid
until expiry date, even if the option scheme is discontinued. The option rights
are subject to certain conditions, including a certain continuous period of
service. The exercise prices of the options are the same as the quoted prices
of ING Group shares at the date on which the options are granted.
F-70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Number of options outstanding and exercisable, analyzed in accordance with year
of issue and exercise price:
F-71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Movements in the option rights:
The weighted average fair value of options granted in 2003 was EUR 3.64 (2002:
EUR 6.78; 2001: EUR 8.71).
Summary of stock options outstanding and exercisable as at December 31, 2003:
Options in the money and options out of the money:
F-72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The options granted do not cause costs for ING Group except administrative
costs for the stock option plan and funding costs resulting from the purchase
of own shares. Due to timing differences in granting option rights and buying
shares to hedge them, results can occur if shares are purchased at a different
price than the exercise price of the options. These results are recognized in
Shareholders equity. However, ING Group does not intentionally create a
position and occurring positions are closed as soon as possible. If option
rights expire, the results on the (sale of) shares which were bought to hedge
these option rights are either debited or credited to Shareholders equity.
Pro forma result if stock options would have been recognized in the profit and
loss account (1):
The fair values have been determined by using an option-pricing model. This
model takes the risk free interest rate into account, as well as the expected
life of the options granted, the expected volatility of the certificates of ING
Group shares and the expected dividends.
3.2.4 Additions to the provision for investment losses
As from 2003, Additions to the provision for investment losses from the
insurance operations are reported on a separate line within Total expenditure.
Previously these additions were reported as an element of Income from
investments of the insurance operations and Other expenses. The comparable
figures have been adjusted accordingly.
3.2.5. Other expenses
F-73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As from 2003 all office related expenses (including accommodation costs) are
reported on one line. The comparable figures have been adjusted accordingly.
Computer costs includes accelerated depreciation and impairment charges related
to capitalized software of EUR 118 million.
As from 2003, claims handling expenses are counted for as part of the Other
expenses. Until 2002, these expenses were counted for as part of the
Underwriting expenditure. This new classification better represents the nature
of the claims handling expenses. The comparable figures have been adjusted
accordingly.
3.3. Taxation
Taxation by type:
Reconciliation of the statutory income tax rate to ING Groups effective income
tax rate:
3.4. Net profit per share
Basic net profit per ordinary share is calculated on the basis of the weighted
average number of ordinary shares in issue. The following has been taken into
consideration in calculating the weighted average number of ordinary shares in
issue:
Diluted profit per share data are computed as if the stock options and warrants
outstanding at year-end were exercised at the beginning of the period. It is
also assumed that ING Group uses the cash thus received for stock options and
warrants exercised to buy its own shares against the average market price in
the financial year. The net increase in the number of shares resulting from the
exercise of warrants and stock options is added to the average number of shares
used for the calculation of diluted net profit per share.
F-74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net profit per share:
3.5. Dividend per ordinary share
Shareholders, at the discretion of the Executive Board, subject to the approval
of the Supervisory Board, may be given the option to receive dividends in the
form of cash or stock. The basic principle will be that the value of the
dividend in cash will range between 0% and 4% under the stockdividend.
F-75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.6. Additional information relating to the consolidated profit and loss
account of ING Group
3.6.1. Result from investments in shares and convertible debentures and land
and buildings
The result from investments in shares and convertible debentures and land and
buildings (excluding investments for risk of policyholders) includes all the
income and expenses associated with this category of investments except
financing charges. In the annual accounts these income and expenses are partly
included in the profit and loss account (dividends, interest, rental income,
realized revaluations and exchange differences, operating and management
expenses) and partly reflected directly as changes in Shareholders equity
(unrealized revaluations and exchange differences). Taxation is allocated on
the basis of the standard rate, making allowance for tax exemptions.
F-76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.6.2. Segment reporting
ING Group evaluates the results of its segments using financial performance
measures called operating profit before tax and operating (net) profit.
Operating (net) profit is defined as (net) profit excluding:
While these excluded items are significant components in understanding and
assessing the Groups consolidated financial performance, ING Group believes
that the presentation of operating results enhances the understanding and
comparability of its performance by highlighting net income attributable to
ongoing operations and the underlying profitability of the businesses. Trends
in the underlying profitability of ING Groups businesses can be more clearly
identified without the fluctuating effects of realized capital gains and losses
on equity securities and the impact of the negative revaluation reserve on
equity securities. These results are largely dependent on market cycles and can
vary across periods. The timing of sales that would result in gains or losses
is largely at the discretion of the company. The realized gains on divestments
that are made with the purpose of using the proceeds related to the divestments
to finance acquisitions are excluded because the timing of these gains is
largely subject to the companys discretion, influenced by market opportunities
and ING Group does not believe that they are indicative of future results.
Operating profit before tax and operating net profit are not a substitute for
profit before tax and net profit. ING Groups definition of operating profit
before tax and operating net profit may differ from those used by other
companies and may change over time.
Reconciliation of net profit to operating net profit:
F-77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Operating results by insurance operations and banking operations:
F-78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.6.3. Segmented operating net profit of the insurance operations
F-79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Allocated income and expenses
Income and expenses that are not directly recorded in operating result from
insurance operations, are allocated to the Result from life underwriting and
Result from non-life underwriting on the basis of life insurance provisions and
non-life insurance provisions of the insurance companies.
3.6.4. Geographical analysis of claims ratio, cost ratio and combined ratio for
non-life insurance policies
The region Latin America comprises South America and Mexico. Until 2002 Mexico
was included in the region North America. This revised regional split is more
in line with the internal management reporting structure. The comparable
figures have been adjusted accordingly.
The claims ratio is the claims, including claims handling expenses, expressed
as a percentage of net earned premiums. The cost ratio is the costs expressed
as a percentage of net premiums written. The claims ratio and the cost ratio
together form the combined ratio. A combined ratio of more than 100% does not
necessarily mean that there is a loss on non-life insurance policies, because
the result also includes the allocated investment income.
3.6.5. Analysis of premium income of the insurance operations
Reinsurance
ING Group is involved in both ceded and assumed reinsurance for the purpose of
spreading risk and limiting exposure on large risks. Reinsurance premiums are
recognized in Underwriting expenditure.
F-80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Effect of reinsurance on premiums written:
The reinsurance covers with respect to catastrophe exposure for the non-life
insurance business have been designed to cover a large part of exposures
resulting from events with a return period up to once in 250 years.
To the extent that the assuming reinsurers are unable to meet their
obligations, ING Group remains liable to its policyholders for the portion
reinsured. Consequently, provisions are made for receivables on reinsurance
contracts which are deemed uncollectible. To minimize its exposure to
significant losses from reinsurer insolvencies, ING Group evaluates the
financial condition of its reinsurers and monitors concentrations of credit
risk arising from similar geographical regions, activities or economic
characteristics of the reinsurer.
Premium income on life insurance policies:
F-81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Premiums written from direct life business:
The total single premiums includes EUR 600 million in 2003 from profit sharing.
F-82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Premiums written from direct life business:
The total single premiums includes EUR 566 million in 2002 from profit sharing.
F-83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The total single premiums includes EUR 567 million in 2001 from profit sharing.
F-84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Premium income on non-life insurance policies by class of business:
Premium income on non-life insurance policies by class of business:
F-85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Premium income on non-life insurance policies by class of business:
3.6.6. Analysis by Executive Center
ING Groups operating segments relate to the internal business segmentation by
Executive Centers. These include the geographical areas ING Europe (also
including ING Direct activities outside Europe, and the wholesale banking and
asset management activities worldwide), ING Americas (including the Groups
reinsurance activities) and ING Asia/Pacific. Other mainly includes items not
directly attributable to the Executive Centers.
Operating segments are defined as components of an enterprise about which
discrete financial information is available that is evaluated regularly by the
chief operating decision maker or decision making group in deciding how to
allocate resources and in assessing performance. ING Groups chief operating
decision making group is the Executive Board. Each Executive Center is headed
by an Executive Committee, most members of which are either members of the
Executive Board or general managers of business units belonging to that
Executive Center. The chairman of each Executive Committee is a member of the
Executive Board. The Executive Board sets the performance targets and approves
and monitors the budgets prepared by the Executive Committees. The Executive
Committees formulate the strategic, commercial and financial policy of the
Executive Centers in conformity with the strategy and performance targets set
by the Executive Board.
In order to better organize ING Investment Management along regional lines
beginning January 1, 2003, the activities of ING Investment Management have
been integrated into each of the regional Executive Centers in the Americas,
Asia/Pacific and Europe. As a consequence, the financial results of ING
Investment Management activities are now reported within these Executive
Centers, and the Executive Center Asset Management will no longer function as a
separate global profit center. The financial results of the other business
units of the former Executive Center ING Asset Management have been included in
Other.
The accounting policies of the operating segments are the same as those
described under Accounting principles for the consolidated balance sheet and
profit and loss account (see page F-7). Transfer prices for inter-segment
transactions are set at arms length. Geographical distribution of income is
based on the origin of sales. The corporate expenses are allocated to the
operating segments and
F-86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
geographical areas based on time spent by head office personnel, the relative
number of staff or on the basis of income and/or assets of the operating
segment. The short-term effects of the currency exchange rates of the US dollar
against the euro have been hedged (for P&L purposes) for the years 2003 to
2005. With respect to other currencies the impact is immaterial.
Operating segments of ING Group:
Operating segments of ING Group
F-87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Operating segments of ING Group:
Interest income (external) and interest expense (external) breakdown per EC:
F-88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.6.7. Geographical analysis of the insurance and banking operations
Operating income by geographical area:
Operating income from the insurance operations by geographical area:
F-89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Operating profit before tax by geographical area:
Operating profit before tax from the insurance operations by geographical area:
Operating net profit for the period by geographical area:
The region Latin America comprises South America and Mexico. Until 2002 Mexico
was included in the region North America. This revised regional split is more
in line with the internal management reporting structure. The comparable
figures have been adjusted accordingly.
F-90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS OF ING GROUP
4.1. Net cash flow from operating activities
The net cash flow shown in respect of Lending only relates to transactions
involving actual payments or receipts. The Additions to the provision for loan
losses which is deducted from the item Lending in the balance sheet has been
adjusted for the profit before tax and is shown separately in the cash flow
statement.
As a result of adjustments in the maturity of Banks as at December 31, 2002,
the 2002 comparable figures in the consolidated cash flow statement were
restated.
4.2. Net cash flow from investing activities
Most significant companies acquired:
F-91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. PARENT COMPANY BALANCE SHEET OF ING GROUP AS AT DECEMBER 31
before profit appropriation
PARENT COMPANY PROFIT AND LOSS ACCOUNT OF ING GROUP FOR
THE YEARS ENDED 31 DECEMBER
The numbers against the items refer to the notes starting on page F-93.
5.1. Accounting principles for the parent company balance sheet and profit and
loss account of ING Group
The principles of valuation and determination of results stated in connection
with the consolidated balance sheet and profit and loss account are also
applicable to the valuation of directly held participating interests. Amounts
receivable from and owed to group companies in connection with ordinary
interbank transactions are included in Other assets and Other liabilities,
respectively.
Changes in balance sheet values due to changes in the revaluation reserve of
the participating interests are reflected in the Revaluation reserve, which
forms part of Shareholders equity. Changes in balance sheet values due to the
results of these Participating interests, accounted for in accordance with ING
Group accounting principles, are included in the profit and loss account.
Other changes in the balance sheet value of these Participating interests,
other than those due to changes in share capital, are included in Other
reserves, which forms part of Shareholders equity.
F-92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A statutory reserve is carried at an amount equal to the share in the results
of Participating interests since their first inclusion at net asset value less
the amount of profit distributions to which rights have accrued in the interim.
Profit distributions which can be repatriated to the Netherlands without
restriction are likewise deducted from the Reserve for participating interests,
which forms part of Shareholders equity.
5.2. Notes to the parent company balance sheet of ING Group
ASSETS
5.2.1. Participating interests
Movements in Participating interests:
5.2.2. Other assets
F-93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
EQUITY AND LIABILITIES
5.2.3. Shareholders equity
Movements in issued share capital:
Shares
All shares are in registered form. No share certificates will be issued. Shares
may be transferred by means of a deed of transfer, subject to the approval of
the Executive Board of ING Group.
F-94
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Ordinary shares
The par value of the ordinary shares is currently EUR 0.24.
Preference shares
The par value of the preference shares is EUR 1.20. Preference shares are
divided into two categories: A preference shares and B preference shares.
The authorized share capital of ING Group consists of 100 million A
preference shares, of which as at December 31, 2003 87 million have been issued
and 200 million B preference shares, of which none have yet been issued.
Preference shares may only be issued if at least the nominal value is paid up.
Preference shares rank before ordinary shares in entitlement to dividends and
distributions upon liquidation of ING Group, but are subordinated to cumulative
preference shares. Holders of A and B preference shares rank pari passu
among themselves. If the profit or amount available for distribution to the
holders of preference shares is not sufficient to make such distribution in
full, the holders will receive a distribution in proportion to the amount they
would have received if the distribution could have been made in full. The A
preference shares and B preference shares are not cumulative and their
holders will not be compensated in subsequent years for a shortfall in a prior
year.
The ING Groups Articles of Association make provision for cancellation of
preference shares.
A preference shares
The dividend on the A preference shares is equal to a percentage of the
amount (including share premium) for which the A preference shares were
originally issued.
This percentage is calculated by taking the arithmetic mean of the average
effective yield on the five longest-dated Dutch government loans, as prepared
by the Dutch Central Bureau of Statistics and published in the Official Price
List of Euronext Amsterdam N.V. for the last twenty stock exchange days
preceding the day on which the first A preference shares are issued, or, as
the case may be, preceding the day on which the dividend percentage is
adjusted. The percentage thus established may be increased or decreased by not
more than a half percentage point, depending on the market conditions then
prevailing, as the Executive Board may decide with the approval of the
Supervisory Board.
The dividend on the A preference shares has been EUR 0.2405 per year until
January 1, 2004. On January 1, 2004 the dividend has been readjusted to EUR
0.1582 per year until January 1, 2014. Then the dividend percentage will be
readjusted again (and thereafter every ten years) to the average effective
yield at that time on the five longest-dated Dutch government loans.
A preference shares may only be cancelled if a distribution of the amount
(including share premium) for which the A preference shares were originally
issued reduced by the par value of the shares can be made on each A
preference share. Upon liquidation of ING Group, a distribution of the amount
(including share premium) for which the A preference shares were originally
issued will, insofar as possible, be made on each A preference share.
Depositary receipts for ordinary shares and for preference shares
More than 99% of the ordinary shares and preference shares issued by ING Group
are held by the Stichting ING Aandelen (Trust Office ING Shares). In exchange
for these shares, the Trust Office has issued depositary receipts in bearer
form for ordinary shares and for preference shares, respectively. The
depositary receipts are listed on various European stock exchanges. Depositary
receipts can be exchanged for (non-listed) shares of the relevant category
without any restriction.
The holder of a depositary receipt is entitled to receive from the Trust Office
payment of dividends and distributions corresponding with the dividends and
distributions received by the Trust Office on a share of the relevant category.
F-95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In addition, the holder of a depositary receipt is entitled to attend and to
speak at the General Meeting of Shareholders of ING Group either in person or
by proxy. A holder of a depositary receipt who thus attends the General Meeting
of Shareholders, is entitled to vote as a proxy of the Trust Office but
entirely to his own discretion for a number of shares equal to the number of
his depositary receipts of the relevant category.
A holder of a depositary receipts who does not attend the General Meeting of
Shareholders in person or by proxy is entitled to give a binding voting
instruction to the Trust Office for a number of shares equal to the number of
his depositary receipts of the relevant category.
Concentration of holders of depositary receipts for shares
As at December 31, 2003, ABN AMRO Holding N.V., AEGON N.V. and Fortis Utrecht
had an interest in depositary receipts of ING Group between 5% and 10%.
Depositary receipts for ordinary shares held by ING Group
With reference to Section 98 (5), Book 2, of the Dutch Civil Code, as at
December 31, 2003, a number of 28 million of depository receipts for ordinary
shares ING Groep N.V. with a par value of EUR 0.24 was held by ING Group or its
subsidiaries. The shares were purchased to hedge option rights granted to the
Executive Board and other employees. In 2003, ING Group sold own shares in
connection to these option with a sales price of EUR 12.75 per share. The net
effect of these transactions is included in Other reserves.
Movements in depositary receipts for ordinary shares held by ING Groep N.V. and
its subsidiaries to hedge the option rights granted to the Executive Board and
other employees in 2003:
Cumulative preference shares
The par value of the cumulative preference shares is EUR 1.20.
The cumulative preference shares rank before the preference shares and the
ordinary shares in entitlement to dividend and to distributions upon
liquidation of ING Group.
The dividend on the cumulative preference shares will be equal to a percentage,
calculated on the amount compulsorily paid up or yet to be paid up. This
percentage shall be equal to the average of the Euro OverNight Index Average
(EONIA) as calculated by the European Central Bank. During the financial year
for which the distribution is made, this percentage is weighted on the basis of
the number of days for which it applies, increased by two and a half percentage
points.
If and to the extent that the profit available for distribution is not
sufficient to pay the dividend referred to above in full, the shortfall will be
made up from the reserves insofar as possible. If and to the extent that the
dividend distribution cannot be made from the reserves, the profits achieved in
subsequent years shall first be used to make up the shortfall before any
distribution may be made on shares of any other category.
F-96
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ING Groups Articles of Association make provision for the cancellation of
cumulative preference shares. Upon cancellation of cumulative preference shares
and upon liquidation of ING Group, the amount paid up on the cumulative
preference shares will be repaid together with the dividend shortfall in
preceding years, insofar as this shortfall has not yet been made up.
B warrants
In 1998, ING Group authorized the issue of a maximum of 17,317,132 B warrants,
of which 17,186,325 have been issued. As at December 31, 2003, 17,190,815 B
warrants were outstanding (2002: 17,157,005). B warrant holders are entitled to
obtain from ING Group, for a fixed price, depositary receipts for ordinary
shares in the proportion of 1 B warrant to 2 depositary receipts. B warrant
holders may exercise their rights at their own discretion but no later than
January 5, 2008. As at December 31, 2003, no B warrants (2002: nil) were held
by group companies of ING Group.
The current exercise price of B warrants is EUR 49.92 for 2 depositary
receipts. The exercise price of B warrants will be adjusted by ING Group if one
or more of the following circumstances occur:
In case of a split or consolidation of the shares of ING Group, a warrant
holder shall remain entitled to a number of shares, the aggregate par value of
which shall be equal to the aggregate par value of the number of shares to
which he was entitled before the split or consolidation.
In case of a restructuring of the share capital of ING Group or a merger of ING
Group with any other company or a transfer of the assets of ING Group (or a
substantial part thereof) to any other company, the exercise price of the B
warrants will not be adjusted. In that event, a warrant holder will be entitled
to obtain the securities of the kind and number a holder of ordinary shares
would
have been entitled to if the B warrants had been exchanged for ordinary shares
immediately before that event.
F-97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F-98
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2003, the capital and reserves of Stichting Regio Bank,
included in Other reserves, amounted to EUR 469 million (2002: EUR 428 million)
and cannot be freely distributed.
The revaluation reserve and the reserve for participating interests include the
statutory reserves.
Dividend restrictions
ING Group and its Dutch group companies are subject to legal restrictions
regarding the amount of dividends they can pay to their shareholders. The Dutch
Civil Code contains the restriction that dividends can only be paid up to an
amount equal to the excess of the companys own funds over the sum of (i) the
paid-up capital, and (ii) reserves required by law. Additionally, certain group
companies are subject to restrictions on the amount of funds they may transfer
in the form of cash dividends or otherwise to the parent company.
Furthermore, in addition to the restrictions in respect of minimum capital
requirements that are imposed by industry regulators in the countries in which
the subsidiaries operate, other limitations exist in certain countries.
The Executive Board of ING Group believes that these limitations will not
affect the ability of ING Group to pay dividends to its shareholders in the
future.
Subordinated loans consists of perpetual subordinated bonds issued by ING Groep
N.V. These bonds have been issued to raise hybrid capital for ING Verzekeringen
N.V. and Tier 1 capital for ING Bank N.V.
Subordinated loans:
EUR 2,256 million (2002: EUR 1,336 million) of these loans has been on lent as
subordinated loans by ING Group N.V. to ING Bank N.V. under the same
conditions as the original bonds.
EUR 600 million (2002: EUR 600 million) of these loans has been contributed to
the capital of ING Bank N.V. (share premium reserve).
EUR 396 million (2002: EUR 476 million) has been on lent on as subordinated
loan by ING Groep N.V. to ING Verzekeringen N.V. under the same conditions as
the original bonds.
The number of debentures held by group companies as at December 31, 2003 was
211,086 with a balance sheet value of EUR 21 million (2002: 67,656 with a
balance sheet value of EUR 7 million).
Unsecured subordinated loans from group companies to ING Groep N.V., which may
be renewable at their due dates at the then prevailing market rates, are
included in Subordinated loans.
F-99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unsecured subordinated loans from group companies to ING Groep N.V.:
Debenture loans:
The number of debentures held by group companies as at December 31, 2003 was
67,925 with a balance sheet value of EUR 68 million (2002: 154,692 with a
balance sheet value of EUR 178 million).
Amounts owed to group companies by remaining term:
F-100
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F-101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The consolidated financial statements of ING Group are presented in accordance
with accounting principles generally applied in the Netherlands (Dutch GAAP).
Dutch GAAP differs in certain respects from accounting principles generally
accepted in the United States of America (US GAAP). The following is a
summary of the significant differences.
F-102
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F-103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F-104
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F-105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F-106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F-107
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Method of computation of basic and diluted earnings per share has been
described in note 3.4.
The net profit determined in accordance with US GAAP includes goodwill
amortization expenses of EUR 1,338 million in 2001. The net profit under US
GAAP excluding this amortization is EUR 3,108 million in 2001. The basic
earnings per share in 2001 excluding this amortization is EUR 1.62.
In addition to the differences in valuation and income recognition principles,
other differences, essentially related to presentation, exist between Dutch and
US GAAP. Although these differences do not cause differences between Dutch and
US GAAP reported net profit and/or shareholders equity, it may be useful to
understand them to better interpret the financial statements presented in
accordance with Dutch GAAP. The following is a summary of the classification
differences that pertain to the basic financial statements.
F-108
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F-109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F-110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.5. Condensed consolidated balance sheet
The following is a condensed consolidated balance sheet of ING Group, for the
years ended December 31, 2003 and 2002, restated to reflect the impacts of the
valuation and presentation differences between Dutch and US GAAP.
F-111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.6. Condensed consolidated profit and loss account
The following is a condensed consolidated profit and loss account of ING Group,
for the years ended December 31, 2003, 2002 and 2001 to reflect the impacts of
the valuation and presentation differences between Dutch and US GAAP.
Revenues under Dutch GAAP are reconciled to Revenues under US GAAP as follows:
Presentation differences relate to Dutch GAAP revenue that is not included in
revenue under US GAAP, but equally impacts expenses under US GAAP; therefore,
there is no impact on net income.
As from 2003, Additions to the provision for investment losses are reported on
a separate line within Expenses. Previously, these additions were reported as
an item within Revenues, as described in Note 3.1.2.
6.7. Consolidated Statement of cash flows
The Consolidated Statement of cash flows presented according to International
Accounting Standards is included on page F-6.
6.8 Newly issued accounting standards
In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, which addresses the disclosure to be
made by a guarantor in its interim and annual financial statements about its
guarantee obligations. ING Group adopted the disclosure
requirements in 2002. FIN 45 also requires the recognition of a liability for
the fair value at inception of guarantees entered into or modified after
December 31, 2002. The adoption of FIN 45 did not have a material impact on the
ING Groups financial position or results of operations.
F-112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In January of 2003, the Financial Accounting Standards Board issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities
(VIEs). In December of 2003, the FASB issued the revised version of FIN 46
(FIN 46R) to clarify some of the provisions and to exempt certain entities
from its requirements. This interpretation changes the method of determining
whether certain entities (VIEs) should be included in the consolidated
financial statements. Many VIEs are commonly referred to as special-purpose
entities or off-balance sheet structures, but the guidance applies to a larger
population of entities. FIN 46 requires a variable interest entity to be
consolidated if ING Group is subject to a majority of the risk of loss from the
variable interest entitys activities or entitled to receive a majority of the
entitys residual returns or both (i.e. when ING Group is the primary
beneficiary). In addition, the primary beneficiary is required to make certain
disclosure in relation to the VIE.
Application of FIN 46 for ING Group is required as of January 1, 2004. ING
Group is a party in a number of VIEs, including Asset Backed Commercial Paper
Conduits, Structured Investments Vehicles, Collateralized Debt Obligations
(CDOs), structured finance transactions and investment funds. Based on FIN 46,
ING Group will be required to consolidate certain VIEs that are currently not
consolidated and provide additional disclosures for a number of entities. The
consolidation of VIEs will have a maximum expected impact on ING Groups total
assets and liabilities balance sheet of approximately EUR 6 billion.
ING Group has identified three types of VIEs impacted by FIN 46 (refer to Note
2.18.2 Off-Balance sheet arrangements). The expected impact per type of
category is the following:
In April of 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (SFAS 149). SFAS 149 amends
and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS 133. The new statement amends SFAS 133 for decisions made as part of
he Derivatives Implementation Group process that effectively required
amendments to SFAS 133 and to the definition of a derivative. SFAS 149 is
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The provisions of this
statement should be applied prospectively. Amendments to SFAS 133 DIG issues
are applied in accordance with their original effective dates. ING Group
adopted SFAS 149 as of June 30, 2003, which did not have a material impact on
ING Groups financial statements for the year ended December 31, 2003.
In May of 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (SFAS 150).
SFAS 150 improves the accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity. The requirements of
SFAS 150 generally outline that mandatory redeemable financial instruments and
financial instruments that represent an obligation to repurchase the issuers
shares or certain obligations to issue a variable number of shares should be
classified as a liability on the balance sheet. SFAS 150 is effective for all
financial instruments entered into or modified after May 31, 2003 and is
otherwise effective on July 1, 2003. The adoption of SFAS 150 did not
have a material impact on ING Groups financial statements for the year ended December 31, 2003.
F-113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In July of 2003, the Accounting Standards Executive Committee (AcSEC) of the
American Institute of Certified Public Accountants (AICPA) issued Statement
of Position 03-01, Accounting and Reporting by Insurance Enterprises for
Certain Non-traditional Long-Duration Contracts and for Separate Accounts
(SOP 03-01). This statement provides guidance on accounting and reporting by
insurance companies for certain non-traditional long-duration contracts and for
separate accounts. SOP 03-01 is effective for financial statements for fiscal
years beginning after December 15, 2003 and should be applied as of the
beginning of an companys fiscal year. The provisions may not be applied
retroactively to prior years financial statements. ING Group will adopt SOP
03-01 as of January 1, 2004. ING Group is currently assessing the impact of
this statement on ING Groups June 30, 2004 financial
statements.
In December of 2003, the Financial Accounting Standards Board revised SFAS
No.132, Employers Disclosures about Pensions and Other Post-retirement
Benefits (SFAS 132) to require additional disclosures related to pensions and
post retirement benefits. While retaining the existing disclosure requirements
for pensions and post-retirement benefits, additional disclosures are required
related to pension plan assets, obligations, contributions and net benefit
costs, beginning with fiscal years ending after December 15, 2003. Additional
disclosures pertaining to benefit payments and foreign plans are required for
fiscal years ending after June 30, 2004. ING Group has implemented the revised
disclosures required for fiscal years ending after December 15, 2003, beginning
with the 2003 annual financial statements and will implement the annual benefit
payment disclosures in all subsequent annual financial statements. The SFAS 132
revisions also include additional disclosure requirements for interim financial
reports beginning after December 15, 2003, which will not affect ING Group.
F-114
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. ADDITIONAL INFORMATION REQUIRED UNDER US GAAP
The following information represents additional disclosures required under US
GAAP. The information has been prepared in accordance with Dutch GAAP unless it
specifically states that it is based on US GAAP.
7.1. Investments
Debt securities include fixed-interest securities, with the exception of
mortgage loans and policy loans. Following is a summary of investments in
marketable securities at December 31, 2003, 2002 and 2001 on a US GAAP basis.
Amounts reported in the column Balance Sheet Value correspond to the Dutch
GAAP balance sheet.
F-115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below provides the gross unrealized loss of EUR 1,408 million as of
December 31, 2003 broken down by type of security and by the period of time for
which the fair value was below cost price:
Maturities of debt securities
The amortized cost and estimated fair value of debt securities by contractual
maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalties.
Realized results on the sales of investment securities
During the years ended December 31, 2003, 2002 and 2001 proceeds from sales of
debt securities were EUR 144,922 million, EUR 169,332 million and EUR 167,621
million respectively. For the same periods, proceeds from sales of shares and
convertible debentures were EUR 7,481 million, EUR 10,421 million and EUR 7,702
million respectively.
Results on the sales of debt securities give rise to a reconciling item between
Dutch GAAP and US GAAP as discussed in Note 6.1.d. Under Dutch GAAP, the
difference between redemption value and the purchase price as well as realized
results on sales of debt securities are reported in the provision for yield
differences. The provision for yield differences also includes realized results
on the termination of derivative financial instruments.
F-116
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The changes in the provision for yield difference are as follows:
The change in the revaluation reserves to realized and unrealized results on
shares and convertible debentures consists of:
The portion of trading gains and losses for the year ended December 31, 2003,
2002 and 2001 that relates to trading securities still held at December 31,
amounts to EUR 18 million, EUR 8 million and EUR 92 million respectively.
7.2. Lending
Loans are stated at their outstanding principal balances. Interest income is
accrued on the unpaid principal balance. Each of the business units within the
banking operations of ING Group maintains its own system for servicing and
monitoring past due loans. ING Groups international banking offices and
subsidiaries generally account for delinquent loans in accordance with US GAAP.
Domestic banking offices follow the same policy for consumer mortgage and
personal loans. For commercial loans combined with an overdraft facility,
interest continues to accrue and is charged to that overdraft facility. The
collectibility of the overdraft facility is evaluated with the primary loan on
a regular basis, and a provision is established as deemed necessary in the
judgment of management.
ING Group identifies loans as impaired as those loans for which it is probable
that the principal and interest amounts contractually due will not be
collected. ING Group evaluates all loans on non-accrual status for potential
impairment as well as other loans of which management may have concerns as to
the ultimate collectibility.
The following table summarizes ING Groups investments in impaired loans as of
December 31. In accordance with SFAS 114, small balance homogeneous loans such
as consumer mortgages and loans and small business loans are excluded from the
definition of impaired loans presented below.
F-117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.3. Deferred tax assets
The net deferred tax assets amounting to EUR 4,784 million (2002: EUR 5,223
million) includes a provision for doubtful deferred tax assets of EUR 946
million (2002: EUR 915 million).
7.4. Pension liabilities
In the main countries in which ING Group operates, employees retirement
arrangements that cover the majority of employees are provided by defined
benefit plans based on average remuneration and length of service. These are
generally externally funded, with assets of the plan held separately from those
of ING Group in independently administered funds. Some smaller Dutch plans are
fully insured with insurance companies of ING Group.
Where a constructive obligation exists by a business to provide benefits as
established by a history of such benefits, these have been valued in accordance
with International Accounting Standards.
Net periodic pension cost
The aggregate amount of the net periodic pension cost for the defined benefit
pension plans computed in accordance with SFAS No. 87 is presented below.
Projected benefit obligation
A detailed reconciliation of the Projected Benefit Obligation for the defined
benefit pension plans over 2003 and 2002 is presented in the following table:
The Accumulated Benefit Obligation is EUR 9,008 million at December 31, 2003.
F-118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair value of plan
assets
Funded status reconciliation
These amounts recognized in the statement of financial position consist of the
following:
A breakdown of the Projected Benefit Obligation (PBO) and Fair Value of the
Plan Assets is given below:
F-119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Financial
assumptions
All assumptions except the expected return on assets were weighted by projected
benefit obligations. The expected rate of return on assets assumption was
weighted by the fair value of assets.
Plan
Assets
Equity securities include ING Group common stock in the amounts of EUR 39
million (0.40% percent of total plan assets) at December 31, 2003.
Cash Flows
The EUR 602 million expected to be contributed to the pension plans during 2004
is estimated to be needed to satisfy minimum funding requirements. The Company
anticipates that the contributions will comprise EUR 602 million in cash.
Defined contribution
plans
F-120
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.5
Post-retirement benefits other than pensions
ING Group provides post-retirement health care benefits to a number of retired
employees in certain countries, principally the Netherlands and the United
States, which are predominantly unfunded.
Valuation of the major Dutch plans assumes medical cost inflation of 6.40%
(2002: 3.0%; 2001: 2.75%). The discount rate assumed at December 31, 2003 was
5.50% (2002: 5.75%; 2001: 7.5%). The valuation of the major US plans assume
that medical cost inflation will fall from its current level of 10.00% (2002:
10.0%; 2001: 8.0%) over the next few years and reach a constant level of 5.00%
(2002: 5.0 %; 2001: 5.5%) in five years. The weighted average discount rate
assumed for the major US plans at December 31, 2003 was 6.25% (2002: 6.75%;
2001: 7.5%).
Net periodic benefit cost
The following are the components of net periodic cost for the post-retirement
healthcare plans.
An increase of 1% in the assumed health care costs for each future year would
have resulted in an additional accumulated projected benefit obligation of EUR
120 million at December 31, 2003 (2002: EUR 81 million; 2001: EUR 62 million)
and an increase in the charge for the year of EUR 7 million (2002: EUR 11
million; 2001: EUR 8 million). A decrease of 1% in the assumed health care
costs for each future year would have resulted in lower accumulated projected
benefit obligation of EUR 87 million at December 31, 2003 (2002: EUR 46
million; 2001: EUR 50 million) and a decrease in the charge for the year of EUR
6 million (2002 and 2001: EUR 7 million).
The accumulated Benefit Obligation is EUR 496 million at December 31, 2003.
7.6
Post employment benefits
In the Netherlands ING Group provides post employment benefits to eligible
employees based on employee pensionable remuneration.
Net periodic benefit cost
The aggregate amount of net periodic benefit costs for the post employment
benefit plans computed in accordance with SFAS No. 112 principles is presented
below:
F-121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Projected benefit obligation
A detailed reconciliation of the Projected Benefit Obligation for the post
employment benefit plans over 2003, 2002 and 2001 is presented in the following
table:
The Accumulated Benefit Obligation is nil at December 31, 2003.
Fair value of plan assets
A detailed reconciliation of the Fair Value of Plan Assets for the defined
benefit retirement plans over 2003, 2002 and 2001 is presented in the following
table:
Funded status reconciliation
A detailed reconciliation of the funded status at December 31, 2003, 2002 and
2001 including amounts recognized in the ING Groups statement of financial
position is presented in the following table:
These amounts recognized in the statement of financial position consist of the
following:
F-122
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A breakdown of the Projected Benefit Obligation (PBO) and Fair Value of the
Plan Assets is given below:
Financial assumptions
The weighted average of principal actuarial assumptions used for valuation
purposes, rounded to the nearest 25 basis points, were:
Expected return on assets is weighted by the fair value of assets. All other
assumptions were weighted by projected benefit obligations.
Cash Flows
Employer Contributions
Of the EUR 94 million expected to be contributed to fund the other
post-retirement benefit plans during 2004, the entire contribution is
discretionary, as the plans are not subject to any minimum regulatory funding
requirements. The contribution is expected to be in the form of cash.
Benefit Payments
F-123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Activity in the non-life liability for unpaid claims and claims adjustment
expenses is as follows:
As of 2003, certain liabilities for long-term disability contracts are reported
under the Claims provision. In 2002, these were reported under Provision for
unearned premiums and unexpired insurance risks. The 2002 comparatives have
been restated resulting in a reclassification from Provision for unearned
premiums and unexpired insurance risks to Claims provision of EUR 909 million.
In the movement schedule of the Claims provision, EUR 232 million was
reclassified from Additions for prior years to Additions for the current year
as a result of the reclassification of these long-term disability contracts and
a reclassification of claims that were incorrectly classified as prior year
claims in 2002. There is no impact on total Insurance provisions and on the net
profit for the year. See also Note 2.13 on page F-34. ING Group had an
outstanding balance of EUR 111 million at December 31, 2003 (EUR 112 million at
December 31, 2002; EUR 93 million at December 31, 2001) relating to
environmental and asbestos claims of the insurance operations. In establishing
the liability for unpaid claims and claims adjustment expenses related to
asbestos related illness and toxic waste cleanup, the management of ING Group
considers facts currently known and the current state of the law and coverage
litigation. Liabilities are recognized for IBNR claims and for known claims
(including the costs of related litigation) when sufficient information has
been developed to indicate the involvement of a specific insurance policy, and
management can reasonably estimate its liability. In addition, liabilities are
reviewed and updated continually.
F-124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.8. Funds entrusted to and debt securities of the banking operations
The debt securities relate to debentures and other issued debt securities with
either fixed interest rates or interest rates based on interest-rate levels,
such as certificates of deposit and accepted bills issued by ING Group, except
for subordinated items. ING Group does not have debt securities that are issued
on terms other than those available in the normal course of business. The
maturities of the debt securities are as follows:
As of December 31, 2003, ING Group had unused lines of credit available for the
banking operations, including the payment of commercial paper borrowings
presented above as part of the debt securities, totaling EUR 14,750 million
(2002: EUR 12,469 million). The commercial paper programs of the insurance
operations are presented as part of Other liabilities, in Note 7.9.
Funds entrusted to and debt securities of the banking operations include the
short-term borrowings, borrowings with an original maturity of one year or
less. The only category of short-term borrowings for which the average balance
outstanding during the year was equal to or greater than 30% of consolidated
shareholders equity at December 31, 2002 consists of commercial paper. None of
the categories of short-term borrowings exceeded 30% of consolidated
shareholders equity in earlier years. An analysis of the balance and interest
rates paid on commercial paper is provided below.
F-125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.9. Borrowings
Maturities of borrowings presented as part of Other liabilities are as follows:
Commercial paper of the insurance operations, with a carrying value of EUR
2,594 million and EUR 3,544 million at December 31, 2003 and 2002,
respectively, is included in Other liabilities. Lines of credit of EUR 789
million and EUR 946 million support various commercial paper programs at
December 31, 2003 and 2002, respectively. Commercial paper borrowings of the
banking operations are presented as part of the Funds entrusted to and debt
securities of the banking operations. See Note 7.8.
F-126
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Debt issues are as follows:
F-127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.10. Preference shares of group companies
Under US GAAP, minority interest in equity includes preferred stock issued by
ING Group and its consolidated subsidiaries in financing transactions (whether
or not in conjunction with ordinary shares). The funds received in these
transactions are presented under the liabilities under Dutch GAAP. This
classification difference between Dutch and US accounting principles does not
affect ING Groups financial condition and is disclosed in note 6.4 on page
F-108. In 2003, an ING Group company in the United States issued USD 497.5
million 4.3136% preferred shares in combination with ordinary shares in such a
transaction. This transaction, while perpetual in nature, may be terminated at
any time at thirty days notice by either the holder or ING Group through a
liquidation of the subsidiary and repayment of the minority interest. In 2002,
an ING Group company in the United States issued USD 790 million 4.5% preferred
shares in combination with ordinary shares in a similar transaction. ING Group
may force redemption of these shares for cash at any time. In addition, the
holder has the option for ING Group to repurchase the shares at fair value at
any time. The funds received in both transactions have been used to finance the
general activities of ING Group.
F-128
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In December 2000, ING Capital Funding Trust III (the trust III), a wholly
owned company of ING Group in the United States issued 1.5 million 8.439%
non-cumulative guaranteed trust preference shares (the 8.439% trust preference
shares), with a liquidation preference of USD 1,000 per share, plus any
accrued interest and unpaid dividend. The proceeds from the sale of the trust
preference shares were invested in preference shares (company preference
shares) of ING Capital Funding III LLC (LLC III), a limited liability
company in the United States and a wholly owned company of ING Group. The LLC
has used the proceeds from the sale of its company preference shares to
purchase subordinated notes of ING Group.
In June 2000, ING Capital Funding Trust II (the trust II), a wholly owned
company of ING Group in the United States issued 10 million 9.2% non-cumulative
guaranteed trust preference shares (the 9.2% trust preference shares), with a
liquidation preference of USD 25 per share, plus any accrued interest and
unpaid dividend. The proceeds from the sale of the trust preference shares were
invested in preference shares (company preference shares) of ING Capital
Funding II LLC (LLC II), a limited liability company in the United States and
a wholly owned company of ING Group. The LLC has used the proceeds from the
sale of its company preference shares to purchase subordinated notes of ING
Group.
In June 1999, ING Capital Funding Trust I (the trust I), a wholly owned
company of ING Group in the United States issued 20 million 7.7% non-cumulative
guaranteed trust preference shares (the trust preference shares), with a
liquidation preference of USD 25 per share, plus any accrued interest and
unpaid dividend. The proceeds from the sale of the trust preference shares were
invested in preference shares (company preference shares) of ING Capital
Funding I LLC (LLC I), a limited liability company in the United States and a
wholly owned company of ING Group. The LLC has used the proceeds from the sale
of its company preference shares to purchase subordinated notes of ING Group.
Trust I, II and III may redeem the trust preference shares for cash after June
25, 2004, June 25, 2005 and December 31, 2010 respectively or if certain
special events occur. The company preference shares have substantially the same
terms as the trust preference shares. ING Group has issued subordinated
guarantees for the payment of the redemption price and the liquidation
distribution on the trust preference shares and the company preference shares.
ING Group enters into derivative transactions for both trading and non-trading
purposes. Derivatives are subject to various risks similar to those related to
the underlying financial instruments, including market, credit and liquidity
risk. The risks of derivatives should not be viewed in isolation but rather
should be considered on an aggregate basis along with risks related to ING
Groups non-derivative trading and other activities. ING Group manages
derivative and non-derivative risks on an aggregate basis as part of its
firm-wide risk management policies. See item 11, Qualitative and quantitative
disclosure of market risk.
Derivative financial instruments held for trading purposes
ING Group trades derivative financial instruments on behalf of customers and
for proprietary purposes. Derivatives held for trading purposes include
forwards, options and futures and a number of structured derivatives which are
based on equity securities, interest rates, credit and foreign exchange rates.
In addition, derivative financial instruments held for risk management purposes
incorporated into composite trading portfolios are also reported as held for
trading.
Derivative financial instruments held for trading are reported at fair value
with changes in fair value recognized in the profit and loss account as they
occur, as part of the Results from financial transactions. Distinction is made
in results from securities trading, results from currency trading and other
results. See note 3.1.5 on page F-56.
The Result from securities trading portfolio includes trading results on fixed
income and equity
F-129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
securities and the trading results of certain derivative financial instruments
such as equity options and futures. The trading results in respect of currency
forward contracts, currency options and currency swaps are reported as part of
the Result from currency trading portfolio. Other result includes among other,
the trading revenue in respect of other derivative financial instruments.
Because of their nature, the trading results in respect of interest rate swaps
and interest rate futures are reported partially as part of Result from
securities trading portfolio and partially as part of Other result.
Derivative financial instruments held for non-trading purposes
ING Groups principal objective in holding or issuing derivatives for
non-trading purposes is risk management. To achieve its risk management
objective, ING Group uses a combination of interest-rate instruments, primarily
interest-rate swaps. Net positions in foreign currencies are subject to changes
in value as exchange rates change. These fluctuations are managed by entering
into currency swaps, forwards and options. ING Groups use of these instruments
is changed from time to time in response to changing market conditions as well
as changes in the mix of the related assets and liabilities.
Forward and option interest rate contracts held for other than trading purposes
are either carried at historical cost or at market value, depending on the
carrying value of the related asset or liability. The exchange rate component
of forwards is marked to market with changes in market value charged to current
period earnings. Premiums paid for purchased options are deferred and
recognized as an expense upon maturity of the related contracts. Initial margin
requirements of organized exchanges are accounted for as Other assets.
ING Group also uses swaps and forward currency contracts to hedge its exposure
to foreign exchange rate risk related to certain foreign currency denominated
assets and liabilities. These swaps and forward contracts are carried at market
value and are recorded as Other assets or Other liabilities in the accompanying
consolidated balance sheet. Changes in market values of these swaps and
forwards, hedging the foreign exchange rate risk, are recorded in current
period profits in Results from financial transactions. For swaps and forward
contracts which are designated as hedges of net investments in subsidiaries
with foreign currency exposure, changes in market values are recorded in the
revaluation reserve component of shareholders equity.
Hedge of foreign exchange risk of net investments in foreign operations
ING Group policy is to hedge the translation risk of foreign operations in
order to minimize the impact of foreign currency movements. The main currencies
of ING Insurance are US Dollar, Canadian Dollar, Korean Wong and the Australian
Dollar. The translation risk of the foreign operations is managed taking into
account the effects on debt-equity ratio of ING Insurance.
ING Banks main
foreign currencies are US Dollar, Pound Sterling and Polish Zloty. The
translation risk of the foreign operations is managed taking into account the
effect of translation results on the Tier-1 ratio of ING Bank.
The foreign exchange revaluation of the net investment in foreign operations
and the on-balance hedging instruments are reported in equity, derivatives
hedging instruments are reported in P&L. The impact of the unhedged exposure is
not material to ING Group equity.
The following table reflects the notional amounts and gross fair values of
trading derivative financial instruments. All significant intercompany
contracts have been excluded. The ending net fair value is included on the
consolidated balance sheet under Other assets.
F-130
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F-131
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
End-user activity
ING Groups principal objective in holding or issuing derivatives for purposes
other than trading is risk management. The operations of ING Group are subject
to a risk of interest rate fluctuations to the extent that there is a
difference between the amount of interest-earning assets and the amount of
interest-bearing liabilities that mature or reprice in specified periods. The
principal objective of ING Groups asset/liability management activities is the
management of interest rate risk and liquidity within parameters established by
various management committees and approved by the Executive Board. To achieve
its risk management objective, ING Group uses a combination of interest rate
instruments, primarily interest rate swaps. When ING Group purchases foreign
currency denominated debt or has foreign net investments, it subjects itself to
changes in value as exchange rates move. These fluctuations are managed by
entering into currency swaps, forwards and options.
The following table reflects the notional principal amounts and fair value of
derivative financial instruments used for non-trading. All significant
intercompany contracts have been excluded.
F-132
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
End-user Contracts:
End-user Interest Rate Swaps:
All rates were those in effect at December 31, 2003. Variable rates are
primarily based on LIBOR and may change significantly, affecting future cash
flows.
For acquisitions in 2003 and 2002 refer to note 1.4. Changes in the
composition of the group.
Under both Dutch and US GAAP, the business combinations of 2003, 2002, 2001
were accounted for under the purchase method of accounting. Under Dutch GAAP,
goodwill arising from acquisitions is directly charged to shareholders equity
in the respective years when the acquisitions take place. Accordingly, goodwill
charged to shareholders equity under Dutch GAAP amounted to EUR 145 million in
2003, EUR 1,176 million in 2002 and EUR 1,908 million in 2001.
For the purpose of the reconciliation of Dutch GAAP to US GAAP, ING Groups
accounting policy is to capitalize goodwill and test for impairment on an
annual basis, or more frequently if circumstances indicate a potential
impairment. Prior to the adoption of SFAS 142, goodwill was capitalized and
amortized on a straight-line basis over a period not exceeding 20 years.
Pursuant to this policy, goodwill arising from the 2001 and 2000 acquisitions
was being amortized over a period of 5 to 20 years. Goodwill arising from
acquisitions after July 1, 2001 was no longer amortized but tested for
impairment.
Goodwill capitalized net of impairment for US GAAP purposes in 2003, 2002 and
2001 amounted to EUR 4,315 million, EUR 4,601 million and EUR 16,645 million,
respectively.
F-133
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill capitalized net of impairments for US GAAP purposes in 2003 includes
intangible assets of EUR 363 million (2002: EUR 462 million) which are
recognized apart from goodwill and amortized over twenty years under US GAAP
and not separated but included in the amount of goodwill under ING Group
accounting principles. Gross amount of intangible assets recognized under US
GAAP amounts to USD 550 million, the accumulated amortization is USD 93 million
as of December 31, 2003.
ING Group adopted SFAS 142, Goodwill and Other intangible assets, as of January
1, 2002 and performed the required assessment of whether there was any
indication that goodwill was impaired as of the date of the adoption. As of
2002, ING Group performs the goodwill impairment test if any events or a change
in circumstances indicate that impairment may have taken place, or at a minimum
on an annual basis. Evaluating whether or not the indication for an impairment
is significant enough to require an impairment test to be performed involves
significant judgment. ING Group performs the annual goodwill impairment test in
the fourth quarter for all segments.
The transitional goodwill impairment test had to be performed in two steps. In
Step 1, ING Group identified its reporting units and determined the carrying
value of each reporting unit by assigning the assets and liabilities, including
existing goodwill and intangible assets, to those reporting units as of January
1, 2002. Furthermore, ING Group determined the fair value of each reporting
unit and compared this fair value to the carrying amount of the reporting unit.
If that carrying amount exceeded the calculated fair value, ING Group was
required to perform Step 2 of the transitional goodwill impairment test.
In performing Step 1 of the transitional goodwill impairment test ING Group
determined the fair value of the reporting units using valuation techniques
consistent with market appraisals for insurance companies and banks. The fair
value of our insurance operations, including the reporting units US, Latin
America and Greater China, was determined using a discounted cash flow model,
discounting the future earnings arising on the books at December 31, 2001,
requiring assumptions as to a discount rate and expectations with respect to
future growth rates. Future earnings were discounted at the risk free rate,
adjusted for the basic risk premium that differs per country. The fair value of
our banking operations, including the reporting units Germany and UK, was
determined with a price/earnings multiple model, in which the 2002 forecasted
profit was multiplied by the current price/earnings multiple for similar
acquisitions. Determining the assumptions to be used to calculate fair value
involves significant judgments and estimates. Minor changes in these
assumptions have significant impact on the fair value of the reporting unit and
as a consequence, on the implied fair value of goodwill and the amount of
goodwill impairments.
In Step 2, the fair value of the reporting unit was allocated to all of the
assets and liabilities of that reporting unit in a manner similar to a purchase
price allocation, in accordance with SFAS 141. The residual fair value after
this allocation was the implied fair value of the reporting unit goodwill that
is compared to the carrying value of goodwill. A goodwill impairment was
recorded to the extent that carrying value of goodwill exceeds the calculated
implied fair value of goodwill.
Transitional goodwill impairment test
As a result of the transitional goodwill impairment test, certain goodwill was
impaired and ING Group has included a separate line item of EUR 13.103 billion
in the 2002 profit and loss account for the cumulative effects of changes in
accounting principles as required by SFAS 142.
F-134
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The transitional goodwill impairment charge related to the following reporting
units:
Annual impairment tests
ING Group performed the annual goodwill impairment test in the fourth quarter
of 2002 and 2003. The 2002 annual goodwill impairment test did not indicate
that goodwill was impaired as of December 31, 2002. Remaining goodwill for
reporting unit Latin America was EUR 461 million, of which EUR 439 million
related to 49% interest in SulAmérica, accounted for under the equity method.
Goodwill allocated to equity method investments is not tested for impairment in
accordance with SFAS 142 but under APB 18, which requires that an other than
temporary decline in value of an equity method investments is recognized in the
profit and loss account. As of December 31, 2003 the fair value, estimated
using a discounted cash flow model was below carrying value. Since the
acquisition in 2002, the local economic environment and business conditions
deteriorated, leading to higher interest rates and devaluation of the Real. The
decline in fair value is viewed as other than temporary and ING Group has
recognized an impairment charge of EUR 101 million for US GAAP purposes. The
impairment charge has no impact on net income under Dutch GAAP since goodwill
has not been capitalized but charged to equity immediately at the time of the
acquisition.
The changes in the carrying amount of goodwill for the year ended December 31,
2003 are as follows:
All segments are tested for impairment in the fourth quarter.
The changes in the carrying amount of intangible assets for the year ended
December 31, 2003 are as follows:
F-135
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The changes in the carrying amount of goodwill for the year ended December 31,
2002 are as follows:
The changes in the carrying amount of intangible assets for the year ended
December 31, 2002 are as follows:
In addition to the restrictions in respect of minimum capital and solvency
requirements that are imposed by industry regulators in the countries in which
the subsidiaries operate, other limitations exist in certain countries. The
most significant restrictions for ING Group are related to the insurance
operations located in the United States, which are subject to limitations on
the payment of dividends to the parent company imposed by the Insurance
Commissioner of the state of domicile. For life, accident and health
subsidiaries, dividends are generally limited to the greater of 10% of
statutory surplus or the statutory net gain from operations. For the property
and casualty subsidiaries, dividends are limited to a specified percentage of
the previous years shareholders equity or previous years net investment
gains, which varies by state. Dividends paid in excess of these limitations
require prior approval of the Insurance Commissioner of the state of domicile.
The management of ING Group does not believe that these limitations will affect
the ability of ING Group to pay dividends to its shareholders in the future.
In accordance with European Union directives, insurance enterprises organized
in European Union member countries are required to maintain minimum solvency
margins. Life insurance companies are required to maintain a minimum solvency
margin of generally 4% of insurance reserves (1% of separate accounts reserves)
plus 0.3% of the amount at risk under insurance policies. The required minimum
solvency margin for non-life insurers is the greater of two calculations, one
based on premiums and one based on claims. The former is based on at least 16%
of gross premiums written for the year, the latter is based on 23% of a
three-year average of gross claims. As of December 31, 2003, the solvency
margin of the insurance operations of ING Group computed in accordance with
these directives amounted to EUR 8,779 million (2002: EUR 8,718 million). These
companies held capital and surplus, as of December 31, 2003, of EUR 18,463
million (2002: EUR 17,848 million).
The banking operations of ING Group are regulated by the Dutch Central Bank.
The solvency requirements of the banking activities of ING Group depend on the
degree of risk involved in the various banking operations. The related assets
are assigned a weighting coefficient. The total risk (weighted value of both
on- and off-balance sheet items) is divided into actual own funds to obtain a
Tier 1 ratio. Internationally, it has been agreed that the BIS (Bank for
International Settlements) ratio
F-136
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
must be at least 8%. As of December 31, 2003, the Tier 1-ratio and BIS-ratio of
ING Bank N.V. were 7.59% (2002: 7.31%) and 11.34% (2002: 10.98%), respectively.
ING Group has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 148, Accounting for Stock-Based Compensation
Transition and disclosures an amendment of FASB Statement No. 123.
Accordingly, no compensation cost has been recognized for the stock option
plan. Had compensation cost for ING Groups stock-based compensation been
determined based on the fair value at the grant dates consistent with the
method of SFAS 148, net profit and earnings per share based on US GAAP would
have been as follows:
The fair value of options at the date of the grant was estimated for these
purposes using the Monte Carlo simulation model with the following weighted
average assumptions:
Beginning in the year 2000, the Equity compensation plan of ING America Holding
Inc provides certain key employees with Restricted American Depositary Shares
(ADS) Units and Restricted Performance Units to reward individual performance.
Restricted American Depositary Shares (ADS) are subject to a vesting period of
three to five years from the grant date. Restricted Performance units are
contingent grants of ING Group N.V. ADS based upon the achievement of future
profit objectives of ING America Holding Inc and are subject to three year
vesting period from the date of grant. As of December 31, 2003, a total of
1,261,289 Restricted ADS units (2002: 341,770) and 653,660 Restricted
Performance Units (2002: 608,189) were granted at a weighted average grant
price of USD 15.73 (2002: USD 25.01) and USD 20.00(2002: USD 27,00)
respectively. As at December 31, 2003, 1,483,249 Restricted ADS Units (2002:
523,179) and 1,438,128 Restricted Performance Units (2002: 1,139,367) remained
outstanding.
In 2003, ING Group recognized a restructuring charge of EUR 82 million that
mainly relates to the international wholesale banking operations on top of the
restructuring provision recognized in 2002. ING Group announced the further
restructuring of its international wholesale banking operations in 2002 to
improve profitability. The additional restructuring measures primarily
addressed underperforming branches and businesses. The 2002 restructuring
charge mainly related to a
F-137
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
restructuring provision of EUR 128 million that was charged to the profit and
loss account to cover the expenses of these measures. The restructuring of the
international wholesale banking operations announced in 2002 included a further
1,000 full-time equivalents reduction on top of the realized 700 at wholesale
banking since the end of 2001.
In 2001, ING Americas announced that it aimed to further integrate INGs US
insurance activities with those of Aetna and ReliaStar, in order to build a
more customer-focussed organization and recorded a pre-tax charge of EUR 70
million as a result of that restructuring. This charge included mainly
employee-related costs that referred, amongst others, to an reduction of
approximately 1,600 full-time equivalents.
Effective September 2001, the ING Group adopted Emerging Issues Task Force
(EITF) Issue 01-10, Accounting for the Impact of the Terrorist Attacks of
September 11, 2001. Under the consensus, costs related to the terrorist act
should be reported as part of income from continuing operations and not as an
extraordinary item.
The majority of claims relate to the reinsurance business of INGs US
subsidiary ReliaStar, which company was acquired in 2000. These claims relate
to losses incurred by companies that were based on the upper floors of the
World Trade Center, through reinsurance of carriers that write workers
compensation contracts and personal-accident insurance. Potential estimates of
the claims in connection with these reinsurance businesses amount to
approximately EUR 600 million before catastrophe cover and before tax, of which
approximately EUR 100 million is covered against retrocession contracts. ING
Group based the loss estimate upon a review of insured exposures using a
variety of assumptions and actuarial techniques, including estimated amounts
for unknown and unreported policyholder losses and costs incurred in settling
claims. As a result of the uncertainties involved in the estimation process,
final claims settlement may vary from present estimates.
Under Dutch GAAP, claims amounting to EUR 350 million have been charged against
catastrophe provision. As a result, under Dutch GAAP the net effect on ING
Groups profit and loss account for the year 2001 amounted to EUR 155 million
before tax and EUR 100 million after tax.
Under US GAAP, provision for future catastrophe is not allowed. Under US GAAP
the effect of the September 11 attack on ING Groups profit and loss account
for the year 2001 amounts to EUR 321 million after tax.
F-138
REPORT OF KPMG ACCOUNTANTS N.V.
The Supervisory Board and Executive Board of ING Bank N.V.
We have audited the consolidated balance sheets of ING Bank N.V. and
subsidiaries as of December 31, 2003 and 2002, and the related consolidated
profit and loss accounts and consolidated statements of cash flows for each of
the three years in the period ended December 31, 2003. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We serve as principal auditor of ING Bank N.V.
In our position we did not audit assets constituting 24% in 2003 and 25% in
2002, and total income constituting 22% in 2003, 23% in 2002 and 26% in 2001 of
the consolidated totals of ING Bank N.V. These data were reported on by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to parts not audited by us, is based totally on the report of the other
auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An auditor also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the reports of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of ING Bank N.V. and
subsidiaries as of December 31, 2003 and 2002, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the Netherlands.
Amsterdam, the Netherlands
KPMG Accountants N.V.
F-139
AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
In accordance with legal and regulatory requirements, we are pleased to report
to you on the performance of the audit mandate, which you have entrusted to us.
We have audited the consolidated balance sheets of ING Bank Belgium S.A./N.V.
and subsidiaries as of December 31, 2003 and 2002, and the related consolidated
profit and loss accounts for each of the three years in the period ended
December 31, 2003. These consolidated financial statements are the
responsibility of the Companys management. We have also examined the
Directors report.
Unqualified audit opinion on the consolidated financial statements
We conducted our audit in accordance with the standards of the Institut des
Reviseurs dEntreprises/Instituut der Bedrijfsrevisoren and auditing standards
generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, taking
into account the legal and regulatory requirements applicable to consolidated
financial statements in Belgium.
In accordance with those standards, we considered the groups administrative
and accounting organization, as well as its internal control procedures. We
have obtained explanations and information required for our audit. We examined,
on a test basis, evidence supporting the amounts in the consolidated financial
statements. We have assessed the validity of the accounting principles, the
consolidation policies and significant accounting estimates made by the
company, as well as the overall presentation of the consolidated financial
statements. We believe that those procedures provide a reasonable basis for our
opinion.
The consolidated financial statements are prepared in conformity with the in
Belgium applicable legal and regulatory requirements.
In our opinion, based on our audits, the consolidated financial statements give
a true and fair view of the groups assets, liabilities and consolidated
financial position as of December 31, 2003 and 2002 and the consolidated
results of the operations for each of the three years in the period ended
December 31, 2003, in accordance with its legal and regulatory requirements
applicable in Belgium and the information given in the notes to the
consolidated financial statements is adequate.
Additional certification
The Directors report contains the information required by law and is
consistent with the consolidated financial statements.
Brussels, March 23, 2004
Ernst & Young Reviseurs dEntreprises S.C.C. (B 160)
F-140
GLOSSARY
Associate
An associate is a
participating interest
in which a significant
influence is exercised
over the financial and
operating policy and
which is neither a
subsidiary nor a joint
venture of the investor.
Basic net profit per
ordinary share
The net profit per ordinary share is calculated on the basic of the weighted
average number of ordinary shares in issue. The following has been taken into
consideration in calculating the weighted average number of ordinary shares in
issue:
Certificates of deposit
Short-term negotiable
bearer debt
instruments issued by
banks.
Claim
A demand for payment of
a policy benefit because
of the occurrence of an
insured event, such as
the death or disability
of the insured or the
maturity of an
endowment, the
incurrence of hospital
or medical bills, the
destruction or damage of
property and related
deaths or injuries,
defects in, liens on, or
challenges to the title
to real estate, or the
occurence of a surety
loss.
Claims ratio
The claims ratio is the
claims, including
claims handling
expenses, expressed as
a percentage of net
earned premiums.
Climbing loan
Climbing loans are
loans not generating
cash flows prior to the
predetermined maturity
date. Each year, the
accrued interest is
added to the principal
amount.
Combined ratio
The sum of the claims
ratio and the cost ratio
for a non-life insurance
company or a reinsurance
company. A combined
ratio of more than 100%
does not necessarily
mean that there is a
loss on non-life
insurance policies,
because the result also
includes the allocated
investment income.
Control
Control is presumed to
exist when ING Group
has, direct or indirect
through group companies,
more than one half of
the voting power or
otherwise exercises
effective control.
Concentrations
Concentrations of credit
risk exist when changes
in economic, industry or
geographical factors
similarly affect groups
of counterparties whose
aggregate exposure is
material in relation to
ING Groups total
exposure.
Contingent liabilities
Contingent liabilities
are commitments or risks,
for which it is more
likely than not that no
outflow from ING Group of
resources embodying
economic benefits will
occur. The underlying
value of these
liabilities is not
recorded as liabilities
in the balance sheet. For
these products, the
underlying value
represents the maximum
potential credit risk to
which ING Group is
exposed, i.e. assuming
that all counterparties
failed completely to
perform in
accordance with the
terms of the contracts
and that any existing
collateral or security
proves to be of no
value.
Convertible debenture
Convertible debentures
are debentures with
embedded options issued
by corporations. The
holder has the right to
exchange a convertible
debenture for equity in
the issuing company at
certain times in the
future according to a
certain exchange ratio.
Very often, the
conversion is callable.
This means that it can be
repurchased by the issuer
at a certain price at
certain times in the
future. Once the
debentures have been
called, the holder can
always choose to convert
prior to repurchase.
Cost ratio
Underwriting costs
expressed as a
percentage of premiums
written.
Country risk
The risk that a foreign
government will not
fulfil its obligations
or obstructs the
remittance of funds by
debtors, either for
financial reasons
(transfer risk) or for
other reasons (political
risk).
Credit institutions
Credit institutions are
all institutions which
are subject to banking
supervision by public
authorities, including
mortgage banks, capital
market institutions,
multilateral development
banks and the
International Monetary
Fund (IMF).
Deferred tax assets
The amounts of income tax recoverable in future periods in respect of:
F-141
GLOSSARY
Deferred tax liabilities
The amounts of income
tax payable in future
periods in respect of
temporary valuation
differences between
carrying amounts of
assets or liabilities in
the balance sheet and
tax base, based on tax
rates that are expected
to apply in the period
when the assets are
realized or the
liabilities are settled.
Defined benefit plan
Defined benefit plans are
post-employment benefit
plans other than defined
contribution plans
Defined contribution plan
Post-employment benefit
plans under which an
enterprise pays fixed
contributions into a
separate entity (a fund)
and will have no legal or
constructive obligation
to pay further
contributions if the fund
does not hold sufficient
assets to pay all
employee benefits
relating to employee
service in the current
and prior periods.
Depositary receipt
Depositary receipt for
ordinary and preference
shares, issued by the
Trust, in exchange for
ordinary and preference
shares issued by ING
Group.
Derivatives
Derivatives are
financial instruments,
which include forwards,
futures, options and
swaps, whose value is
based on an underlying
asset, index or
reference rate.
Diluted net profit per share
Diluted net profit per
share data are computed
as if the stock options
and warrants
outstanding at year-end
were exercised at the
beginning of the
period. It is also
assumed that ING Group
uses the cash
thus received for stock
options and warrants
exercised to buy its own
shares against the
average market price in
the
financial year. The net
increase in the number
of shares resulting from
the exercise of warrants
and stock options is
added to the average
number of shares used
for the calculation of
diluted net profit per
share.
Discounted bills
Bills that are sold
under deduction of
interest giving the
owner the right to
receive an amount of
money on a given date.
Elimination
Elimination is a
process by which
intercompany
transactions are
matched with each other
and deducted, so that
the assets,
liabilities, income and
expenses are not
inflated.
Employee benefits
All forms of
consideration given by a
company in exchange for
service rendered by
(former) employees.
Equity method
A method of accounting
whereby a participating
interest is recorded at
its net asset value
according to the
accounting principles of
ING Group.
Equity participation
An investment in the
equity of a corporation
which is held in order
to participate
temporarily. The
investment does not
serve the business of
the acquirer and will
not be part of the
investment portfolio.
The acquirer and the
equity participation are
not organizationally
bound.
Fair value
The amount at which an
asset or a liability
could be traded on a
fair basis at the
balance sheet date,
between knowledgeable,
willing parties in
arms-length
transactions.
Finance lease
A lease that transfers
substantially all the
risks and rewards
associated with
ownership of an asset
to the lessee. Title
may or may not
eventually be
transferred.
Financial asset
Any asset that is:
Financial instruments
Financial instruments
are contracts that give
rise to both a financial
asset for one company
and a financial
liability or equity
instrument for another
company.
Financial liability
Any liability that is a contractual obligation:
Forward contracts
Forward contracts are
commitments to
exchange currencies or
to buy or sell other
financial instruments
at specified future
dates.
F-142
GLOSSARY
Future contracts
Future contracts are
commitments to exchange
currencies or to buy or
sell other financial
instruments at specified
future dates. Exchanges
act as intermediaries and
require daily cash
settlement and collateral
deposits.
General provision
A general provision is a
liability carried in the
balance sheet for a
present obligation
arising from past events,
the settlement of which
is expected to result in
an outflow from the
company of resources
embodying economic
benefits, whereas the
timing or amount of the
outflow is uncertain. The
settlement, which will
take place in the future,
should be reliably
measurable. The
settlement can be
enforced by law or the
event creates valid
expectations in other
parties that the company
will discharge the
obligation.
Goodwill
Goodwill is the
difference between the
cost of the acquisition
and the net asset value
of a participating
interest. The net asset
value is calculated
according to the fair
value of the assets and
liabilities of the
participating interest at
the moment of
acquisition.
Gross premiums written
Total premiums (whether
or not earned) for
insurance contracts
written or assumed
(including deposits for
investment contracts with
limited or no life
contingencies written)
during a specific period,
without deduction for
premiums ceded.
Group company
Corporations, i.e.
public limited liability
companies, private
limited liability
companies,
general partnerships or
limited partnerships,
that form an
organizational and
economic entity and are
controlled by ING Group.
Hedge accounting
Transactions qualify as
hedges if they are
identified as such and
there is a negative
correlation between the
hedging results and the
results of the positions
being hedged. Hedging
instruments are
accounted for in
accordance with the
accounting principles of
the hedged item.
Impairment
An impairment is a
permanent diminution in
value, i.e. the
recoverable amount is
less than the carrying
amount of the asset. In
such circumstances a
write-down of the asset
is necessary.
Interest bearing instrument
An interest bearing
instrument is a
financial asset or a
liability for which a
time-proportionate
compensation is paid or
received, in relation to
a notional amount.
Interest-rate arbitrage
Taking advantage of
interest-rate
differences between
separate markets.
Interest-rate rebates
Profit sharing for group
life insurance business.
A rebate granted to
policyholders based on
the discounted value of
the difference between
the interest rate used
for calculating the
premiums and the
expected yield on
investment. The profit
sharing is granted by
means of a premium
discount related to the
yield on government
bonds.
In the money
A call option is said to
be in the money if the
exercise price is
lower than the price of
the underlying value; a
put option is said to be
in the money if the
exercise price is higher
than the price of the
underlying value.
Investment portfolio
The investment portfolio
comprises those assets
which are intended for
use on a continuing
basis, and have been
identified as such. These
investments are held in
order to cover the
insurance provisions and
to manage interest rate,
capital and liquidity
risks.
Irrevocable facility
Irrevocable facilities
mainly constitute
unused portions of
irrevocable credit
facilities granted to
corporate clients and
commitments made to
purchase securities to
be issued by
governments and private
issuers.
Irrevocable letters of credit
An irrevocable letter of
credit concerns an
obligation on behalf of
a client to, within
certain conditions, pay
an amount of money under
submission of a specific
document or to accept a
bill of exchange.
Joint venture
A contractual arrangement
whereby two or more
parties undertake an
economic activity which
is subject to joint
control.
Monetary assets and
liabilities
Monetary assets and
liabilities are assets
and liabilities whose
amounts are fixed in
terms of units of
currency by contract or
otherwise. Examples are
cash,
F-143
GLOSSARY
short or long-term
accounts, notes
receivable in cash and
notes payable in cash.
Net asset value
The net asset value is
used in the equity method
of accounting. The
initial net asset value
of the investment is
determined by the fair
value of the assets and
liabilities of the
investee. After the
initial valuation of
assets and liabilities of
the investee at fair
value, the assets and
liabilities of the
investee are valued in
accordance with the
accounting principles of
the investor. The income
statement reflects the
investors share in the
results of operations of
the investee.
Net premiums written
Gross premiums written
for a given period
less premiums ceded to
retrocessionaires
during such period.
Notional amounts
Notional amounts
represent units of
account which, in respect
of derivatives, reflect
the relationship with the
underlying assets. They
do not reflect, however,
the credit risks assumed
by entering into
derivative transactions.
Offsetting of financial
assets and financial
liabilities
Offsetting is done on the basis of a legal right, by contract or otherwise, to
settle or otherwise eliminate all or a portion of an amount due to a creditor
by applying against that amount an amount due from the creditor. A financial
asset and a financial liability should be offset and the net amount reported in
the balance sheet when ING:
Operating segments
Operating segments are
defined as components of
an enterprise about which
discrete information is
available that is
evaluated regularly by
the chief operating
decision maker or
decision making group in
deciding how to allocate
resources and in
assessing performance.
Operating lease
A lease other than a
finance lease.
Option contracts
Option contracts give
the purchaser, for a
premium, the right, but
not the obligation, to
buy or sell within a
limited period of time a
financial instrument or
currency at a contracted
price that may also be
settled in cash. Written
options subject ING
Group to market risk,
but not to credit risk,
since the counterparties
have already performed
in accordance with the
terms of the contract by
paying a cash premium up
front.
Ordinary share
An equity instrument
that is subordinate to
all other classes of
equity instruments.
Ordinary shares
participate in the net
profit for the financial
year after other types
of shares such as
preference shares.
Out of the money
A call option is said to
be out of the money if
the exercise price is
higher than the price of
the underlying value; a
put option is said to be
out of the money if the
exercise price is lower
than
the price of the
underlying value.
Over-the-counter instrument
Non-standardized
financial instrument
not traded on a stock
exchange but directly
between market
participants.
Participating interest
A participating interest
exists if a corporation
or its subsidiary
provides capital or
causes capital to be
provided for the account
of either of them to
another corporation in
order to be durably
linked to that
corporation in
furtherance of its own
activities. An interest
is deemed to be a
participating interest
if 20% or more of the
share capital is
provided.
Plan assets
Plan assets comprise
assets held by a
long-term employee
benefit fund and
qualifying insurance
policies.
Assets held by a long-term employee benefit fund are assets (other than
non-transferable financial instruments issued by the reporting enterprise)
that:
A qualifying insurance policy is
F-144
GLOSSARY
an insurance policy issued by an insurer that is not a related party of the
reporting enterprise, if the proceeds of the policy:
Post-employment
benefit plans
Formal or informal
arrangements under which
a company provides
post-employment benefits
for one or more
employees.
Post-employment benefits
are employee benefits
other than termination
benefits and equity
compensation benefits,
which are payable after
the completion of
employment.
Preference share
A preference (or
preferred) share is
similar to an ordinary
share but carries
certain preferential
rights. These rights
usually concern the
guarantee of a fixed
(cumulative) return to
the shareholder or a
guaranteed return on the
investment.
Premiums earned
That portion of net
premiums written in
current and past
periods which applies
to the expired portion
of the policy period,
calculated by
substracting movements
in
unearned premium
reserves from net
premiums.
Private loan
Private loans are loans
to governments, other
public bodies, public
utilities,
corporations, other
institutions or
individuals with a loan
agreement as the only
instrument of title.
Private placement
A placement where
newly issued shares or
debentures come into
possession of a
limited group of
subscribers who are
prepared to buy the
new securities.
Projected unit credit method
An actuarial valuation
method that considers
each period of service as
giving rise to an
additional unit of
benefit entitlement and
measures each unit
separately to build up
the final obligation.
Promissory notes
A promissory note is a
signed and dated
document in which the
signeratory
unconditionally promises
to pay a certain sum to
a specific person or its
order on a certain
maturity date, at sight
or aftersight in a
certain time on a
certain place.
Proportional consolidation
A method of accounting
and reporting whereby a
venturers share of each
of the assets,
liabilities and income
and expense items of a
jointly controlled entity
is combined on a
line-by-line basis with
similar items in the
venturers financial
statements or reported as
separate line items in
the venturers financial
statements.
Provision for loan losses
Provision, presented as
a deduction from Lending
and Banks, meant to
absorb losses
from debtors defaults
in the Lending and
Banks portfolios.
Recognition
The process of
incorporating in the
balance sheet or profit
and loss account an item
that meets the definition
of an element and
satisfies the following
criteria for recognition:
Redemption value
With respect to
investments in
fixed-interest
securities, the amount
payable on the maturity
date.
Reinsurance
The practice whereby one
party, called the
reinsurer, in
consideration for a
premium
paid to him, agrees to
indemnify another party,
called the reinsured or
ceding company, for part
or all of the liability
assumed by the reinsured
under a contract or
contracts of insurance
which the reinsured has
issued. The reinsured
may also be referred to
as the original or
primary insurer, the
direct writing company,
or the ceding company.
Repurchase transactions
Repurchase
transactions are
commitments to
repurchase securities
which have been sold.
Reverse repurchase
transactions
Reverse repurchase
transactions are
commitments to sell
securities which have
been purchased.
F-145
GLOSSARY
Share premium (reserve)
Paid-in capital in
addition to the nominal
value and paid-up on
issued share capital.
Stock option plan
Option rights granted to
a number of senior
executives, to all ING
Group staff in the
Netherlands and to a
considerable number of
employees outside the
Netherlands to purchase
ING Group shares.
Subordinated loan
A credit or a liability
where, in the event of
bankruptcy under the
application of the
emergency regulations as
referred to in the Act on
Supervision of the Credit
System, or liquidation of
the debtor, the
outstanding part is not
eligible for set-off and
is not repayable until
all other currently
outstanding debts have
been repaid.
Subsidiary
A corporation:
Surrender
The termination of a
life or retirement
contract at the
request of the
policyholder after
which the policyholder
receives the cash
surrender value, if
any, on the contract.
Swap contracts
Swap contracts are
commitments to settle in
cash at a specified
future date, based on
differentials between
specified financial
indices as applied to a
notional principal
amount. Generally, no
cash is exchanged at the
outset of the contract
and no principal
payments are made by
either party.
Third-party interest
That part of the net
results and of net
assets of a subsidiary
attributable to an
interest which is not
owned, directly or
indirectly, by the
parent.
Trading portfolio
The trading portfolio
comprises those
financial instruments
which are held to obtain
short-term transaction
results, to facilitate
transactions on behalf
of clients or to hedge
other positions in the
trading portfolio.
Treasury bills
Generally short-term
debt certificates issued
by a central government.
Dutch Treasury
Certificates are
regarded as Dutch
Treasury bills.
Unweighted credit equivalent
The unweighted credit
equivalent is the
maximum loss that ING
Group would incur on its
derivatives transactions
if all its
counterparties defaulted
with a margin added in
accordance with
internationally accepted
criteria.
Warrant
A financial
instrument that gives
the holder the right
to purchase ordinary
shares.
Weighted credit equivalent
The weighted credit
equivalent is the
unweighted credit
equivalent multiplied by
the weighting factors
determined in
accordance with
standards of the
international
supervisory
authorities. Under
certain conditions, the
credit risk can be
reduced by entering
into bilateral netting
agreements.
F-146
SCHEDULE ISUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN
F-147
SCHEDULE IIISUPPLEMENTARY INSURANCE INFORMATION
F-148
SCHEDULE IVREINSURANCE
F-149
SCHEDULE VI SUPPLEMENTAL INFORMATION CONCERNING
F-150
capital gains and losses on equity securities,
the impact of the negative revaluation reserve on equity
securities, and
realized gains on divestitures that are made with the purpose of
using the proceeds to finance acquisitions.
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Year ended December 31,
2003
2003
2002
2001(2)
2000(2)(3)
1999
USD(1)
EUR
EUR
EUR
EUR
EUR
(in millions, except amounts per share and ratios)
2,996
2,478
2,603
2,278
1,945
1,499
1,218
1,008
567
514
362
260
4,214
3,486
3,170
2,792
2,307
1,759
2,866
2,371
1,468
2,170
2,605
1,981
7,080
5,857
4,638
4,962
4,912
3,740
1,765
1,460
873
1,099
1,377
982
416
344
332
324
147
93
4,899
4,053
3,433
3,539
3,388
2,665
247
325
7,976
1,693
(12
)
(10
)
820
713
620
564
4,887
4,043
4,500
4,577
11,984
4,922
25
21
21
21
21
21
4,862
4,022
4,479
4,556
11,963
4,901
2,447
2,024
1,930
1,914
2,173
1,573
2,414
1,997
2,549
2,642
9,790
3,328
4,887
4,043
4,253
4,252
4,901
3,537
2.42
2.00
1.77
1.83
1.76
1.38
2.42
2.00
2.20
2.20
2.56
1.84
2.42
2.00
2.32
2.37
6.27
2.56
2.42
2.00
2.32
2.35
6.18
2.52
1.17
0.97
0.97
0.97
1.13
0.82
0.58
0.48
0.48
0.47
0.41
0.32
0.59
0.49
0.49
0.50
0.72
0.50
2,115.9
2,115.9
1,992.7
1,992.7
1,970.6
1,934.0
48.5
%
48.5
%
44.1
%
44.1
%
43.9
%
44.4
%
58,053
48,025
49,316
49,479
42,039
34,022
5,454
4,512
3,476
1,770
10,925
3,790
(13,103
)
5,454
4,512
(9,627
)
1,770
10,925
3,790
2.70
2.23
(5.00
)
0.90
5.64
1.94
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Year ended December 31,
2003
2003
2002
2001(2)
2000(2)(3)
1999
USD(1)
EUR
EUR
EUR
EUR
EUR
(in billions, except amounts per share and ratios)
941.4
778.8
716.4
705.1
650.2
492.8
261.1
216.0
214.8
241.0
219.2
137.5
144.8
119.8
84.4
70.2
59.1
59.5
(1.0
)
(0.8
)
(1.6
)
(3.8
)
(1.1
)
(1.2
)
404.9
335.0
297.6
307.4
277.2
195.8
353.7
292.6
284.4
254.2
246.8
201.8
227.5
188.2
186.0
204.6
193.3
101.0
11.8
9.8
9.8
9.4
6.9
6.5
239.3
198.0
195.8
214.0
200.2
107.5
203.2
168.1
115.1
69.6
52.4
47.0
166.0
137.3
129.2
132.4
134.1
111.9
87.5
72.4
75.5
74.4
66.3
65.9
456.7
377.8
319.8
276.4
252.8
224.8
123.4
102.1
96.3
107.8
94.7
75.3
2,203.0
2,203.0
2,079.8
2,079.8
2,057.7
2,021.1
25.7
21.3
18.3
21.5
25.3
34.6
12.18
10.08
9.14
11.03
13.04
17.90
12.18
10.08
9.14
10.92
12.86
17.65
989.8
818.8
762.5
752.3
693.4
509.7
33.8
28.0
25.1
38.8
41.6
40.4
16.04
13.27
12.61
19.83
21.27
20.64
(1)
Euro amounts have been translated into U.S. dollars at the exchange rate of
$1.2088 to EUR 1.00, the noon buying rate in New York City on
March 3, 2004 for cable transfers in euros as certified for customs purposes
by the Federal Reserve Bank of New York.
(2)
In 2001 acquisitions of ReliaStar and Aetna influenced the figures compared
to earlier years.
(3)
Discontinued business: we sold in 2000 Tiel Utrecht Group in the
Netherlands (net profit EUR 63 million).
(4)
As of 2001, the Insurance operations-General is no longer reported
separately. The items previously accounted for under this heading are now
included in either the life result or the non-life result. The years prior to
2001 are restated accordingly.
(5)
As from 2001, investment income for risk of
policyholders has been netted with the related underwriting expenditure. This
results in a presentation of investment income of the insurance operations for
own risk, which is in line with international practice. The comparative figures
have been adjusted accordingly.
(6)
After elimination of certain intercompany transactions between the
insurance operations and the banking operations. See Note 1.1. to the
Consolidated Financial Statements.
(7)
Includes all non-interest expenses, including additions to the provision
for loan losses. See Item 5, Operating and Financial Review and
prospects Liquidity and capital resources.
(8)
Net profit per share amounts have been calculated based on the weighted
average number of ordinary shares outstanding and shareholders equity per
share amounts have been calculated based on the number of ordinary shares
outstanding at the end of the respective periods. For purposes of this
calculation ING Groep N.V. shares held by Group companies were deducted from
the applicable number of outstanding Ordinary shares. All amounts and numbers
are presented after giving effect to all stock dividends and retroactive
application of the Companys 2-for-1 stock split, which became effective July
2, 2001. See Note 5.2.3 to the Consolidated Financial Statements.
(9)
The dividend pay-out ratio is based on distributable net profit.
(10)
Consisting of investments in banking operations held by Group insurance
companies, investments in insurance operations held by Group
banking companies, and ING Groep N.V. shares held by Group insurance
companies.
(11)
Reflects the Companys 2-for-1 stock split effected July 2, 2001.
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(1)
The Noon Buying Rate at such dates differ from the rates used in the
preparation of INGs Consolidated Financial Statements as of such
date. See Note 1.6.1.4. to the Consolidated Financial Statements.
(2)
The average of the Noon Buying Rates on the last business day of each full
calendar month during the period.
High
Low
1.1580
1.1164
1.1390
1.0871
1.1650
1.0845
1.1812
1.1596
1.1995
1.1417
1.2597
1.1956
1.2853
1.2389
1.2848
1.2426
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our interests;
the interests of our affiliates; and
the interests of our other stakeholders
market expectations of the performance and capital adequacy of financial
institutions in general;
investor perception of the success and impact of our strategies;
a downgrade or review of our credit ratings;
potential litigation or regulatory action involving ING Group or sectors we
have exposure to through our insurance and banking activities;
announcements concerning financial problems or any investigations into the
accounting practices of other financial institutions;
general market volatility.
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Code II.2.7 states: The maximum remuneration in the event of dismissal
is one years salary (the fixed remuneration component). If the maximum
of one years salary would be manifestly unreasonable for a management
board member who is dismissed during his first term of office, such board
member shall be eligible for a severance pay not exceeding twice the
annual salary. ING is prepared to take this best practice into account as
a reference for new Executive Board members, provided however that the severance may be
higher in an individual case depending on existing rights for severance pay,
market practice, competitive considerations and other reasons that may give
cause to agree on higher severance if needed to attract the right qualified
person.
Code III.3.4 states: The number of supervisory boards of Dutch listed
companies of which an individual may be a member shall be limited to such
an extent that the proper performance of his duties is assured; the
maximum number is five, for which purpose the chairmanship of a
supervisory board counts double. Two members of the Supervisory Board,
Messrs. Jacobs and
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Vuursteen, currently hold more supervisory directorships in Dutch listed
companies than the maximum recommended in the Code. This issue will be
discussed on the next occasion that these gentlemen become eligible for
reappointment, which will be in 2006 in the case of Mr. Vuursteen and in
2007 in the case of Mr. Jacobs.
Code III.5.6 states: The audit committee shall not be chaired by the
chairman of the supervisory board or by a former member of the executive
board of the company.
Mr. Jacobs, who was previously chairman of the
Executive Board, currently chairs the Audit Committee. It should, however,
be noted that Mr. Jacobs resigned from the Executive Board over five years
ago and so can be regarded as independent, both in respect of the Code and
under the terms of the US Sarbanes-Oxley Act.
Code III.5.11 states: The remuneration committee shall not be chaired by
the chairman of the supervisory board. The chairman of the Supervisory
Board, Mr. Herkströter, chairs the Remuneration and Nomination Committee.
Appointments, both to the Executive Board and the Supervisory Board, and
remuneration are issues of such importance that we believe it is vital for
the chairman of the Supervisory Board to be substantially involved in
these discussions at an early stage.
We have a two-tiered board, in contrast to the one-tier board used by
most US companies. In the Netherlands, a Naamloze Vennootschap (public
limited liability company) has an Executive Board as its management body
and a Supervisory Board which advises and supervises the Executive Board.
In general the members of the Executive Board are employees of the company
while members of the Supervisory Board often are former captains of state
or industry and sometimes former members of the Executive Board. Usually
the members of the Supervisory Board are independent of the company in the
sense of the NYSE listing requirements. Our Audit Committee and
Remuneration and Nomination Committee are comprised of members of the
Supervisory Board.
In contrast to the Sarbanes-Oxley Act of 2002, the Tabaksblat Code
contains a comply-or-explain principle, offering the possibility to
deviate from the Tabaksblat Code as long as any such deviations are
explained.
Our Ordinary shares are held by a trust, Stichting ING Aandelen (the
Trust), which issues Bearer receipts, each Bearer receipt representing
financial interests in one Ordinary share held by the Trust. The Trust
holds all voting rights over the Ordinary shares, and pursuant to the
Trust Constitution and Trust Conditions, the Trust will grant proxies to
holders of the Bearer receipts. See Item 7 Major shareholders and related
party transactions.
Dutch law requires that our external auditors be appointed at the general
meetings of shareholders and not by the Audit Committee.
Our Articles of Association provide that there are no quorum requirements
to hold a general meeting of shareholders, although the taking of certain
actions may require a quorum.
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the further roll out of a single IT application architecture,
the establishment of shared services centres,
the
consolidation and standardization of IT Infrastructure & Applications.
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ING Real Estate
Baring Asset Management
ING Trust
Parcom Ventures
Baring Private Equity Partners
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Year ended December 31
2003
2002
2001
(EUR Millions)
8,511
8,826
7,501
453
603
304
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Unless otherwise stated our participating interest is 100%, or almost
100%
COMPANIES TREATED AS PART OF THE INSURANCE OPERATIONS
The Hague
The Hague
Amsterdam
Rotterdam
The Hague
The Hague
Utrecht
The Hague
The Hague
Rotterdam
Ede
Nieuwegein
Antwerp
Bratislava, Slovakia
Warsaw, Poland
Warsaw, Poland
Bucharest, Romania
Athens, Greece
Athens, Greece
Budapest, Hungary
Madrid, Spain
Madrid, Spain
Montreal, Quebec, Canada
Toronto, Ontario, Canada
Toronto, Ontario, Canada
Calgary, Alberta, Canada
Toronto, Ontario, Canada
Des Moines, Iowa, U.S.A.
Wilmington, Delaware, U.S.A.
Wilmington, Delaware, U.S.A.
Hartford, Connecticut, U.S.A.
Hartford, Connecticut, U.S.A.
Atlanta, Georgia, U.S.A.
Atlanta, Georgia, U.S.A.
Hartford, Connecticut, U.S.A.
Minneapolis, Minnesota, U.S.A
Woodbury, New York, U.S.A
Denver, Colorado, U.S.A.
Atlanta, Georgia, U.S.A.
Des Moines, Iowa, U.S.A.
Oklahoma City, Oklahoma, U.S.A.
Mexico City, Mexico
Mexico City, Mexico
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Mexico City, Mexico
Santiago, Chile
Tokyo, Japan
Seoul, South Korea
Taipei, Taiwan
Kuala Lumpur, Malaysia
Sydney, Australia
Sydney, Australia
The Hague, the Netherlands
Amsterdam
Amsterdam
Utrecht
s-Hertogenbosch
Amsterdam
Amsterdam
The Hague
The Hague
Amsterdam
Amsterdam
Amsterdam
Amsterdam
Amsterdam
Amsterdam
Groningen
Amsterdam
Amsterdam
Brussels
Katowice, Poland
London, United Kingdom
Frankfurt, Germany
Frankfurt, Germany
New York, NY, U.S.A.
New York, NY, U.S.A.
Toronto, Ontario, Canada
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Buenos Aires, Argentina
Curaçao, Netherlands Antilles
Curaçao, Netherlands Antilles
Sydney, Australia
Tokyo, Japan
Hong Kong, China
Hong Kong, China
Singapore, Singapore
Bangalore, India
Canada, Germany, Spain,
Australia, France, USA, Italy, UK
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ensure that a financial conglomerate has adequate capital;
introduce methods for calculating a conglomerates overall solvency position;
deal with the issues of intra-group transactions, exposure to risk
and the suitability and professionalism of management at financial
conglomerate level; and
prevent situations in which the same capital is used simultaneously
as a buffer against risk in two or more
entities which are members of the same financial conglomerate
(double gearing) and where a parent issues debt and downstreams the
proceeds as equity to its regulated subsidiaries (excessive
leveraging).
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To compute the denominator of the capital base ratio, the assets of a bank are
assigned to five broad categories of relative credit risk (0%, 10%, 20%, 50%
and 100%) and the balance sheet value of each asset is multiplied by the
percentage weight applicable to its risk category to arrive at the
risk-adjusted value. With respect to off-balance sheet items, such as financial
guarantees and letters of credit, first, their face value is adjusted according
to their risk classification depending on the type of instrument (0%, 20%, 50%
and 100%), then they are assigned, like on-balance sheet assets, to the credit
risk categories depending on the type of debtor and multiplied by the
applicable percentage weights. With respect to derivatives contracts, first,
their fair value is adjusted with a product specific potential future credit
exposure (0% to 15% over the notional amounts), then they are assigned, like
on-balance sheet assets, to the credit risk categories depending on the type of
debtor and multiplied by the applicable percentage weights.
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Interest-earning assets
2003
2002
2001
Average
Interest
Average
Average
Interest
Average
Average
Interest
Average
balance
income
yield
balance
income
yield
balance
income
yield
(EUR millions)
%
(EUR millions)
%
(EUR millions)
%
1,984
98
4.9
3,625
128
3.5
5,522
364
6.6
24,450
723
3.0
21,965
935
4.3
24,488
1,261
5.2
154,944
7,800
5.0
146,277
7,885
5.4
132,714
7,805
5.9
160,338
6,790
4.2
148,979
7,149
4.8
137,098
8,843
6.5
25,384
682
2.7
20,472
692
3.4
21,165
589
2.8
116,092
4,450
3.8
92,616
4,182
4.5
78,615
3,375
4.3
3,563
208
5.8
4,588
167
3.6
4,313
293
6.8
9,188
262
2.9
11,040
465
4.2
12,110
759
6.3
495,943
21,013
4.2
449,562
21,603
4.8
416,025
23,289
5.6
24,011
27,216
30,134
519,954
476,778
446,159
64.9
%
62.1
%
61.6
%
258
348
152
96
102
167
(123
)
(105
)
(122
)
2,187
1,758
1,325
371
382
(493
)
23,802
24,088
24,318
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Interest-earning liabilities
2003
2002
2001
Average
Interest
Average
Average
Interest
Average
Average
Interest
Average
balance
expense
yield
balance
expense
yield
balance
expense
yield
(EUR millions)
%
(EUR millions)
%
(EUR millions)
%
19,829
666
3.4
23,789
832
3.5
25,986
1,117
4.3
36,870
771
2.1
43,435
1,238
2.9
45,995
2,255
4.9
32,694
219
0,7
31,291
332
1.1
28,195
384
1.4
23,867
391
1.6
20,994
528
2.5
17,760
589
3.3
13,082
391
3.0
17,675
746
4.2
19,923
1,165
5.9
31,207
956
3.1
34,432
1,242
3.6
37,631
1,715
4.6
50,051
1,425
2.9
43,463
1,300
3.0
38,194
1,329
3.5
100,317
2,878
2.9
57,781
2,050
3.6
25,361
1,048
4.1
5,664
180
3.2
5,082
193
3.8
5,090
253
5.0
48,305
909
1.9
48,836
1,309
2.7
46,961
1,958
4.2
15,586
895
5.7
19,278
865
4.5
19,029
1,008
5.3
32,143
1,300
4.1
30,439
1,634
5.4
26,135
1,965
7.5
10,915
647
5.9
9,109
589
6.5
7,266
467
6.4
2,921
178
6.1
3,184
190
6.0
3,215
232
7.2
19,475
583
3.0
10,972
359
3.3
14,088
590
4.2
25,253
1,063
4.2
22,890
1,103
4.8
35,598
1,435
4.0
468,179
13,452
2.9
422,650
14,510
3.4
396,427
17,510
4.4
34,587
36,726
33,490
502,766
459,376
429,917
17,188
17,402
16,242
519,954
476,778
446,159
65.1
%
63.2
%
60.9
%
2,027
1,718
1,364
208
214
(628
)
15,687
16,442
18,248
8,115
7,646
6,072
(1)
Substantially all interest-earning securities held by the banking
operations of the Company are taxable securities.
(2)
Includes amortization of premiums and discounts and deferred realized
gains and losses on sales of investments in debt securities on a
straight-line basis over the estimated average remaining life of the
portfolio.
(3)
Interest on non-performing loans is included when calculating the average
yield in this table but excluded from interest income reported in
the consolidated profit and loss account.
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(4)
Includes amortization of deferred realized gains and losses on off-balance
sheet hedging instruments on a straight line basis over the
estimated average remaining life of the portfolio and interest accrued on
hedging instruments, primarily on interest rate swaps.
(5)
These captions do not include deposits from banks.
(6)
Includes accrued interest expense on hedging instruments, primarily on
interest rate swaps.
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(1)
Loans that have an interest rate that remains fixed for more than one year
and which can then be changed are classified as semi-fixed
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Year ended December 31, 2003
Banks
Government
& other
& official
financial
Commercial
institutions
institutions
& industrial
Other
Total
(EUR millions)
503
19,403
16,818
1,034
37,758
6,294
16,810
2,405
2,705
28,214
193
3,295
18,066
324
21,878
2,157
9,760
1,490
221
13,628
2,926
5,725
3,388
699
12,738
4,141
4,384
2,440
409
11,374
Year ended December 31, 2002
Banks
Government
& other
& official
financial
Commercial
institutions
institutions
& industrial
Other
Total
(EUR millions)
5
17,782
20,032
1,280
39,099
2,013
2,491
19,578
912
24,994
4,660
8,899
2,165
2,070
17,794
515
3,941
2,876
784
8,116
2,039
1,940
2,248
1,256
7,483
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Year ended December 31, 2001
Banks
Government
& other
& official
financial
Commercial
institutions
institutions
& industrial
Other
Total
(EUR millions)
15,101
13,547
785
29,433
1,461
5,194
15,534
1,406
23,595
3,911
11,380
3,832
2,796
21,919
1,135
3,560
2,188
2,154
9,037
1,155
3,234
2,262
562
7,213
2,456
3,894
455
363
7,168
Cross-border outstandings
Year ended December 31
6,888
7,101
5,828
5,571
Total outstandings
(EUR millions)
60,841
57,012
30,503
the financial standing of the customer, including a realistic assessment of
the likelihood of repayment of the loan within an acceptable period and the
extent of ING Groups other commitments to the same customer;
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the realizable value of any security for the loan; and
the costs associated with obtaining repayment and realization of any such
security.
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Calendar Period
2003
2002
2001
2000
1999
(EUR MILLIONS)
4,870
4,474
4,272
4,522
3,417
104
93
(171
)
834
(1
)
(1
)
(4
)
(4
)
(3
)
(4
)
(27
)
(18
)
(10
)
(65
)
(31
)
(31
)
(77
)
(26
)
(166
)
(211
)
(166
)
(198
)
(170
)
(1
)
(30
)
(8
)
(1
)
(1
)
(1
)
(10
)
(3
)
(9
)
(91
)
(138
)
(105
)
(32
)
(1
)
(1
)
(1
)
(797
)
(530
)
(391
)
(458
)
(224
)
(1,202
)
(838
)
(603
)
(829
)
(574
)
3
5
7
4
9
2
4
5
5
3
8
4
8
2
2
4
1
5
10
7
19
15
23
34
1
49
33
38
51
19
(1,153
)
(805
)
(565
)
(778
)
(555
)
850
1,108
938
528
826
4,671
4,870
4,474
4,272
4,522
0.37
%
0.27
%
0.22
%
0.31
%
0.32
%
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(1)
The percentages represent the loans in each category as a percentage of the
total loan portfolio for loans and advances to banks and customers.
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Year ended December 31,
2003
2002
2001
2000
1999
(in %)
0.01
0.39
0.17
0.14
0.14
0.16
0.18
3.67
2.43
2.83
2.53
2.32
1.91
1.54
2.31
2.27
2.69
0.75
0.66
0.71
0.84
0.96
0.18
0.30
0.51
0.06
0.36
0.60
0.23
0.21
0.73
0.18
0.15
0.36
0.20
0.35
2.41
4.93
2.13
5.55
2.94
3.47
3.27
4.27
3.59
2.98
4.30
2.09
2.42
2.39
2.18
3.08
1.45
1.56
1.59
1.60
2.07
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Year ended
December 31, 2003
(EUR millions)
16,150
73,544
89,694
Year ended December 31,
2003
2002
2001
(EUR millions)
5,512
3,429
2,913
7,211
2,783
2,892
667
668
894
12,839
13,165
12,266
21,152
15,200
10,517
35,830
18,527
14,819
5,718
6,210
9,354
2,834
5,180
3,818
24,267
13,917
5,796
116,030
79,079
63,269
766
1,254
2,877
2,970
3,709
2,302
119,766
84,042
68,448
(1)
Including commuted ground rents
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(1)
Since substantially all investment securities held by the banking
operations of the Company are taxable securities, the yields are on a tax-
equivalent basis.
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2003
2002
Book
Market
Book
Market
value
value
value
value
(EUR millions)
(EUR millions)
5,618
5,692
3,478
3,634
12,829
13,657
13,155
14,170
7,331
7,424
2,789
2,934
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Average
2003
2002
2001
1.1345
0.9458
0.8950
1.7484
1.7404
1.7366
1.5912
1.4838
1.3850
0.6899
0.6279
0.6196
131.1930
117.9310
108.6980
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Year-end
2003
2002
2001
1.2616
1.0487
0.8853
1.6788
1.8594
1.7338
1.6281
1.6548
1.4072
0.7063
0.6505
0.6110
134.8000
124.4000
116.2500
Less
More
than
than
Total
one
one
2003
year
year
(EUR millions)
652
272
380
1,301
1,292
9
1,232
1,232
605
433
172
17,115
6,648
10,467
5,356
5,330
26
355
355
26,616
15,562
11,054
66,640
38,402
28,238
93,256
53,964
39,292
1)
The Companys operating lease obligations are described in Note 2.18.3
2)
Subordinated Loans of Group Companies, Debenture Loans, Loans Contracted
and Loans from Credit Institutions are included in the Companys
consolidated balance sheet; refer to Note 2.16 for additional details
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Year ended December 31,
2003
2002
2001
(EUR millions)
3,486
3,170
2,792
2,371
1,468
2,170
5,857
4,638
4,962
1,460
873
1,099
344
332
324
4,053
3,433
3,539
247
325
(10
)
820
713
4,043
4,500
4,577
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Year ended December 31,
2003
2002
2001
(EUR billions, except amounts per share )
335.0
297.6
307.4
292.6
284.4
254.2
778.8
716.4
705.1
188.2
186.0
204.6
9.8
9.8
9.4
198.0
195.8
214.0
377.8
319.8
276.4
102.1
96.3
107.8
757.5
698.1
683.6
21.3
18.3
21.5
10.08
9.14
11.03
(1)
Funds entrusted to and debt securities of the banking operations consists
of savings accounts, other deposits, bank funds and debt
securities privately issued by the banking operations of ING.
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(1)
As of December 31, 2002, the asset management business units ING Real
Estate, Baring Asset Management, ING Trust, Parcom and Baring Private Equity
Partners are part of EC ING Europe. The years prior to 2003 are restated
accordingly. See Item 4 Information on the Company.
(2)
Reflects intersegment eliminations.
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According to US GAAP operating profit before tax would have been EUR 359
million lower in 2003 and EUR 736 million lower in 2002. This difference is
mainly caused by the following reconciling items for 2003: the 2002 US GAAP
operating profit included a goodwill impairment charge of EUR 1,168 million
(2003: nil), accounting for derivative financial instruments held for risk
management EUR (367) million (2002: EUR 60 million) and valuation of debt
securities EUR 313 million (2002: EUR 573 million) . For an explanation of
differences between Dutch GAAP and US GAAP please refer to Notes 6.1 and 6.2 on
pages F-102 to F-106.
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Dutch GAAP
Additional
U.S. GAAP
U.S. GAAP
impairments
(cumulative)
(EUR millions)
2,243
2,518
1,324
1,435
164
919
1,435
2,354
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-
the securities are
only insignificantly lower than the cost price
-
the unrealized loss arose due
to changes in interest rates, however this has not effected the expected future
cash flows.
-
the securities are with counterparties who are considered not to be in
financial difficulty, despite the fact that their credit rating has been
lowered, reducing the market value
Less than
More than
6 months
6 months
below cost
below cost
Total
(EUR millions)
449
454
903
286
47
333
735
501
1,236
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EUR 51 million on debt securities of issuers in the airline industry. The
majority of our airline investments are comprised of Enhanced Equipment Trust
Certificates (EETC). Since the events of September 11, 2001, the airline
industry has suffered from reduced passenger volume due to a combination of
security concerns and the slowdown in 2002 and gradual recovery in 2003 of the
U.S. economy. Compounding the reduced volume are increased costs of enhanced
security measures, increased fuel costs and relatively high cost structures.
Over the past two years several carriers have sought bankruptcy protection and
rejected a number of leases supporting debt structures similar to those held by
ING resulting in our impairment.
EUR 31 million attributed to asset-backed securities.
EUR 11 million on debt securities of issuers in the cable and
telecommunications industry. During 2003, the telecommunications industry
remained under pressure due to a gradual recovery in the economy and an
overcapacity of the industrys infrastructure.
EUR 11 million on debt
securities of issuers in the healthcare industry. The most significant
holdings that were impaired due to material accounting irregularities.
EUR 144 million on debt securities of issuers in the energy industry.
During 2002, the energy sector continued to feel the fallout of Enron,
accounting irregularities and over-capacity due to a slowdown in the
economy. Our assessment indicated that the debt securities of several
issuers were impaired. The most significant holdings that were impaired
related to NRG Energy (EUR 29 million).
EUR 193 million on debt securities of issuers in the cable and
telecommunications industry. During 2002, the telecommunications industry
was under considerable pressure due to questions about industry practices
and over-capacity and due to a slowdown in the economy and over-building
of the industrys infrastructure. The most significant holdings that were
impaired related to Worldcom (EUR 63 million).
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The most significant categories
of unrealized losses related to the nutrition industry (EUR 424 million),
retail-wholesale (EUR 310 million), chemical industry (EUR 204 million), IT
services (EUR 143 million) and temporary labor industry (EUR 108 million).
Communications
Retail-wholesale
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This impairment charge had no
impact on net income under Dutch GAAP since goodwill has not been capitalized
but charged to equity immediately at the time of the acquisition.
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Year ended December 31,
2003
2002
2001
(EUR millions)
38,231
44,367
44,557
7,288
7,917
5,903
45,519
52,284
50,460
9,721
10,506
9,723
2,320
2,127
2,281
57,560
64,917
62,464
37,129
43,274
43,157
6,358
6,642
5,288
43,487
49,916
48,445
2,478
2,603
2,285
1,008
567
507
3,486
3,170
2,792
861
540
622
117
92
73
2,508
2,538
2,097
(1)
Under US GAAP total operating income 2003 was EUR 36,676 million (2002 EUR
36,991 million, 2001: EUR 37,280 million). The difference with Dutch GAAP
mainly relates to contracts that do not expose the Company to significant
mortality or morbidity risks. (See note 6.4.k to the Consolidated Financial
Statements).
(1)
Represents reinsurance premiums ceded between Group companies in different
geographic areas.
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The total impact of exchange rate movements amounted to EUR (7,735) million.
Acquisitions and divestitures decreased total income by EUR 263 million. The
organic growth of total income, disregarding the influence of acquisitions,
divestitures and exchange rate movements, was EUR 642 million or 1.2%,
reflecting on balance flat gross premiums (Life (0.8%) and Non-life 4.2%) and
5.7% higher investment income, commissions and other income.
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Taxation
Operating net profit
Embedded value of life operations
(1)
Net of reinsurance premiums ceded of EUR 1,102 million, EUR 1,093 million
and EUR 1,400 million, in 2003, 2002 and 2001 respectively.
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Year ended December 31,
2003
2002
2001
(EUR millions)
1,788
1,517
1,678
1,561
1,584
1,598
3,349
3,101
3,276
904
675
989
1,314
1,125
1,057
2,218
1,800
2,046
15
26
31
5,582
4,927
5,353
1,888
1,696
1,293
193
190
174
2,081
1,886
1,467
51
49
55
124
117
103
175
166
158
1
1
2,257
2,053
1,625
85
240
164
1,185
1,108
1,024
1,270
1,348
1,188
49
177
311
41
54
37
90
231
348
1
87
1,360
1,580
1,623
597
4,025
4,436
8,188
8,727
7,906
8,785
12,752
12,342
1,615
5,468
7,861
9,672
8,142
7,123
11,287
13,610
14,984
1,298
1,268
1,391
21,370
27,630
28,717
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(1)
Represents reinsurance premiums ceded between Group companies in different
geographic areas.
Premium income
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Life policy benefits paid or provided for
Operating expenses
Profit before tax
This decrease can be attributed primarily to the operational part of the ANZ
gain (EUR 222 million) in Australia in 2002 and lower profits in the
Netherlands and North America.
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Premium income
Life policy benefits paid or provided for
Operating expenses
Profit before tax
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(1)
Net of reinsurance ceded of EUR 930 million, EUR 1,275 million and EUR 614
million in 2003, 2002 and 2001, respectively and changes in provision for unearned premiums and unexpired insurance risks.
(1)
Represents reinsurance premiums ceded between Group companies in different
geographic areas.
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Premium income
Non-life gross premiums in the Netherlands decreased by 0.6% mainly in the loss
of income and accident lines. In Belgium all lines of business, but especially
motor and fire, contributed to the 10.2% growth. Gross premiums in North
America decreased by 4.1%, but rose organically by 9.2% thanks to Canada
(motor, miscellaneous and fire) and the US (health). Latin America showed an
organic decrease of 2.0% due to Mexico (miscellaneous and motor), and gross
premiums Australia rose organically by 20.9%, primarily due to miscellaneous
and fire due to rate increases. The decrease of the non-life premium income in
Other areas is fully due to reinsurance premiums.
Claims and claims expenses
Operating expenses
Profit before tax
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Premium income
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Claims and claims expenses
Operating expenses
Profit before tax
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Year ended December 31,
2003
2002
2001
(EUR millions)
9,721
10,506
9,723
2,320
2,127
2,281
12,041
12,633
12,004
2,557
2,629
2,657
163
664
157
14
34
43
9,308
9,306
9,147
8,285
8,289
8,330
920
732
649
9,205
9,021
8,979
94
223
155
9
62
13
103
285
168
Table of Contents
(1)
Including commuted ground rents.
(2)
Includes EUR 1,481 million, EUR 1,823 million and EUR 1,914 million at
December 31, 2003, 2003 and 2001, respectively, representing
intercompany balances between Group insurance and banking companies.
(3)
Consists of assets relating to certain large Dutch group life policies
under which coverage is provided by ING and other insurers.
The Shares and convertible debentures portfolio
decreased mainly due to disposals. The increase in investments for the risk of
policyholders of EUR 6,271 million primarily relates to the component Shares
and convertible debentures which increased by EUR 7,673 million to EUR 60,772
million at year-end 2003; the component Fixed interest securities decreased
from EUR 9,948 million to EUR 8,484 million at year-end 2003
(1)
Pre-tax yield is calculated using interest, rental, dividend, realized
gains on convertible debentures and land and buildings in 2002, 2001 and 2000,
divided by the average of beginning and year-end balances on related assets
(excepting the calculation of the yield in 2002 of land and buildings: in
December 2002 EUR 1.0 billion non-EU real estate was transferred from ING
Insurance to ING Bank).
(2)
Includes income from interests in investment pools that consists of
investment income from assets relating to certain large Dutch group life
policies under which coverage is provided by ING and other
insurers.
(3)
Includes mortgages and other loans.
(4)
Includes EUR 218 million, EUR 73 million and EUR 75 million in 2003, 2002
and 2001, respectively, representing intercompany interest between Group insurance and banking companies.
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(5)
Commission and other income consists primarily of fees on asset
management and insurance brokerage, profits of minority interests and profits from financial transactions.
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Year ended December 31,
2003
2002
2001
(EUR millions)
23,802
24,088
24,318
15,687
16,442
18,246
8,115
7,646
6,072
2,464
2,615
2,765
154
201
530
562
454
1,080
385
285
664
1,101
940
2,274
11,680
11,201
11,111
4,694
4,787
5,064
3,150
3,173
2,762
340
338
365
8,184
8,298
8,191
3,496
2,903
2,920
1,125
1,435
750
2,371
1,468
2,170
599
333
477
227
240
251
1,545
895
1,442
Profit before taxation
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Total income
Operating expenses
Efficiency ratio
Net interest result
Commissions
Other income
Addition to the provision for loan losses
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Effect of acquisitions/consolidations
Profit before taxation
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Total income
Operating expenses
Efficiency ratio
Net interest result
Commissions
Other income
Addition to the provision for loan losses
Effect of acquisitions/consolidations
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Year ended December 31,
2003
2002
2001
(EUR millions)
21,013
21,603
23,289
7,561
7,093
5,779
554
553
293
8,115
7,646
6,072
495,943
449,562
416,025
468,179
422,650
396,427
8,788
8,873
9,051
3,782
3,656
2,739
185,875
174,962
163,714
167,295
160,660
157,770
12,225
12,730
14,238
3,779
3,437
3,040
310,068
274,600
252,311
300,884
261,990
238,657
4.73
%
5.07
%
5.53
%
3.94
%
4.64
%
5.64
%
4.24
%
4.81
%
5.60
%
1.74
%
1.82
%
1.53
%
1.14
%
1.09
%
0.95
%
1.36
%
1.37
%
1.18
%
2.03
%
2.09
%
1.67
%
1.22
%
1.25
%
1.20
%
1.52
%
1.58
%
1.39
%
(1)
See Item 4. Information on the Company Selected statistical information
on banking operations Average balances and Interest rates
(2)
Additional net interest result required to reconcile Total net interest result to Consolidated
Financial Statements. See Item 4. Information on the
Company Selected
statistical information on banking operations Average balances and interest
rates
(3)
Gross yield is the average interest rate earned on Average
interest-earning assets. See Item 4. Information on the
Company Selected
statistical information on banking operations Average balances and interest
rates.
(4)
Interest spread is the difference between the average interest rate earned
on Average interest-earning assets and the average interest rate paid on
Average interest-bearing liabilities. See Item 4.
Information on the Company
Selected statistical information on banking operations Average balances and
interest rates.
(5)
Interest margin is Net interest result before
reconciliation to Consolidated Financial Statements as a percentage of Average
interest-earning assets.
Table of Contents
(1)
See Item 4. Information on the Company Selected statistical information
on banking operations Analysis of changes in net interest income.
(1)
See Item 4. Information on the Company Selected statistical information
on banking operations Analysis of changes in net interest income.
Table of Contents
Year ended December 31,
2003
2002
2001
(EUR millions)
587
592
526
665
731
884
115
117
88
594
688
751
146
197
203
357
290
313
2,464
2,615
2,765
Funds transfer
Securities business
Insurance brokerage
Management fees
Brokerage and advisory fees
Other
Table of Contents
Funds transfer
Securities business
Insurance brokerage
Management fees
Brokerage and advisory fees
Other
Year ended December 31,
2003
2002
2001
(EUR millions)
154
201
530
562
454
1,080
385
285
664
1,101
940
2,274
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Year ended December 31,
2003
2002
(EUR millions)
226
201
46
242
290
11
562
454
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Year ended December 31,
2002
2001
(EUR millions)
201
617
242
465
11
(2
)
454
1,080
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Year ended December 31,
2003
2002
2001
(EUR millions)
4,694
4,787
5,064
3,150
3,173
2,762
340
338
365
8,184
8,298
8,191
Staff costs
Other administrative expenses
Depreciation
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Staff costs
Other administrative expenses
Depreciation
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*
Latin America = South America, including Mexico.
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As at December 31, 2003, the required
capital base margin of the insurance companies of ING Group computed in
accordance with these protocol directives amounted to EUR 8,779 million
compared to EUR 8,718 million for 2002. The total capital and surplus of these
companies was EUR 18,463 million as at December 31, 2003 compared to EUR 17,848
million for 2002.
Table of Contents
Year ended December 31,
2003
2002
2001
(EUR million, other than percentages)
251,266
247,287
243,174
19,074
18,080
17,083
9,743
9,116
8,588
138
257
290
(473
)
(302
)
(250
)
28,482
27,151
25,711
7.59
%
7.31
%
7.03
%
11.34
%
10.98
%
10.57
%
Table of Contents
Year
Term
Name
Born
Appointed
Expires
Other Business Activities
Chairman
1937
1998
2006
Former President of Royal Dutch
Petroleum Company N.V. and
Chairman of the Committee of
Managing Directors Royal
Dutch/Shell Group. Chairman of the
Supervisory Board of Royal DSM
N.V. Member of the Advisory
Committee obert Bosch GmbH.
Trustee of the International
Accounting Standards Committee
Foundation. Chairman of the Listing
and Issuing Rules Advisory
Committee Euronext N.V. Chairman
of the Social Advisory Council
Tinbergen Institute. Professor of
International Management
University of Amsterdam. Chairman
of the Board of Trustees Council
Erasmus University Rotterdam.
1937
2001
2005
Former member of the Board of
Directors of ReliaStar Financial
Corp. Member of the Board of
Directors of each of TCF Financial
Corporation, Hormel Foods
Corporation, Communications
Systems Inc. and Hector
Communications Corporation.
Member of the Advisory Board of
Carlson School of Management,
University of Minnesota.
Table of Contents
Year
Term
Name
Born
Appointed
Expires
Other Business Activities
1949
1995
2007
Rector-Magnificus and Professor of
labor law and industrial relations at
the University of Amsterdam.
Member of the Supervisory Board
of NUON N.V. Member of the
Supervisory Board of Buhrmann
Nederland B.V. Crown-appointed
member of the Social and
Economic Council, the
Netherlands. President of the ILO
Governing Body, Committee on
Freedom of Association (United
Nations).
1942
2003
2007
Former Chief Financial Officer of
Robert Bosch GmbH. Managing
partner of H+H Senior Advisors,
Stuttgart. Chairman of the
Supervisory Board of SupplyOn
AG. Member of the Supervisory
Board of each of Bauerfeind AG.
and Jowat AG.
1936
1998
2007
Former chairman of the Executive
Board of ING Groep N.V. (retired in
May 1998). Chairman of the
Supervisory Board of each of Royal
Dutch/Shell Group, Imtech N.V.,
Johan Enschede and N.V. Verenigd
Bezit VNU. Vice-chairman of the
Supervisory Board of each of IHC
Caland N.V. and Buhrmann N.V.
1938
2003
2007
Former Minister of Finance and
Prime Minister of the Netherlands.
Member of the Supervisory Board
of each of Royal Dutch/Shell Group,
TPG N.V. and KLM Royal Dutch
Airlines.
1940
2001
2005
Former chairman of the Executive
Board of ING Groep N.V. (retired in
May 2000) Member of the
Supervisory Board of Grontmij N.V.
Chairman of the Supervisory Board
of each of Siemens Nederland N.V
and Stadsherstel Amsterdam N.V.
Vice-chairman of the Supervisory
Board of Academisch Ziekenhuis
Groningen (Hospital).
Table of Contents
Year
Term
Name
Born
Appointed
Expires
Other Business Activities
1935
1998
2005
Former Member of the Board of
Directors of BBL. Former chairman
of Belgische Betonmaatschappij
Besix-Betonimmo N.V. Member of
the Supervisory Board of each of
Tessenderlo Chemie N.V. and ETEX
N.V. Chairman of the International
Chamber of Commerce Belgium,
Member of the Supervisory Board
of Regionaal Ziekenhuis H. Hart
(Hospital).
1933
1996
2005
Former President and Chairman of
the Executive Board of Philips
Electronics N.V.
1941
2002
2006
Former chairman of the Executive
Board of Heineken N.V. Chairman
of the Supervisory Board of each of
Ahold N.V. and Randstad Holding
N.V. Member of the Executive
Board of Heineken Holding N.V.
Member of the Supervisory Board
of each of AB Electrolux (Sweden)
and Akzo Nobel N.V. Director of
Henkel KgaA.
(Born 1944, Dutch nationality)
Table of Contents
(Born 1952, Belgian nationality)
(Born 1951, American nationality)
(Born 1947, Dutch nationality)
(Born 1949, Dutch nationality)
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2003
2002
2001
67
%
67
%
69
%
23
24
23
10
8
7
1
1
100
%
100
%
100
%
(1)
Mainly central staff departments
Table of Contents
the relevant holder of Bearer receipts must have announced his intention to
attend the general meeting of shareholders observing the provisions laid down
in the articles of association of ING
Groep N.V.;
the relevant holder of Bearer receipts may delegate the powers conferred upon
him by means of the voting proxy; provided that the relevant holder of Bearer
receipts has announced his intention to do so to the Trust observing a term
before the commencement of the general meeting of shareholders, which term will
be determined by the Trust.
the holder of which does not, either in person or by proxy, attend the general
meeting of shareholders;
the holder of which, did not give a voting
instruction to the Trust.
Table of Contents
Managing Directors are appointed for terms of three years and may be
reappointed.
Shareholder
% of Issued capital
(1)(2)
5.12
6.25
6.15
(1)
This information is based upon filings made under the Dutch Major Holdings
Disclosure Act as of the respective filing dates and may not be
accurate as of the date hereof.
(2)
The Dutch Major Holdings Disclosure Act requires investors to file their
ownership as a percentage of the companys issued capital rather than as a
percentage of the class of securities. For more information on the Act and the
filings based upon the Act, please visit the website of the Dutch Authorities
for the Financial Markets at www.afm.nl
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Trading
volume,
Trading
in millions
volume,
Euronext Amsterdam
of Bearer
New York
in millions
Stock Exchange (EUR)
receipts(1)
Stock Exchange (USD)
of ADSs(1)
Calendar period
High
Low
High
Low
61.85
50.19
1,602.4
697/16
4713/16
16.0
86.10
48.21
1,666.3
801/8
471/16
28.7
43.97
22.80
2,687.5
41.75
21.30
43.5
31.20
25.70
349.7
27.10
22.62
13.7
30.98
23.13
357.2
27.32
22.75
13.9
26.30
13.29
686.3
25.95
13.07
24.5
19.55
14.31
640.1
19.31
14.05
25.9
17.30
8.70
817.4
18.22
9.96
37.2
16.21
10.75
805.0
19.00
11.90
36.1
19.00
14.65
673.8
21.14
17.33
29.5
19.06
16.20
567.3
23.41
19.21
22.1
18.63
17.06
194.1
21.10
19.48
9.4
19.00
15.73
229.4
21.14
18.50
9.3
17.86
16.20
227.9
20.84
19.21
8.1
19.06
17.52
194.5
22.20
20.87
7.6
18.49
17.47
144.9
23.41
21.47
6.4
21.00
18.75
215.8
26.51
23.49
8.3
21.20
19.67
181.5
27.37
24.59
8.0
(1)
Aggregate of purchases and sales
(2)
With effect from July 2, 2001 the stock of ING Group was split in a 2:1
ratio.
Table of Contents
During their office, members of the Supervisory Board are not allowed to borrow
from ING Group or any of its subsidiaries. Members of the Executive Board are
empowered to exercise all the powers of ING Group to borrow money, subject to
regulatory restrictions (if any) and, in the case of the issuance of debt
securities, to the approval of the Supervisory Board.
Table of Contents
Holders of
Bearer receipts may surrender the Bearer receipts in exchange for Ordinary
shares. The Trust charges a fee for exchanging Bearer receipts for Ordinary
shares. Such fee, in each case, is a minimum of EUR 25.00, but varies based on
the number of Bearer receipts so exchanged.
an individual citizen or resident of the United States,
a corporation organized under the laws of the United States or of any state
of the United States,
an estate, the income of which is subject to United
States Federal income tax without regard to its source; or
a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust.
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3% of the amount of qualifying dividends redistributed by ING Groep N.V. and
3% of the gross amount of certain qualifying dividends received by ING Groep N.V.
such shareholder is not a resident or deemed resident and, in the case of an
individual, has not elected to be treated as a resident of the Netherlands; and
such shareholder does not have an enterprise or an interest in an enterprise,
which in its entirety or in part carries on business in the Netherlands through
a permanent establishment or a permanent representative or deemed permanent
establishment to which or to whom the Bearer receipts or ADSs are attributable;
and
such shareholder does not have a substantial interest, as defined in
Dutch tax law, in the share capital of ING Groep N.V.
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-
Risk Adjusted Return on Capital (RAROC) and the RAROC methodology, as well as
the allocation of economic capital to the business units and to the risk
categories;
-
the consolidated Group limits for the principal risk categories;
-
capital position, taking into account aspects such as the capital investment
policy and methodology.
Table of Contents
Table of Contents
Economic
capital
RAROC
(in billions
(pre-tax)
of euros)
2003
2002
2003
2002
43.5
%
38.4
%
4.5
4.8
21.8
%
17.0
%
3.1
3.4
(3.4
%)
(3.5
%)
1.4
1.4
11.2
%
9.5
%
0.8
1.0
7.2
%
(0.4
%)
1.9
3.1
(46.5
%)
(64.9
%)
1.1
0.8
17.6
%
13.2
%
12.8
14.5
35.8
%
26.4
%
2.8
2.7
12.5
%
10.1
%
10.0
11.8
Table of Contents
2003
2002
52
%
49
%
22
%
20
%
13
%
17
%
13
%
14
%
100
%
100
%
Table of Contents
Moodys
S&Ps
2003
2002
equivalent
equivalent
57.1
%
46.5
%
Aaa - Baa3
AAA - BBB-
41.2
%
51.7
%
Ba1-C
BB+ -C
1.7
%
1.8
%
D
D
100.0
%
100.0
%
Table of Contents
2003
2002
352
236
114
53
410
352
94
80
194
497
(18
)
167
(31
)
3
10
47
1,125
1,435
Table of Contents
2003
2002
183.5
145.4
50.4
67.4
49.9
43.1
47.1
36.0
41.1
25.3
24.6
24.0
19.2
10.1
12.3
9.0
11.8
6.3
11.0
7.3
(1)
Only covers exposures in excess of EUR 10 billion, including intercompany
exposures with ING Insurance
Provisions
Gross transfer
on foreign
Country capital
exposure
currency loans
add-on
2003
2002
2003
2002
2003
2002
(EUR millions)
1,529
1,942
0
5
0
0
1,465
1,832
1
65
0
0
1,091
784
6
23
0
0
(1)
Figures exclude local currency denominated loans.
Table of Contents
Rating class
2003
2002
2003
2002
36.5
%
37.2
%
16.8
%
16.7
%
24.6
%
23.3
%
18.7
%
18.7
%
2.5
%
2.8
%
0.9
%
1.3
%
Table of Contents
Market risk for the interest and equity markets is
split into two components: general market risk and specific market risk. The
general market risk estimates the VaR resulting from general market-value
movements. The specific market risk estimates the VaR resulting from
market-value movements that relate to the issuer.
The market risk of all the important option portfolios within ING Bank is
measured and monitored by full revaluation methods like Monte Carlo simulation.
Low
High
Average Year end
Low
High
Average Year end
2003
2002
(EUR millions)
2.9
7.2
4.5
4.8
2.0
9.2
4.1
2.5
5.6
15.6
8.9
11.2
4.5
13.6
8.5
10.7
8.1
21.6
12.3
11.1
7.1
26.5
12.9
9.3
5.3
10.4
7.9
6.4
7.7
13.5
9.9
7.7
(8.3
)
(10.6
)
(8.9
)
(9.5
)
25.3
22.9
26.5
20.7
(1)
Diversification is not calculated for the columns Low and High since the
observations for both the individual markets as well as total VaR may
come from different dates.
Table of Contents
2003
2002
(EUR millions)
212
14
111
65
Table of Contents
Table of Contents
Year-
Year-
Low
High
Average
end
Low
High
Average
end
2003
2002
7.0
14.9
10.2
14.9
4.0
16.2
8.9
14.0
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-
the investments backing the liabilities;
-
changes in interest rates, equity markets, and exchange rates;
-
developments in mortality and morbidity;
-
non-life claims frequency and amounts;
-
lapses and expenses.
Table of Contents
2003
2002
4
%
95
3
%
80
(4
%)
(92
)
(4
%)
(93
)
2003
2002
3
%
77
3
%
69
(3
%)
(80
)
(3
%)
(68
)
Table of Contents
Table of Contents
-
Processing failure
-
Control failure
-
Unauthorized activities
-
Internal crime/fraud
-
External crime/fraud
-
Information security failure
-
Employment practices & workplace safety
-
Clients, products and business malpractice
-
Business disruption
-
System failure
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Table of Contents
Year ended
Year ended
December 31,
December 31,
2003
2002
EUR
EUR
32
29
5
7
4
7
7
6
48
49
Table of Contents
(i)
each individual audit related and non-audit engagement
which is expected to generate fees in excess of EUR 250,000;
(ii)
all further
audit related and non-audit engagements over and above the pre-approved
amounts.
Articles of Association of ING Groep N.V.
Table of Contents
Amended and Restated Trust Agreement (English Translation)
Subordinated Indenture between the Company and The Bank of New
York, dated July 18, 2002 (incorporated by reference to Exhibit 2.1 of ING
Groep N.V.s Annual Report on Form 20-F for the year ended December 31, 2003,
File No. 1-14642 filed on March 27, 2003)
First Supplemental Indenture, dated
July 18, 2002, between the
Company and The Bank of New York
Second Supplemental Indenture,
dated December 6, 2002, between the
Company and The Bank of New York
Third Supplemental Indenture, dated
as of October 28, 2003, between
the Company and The Bank of New York
Form of Employment Contract for Members of the Executive Board
(English translation) (incorporated by reference to Exhibit 4.1 of ING Groep
N.V.s Annual Report on Form 20-F for the year ended December 31, 2003, File
No. 1-14642 filed on March 27, 2003)
Statement regarding Computation of Ratio of Earnings to Fixed Charges
List of Subsidiaries of ING Groep N.V.
Consent of Ernst & Young Accountants
Consent of KPMG Accountants
Consent of Ernst & Young Reviseurs dEnterprises S.C.C.
Certification of the Registrants Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Registrants Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Registrants Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxly Act of 2002
Certification of the Registrants Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxly Act of 2002
Business Principles (Code of Ethics)
Table of Contents
ING GROEP N.V.
(Registrant)
By: /s/ C. Maas
Name: C. Maas
Title: Chief Financial Officer
Table of Contents
Table of Contents
F - 2
F - 3
F - 4
F - 5
F - 6
F - 7
F - 20
F - 21
F - 39
F - 54
F - 76
F - 91
F - 92
F - 92
F - 92
F - 93
F - 102
F - 115
F - 139
F - 140
F - 141
F - 147
Table of Contents
24 March, 2004
Table of Contents
Before profit appropriation
Amounts in millions of euros
2003
2002
1,311
1,415
3,167
2,883
335,003
297,581
292,556
284,448
61,060
45,682
11,738
11,421
53,473
51,186
20,463
21,754
778,771
716,370
21,331
18,254
1,783
2,146
1,730
1,959
24,844
22,359
3,252
2,412
28,096
24,771
2,740
3,489
198,035
195,831
377,824
319,824
102,115
96,267
61,123
65,397
8,838
10,791
778,771
716,370
Table of Contents
For the years ended December 31,
Amounts in millions of euros
2003
2002
2001
45,519
52,284
50,460
9,523
11,716
10,753
8,166
7,702
6,121
3,777
3,960
4,196
2,108
1,722
3,124
69,093
77,384
74,654
47,723
54,575
52,642
1,124
1,288
1,270
7,429
7,551
7,796
1,125
1,435
750
163
664
157
5,652
5,950
5,973
63,216
71,463
68,588
5,877
5,921
6,066
1,490
1,089
1,165
4,387
4,832
4,901
344
332
324
4,043
4,500
4,577
Amounts in euros
2.00
2.32
2.37
2.00
2.32
2.35
0.97
0.97
0.97
Table of Contents
COMPREHENSIVE NET PROFIT OF ING GROUP
For the years ended December 31,
Amounts in millions of euros
2003
2002
2001
4,043
4,500
4,577
528
(3,343
)
(2,745
)
(1,123
)
(1,041
)
212
(595
)
(4,384
)
(2,533
)
(258
)
(1,051
)
(1,233
)
3,190
(935
)
811
(1)
In 2003, deferred taxes with regard to unrealized revaluations amounted to
EUR (9) million (2002: EUR (62) million ; 2001: EUR 19 million).
(2)
In 2003, deferred taxes with regard to exchange differences amounted to EUR
(73) million (2002: EUR (32) million; 2001: EUR 99 million).
Table of Contents
For the years ended December 31,
Amounts in millions of euros
2003
2002
2001
5,877
5,921
6,066
625
993
591
(783
)
(914
)
(510
)
24,563
7,444
6,637
1,125
1,435
750
(2,910
)
(3,299
)
(1,438
)
(9,233
)
(30,277
)
(8,154
)
(6,281
)
2,715
(2,631
)
(486
)
(321
)
(600
)
(1,118
)
(381
)
(1,129
)
58,321
45,580
23,356
(8,463
)
(5,895
)
(121
)
1,657
4,534
849
(2,715
)
(1,513
)
(242
)
60,179
26,022
23,424
(658
)
(1,584
)
(2,473
)
(6,599
)
(8,805
)
(9,136
)
(326,438
)
(295,121
)
(266,951
)
(507
)
(262
)
(18
)
911
276
527
8,377
11,361
7,566
583
273,769
260,725
240,039
158
41
48
(14,571
)
6,813
2,663
(65,558
)
(26,556
)
(27,152
)
1,181
3,651
3,257
(221
)
419
4,266
44
438
623
901
(5
)
653
(563
)
(927
)
(1,977
)
(2,300
)
973
3,184
5,283
(4,406
)
2,650
1,555
7,830
4,681
3,486
3,914
499
(360
)
7,338
7,830
4,681
6,521
8,398
4,653
(10,921
)
(11,989
)
(9,236
)
11,738
11,421
9,264
7,338
7,830
4,681
Table of Contents
Amounts are in millions of euros, unless stated otherwise
ING GROUP
The parent company profit and loss account has been drawn up in accordance with
Section 402, Book 2, of the Dutch Civil Code. A list containing the information
referred to in Section 379 (1) and Section 414, Book 2, of the Dutch Civil Code
has been filed with the office of the Commercial Register of Amsterdam, in
accordance with Section 379 (5), Book 2, of the Dutch Civil Code.
Before
After
Before
After
acquisition/
acquisition/
2003
acquisition/
acquisition/
2002
amounts in millions of euros
disposal
disposal
Impact
disposal
disposal
Impact
773,148
778,771
5,623
711,818
716,370
4,552
751,826
757,440
5,614
692,777
698,116
5,339
21,322
21,331
9
19,041
18,254
(787
)
3,923
4,043
120
4,033
4,500
467
Table of Contents
Amounts are in millions of euros, unless otherwise stated
In 2003, ING Group sold its 99% shareholding in Fatum, an insurance company in
the Netherlands Antilles and Aruba to Guardian Holdings Limited. The value of
the transaction amounted to EUR 45 million.
The total purchase price of the additional acquisition amounted to EUR 573
million. The goodwill amounted to EUR 532 million and is charged to
Shareholders equity.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
For flexible life insurance contracts DAC is amortized over the lives of the
policies in relation to the emergence of estimated gross profits. Amortization
is adjusted retrospectively when estimates of current or future gross profits
to be realized from a group of products are revised. The estimates and the
assumptions are reassessed at the end of each reporting period.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
the financial
standing of the customer, including a realistic assessment of the likelihood of
repayment of the loan within an acceptable period and the extent of ING Groups
commitments to the customer;
the realizable value of any security for the
loan;
the costs associated with obtaining repayment and realization of any
such security.
Fair value of financial assets and liabilities
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
exchange differences on participating
interests, investments and liabilities assumed in connection with their
financing;
exchange differences on insurance provisions and on investments
serving to cover these liabilities;
exchange differences on loans serving to
hedge exchange rate risks on foreign interests and investments.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Income from an operating lease is recognized over the lease term in the profit and
loss account. Lease payments under an operating lease are recognized as an
expense in the profit and loss account over the lease term.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
ING Groups acquisitions are accounted for under the purchase method of
accounting, whereby the cost of the acquisitions is allocated to the fair value
of the assets and liabilities acquired. Goodwill, being the difference between
the cost of the acquisition (including assumed debt) and ING Groups interest
in the fair value of the acquired assets and liabilities as at the date of
acquisition, is debited to Shareholders equity. The results of the operations
of the acquired companies are included in the profit and loss account from
their respective dates of acquisition.
On disposal of group companies, the difference between the sale proceeds and
cost is included in the profit and loss account; for disposals within five
years of acquisition, goodwill is adjusted on a pro-rata basis.
On disposal of these assets, the difference between the proceeds on disposal
and net book value is recognized in the profit and loss
account.
1.6.2.3. Participating interests
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Land and buildings under construction are stated at the direct purchase and
construction cost incurred up to the balance sheet date plus interest during
construction and the groups own development and supervision expenses, where
necessary less any expected diminution in value on completion.
Investments in interest-only securities are initially included at purchase
price. Each year, the interest income decreases in proportion to the decline in
the net book value of the interest-only security over its remaining term.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
per individual loan, taking into account among other things amounts outstanding at year-end,
the financial position, results and
cash-flow information of the debtor, the
payment history and the value of the collateral;
per group of loans subdivided by country, taking into account country-specific risk
percentages;
per group of loans subdivided by the degree of risk of uncollectibility (risk
classification), determined on the basis of a wide range of aspects
with regard
to creditworthiness and taking into account empirically determined risk
percentages for each risk category.
Fixed-interest securities in the trading portfolio repurchased after issue by
group companies and equity participations are stated at the lower of cost and
fair value. Unrealized losses and results on disposal of equity participations
are included in the profit and loss account.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
The rates used for salary developments,
interest discount factors and other adjustments reflect specific country
conditions.
2003
2002
2001
5.50
6.00
6.25
2.50
2.75
3.00
4.00
3.75
3.75
1.75
2.25
2.25
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
The net cash flow shown in respect of Lending only relates to transactions
involving actual payments or receipts. The Additions to the provision for loan
losses which is deducted from the item Lending in the balance sheet has been
adjusted accordingly for the profit before tax and is shown separately in the
cash flow statement.
Cash dividends are included in the cash flow from financing
activities.
Included in Cash are those assets which can be converted into cash without
restriction and without material risk of diminution in value as a result of the
transaction.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
375
435
936
980
1,311
1,415
1,415
2,032
523
919
(16
)
3
(79
)
(963
)
(459
)
(502
)
(73
)
(74
)
1,311
1,415
3,798
3,549
2,487
2,134
1,311
1,415
(1)
Among which NRG and SulAmérica.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2003
2002
2003
2002
2003
2002
Shares and
Fixed-
Investments
convertible
interest
for risk of
Land and buildings
debentures
securities
policyholders
10,951
10,541
12,278
19,502
209,878
194,543
64,281
82,743
1,380
1,073
6,088
7,721
326,128
295,055
30,886
40,691
(2,032
)
(22
)
(67
)
740
1,299
(405
)
313
295
278
(1,439
)
(1,529
)
296
302
337
(3,625
)
(17
)
(1
)
(56
)
(292
)
(142
)
(583
)
(1,372
)
(966
)
(7,728
)
(10,474
)
(272,643
)
(261,384
)
(25,370
)
(41,778
)
(217
)
(321
)
(209
)
(487
)
(18,205
)
(17,801
)
(7,754
)
(8,598
)
5
10
8,914
(8,777
)
8,994
10,951
10,688
12,278
244,612
209,878
70,552
64,281
Table of Contents
Amounts are in millions of euros, unless otherwise stated
66
11
5
7
11
100
2003
2002
2003
2002
2003
2002
Insurance
Banking
operations
operations
Total
8,800
9,999
766
1,244
9,566
11,243
1,122
1,025
10
1,122
1,035
9,922
11,024
766
1,254
10,688
12,278
2003
2002
9,769
11,596
-Gross unrealized gains
2,243
2,785
-Gross unrealized losses
1,324
2,103
10,688
12,278
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2003
2002
Balance sheet value
Estimated fair value
90,116
90,334
95,632
95,770
7,418
7,662
8,122
8,285
25,802
26,993
26,421
28,408
6,239
7,070
6,210
7,091
129,575
132,059
136,385
139,554
109,563
74,835
112,714
78,063
6,467
4,244
6,467
4,244
116,030
79,079
119,181
82,307
993
1,260
1,039
1,309
244,612
209,878
254,527
220,552
2003
2002
23
21
60,772
53,099
8,484
9,948
1,273
1,213
70,552
64,281
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
11,423
11,224
315
197
11,738
11,421
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
1,226
1,295
620
709
725
824
623
1,027
3,194
3,855
147
257
947
1,128
1,036
1,099
163
241
2,293
2,725
901
1,130
2003
2002
5,741
6,314
3,297
3,484
2,444
2,830
29.7
%
29.1
%
725
824
2003
2002
up to five years
742
1,167
five to ten years
360
412
ten to twenty years
1,677
2,359
unlimited
2,962
2,376
5,741
6,314
2003
2002
7,945
8,059
9,760
10,636
2,758
3,059
20,463
21,754
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2003
2002
2003
2002
Life insurance
Non-life insurance
Total
466
540
62
60
528
600
52
57
16
13
68
70
189
217
3
3
192
220
5,890
6,606
193
166
6,083
6,772
74
92
56
70
130
162
2,729
2,788
2
2
2,731
2,790
29
23
29
23
(1
)
(1
)
(1
)
(1
)
9,399
10,299
361
337
9,760
10,636
2.9. Shareholders equity
2003
2002
18,254
21,514
528
(3,343
)
(1,123
)
(1,041
)
(595
)
(4,384
)
(258
)
(1,051
)
(145
)
(1,176
)
4,043
4,500
(1,995
)
(1,969
)
(2
)
1,977
21,281
17,432
50
822
21,331
18,254
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
1,900
2,439
236
255
604
795
2,740
3,489
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
638
663
85
289
553
374
21.2
%
31.0
%
117
116
2003
2002
up to five years
416
405
five to ten years
15
unlimited
207
258
638
663
Annual contributions are paid to the funds at a rate necessary to adequately
finance the accrued liabilities of the plans calculated in accordance with
local legal requirements.
Plans in other countries comply with applicable local regulations concerning
investments and funding levels.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2003
2002
2003
2002
2003
2002
Pension liabilities
Healthcare
Other
Total
(911
)
(651
)
501
609
240
1,087
(170
)
1,045
662
(662
)
537
454
49
50
9
26
595
530
(527
)
(1,375
)
(3
)
(19
)
(94
)
(46
)
(624
)
(1,440
)
(44
)
(110
)
(36
)
(190
)
3
(9
)
(1
)
(2
)
(128
)
2
(139
)
43
52
(24
)
(27
)
(1
)
(1
)
18
24
(855
)
(911
)
522
501
154
240
(179
)
(170
)
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
168,168
115,156
137,284
129,175
305,452
244,331
72,372
75,493
377,824
319,824
2003
2002
1,729
928
50
43
42,832
45,035
92,673
83,169
137,284
129,175
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
1,983
1,847
298
342
2003
2002
6,250
7,311
2,462
2,605
126
875
8,838
10,791
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Three
Up to three
months
One year to
Over five
2003
On demand
months
to one year
five years
years
Total
23,474
74,067
20,406
49,834
124,775
292,556
7,854
38,089
7,864
4,428
2,825
61,060
Funds entrusted to and debt securities of the banking operations:
149,910
11,226
2,846
3,274
912
168,168
68,688
44,804
12,437
4,812
6,543
137,284
343
26,482
16,770
19,933
8,844
72,372
18,775
65,312
14,320
1,243
2,465
102,115
Three
Up to three
months
One year to
Over five
2002
On demand
months
to one year
five years
years
Total
19,486
77,538
22,817
50,908
113,699
284,448
5,396
26,280
7,354
4,806
1,846
45,682
Funds entrusted to and debt securities of the banking operations:
98,943
9,243
1,277
2,517
3,176
115,156
28,459
79,434
10,607
7,566
3,109
129,175
1,483
27,490
15,253
23,684
7,583
75,493
17,385
64,042
11,402
1,678
1,760
96,267
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
the arranger of the transaction;
ING structures the SPE, acquires the assets for the SPE and sells the CDOs to
investors;
collateral manager of the assets in the SPE; ING manages the
assets based on strict conditions of the SPEs charter;
investor.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
149
120
87
75
54
173
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2003
2002
2003
2002
Positive year-end
Negative year-end
Notional amount
fair value
fair value
332,779
337,940
4,512
5,505
5,169
6,348
23,654
32,430
664
533
459
474
4,499
2,052
80
104
21
20
360,932
372,422
5,256
6,142
5,649
6,842
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
Un-
Un-
weighted
Weighted
Weighted
Weighted
Positive
credit
credit
Positive
credit
credit
Notional
fair
equi-
equi-
Notional
fair
equi-
equi-
amount
value
valent
valent
amount
value
valent
valent
961,211
15,207
19,914
4,700
915,654
19,199
23,475
5,780
74,393
53
81
21
80,652
106
137
29
62,689
617
912
247
69,054
1,125
1,478
413
43,389
5
48,533
4,366
2,130
2
2,278
1,111
43,614
89,797
40,589
1,344
3,109
861
37,578
1,137
2,702
792
205,476
4,311
6,852
1,736
260,685
5,091
8,111
1,999
29,543
681
1,051
245
25,383
443
705
171
16,207
28,562
375
6
317
155
541
130
7,350
267
714
213
6,555
963
1,360
603
10
1
64
23
27
13
7,182
608
1,130
361
6,588
1,069
1,529
353
4,891
5,775
13,862
646
5,564
619
12,304
6,380
1,056
495
19
1,531,643
23,739
33,764
8,384
1,590,870
29,777
39,524
10,153
(12,441
)
(15,277
)
(3,706
)
(14,452
)
(17,191
)
(4,020
)
11,298
18,487
4,678
15,325
22,333
6,133
Table of Contents
Amounts are in millions of euros, unless otherwise stated
up to 1
1 to 2
2 to 3
3 to 4
4 to 5
over 5
2003
year
years
years
years
years
years
Total
418,371
130,521
79,899
72,306
53,756
206,358
961,211
69,018
5,026
157
32
160
74,393
28,716
6,770
5,831
5,317
3,500
12,555
62,689
16,402
5,065
5,020
4,387
2,654
9,861
43,389
4,330
6
30
4,366
2,152
6
120
2,278
37,256
3,864
1,347
24
321
802
43,614
11,415
6,530
4,982
5,521
3,922
8,219
40,589
190,909
8,738
3,171
1,675
775
208
205,476
27,358
1,750
420
2
1
12
29,543
15,243
908
41
2
1
12
16,207
375
375
317
317
365
98
17
61
541
7,090
7
27
49
152
25
7,350
10
10
3,179
1,579
934
293
669
528
7,182
2,418
1,188
617
170
338
160
4,891
10,184
1,317
1,029
752
580
13,862
8,832
1,011
1,342
687
432
12,304
1,056
1,056
854,996
174,384
104,834
91,185
67,194
239,050
1,531,643
Table of Contents
Amounts are in millions of euros, unless otherwise stated
up to 1
1 to 2
2 to 3
3 to 4
4 to 5
over 5
2002
year
years
years
years
years
years
Total
397,347
140,934
77,347
61,238
63,050
175,738
915,654
74,520
6,132
80,652
21,653
16,023
8,621
3,141
7,513
12,103
69,054
15,526
10,981
6,764
2,672
5,390
7,200
48,533
2,105
25
2,130
972
30
109
1,111
80,449
5,115
1,115
114
496
2,508
89,797
11,889
6,040
4,313
3,627
4,733
6,976
37,578
245,751
8,750
3,362
1,238
1,258
326
260,685
24,843
328
182
22
2
6
25,383
28,103
353
76
22
2
6
28,562
6
6
155
155
72
9
36
13
130
6,447
50
58
6,555
64
64
3,874
747
1,062
180
143
582
6,588
3,357
871
978
193
140
236
5,775
4,363
470
471
260
5,564
4,888
778
290
424
6,380
495
495
19
19
926,898
197,531
104,617
73,144
82,807
205,873
1,590,870
Table of Contents
Amounts are in millions of euros, unless otherwise stated
(1)
Lending and Banks do not include receivables from leases.
(2)
Accrued assets does not include deferred acquisition costs of insurance
business.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
Group
Insurance
Bank
Group
Insurance
Bank
21,331
18,254
1,783
2,146
3,252
2,412
26,366
22,812
4,441
5,681
30,807
12,382
(1)
18,425
(2)
28,493
11,279
(1)
17,214
(2)
1,187
553
1,163
744
2,250
2,250
(353
)
(325
)
25
449
25
447
15,844
14,717
19,074
18,080
(1)
Includes EUR 396 million (2002: EUR 477 million) of
subordinated loans to ING Verzekeringen N.V.
(2)
Includes
EUR 2,256 million (2002: EUR 1,336 million) of subordinated
loans to ING Bank N.V.
(3)
Includes revaluation reserve and
dividend declared but not yet paid.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
14,868
14,664
553
744
469
428
2,256
1,336
1,281
1,233
(118
)
(136
)
(235
)
(189
)
19,074
18,080
9,743
9,116
138
257
(473
)
(302
)
28,482
27,151
251,266
247,287
7.59
%
7.31
%
11.34
%
10.98
%
(1)
Shareholders equity includes an amount of EUR 3,002 million that qualifies
as innovative Tier 1 capital (dated and undated). EUR 2,402 million has been
raised via the Trust Preferred Securities issued by ING Groep N.V. and EUR 600
million has been raised by ING Groep N.V. as perpetual subordinated loan.
(2)
Subordinated loans qualifying as Tier 1 capital have been placed by ING
Groep N.V. with ING Bank N.V.
(3)
Dividend declared but not yet paid is deducted as it is not part of Tier 1
capital.
(4)
Revaluation reserve is deducted as it is not part of Tier 1 capital
(included in Tier 2).
2003
2002
Non-
Non-
insurance
insurance
companies,
companies,
Total ING
core debt &
Total ING
core debt &
Verzekeringen
other elimi-
Insurance
Verzeke-
other elimi-
Insurance
N.V
nations
companies
ringen N.V.
nations
companies
15,844
2,619
18,463
14,717
3,131
17,848
8,779
8,779
8,718
8,718
7,065
9,684
5,999
9,130
180
%
210
%
169
%
205
%
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
Joint
Asso-
Joint
Asso-
ventures
ciates
ventures
ciates
303
167
452
205
10
21
8
133
79
1
64
392
189
524
338
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
38,231
44,367
44,557
7,288
7,917
5,903
45,519
52,284
50,460
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
4
3
1
214
70
73
9,523
11,716
10,753
9,741
11,789
10,827
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
2.00
1.87
1.71
1.00
1.01
0.75
1.58
1.62
1.39
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
2003
2002
2001
2003
2002
2001
Insurance operations
Banking operations
Total
30
(6
)
(11
)
226
201
617
256
195
606
46
242
465
46
242
465
183
118
27
290
11
(2
)
473
129
25
213
112
16
562
454
1,080
775
566
1,096
(1)
In the 2001 figures an amount of EUR 52 million has been reclassified from
Expenditure from non-life underwriting to Expenditure from life
underwriting.
2003
2002
2001
328
60
254
427
499
466
755
559
720
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
2003
2002
2001
2003
2002
2001
2003
2002
2001
Pension
Healthcare
Other
Total
405
467
343
23
21
17
6
9
42
434
497
402
(7
)
12
10
(6
)
(1
)
(13
)
11
10
628
599
530
32
31
34
16
32
78
676
662
642
(645
)
(647
)
(693
)
(13
)
(14
)
(15
)
(658
)
(661
)
(708
)
3
3
153
23
3
(2
)
(1
)
3
153
21
5
3
(9
)
(7
)
(1
)
(2
)
(8
)
(128
)
2
(139
)
(15
)
540
445
186
48
48
42
9
(102
)
108
597
391
336
97
108
110
694
499
446
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Total compensation levels will be
benchmarked against relevant markets in which ING competes for talent;
ING
aims for a total compensation level at the median level in the relevant market,
allowing only for above-median compensation in the event of outstanding
performance;
The remuneration elements will gradually be rebalanced in order
to emphasize the focus on the variable pay components (short-term and long-term
incentives), so as to ensure that an increasing portion of senior-management
remuneration is directly linked to INGs short-term and long-term business
performance;
To enhance the effectiveness of the short-term incentive plan,
clear, measurable and challenging targets will be set at the beginning of the
year, allowing for appropriate compensation levels in the event that targeted
performance is achieved;
ING will provide long-term incentives to ensure a
focus on longer-term strategic targets, to create alignment of management with
the interests of shareholders and to retain qualified and expert managers. A
broad selection of INGs top senior managers will participate in the plan to
ensure a common focus on INGs overall performance.
Group performance
Individual performance
70% of total bonus
30% of total bonus
30% of total bonus
70% of total bonus
15% of total bonus
85% of total bonus
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Citigroup, Credit Suisse, Fortis, Lloyds TSB
(bank/insurance companies);
ABN Amro, Bank of America, BNP Paribas,
Deutsche Bank, HSBC, BSCH (banks);
Aegon, AIG, Allianz, AXA, Aviva, Prudential, Hartford Financial Services,
Munich Re (insurance companies);
Amvescap PLC (asset manager).
ING Ranking
Number of shares
200
%
Between 200% and 100
%
100
%
Between 100% and 0
%
0
%
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
amounts in thousands of euros
2003
2002
2001
761
708
708
400
0
94
1,161
708
802
1,172
1,090
1,090
366
0
177
1,538
1,090
1,267
1,232
1,374
1,453
647
0
192
1,879
1,374
1,645
634
590
590
333
0
78
967
590
668
634
590
590
333
0
78
967
590
668
317
590
590
166
0
78
102
585
590
668
(1)
Fred Hubbell gets his compensation in US dollars. For each year the
compensation in US dollars has been translated to euros at the
average exchange rate for that year.
(2)
Mr. Lindenbergh retired from the company as of July 1, 2003. Pursuant to
the terms of his retirement, he received a retirement benefit. Salary
reflects payments made up to retirement.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
amounts in thousands of euros
2003
2002
2001
41,250
35,000
35,000
13,750
7,000
0
481
238
238
(1)
Refers to Ewald Kist, Michel Tilmant, Fred Hubbell, Cees Maas, Alexander
Rinnooy Kan and Hessel Lindenbergh. The fair market value of the long-term
incentive for Michel Tilmant is 237 for 2001 due to a different stock-option
exercise price. Since Hessel Lindenbergh retired as of July 1, 2003, he did not
qualify for the 2003 long-term incentive.
(2)
Options are granted in the year following the reporting year.
In 2003, in relation to 2002 performance, each Executive Board member was
granted 7,000 conditional shares, the condition being an
employment contract.
The vesting period for the conditional shares is two years. The total
expense relating to the conditional share awards (EUR 604,000) is to be
recognized pro rata over the vesting period. Accordingly, an amount of EUR
189,000 was recognized in 2003.
For performance over 2003, the company has proposed a new long-term
incentive plan, pursuant to which the Executive Board members may be granted
in 2004 a combination of share options (41,250) and provisional
performance shares (13,750). The vesting period for the performance shares is 3 years.
The costs of the performance shares (intrinsic value at the grant date)
are expensed pro rata over the vesting period, starting in 2004.
(3)
Fair Market Value of Long-term Incentive reflects the fair market value of the
long-term incentive award using the Black and Scholes methodology (assuming a
share price of EUR 20 for 2003), granted to the board for performance over the
year specified.
amounts in thousands of euros
2003
2002
2001
364
350
349
304
293
262
273
314
464
361
336
333
327
289
291
222
330
327
(1)
For reasons of comparison, the company pension expenses are recalculated
under IAS 19 with general assumption setting for 2001 to 2003.
(2)
Fred Hubbells pension costs have been translated from US dollars to euros
at the average exchange rate for that year.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Amounts in thousands of euros
Amount
Amount
Amount
out-
out-
out-
standing
Average
2003
standing
Average
2002
standing
Average
2001
decem-
interest
Repay-
decem-
interest
Repay-
decem-
interest
Repay-
ber 31
rate
ments
ber 31
rate
ments
ber 31
rate
ments
862
5.0
%
862
5.6
%
862
5.6
%
446
4.0
%
15
461
5.6
%
17
478
5.6
%
16
889
3.4
%
889
3.5
%
889
3.8
%
2,197
4.1
%
15
2,212
4.8
%
17
2,229
4.9
%
16
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Number of options
Out-
Out-
standing
standing
Amounts
as at
Waived
as at
in euros
December 31,
Granted
or Expired
December 31,
Exercise
2002
in 2003
in 2003 (1)
2003
price
Expiry date
50,000
50,000
31.85
May 26, 2003
50,000
50,000
25.87
May 28, 2004
50,000
50,000
28.68
Apr 3, 2005
50,000
50,000
35.26
Mar 15, 2006
35,000
35,000
29.39
Mar 11, 2012
35,000
35,000
12.65
Mar 3, 2013
50,000
50,000
26.10
May 28, 2004
20,000
20,000
28.30
Apr 3, 2005
30,000
15,000
15,000
28.68
Apr 3, 2005
30,000
30,000
35.26
Mar 15, 2006
20,000
20,000
35.80
Mar 15, 2006
21,000
21,000
29.39
Mar 11, 2012
14,000
14,000
29.50
Mar 11, 2012
35,000
35,000
12.65
Mar 3, 2013
50,800
50,800
31.85
May 26, 2003
40,000
40,000
25.87
May 28, 2004
50,000
50,000
28.68
Apr 3, 2005
50,000
50,000
35.26
Mar 15, 2006
35,000
35,000
29.39
Mar 11, 2012
35,000
35,000
12.65
Mar 3, 2013
50,000
50,000
31.85
May 26, 2003
50,000
50,000
25.87
May 28, 2004
50,000
50,000
28.68
Apr 3, 2005
50,000
50,000
35.26
Mar 15, 2006
35,000
35,000
29.39
Mar 11, 2012
35,000
35,000
12.65
Mar 3, 2013
50,000
50,000
31.85
May 26, 2003
50,000
50,000
25.87
May 28, 2004
50,000
38,000
12,000
28.68
Apr 3, 2005
50,000
50,000
35.26
Mar 15, 2006
35,000
35,000
29.39
Mar 11, 2012
35,000
35,000
12.65
Mar 3, 2013
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Amounts in thousands of euros
2003
2002
2001
68
68
68
40
39
29
44
40
40
32
43
41
40
29
39
39
29
52
48
48
46
40
40
39
29
432
344
294
23
68
68
14
41
40
55
40
51
39
39
39
39
13
39
39
23
521
637
582
(1)
Member as of April 15, 2003.
(2)
Including a compensation to match his former remuneration as a member of
the BBL Supervisory Board.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Number of options
Outstanding
Outstanding
as at
as at
Amounts in euros
December
Expired
December
Exercise
31, 2002
in 2003
31, 2003
price
Expiry date
50,000
50,000
31.85
May 26, 2003
20,840
20,840
25.87
May 28, 2004
50,000
50,000
31.85
May 26, 2003
50,000
50,000
25.87
May 28, 2004
50,000
25,000
25,000
28.68
Apr 3, 2005
(1)
ING Group shares of direct family included; members of the Supervisory
Board (including direct family) not mentioned in this table did not
hold ING Group shares.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Options
Options
outstanding
outstanding
Original
as at
as at
Exercise
number
January 1,
December 31,
price in
Financial year
of options
2003
2003
euros
101,400
65,900
18.15
57,000
19.67
51,200
29,200
25.41
5,409,500
1,880,428
26.82
481,000
240,300
30.29
14,740,830
8,720,700
31.85
4,962,540
3,028,714
2,876,032
25.25
48,000
44,000
38,594
25.50
576,626
252,244
246,650
25.67
8,733,946
7,560,556
7,324,196
25.87
1,412,200
1,335,700
1,290,700
26.10
201,500
169,800
28,900
26.62
1,408,438
832,200
780,592
26.92
1,528,300
1,506,300
1,446,300
28.30
17,853,130
15,250,068
7,282,326
28.68
210,800
194,104
64,204
30.16
1,872,376
1,698,178
1,431,118
35.26
477,900
445,300
109,000
37.55
865,580
712,100
678,500
37.74
4,000
4,000
28.50
341,203
341,203
324,720
28.60
621,312
600,362
570,722
33.26
900
900
900
33.33
19,631,082
18,253,388
17,356,296
35.26
1,555,720
1,553,720
1,491,080
35.80
561,844
522,544
479,584
36.95
69,800
69,800
67,300
19.25
125,479
125,479
116,407
23.12
187,240
185,240
170,490
28.55
88,750
88,750
88,750
28.60
19,533,286
19,230,256
18,404,173
29.39
1,057,650
1,056,050
1,025,750
29.50
1,167,350
1,152,050
12.55
17,694,743
17,294,720
12.65
901,213
855,783
14.24
480
480
14.54
90,291
90,291
18.32
103,025
100,525
18.38
500
500
18.63
124,728,134
85,997,484
83,187,633
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
2003
2002
2001
Weighted average
Options outstanding
exercise price
1,350,800
1,474,800
1,399,680
30.26
27.54
23.34
210,000
210,000
300,000
12.64
29.40
35.30
334,000
224,880
17.72
11.75
303,800
31.30
220,000
1,037,000
1,350,800
1,474,800
27.05
30.26
27.54
84,620,784
69,571,115
54,944,160
30.53
30.45
28.02
19,773,502
20,826,405
22,415,961
12.79
29.32
35.18
95,935
3,028,910
3,687,126
12.69
20.44
25.30
22,367,718
2,747,826
4,101,880
29.93
30.51
28.38
220,000
82,150,633
84,620,784
69,571,115
26.43
30.53
30.45
(1)
The options of former members of the Executive Board are included in the
movements in option rights of employees.
Options
Weighted
Options
outstanding
average
exercisable
Weighted
Range of
as at
remaining
Weighted
as at
average
exercise price
December 31,
contractual
average
December 31,
exercise
in euros
2003
life
exercise price
2003
price
19,303,033
9.13
12.71
127,100
12.69
258,616
9.53
18.59
12,776
19.25
116,407
8.65
23.12
27,049
23.12
41,328,173
5.74
28.13
19,823,207
26.93
635,826
4.47
32.95
158,152
32.91
21,545,578
4.79
35.42
5,443,628
35.53
2003
2002
2001
19,493,849
21,146,021
63,693,784
85,971,584
49,899,894
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
As
Pro
As
Pro
As
Pro
reported
forma
reported
forma
reported
forma
4,043
3,974
4,500
4,386
4,577
4,427
2.00
1.97
2.32
2.27
2.37
2.30
2.00
1.97
2.32
2.27
2.35
2.29
(1)
The amounts in the pro forma columns reflect the figures if the fair value
of the stock options at the time they were granted would have been
recognized in the profit and loss account.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
-
own shares held by group companies are deducted from the total number
of ordinary shares in issue;
-
the computation is based on daily averages;
-
in
calculating the increase in the weighted average number of shares resulting
from interim and final stock dividends, the day on which the dividend is
payable is taken into consideration;
-
in case of exercised warrants, the day
of exercise is taken into consideration.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
2003
2002
2001
2003
2002
2001
Weighted average
number of ordinary
shares outstanding
Net profit
during the period
Net profit per share
(in millions of euros)
(in millions)
(in euros)
4,043
4,500
4,577
(21
)
(21
)
(21
)
4,022
4,479
4,556
2,014
1,928.0
1,923.1
2.00
2.32
2.37
9.8
9.6
19.4
4,022
4,479
4,556
2,014
1,928.0
1,942.5
2.00
2.32
2.35
Total
amount
of dividend
Per ordinary
paid
share
(in millions
(in euros)
of euros)
0.97
2,024
0.97
1,930
0.97
1,914
(1)
The Executive Board, with the approval of the Supervisory Board, has
proposed, subject to the ratification by the General Meeting of Shareholders, a
dividend of EUR 0.97 per share for the year 2003. Following the decision of the
General Meeting of Shareholders with regard to the profit appropriation, the
final dividend will become payable from June 4, 2004.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Realized
and
Operating
Direct
unrealized
and
Investment
investment
revaluations
management
Before
After
result
income
and exchange
expenses(1)
taxation
taxation
in %(2)
507
73
(3
)
577
480
4.4
646
(4,404
)
(12
)
(3,770
)
(2,341
)
(12.9
)
707
(3,351
)
(14
)
(2,658
)
(2,241
)
(9.9
)
717
480
(27
)
1,170
960
3.8
698
2,973
(1
)
3,670
3,194
12.9
500
3,918
(2
)
4,416
4,305
23.4
436
4,405
(1
)
4,840
4,467
35.6
406
3,277
(3
)
3,680
3,418
38.5
577
921
(8
)
1,490
1,530
8.6
736
142
(230
)
648
435
4.3
820
(19
)
(181
)
620
401
3.3
770
453
(146
)
1,077
718
7.2
782
1,007
(160
)
1,629
1,075
12.2
623
314
(107
)
830
545
7.7
579
98
(141
)
536
355
6.1
520
114
(128
)
506
335
6.4
451
74
(106
)
419
289
6.2
660
273
(150
)
783
519
6.5
1,243
215
(233
)
1,225
915
4.3
1,466
(4,423
)
(193
)
(3,150
)
(1,940
)
(6.4
)
1,477
(2,898
)
(160
)
(1,581
)
(1,523
)
(4.7
)
1,499
1,487
(187
)
2,799
2,035
6.0
1,321
3,287
(108
)
4,500
3,739
11.7
1,079
4,016
(143
)
4,952
4,660
19.2
956
4,519
(129
)
5,346
4,802
27.0
857
3,351
(109
)
4,099
3,707
27.4
1,237
1,194
(158
)
2,273
2,049
8.0
(1)
In the profit and loss account, operating costs relating to investments in
land and buildings are netted off against the income from these
investments.
(2)
Investment result after tax as a percentage of the average amount invested.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
-
capital gains
and losses on equity securities,
-
the impact of the negative revaluation
reserve on equity securities, and
-
realized gains on divestments that are made
with the purpose of using the proceeds to finance acquisitions.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
2003
2002
2001
2003
2002
2001
Insurance operations
Banking operations
Total (1)
45,519
52,284
50,460
45,519
52,284
50,460
9,721
10,506
9,723
9,503
10,433
9,649
8,115
7,646
6,072
8,166
7,702
6,121
1,313
1,345
1,431
2,464
2,615
2,765
3,777
3,960
4,196
1,007
782
850
1,101
940
2,274
2,108
1,722
3,124
57,560
64,917
62,464
11,680
11,201
11,111
69,073
76,101
73,550
47,723
54,575
52,642
47,723
54,575
52,642
1,291
1,305
1,290
5
1,124
1,288
1,270
2,735
2,764
2,732
4,694
4,787
5,064
7,429
7,551
7,796
1,125
1,435
750
1,125
1,435
750
163
664
157
163
664
157
2,162
2,439
2,851
3,490
3,511
3,122
5,652
5,950
5,973
54,074
61,747
59,672
9,309
9,733
8,941
63,216
71,463
68,588
3,486
3,170
2,792
2,371
1,468
2,170
5,857
4,638
4,962
861
540
622
599
333
477
1,460
873
1,099
2,625
2,630
2,170
1,772
1,135
1,693
4,397
3,765
3,863
117
92
73
227
240
251
344
332
324
2,508
2,538
2,097
1,545
895
1,442
4,053
3,433
3,539
(1)
The column Total includes eliminations with regard to Income from
investments of the insurance operations of EUR 218 million (2002: EUR
73 million; 2001: EUR 74 million), Interest result from the banking
operations of EUR (51) million (2002: EUR (56) million; 2001: EUR (49)
million) and Other interest expenses of EUR 167 million (2002: EUR 17
million; 2001: EUR 25 million).
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
38,231
44,367
44,557
1,102
1,093
1,400
37,129
43,274
43,157
8,285
8,289
8,330
94
223
155
24,294
29,322
27,443
1,011
995
2,153
23,283
28,327
25,290
14,847
16,169
19,337
(351
)
251
834
15,198
15,918
18,503
755
559
720
1,327
1,762
1,684
2,459
2,601
3,159
8
16
1
2,478
2,603
2,285
7,288
7,917
5,903
930
1,275
614
6,358
6,642
5,289
(209
)
(420
)
28
21
(75
)
34
(230
)
(345
)
(6
)
6,128
6,297
5,283
920
732
649
9
62
13
4,196
4,376
3,902
458
611
411
3,738
3,765
3,491
76
665
529
(131
)
40
303
207
625
226
3,945
4,390
3,717
945
890
735
849
911
808
310
333
178
1,008
567
507
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
2,478
2,603
2,285
1,008
567
507
3,486
3,170
2,792
9,721
10,506
9,723
2,557
2,629
2,657
163
664
157
2,218
1,842
2,113
14
34
43
(9,205
)
(9,021
)
(8,979
)
3,486
3,170
2,792
861
540
622
2,625
2,630
2,170
117
92
73
2,508
2,538
2,097
2003
2002
2001
2003
2002
2001
2003
2002
2001
Claims ratio
Cost ratio
Combined ratio
69.9
77.5
77.1
30.9
28.9
30.4
100.8
106.4
107.5
70.6
76.7
76.9
35.1
34.7
35.0
105.7
111.4
111.9
40.9
49.8
50.1
37.0
41.6
51.4
77.9
91.4
101.5
73.9
77.7
71.1
24.7
25.6
27.6
98.6
103.3
98.7
68.1
68.8
74.3
26.9
25.6
27.5
95.0
94.4
101.8
55.1
66.6
58.6
43.5
51.5
44.6
98.6
118.1
103.2
49.9
66.9
70.7
28.5
29.5
32.5
78.4
96.4
103.2
41.8
94.4
63.9
52.0
7.8
11.4
93.8
102.2
75.3
69.4
75.0
73.8
28.2
27.1
29.1
97.6
102.1
102.9
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
Non-life
Life
Total
Non-life
Life
Total
Non-life
Life
Total
7,226
36,914
44,140
7,869
43,076
50,945
5,858
43,045
48,903
62
1,317
1,379
48
1,291
1,339
45
1,512
1,557
7,288
38,231
45,519
7,917
44,367
52,284
5,903
44,557
50,460
930
1,102
2,032
1,275
1,093
2,368
614
1,400
2,014
6,358
37,129
43,487
6,642
43,274
49,916
5,289
43,157
48,446
As at December 31, 2003, the receivables from
reinsurers amounted to EUR 567 million (2002: EUR 797 million; 2001: EUR 669
million), against which EUR 12 million (2002: EUR 20 million; 2001: EUR 4
million) was provided for as uncollectible reinsurance.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Policies for which the insurer
Policies for which the policyholder
bears the investment risk
bears the investment risk
Rein-
Rein-
surers
Own
surers
Own
2003
Gross
share
account
Gross
share
account
10,202
548
9,654
2,432
5
2,427
2,179
33
2,146
12,381
581
11,800
2,432
5
2,427
1,692
67
1,625
5,969
36
5,933
741
10
731
2,433
77
2,356
5,969
36
5,933
14,814
658
14,156
8,401
41
8,360
856
1
855
4,529
4,529
2,802
2,802
3,658
1
3,657
4,529
4,529
4,448
4,448
639
29
610
425
4
421
4,873
4
4,869
639
29
610
8,531
5
8,526
5,168
29
5,139
23,345
663
22,682
13,569
70
13,499
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Policies for which the insurer
Policies for which the policyholder
bears the investment risk
bears the investment risk
Rein-
Rein-
surers
Own
surers
Own
2002
Gross
share
account
Gross
share
account
9,698
858
8,840
2,496
6
2,490
4,556
115
4,441
14,254
973
13,281
2,496
6
2,490
1,403
75
1,328
7,646
40
7,606
802
17
785
2,205
92
2,113
7,646
40
7,606
16,459
1,065
15,394
10,142
46
10,096
1,553
1,553
6,280
6,280
1,958
2
1,956
3,511
2
3,509
6,280
6,280
5,729
(140
)
5,869
739
32
707
216
4
212
5,945
(136
)
6,081
739
32
707
9,456
(134
)
9,590
7,019
32
6,987
25,915
931
24,984
17,161
78
17,083
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Policies for which the insurer
Policies for which the policyholder
bears the investment risk
bears the investment risk
Rein-
Rein-
surers
Own
surers
Own
Gross
share
account
Gross
share
account
8,866
699
8,167
2,329
377
1,952
4,482
117
4,365
13,348
816
12,532
2,329
377
1,952
1,019
64
955
7,012
88
6,924
730
19
711
1,749
83
1,666
7,012
88
6,924
15,097
899
14,198
9,341
465
8,876
1,837
1,837
5,529
5,529
1,675
9
1,666
3,512
9
3,503
5,529
5,529
7,408
(1
)
7,409
1,841
47
1,794
317
4
313
7,725
3
7,722
1,841
47
1,794
11,237
12
11,225
7,370
47
7,323
26,334
911
25,423
16,711
512
16,199
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Acquisition
Net
Gross
Gross
Gross
costs/ Other
reinsurance
premiums
premiums
claims
Operating
underwriting
income/
Operational
written
earned (2)
expenses
expenses
expenditure (3)
expenses
result
1,404
1,321
1,110
136
140
22
77
840
858
539
110
96
2
245
840
802
613
98
109
(21
)
14
1,479
1,412
827
159
221
(17
)
173
180
164
68
18
31
(26
)
23
1,648
1,600
744
206
313
(220
)
120
491
468
234
68
84
(53
)
63
52
45
3
10
8
(6
)
18
33
33
24
10
5
(6
)
259
316
102
33
33
(148
)
15
62
60
8
1
84
31
266
7,288
7,079
4,272
849
1,124
(436
)
1,008
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Acquisition
Net
Gross
Gross
Gross
costs/ Other
reinsurance
premiums
premiums
claims
Operating
underwriting
income/
Operational
written
earned (2)
expenses
expenses
expenditure (3)
expenses
result
1,317
1,322
1,005
137
116
(4
)
149
840
852
683
121
96
3
101
638
639
501
96
97
10
26
1,171
1,128
883
142
151
79
76
128
135
82
21
24
(3
)
8
1,214
1,247
816
188
247
35
47
344
334
251
55
62
42
40
26
26
8
2
4
(1
)
11
24
24
14
6
4
(2
)
156
181
166
35
24
33
12
45
43
22
5
29
5
39
5,903
5,931
4,431
808
854
199
507
(1)
Including disability insurance products.
(2)
Excluding reinsurance.
(3)
Including other underwriting income.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Total
Asia/
seg-
Recon-
Total
Europe
Americas
Pacific
Other
ments
ciliation
group
28,448
31,904
8,500
221
69,073
69,073
123
69
11
387
590
(590
)
28,571
31,973
8,511
608
69,663
(590
)
69,073
4,305
1,086
453
13
5,857
5,857
657,899
124,846
27,028
19,513
829,286
(50,515
)
778,771
633,891
120,079
24,894
5,121
783,985
(30,058
)
753,927
76,791
26,422
11,474
531
115,218
115,218
Total
Asia/
seg-
Recon-
Total
Europe
Americas
Pacific
Other
ments
ciliation
group
26,259
40,549
8,818
475
76,101
76,101
696
59
8
(542
)
221
(221
)
26,955
40,608
8,826
(67
)
76,322
(221
)
76,101
3,242
1,043
603
(250
)
4,638
4,638
589,543
131,519
24,348
11,762
757,172
(40,802
)
716,370
567,991
127,217
22,373
(2,946
)
714,635
(20,624
)
694,011
76,092
27,345
8,757
862
113,056
113,056
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Total
seg-
Recon-
Total
Europe
Americas
Asia/Pacific
Other
ments
ciliation
group
26,715
39,262
7,504
69
73,550
73,550
502
126
(3
)
(159
)
466
(466
)
27,217
39,388
7,501
(90
)
74,016
(466
)
73,550
3,888
884
304
(114
)
4,962
4,962
554,184
154,540
24,041
9,039
741,804
(36,685
)
705,119
534,007
153,331
22,364
(5,342
)
704,360
(24,758
)
679,602
77,183
26,139
7,800
876
111,998
111,998
(1)
For a reconciliation of Segment operating profit before tax (Total Group)
to the Consolidated Financial Statements reference is made to page F-77.
(2)
The average numbers of employees of joint ventures are included
proportionally.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
2003
2002
2001
2003
2002
2001
2003
2002
2001
Insurance operations
Banking operations
Eliminations
Total
12,345
10,965
10,550
5,270
4,982
4,821
167
14
23
17,448
15,933
15,348
2,947
2,640
2,135
2,012
2,044
1,957
4,959
4,684
4,092
1,844
2,031
2,108
2,997
2,773
3,018
4,841
4,804
5,126
29,151
36,947
36,462
731
536
530
1
29,882
37,482
36,992
2,908
3,940
2,948
162
315
245
3,070
4,255
3,193
6,578
6,623
5,356
376
436
476
6,954
7,059
5,832
1,892
2,168
2,169
132
107
55
2,024
2,275
2,224
632
437
1,384
8
9
632
445
1,393
58,297
65,751
63,112
11,680
11,201
11,111
167
15
23
69,810
76,937
74,200
(737
)
(834
)
(648
)
2
2
(737
)
(836
)
(650
)
57,560
64,917
62,464
11,680
11,201
11,111
167
17
25
69,073
76,101
73,550
(1)
Mainly related to reinsurance premiums ceded between group companies in
different geographical areas.
(1)
Including commission and other income.
(2)
Mainly related to reinsurance premiums ceded between group companies in
different geographical areas.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
2003
2002
2001
2003
2002
2001
Insurance operations
Banking operations
Total
1,471
1,391
1,539
1,588
1,510
1,523
3,059
2,901
3,062
109
74
75
478
613
521
587
687
596
230
155
176
(15
)
(311
)
364
215
(156
)
540
802
820
652
110
(509
)
(450
)
912
311
202
292
307
174
118
74
28
410
381
202
280
245
226
38
38
193
318
283
419
176
329
80
60
55
(7
)
236
384
73
126
(151
)
(130
)
(6
)
(2
)
(2
)
120
(153
)
(132
)
3,486
3,170
2,792
2,371
1,468
2,170
5,857
4,638
4,962
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Seguros
Comercial
DiBa
América
2002
2001
Non-life
Direct banking
insurance
0.6
1.1
0.6
7.7
1.3
0.1
1.2
1.7
6.4
1.2
0.6
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Amounts in millions of euros
2003
2002
28,651
26,596
4,284
2,517
32,935
29,113
612
583
8,064
7,186
2,223
1,983
585
501
607
243
5,197
3,258
4,043
4,500
21,331
18,254
5,035
4,558
26,366
22,812
6,569
6,301
32,935
29,113
Amounts in millions of euros
2003
2002
2001
4,064
4,521
4,596
(21
)
(21
)
(19
)
4,043
4,500
4,577
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
Ownership
Balance
Ownership
Balance
(%)
sheet value
(%)
sheet value
100
16,169
100
15,879
100
11,985
100
10,803
497
(86
)
28,651
26,596
2003
2002
4,150
2,385
134
132
4,284
2,517
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Cumulative
Ordinary shares
Preference shares
preference shares
(par value EUR 0.24)
(par value EUR 1.20)
(par value EUR 1.20)
number
number
number
Share capital
x 1,000
amount
x 1,000
amount
x 1,000
amount
3,000,000
720
300,000
360
900,000
1,080
884,099
212
212,920
256
900,000
1,080
2,115,901
508
87,080
104
0
0
3,000,000
720
300,000
360
900,000
1,080
1,007,323
241
212,920
256
900,000
1,080
1,992,677
479
87,080
104
0
0
3,000,000
720
300,000
360
900,000
1,080
1,007,328
241
212,920
256
900,000
1,080
1,992,672
479
87,080
104
0
0
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
1.
ING Group issues ordinary shares with pre-emptive rights for existing
holders thereof at a price lower than the average price over the 20
business days preceding the relevant announcement of the median price
between the highest and lowest prices of the depositary receipts of EUR
0.24 par value as stated in the Official Price List of Euronext Amsterdam
N.V.;
2.
ING Group issues ordinary shares to existing holders thereof, such shares
being paid from a reserve of the company at a price lower than the average
price over the 20 business days preceding the relevant announcement of the
median price between the highest and lowest prices of the depositary
receipts of EUR 0.24 par value as stated in the Official Price List of
Euronext Amsterdam N.V.;
3.
ING Group issues ordinary shares to existing holders thereof by way of
paying a dividend at a price lower than the average price over the 20
business days preceding the relevant announcement of the median price
between the highest and lowest prices of the depositary receipts of EUR
0.24 par value as stated in the Official Price List of Euronext Amsterdam
N.V.;
4.
ING Group grants to existing holders of ordinary shares pre-emptive
rights to obtain securities other than ordinary shares;
5.
Any company grants to existing holders of ordinary shares of ING Group a
right of subscription for securities which may be converted into or
exchanged for ordinary shares of ING Group, provided that the price for
which such ordinary shares of ING Group may (initially) be obtained is
lower than the then applicable exercise price;
6.
ING Group makes a distribution in cash out of its share premium
reserve(s) to holders of ordinary shares.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Reserves
Reserve
for
partici-
Exchange
Share
Revaluation
pating
differences
Other
Total
premium
reserve
interests
reserve
reserves
12,713
7,031
9,877
430
(30
)
(4,595
)
(3,641
)
(3,590
)
36
(87
)
(125
)
(125
)
(3,766
)
(3,590
)
36
(125
)
(87
)
(1,908
)
(1,908
)
11,984
11,984
(2,300
)
(2,300
)
157
157
(526
)
(526
)
16,354
7,188
6,287
466
(155
)
2,568
(5,833
)
(4,304
)
35
(1,564
)
398
398
(5,435
)
(4,304
)
35
398
(1,564
)
(1,176
)
(1,176
)
4,577
4,577
(1,969
)
(1,969
)
(2
)
(2
)
822
822
13,171
7,186
1,983
501
243
3,258
(1,215
)
240
84
(1,539
)
364
364
(851
)
240
84
364
(1,539
)
(145
)
(145
)
4,500
4,500
(1,995
)
(1,068
)
(927
)
1,946
1,946
50
50
16,676
8,064
2,223
585
607
5,197
(1)
2000 final dividend of EUR 1.13 per share and 2001
interim dividend of EUR 0.47 per share.
(2)
2001 final
dividend of EUR 0.50 per share and 2002 interim dividend
of EUR 0.48 per share.
(3)
2002 final dividend of EUR
0.49 per share and 2003 interim dividend of EUR 0.48 per
share.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
5.2.4.
Subordinated loans
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
Interest rate
Year of issue
Due date
Balance sheet value
2000
December 31, 2030 (1)
1,189
1,431
2000
June 30, 2030
198
238
1999
June 29, 2029
396
477
1,783
2,146
(1)
Interest rate is fixed until December 31, 2010, thereafter the interest
rate will be reset based on three-month LIBOR plus spread.
5.2.5.
Other liabilities
2003
2002
5,704
5,704
655
376
210
221
6,569
6,301
Table of Contents
Amounts are in millions of euros, unless otherwise stated
The executive board,
Luella Gross Goldberg
Paul van der Heijden
Claus Dieter Hoffmann
Aad Jacobs
Wim Kok
Godfried van der Lugt
Paul Baron de Meester
Jan Timmer
Karel Vuursteen
Ewald Kist, Chairman
Michel Tilmant, Vice-Chairman
Fred Hubbell
Cees Maas, Chief Financial Officer
Alexander Rinnooy Kan
Table of Contents
Amounts are in millions of euros, unless otherwise stated
6.
DIFFERENCES BETWEEN DUTCH AND US ACCOUNTING PRINCIPLES
6.1.
Valuation and income recognition differences between Dutch and US
accounting principles
a.
Purchase accounting and Goodwill and other intangible assets.
Under Dutch GAAP, goodwill arising from acquisitions is directly charged to
shareholders equity immediately at the time of an acquisition.
U.S. GAAP requires that goodwill and intangible assets deemed to have an
indefinite life be capitalized and be subject to annual impairment in
accordance with SFAS 142, Accounting for Goodwill and Intangible Assets.
Under U.S. GAAP, goodwill arising on the purchase of a foreign entity is
translated at closing rates with exchange differences taken to
equity.
As discussed in Note 7.12 on page F-133, ING Group adopted SFAS 142 as of
January 1, 2002 and performed the required assessment of whether there was
any indication that goodwill was impaired as of the date of adoption. As a
result, certain goodwill was impaired and ING Group recognized a
transitional goodwill impairment charge of EUR 13.103 billion in the 2002 US
GAAP profit and loss account.
Subsequent goodwill impairment tests are performed if any events or a change
in circumstances indicate that impairment may have taken place, or at a
minimum on an annual basis. ING Group performs the annual goodwill
impairment test in the fourth quarter for all reporting units. There was no
impairment charge from the annual goodwill impairment test in 2002. In the
2003 annual goodwill impairment test ING Group recognized an impairment
charge of EUR 101 million for goodwill allocated to the reporting unit Latin
America. The 2003 impairment charge is discussed in Note 7.12 on page F-135.
This item includes other intangible assets, which under Dutch GAAP are
recognized as goodwill.
b.
Real estate.
Investments in land and buildings are carried at the fair values, with any
unrealized revaluations accounted for directly in shareholders equity. These
assets are not depreciated. Impairment losses are first charged against the
revaluation reserves existing for these assets. Any remaining impairment
losses are charged to the profit and loss account.
Under US GAAP, a distinction is made between Land and buildings in use by
group companies and not in use by group companies (which are treated as
investments). Land and buildings in use by group companies are carried at
cost less accumulated depreciation, adjusted for any impairment in value.
Land and buildings not in use by group companies are carried at the lower of
cost and estimated net realizable value. Depreciation is calculated over the
economic lives of the assets concerned.
c.
Valuation of debt securities.
Investments in fixed-interest securities are carried at redemption value.
Differences between redemption value and cost are amortized and charged to
the profit and loss account over the remaining terms of the investments
concerned.
Under US GAAP, the method of accounting for these assets depends on the
classification of the securities concerned:
(i)
Securities held as part of
the trading portfolio are stated at fair value. Realized and unrealized
movements in the fair value are taken to the profit and loss account.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
(ii)
Securities held until maturity are stated at redemption value,
differences between redemption value and cost being amortized and charged to
the profit and loss account over the remaining terms of the investments
concerned.
(iii)
Securities which are available for sale are stated at fair value.
Unrealized movements in the fair value are recognized in shareholders
equity. Realized results on disposal are recognized in the profit and loss
account.
Allowances for credit losses on debt securities are not permitted.
Individual securities classified as either available-for-sale or
held-to-maturity are subject to review to determine whether a decline in
fair value below amortized cost is other than temporary. If the decline in
fair value is judged to be other than temporary, the cost basis of the
individual security is written down to fair value as the new cost basis and
the amount of the write down is included in the profit and loss account.
Revaluation of debt securities classified as available-for-sale to fair
value results in a reconciling item to shareholders equity. A portion of
this reconciliation relates to assets held in support of policies where the
policyholder shares in the profits of the company. Unrealized gains on
these assets are included in shareholders equity for US GAAP purposes. When
these gains are realized, a portion may be passed to policyholders, at the
discretion of the company. As at December 31, 2003 this amount is estimated
at EUR 1.3 billion.
Effective April 1, 2001, ING Group adopted EITF Issue 99-20, Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial
Interests in Securitized Financial Assets. Under the consensus, changes in
the estimated yield of certain collateralized mortgage obligations are to be
recorded on a prospective basis. If the fair value of the collateralized
mortgage obligations has declined below its carrying amount and the decline
is determined to be other than temporary, the security is written down to
fair value. Upon adoption of EITF Issue 99-20, ING Group recorded a EUR 40
million charge in the 2001 US GAAP net profit as a net of tax cumulative
effect of accounting change.
In accordance with EITF 96-15, unrealized foreign currency translation
results related to available for sale debt securities denominated in other
currencies than the reporting currency of the entity should be recognized in
shareholders equity as a part from the fair value adjustment and not in the
profit and loss account under US GAAP. In accordance with ING Group
accounting principles these unrealized translation results are recognized in
the profit and loss account. ING Group recorded EUR 298 million gain in the
2003 US GAAP net profit to reverse the recorded loss under Dutch GAAP (2002:
EUR 540 million gain).
d.
Realized results on sales of debt securities.
The result on disposal of investments in debt securities, i.e. the
difference between the proceeds from sale and the book value, is treated as
a yield difference. These yield differences are taken to the profit and loss
account over the estimated average remaining life of the investment
portfolio.
Under US GAAP, the result on disposal is immediately recognized as income.
e.
Valuation of equity securities.
Unrealized losses on equity securities are recorded in the revaluation
reserve, unless the securities are considered to be impaired. Impairments
are charged to the profit and loss account. The determination of impairments
involves various assumptions and factors, including the period of time and
the extend to which the unrealized loss has existed and general market
conditions, but is primarily based on the financial condition of the issuer
in the long-term; ING has the intention and ability to maintain a long-term
investment strategy.
Under US GAAP, unrealized losses that are considered other than temporary
are charged to the profit and loss. The determination of other than
temporary is primarily based on the duration and extent to which the market
value has been below cost price.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
f.
Accounting for derivative financial instruments held for risk management
purposes.
Under Dutch GAAP, derivative financial instruments, primarily interest rate
swap contracts, used to manage interest rate risk are accounted for as
off-balance sheet transactions. The related interest income and expense is
accounted for on a basis in conformity with the hedged position, primarily
on an accrual basis. Transactions qualify as hedges if these transactions
are identified as such and there is a negative correlation between the
hedging results and the results of the position being hedged.
US GAAP requires that derivatives be carried at fair value with changes in
fair value recorded in income unless specified criteria are met to obtain
hedge accounting treatment. With effect from January 1, 2001 ING Group has
adopted SFAS 133 Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS 138.
SFAS 133 requires that all derivative instruments, including certain
derivative instruments embedded in other contracts, be recorded on the
balance sheet, as either an asset or liability, measured at its fair value.
The change in a derivatives fair value is generally to be recognized in the
current periods profit and loss account. However, if certain conditions are
met, a derivative may be specifically designated as a hedge of an exposure
to changes in fair value, variability of cash flows, or certain foreign
currency exposures. When designated as a hedge, the fair value of the
derivative instrument should be recognized currently in the profit and loss
account or in equity, depending on whether such designation is considered a
fair value hedge, a cash flow hedge, or a hedge of a net investment in
foreign operations. With respect to fair value hedges, the fair value of the
derivative, as well as changes in the fair value of the hedged item, are
reported in the profit and loss account. For cash flow hedges the effective
portion of the gains or losses on the derivative instrument are reported in
equity and subsequently reclassified into the profit and loss account when
the hedged item affects the profit and loss account. The remaining gains and
losses in excess of the cumulative change in the present value of future
cash flows of the hedged item, if any, is recognized in the profit and loss
account during the period of change. For a hedge of a net investment in a
foreign currency, the gain or loss is reported in equity to the extent it is
effective.
The hedging rules specified under SFAS 133 are more stringent than the
hedging rules prior to SFAS 133. Consequently, a significant portion of the
derivatives that received hedge accounting treatment prior to the adoption
of SFAS 133 are recorded at fair value with changes in fair value included
in the profit and loss account. The initial revaluation of these derivatives
upon adoption of the new rules in 2001 which did not have a material effect
on ING Groups US GAAP equity and profit and loss account, was reported as
part of the 2001 adjustment with respect to this item.
For the purpose of reconciliation of Dutch GAAP shareholders equity and net
profit to US GAAP, the change in the fair values of the hedged items have
been set off against the gains or losses on the derivative instrument for
hedges that meet SFAS 133 hedge criteria.
g.
Deferred acquisition costs of insurance contracts.
The acquisition costs of life insurance business involving the receipt of
regular premiums are capitalized and amortized to the profit and loss
account in proportion to future premiums.
A similar policy applies under US GAAP, except that the method of
amortization is slightly different.
Under US GAAP, deferred acquisition costs of traditional insurance contracts
are likewise amortized in proportion to future premiums.
For universal-life type contracts, investment contracts and for
participating individual life insurance contracts in the Netherlands, US
GAAP requires that deferred acquisition costs be amortized at a constant
rate based on the present value of the estimated gross profit margins
expected to be realized over the life of the book of contracts.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
In addition, in accordance with SFAS 115, deferred acquisition costs related
to universal-life type contracts, investment contracts and participating
individual life insurance contracts under Dutch GAAP are adjusted to reflect
changes that would have been necessary if unrealized investment gains and
losses related to available-for-sale securities had been realized. The SFAS
115 adjustment to deferred acquisition costs is an adjustment to equity that
is not taken through net profit. As a result of this adjustment US GAAP
equity has been reduced by EUR 878 million up to 2003 (reduced by EUR 898
million up to 2002).
Under US GAAP, the revaluation reserve resulting from the valuation of debt
securities at fair value (as explained in item c.) is adjusted for the
impact thereof on the DAC.
h.
Pension liabilities and pension costs.
The pension rights of the vast majority of the staff are insured with
separate pension funds. In accordance with ING Group accounting principles,
as from January 1, 1998, retroactive as from January 1, 1997, the pension
expenses are based on a specific method of actuarial valuation of plan
assets and related projected liabilities for accrued service including
future salary indexation. Plan assets are taken at fair value.
The pension expenses under US GAAP are based on the same method of valuation
of liabilities and assets. Differences in the level of expense and
liabilities (or assets) occur due to the different transition dates under US
GAAP.
Furthermore, under US GAAP an additional liability is recognized immediately
in a situation where the accumulated benefit obligation exceeds the fair
value of the plan assets. This additional liability is charged to
shareholders equity. The accumulated benefit obligation differs from the
projected benefit obligation in that it does not take into account future
compensation levels. Under ING Group accounting principles in such situation
the normal rules for differences between the projected benefit obligation
and the fair value of plan assets continue to apply and, therefore, a
liability is not recognized immediately.
i.
Post-employment benefits.
Expenses and liabilities are determined under a similar methodology as
described under pensions.
The benefit expense under US GAAP is based on the same method of valuation
of liabilities. Differences in the level of expense and liabilities occur
due to the different transition date under US GAAP.
j.
Post-retirement benefits.
Expenses and liabilities are determined under a similar methodology as
described under pensions.
The benefit expense under US GAAP is based on the same method of valuation
of liabilities. Differences in the level of expense and liabilities occur
due to the different transition date under US GAAP.
k.
Provision for life policy liabilities.
In accordance with both ING Group accounting principles and US GAAP, the
provision for life policy liabilities is calculated on the basis of a
prudent prospective actuarial method, having regard to the conditions of
current insurance contracts. The difference between the ING Group accounting
principles and US GAAP primarily concerns the treatment of initial expenses
and the assumptions which are made in calculating the provisions with regard
to the yield on the investments.
Under US GAAP, the revaluation reserve resulting from the valuation of debt
securities at fair value (as explained in item c.) is adjusted for the
impact thereof on deferred profit sharing to policyholders.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
l.
Provision for future catastrophe and other insurance provisions.
ING Group carries other insurance provisions for potential exposure to
future losses. Amongst these is a non-life provision for future catastrophe
and other accidental losses.
Under US GAAP, these provisions are not allowed, since such losses are
recorded in the period they are incurred. Amounts that were released from
the catastrophe provision are recorded in the profit and loss account under
Dutch GAAP. For the purpose of the reconciliation to US GAAP, these releases
are not recognized in income as the corresponding liability is not allowed
under US GAAP. Amounts that are charged to the catastrophe provision under
Dutch GAAP are recorded in the profit and loss account under US GAAP; the
amounts for 2001 primarily related to the September 11 events in the US.
m.
Valuation and profit recognition of equity investments.
This item relates to equity participations and certain equity investments.
Equity participations that are held for sale are carried at either the lower
of cost or market value or at net asset value. Dividends received and
realized gains and losses on the sale of these shareholdings are charged to
the profit and loss account.
Under US GAAP, these shareholdings are accounted for at either fair value
with changes in fair value recorded in shareholders equity, or, in cases
where significant influence can be exercised by the shareholders, by the
equity method.
The criteria on recognition of gains and losses on the sale of certain
equity investments are more stringent under US GAAP. As a result, profit on
sale is not always recognized in the same accounting period.
n.
Stock compensation.
As of 2002, compensation expenses for the equity compensation plan of ING
America Holding Inc does not give rise to a reconciling item between Dutch
GAAP and US GAAP. Compensation expense is recognized under Dutch GAAP meet
the US GAAP requirements as included in APB 25. Up to 2002, no compensation
expense was recognized under Dutch GAAP. As discussed in Note 7.15 on page
F-137, this compensation plan provides certain key employees with Restricted
American Depository Shares (ADS) Units and Restricted Performance Units to
reward individual performance.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
6.2.
Reconciliation of Dutch GAAP shareholders equity and net profit to US
GAAP
Shareholders equity
Net profit
2003
2002
2003
2002
2001
21,331
18,254
4,043
4,500
4,577
4,315
4,601
(125
)
(29
)
(1,751
)
(3,017
)
(3,602
)
(214
)
(237
)
(230
)
267
179
80
9,579
9,259
(6
)
195
(129
)
1,009
414
301
(936
)
187
(247
)
(179
)
(180
)
(172
)
248
(150
)
335
(1,085
)
(685
)
(530
)
(763
)
(87
)
(472
)
(111
)
(418
)
(400
)
(154
)
25
25
(962
)
(1,252
)
53
24
35
(1
)
52
64
(11
)
(5
)
(8
)
(650
)
(836
)
5
(51
)
(132
)
21
129
(96
)
(172
)
(413
)
115
42
25
8
175
(22
)
7,569
7,429
582
(1,137
)
(3,196
)
1,207
937
129
(99
)
(375
)
314
314
16
14
14
6,676
6,806
469
(1,024
)
(2,807
)
28,007
25,060
4,512
3,476
1,770
(13,103
)
28,007
25,060
4,512
(9,627
)
1,770
Table of Contents
Amounts are in millions of euros, unless otherwise stated
6.3.
Net profit per share
2003
2002
2001
4,043
4,500
4,577
469
(14,127
)
(2,807
)
4,512
(9,627
)
1,770
(21
)
(21
)
(21
)
4,022
4,479
4,556
4,491
(9,648
)
1,749
2,014.4
1,928.0
1,923.1
9.8
9.6
19.4
2,014.4
1,928.0
1,942.5
2.00
2.32
2.37
2.23
1.79
0.91
2.23
(5.00
)
0.91
2.00
2.32
2.35
2.23
1.79
0.90
2.23
(5.00
)
0.90
(1)
The cumulative effect of changes in accounting principles in 2003 is nil
(2002: EUR 13,103 million) as explained in note 7.12.
6.4.
Presentation differences between Dutch and US accounting principles
a.
Tangible fixed assets, comprised primarily of data processing equipment and
other movable assets used in the companys operations, are presented as a
separate item in the balance sheet.
Under US GAAP, such assets are presented, together with all other assets
used in the companys operations, under Property and equipment.
b.
Joint ventures are accounted for using proportionate consolidation,
reflecting the share in ownership (2).
Under US GAAP, such investments are accounted for using the equity method.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
(2)
Total assets proportional consolidated in the Dutch GAAP financial
statements in 2003 is EUR 7.852 million (2002: EUR 5,547 million),
total profit before income tax proportional consolidated in the Dutch
GAAP financial statements in 2003 is EUR 62 million (2002: EUR 41
million).
c.
Real estate properties in use by ING Groups operating entities are
presented as an investment, and the related rental income as investment income
and operating expense.
Under US GAAP, real estate owned and occupied by a business unit is
presented separately under the caption Property and equipment, and the
impact of rental income and expense is eliminated from the profit and loss
account.
d.
Equity securities of shareholdings in enterprises in the same industries as
ING Group and certain receivables from the same enterprises are reported as
participating interests, regardless of whether they are accounted for using the
equity method.
Under US GAAP, only shareholdings that are accounted for under the equity
method are presented separately from other investments in equity securities.
Furthermore, a subsidiary presented as participating interest under Dutch
GAAP is consolidated under US GAAP.
e.
Investments for the risk of policyholders, interest in investment pools and
deposits with reinsurers are included in Investments.
Under US GAAP, investments for the risk of policyholders are included in
Separate accounts and interests in investment pools and deposits with
reinsurers are included in Other assets.
f.
Assets, other than real estate, under operational lease contracts are
classified as Lending.
Under US GAAP, assets under operational lease contracts are included in
Other assets.
g.
The balance sheet value of derivative contracts is included in Other assets
and Other liabilities.
Under US GAAP the gross positive and negative fair values of derivatives
that are considered to be held for trading purposes are presented under
Trading account assets and Trading account liabilities.
h.
Funds received in financing transactions that involve the issuance of
preferred shares (whether or not in conjunction with common shares) to banks
are presented as a liability under Banks.
Although the criteria for classification as shareholders equity appear to
be met, in substance the amount is more a liability and is presented as
such.
Under U.S. GAAP, such funds are presented as minority interest as the legal
definition of equity is met.
i.
Reinsurance recoverables on claims are recorded as an offset to the
insurance provisions.
Reinsurance ceded results are included in Underwriting Expenditure.
Under US GAAP, the insurance liabilities are presented on a gross basis and
the reinsured portion as an asset under Reinsurance receivables. Reinsurance
ceded results are applied to each appropriate caption of the profit and loss
account.
j.
Premium income of the non-life operations is presented on a written basis,
with the change in unearned premiums reported as an underwriting expenditure.
Under US GAAP, non-life premium income is presented on an as earned basis.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
k.
Premiums collected on universal-life type contracts and insurance contracts
that do not expose the company to significant mortality or morbidity risks are
reported as premium income and the allocation of these premiums to the
provision for life policy benefits as an underwriting expense.
Under US GAAP, premiums collected on these types of products are not
reported as revenue in the profit and loss accounts; revenues from these
products are amounts assessed against policyholders and are reported in the
period that the amounts are assessed unless evidence indicates that the
amounts are designed to compensate for services provided over more than one
period.
l.
Death and surrender benefits paid on universal-life type contracts and the
corresponding release of the provision for life policy benefits are reported
separately as underwriting expenses in the profit and loss accounts.
Under US GAAP, these items are not reported separately; benefits paid from
these products are the amounts paid in excess of the related release of the
provision for life policy benefits.
m.
Interest paid to contract holders of guaranteed investment contracts is
reported as an investment expense that is netted against investment income.
Under US GAAP, the interest paid to contract holders of guaranteed
investment contracts is reported as an underwriting expense and not netted
against investment income.
n.
Short-term and long-term borrowings are included in the following captions:
funds entrusted to and debt securities of the banking operations and other
liabilities.
Under US GAAP, short-term borrowings are presented separately from long term
borrowings.
O.
If the financial statements had been prepared in accordance with US GAAP,
certain items, which are included in interest income and expense, would have
been classified differently. Included in these captions are, among others, the
amortization of realized gains (losses) on sales of certain financial
instruments used in interest rate risk management which have been deferred,
results of interest arbitrage transactions and certain loan fees.
Under US GAAP, realized gains (losses) on sales of financial instruments are
classified as either trading income or separately as results from sales.
Results of interest arbitrage transactions are included in trading income
under US GAAP.
p.
Investment expenditures include certain amounts for interest charges and
value adjustments to investments as well as administrative expenses.
Under US GAAP, investment expenditures would generally only include
administrative expenses.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
U.S. GAAP
Dutch GAAP
U.S. GAAP
Dutch GAAP
270,031
335,003
236,599
297,581
70,552
64,282
65,230
40,206
65,245
36,174
288,148
292,556
280,568
284,448
61,185
61,060
45,760
45,682
11,738
11,738
11,421
11,421
1,382
3,167
1,568
2,883
5,349
567
7,880
797
11,120
10,880
12,810
12,531
9,342
9,760
10,236
10,636
4,315
4,601
3,223
1,311
3,579
1,415
17,162
12,523
17,965
12,802
818,777
778,771
762,514
716,370
203,361
198,035
203,526
195,831
306,354
377,824
244,331
319,824
100,986
102,115
96,393
96,267
25,104
30,130
52,464
50,225
56,677
64,299
41,604
75,953
43,996
82,089
786,550
753,927
732,900
694,011
4,220
3,513
4,554
4,105
28,007
21,331
25,060
18,254
818,777
778,771
762,514
716,370
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
U.S. GAAP
Dutch GAAP
U.S. GAAP
Dutch GAAP
U.S. GAAP
Dutch GAAP
48,025
69,093
49,316
77,384
49,479
74,654
41,555
63,216
44,504
71,463
46,567
68,588
6,470
5,877
4,812
5,921
2,912
6,066
1,630
1,490
990
1,089
804
1,165
4,840
4,387
3,822
4,832
2,108
4,901
328
344
346
332
338
324
4,512
4,043
3,476
4,500
1,770
4,577
(13,103
)
4,512
4,043
(9,627
)
4,500
1,770
4,577
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Asset Backed Commercial Paper (ABCP)-conduits
ING Group has determined that its ABCP-conduits should be consolidated under
FIN 46 as of January 1, 2004. As of December 31, 2003 total assets in the
conduits were approximately EUR 5 billion.
Collateralized Debt Obligations (CDO)-transactions
Although ING Group continues to evaluate its CDO transactions, given the
fact that final rules were issued in December 2003, it is not expected that
any VIE used in these transactions is required to be consolidated.
Other entities
A number of smaller entities will be consolidated under FIN 46. These
includes VIEs used in structured finance/leasing transactions and
securitizations. Total assets of these entities is estimated at EUR 1
billion.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
In November of 2003, the Emerging Issues Task Force (EITF) reached consensus on
EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments (EITF 03-1) that certain quantitative and
qualitative disclosures are required for unrealized losses on debt and equity
securities that have not been recognized as other-than-temporary impairments.
The guidance requires companies to disclose the aggregate amount of unrealized
losses and the related fair value of investments with unrealized losses for
securities that have been in an unrealized loss position for less than 12
months and separately for those that have been in an unrealized loss position
for over 12 months, by investment category and discuss information that
management considered in their conclusion that the unrealized losses are not
other-than-temporary. ING Group has adopted the disclosure requirements in
these financial statements. Further discussion on the meaning of
other-than-temporary impairments for EITF 03-1 is expected at future EITF
meetings.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Less than
Between
More than
6 months
6 and 12 months
12 months
below cost
below cost
below cost
Total
61
2
63
152
124
83
359
257
221
47
525
123
80
49
252
14
26
5
45
607
453
184
1,244
75
19
70
164
682
472
254
1,408
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
875
1,688
1,314
(1,463
)
(2,034
)
224
662
1,242
122
52
(21
)
28
126
875
1,688
2003
2002
2001
20
(1,003
)
(1,110
)
239
(3,977
)
(3,409
)
259
(4,980
)
(4,519
)
2003
2002
7,681
7,895
5,691
5,923
2,831
3,087
7,301
7,277
277
290
137
148
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Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
A detailed reconciliation of the Fair Value of Plan Assets for the defined
benefit pension plans over 2003 and 2002 is presented in the following table:
2003
2002
8,841
8,859
836
(893
)
526
1,376
2
3
(388
)
(293
)
(166
)
(211
)
9,651
8,841
A detailed reconciliation of the funded status at December 31, 2003, 2002 and
2001 including amounts recognized in the ING Groups financial statements is
presented in the following table:
December 31, 2003
December 31, 2002
December 31, 2001
Assets
PBO
Assets
PBO
Assets
PBO
exceed
exceeds
exceed
exceeds
exceed
exceeds
PBO
assets
PBO
assets
PBO
assets
690
11,020
2,855
8,199
8,153
1,080
769
8,882
2,974
5,867
8,576
283
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Amounts are in millions of euros, unless otherwise stated
The weighted average of principal actuarial assumptions used for valuation
purposes, rounded to the nearest 25 basis points, were:
2003
2002
2001
5.50
%
6.00
%
6.25
%
2.50
%
2.75
%
3.00
%
7.25
%
7.50
%
7.75
%
ING Groups pension plan asset allocation at December 31, 2003, and 2002,
target allocation for 2004, and expected long-term rate of return by asset
category are as follows:
Weighted-
Expected
Percentage
Average
Target
of Plan Assets at
Long-Term
Allocation
December 31
Rate of return
2004
2003
2002
2003
36.90
%
39.40
%
34.90
%
9.00
%
56.70
%
54.40
%
58.90
%
6.25
%
6.40
%
6.20
%
5.20
%
7.00
%
1.00
%
100.00
%
100.00
%
100.00
%
Employer Contributions
Pension Benefits (in USD)
1,376
526
602
ING Group also operates a number of defined contribution plans covering
employees of certain subsidiaries. The assets of all ING Groups defined
contribution plans are held in independently administered funds. Contributions
are generally determined as a percentage of pay. The pension costs charged to
the profit and loss account represent contributions payable by ING Group to the
funds.
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
6
8
42
16
32
78
(13
)
(14
)
(15
)
4
(128
)
9
(102
)
109
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
2001
450
1,467
1,231
6
8
42
16
32
78
(20
)
(152
)
133
(35
)
66
(128
)
(117
)
(80
)
(83
)
(662
)
335
450
1,467
2003
2002
2001
227
243
260
13
18
14
94
46
52
(117
)
(80
)
(83
)
217
227
243
2003
2002
2001
(154
)
(240
)
(1,067
)
(154
)
(240
)
(1,067
)
Table of Contents
Amounts are in millions of euros, unless otherwise stated
December 31, 2003
December 31, 2002
December 31, 2001
Assets
PBO
Assets
PBO
Assets
PBO
exceed
exceeds
exceed
exceeds
exceed
exceeds
PBO
assets
PBO
assets
PBO
assets
335
450
1,467
217
227
243
2003
2002
2001
5.75
%
6.00
%
6.00
%
2.50
%
2.75
%
2.75
%
7.25
%
7.50
%
6.00
%
46
94
94
80
117
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Amounts are in millions of euros, unless otherwise stated
7.7.
Analysis of the non-life liability for unpaid claims and claims adjustment
expenses
2003
2002
8,106
7,994
807
1,124
7,299
6,870
(13
)
7,286
6,870
3,579
4,431
(15
)
78
82
86
3,646
4,595
1,914
2,479
1,518
1,390
3,432
3,869
(198
)
(553
)
(5
)
256
7,297
7,299
614
807
7,911
8,106
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Amounts are in millions of euros, unless otherwise stated
2003
2002
14,750
12,156
12,176
6,320
15,680
12,156
1.66
%
3.00
%
1.28
%
2.14
%
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Amounts are in millions of euros, unless otherwise stated
December 31, 2003
There
2004
2005
2006
2007
2008
after
Total
673
498
924
1,147
1,648
9,621
14,511
765
2,510
2,099
1,539
3,048
9,961
4,403
94
439
45
216
303
5,500
3,029
294
70
214
46
19
3,672
8,870
3,396
3,532
2,945
1,910
12,991
33,644
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Amounts are in millions of euros, unless otherwise stated
Balance
Balance
sheet
sheet
Interest
Maturity
amount
amount
Type of issue
rate
date
2003
2002
3.61
%
2003
100
5.19
%
2003
95
6.00
%
2004
121
8.00
%
2004
99
5.00
%
2005
238
286
7.57
%
2005
91
7.52
%
2005
62
6.25
%
2006
454
416
7.25
%
2006
143
7.25
%
2006
119
6.00
%
2007
317
435
6.00
%
2007
267
6.00
%
2007
454
8.00
%
2007
54
0.00
%
2008
950
5.38
%
2008
340
310
5.13
%
2008
112
112
4.63
%
2009
498
489
6.70
%
2009
112
0.00
%
2010
122
7.00
%
2010
496
538
6.50
%
2010
738
728
5.88
%
2011
1,222
1,221
7.25
%
2011
127
143
0.00
%
2012
195
5.50
%
2012
1,736
1,770
5.25
%
2013
497
419
5.25
%
2013
212
5.00
%
2015
125
5.13
%
2015
793
3.35
%
2019
750
5.00
%
2019
63
7.05
%
2032
634
6.20
%
2033
396
7.20
%
2033
476
7.05
%
762
7.20
%
572
3.51
%
2004
206
2.75
%
2005
192
3.00
%
2005
206
3.75
%
2005
206
3.75
%
2005
192
3.75
%
2005
206
6.25
%
2005
113
113
7.00
%
2005
133
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Amounts are in millions of euros, unless otherwise stated
Balance
Balance
sheet
sheet
Interest
Maturity
amount
amount
Type of issue
rate
date
2003
2002
7.00
%
2005
113
7.50
%
2005
317
7.50
%
2005
381
3.50
%
2006
192
206
3.75
%
2006
192
5.50
%
2006
238
286
5.50
%
2006
159
191
6.00
%
2006
317
381
3.00
%
2007
192
206
3.00
%
2007
257
275
5.75
%
2007
340
5.88
%
2007
340
6.25
%
2009
113
113
6.75
%
2013
153
184
7.25
%
2023
150
180
7.63
%
2026
348
419
6.97
%
2036
240
289
1.50
%
2004
101
0.08
%
2005
111
7.96
%
2007
146
8.63
%
2005
107
8.00
%
2006
161
194
7.13
%
2006
279
6.50
%
2008
152
181
6.04
%
2009
194
235
8,870
9,628
8,022
12,675
33,649
37,155
Table of Contents
Amounts are in millions of euros, unless otherwise stated
7.11.
Derivative financial instruments
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2003
2002
Average
Ending
Average
Ending
Positive
Negative
Positive
Negative
Positive
Negative
Positive
Negative
Notional
fair
fair
fair
fair
Notional
fair
fair
fair
fair
amount
value
value
value
value
amount
value
value
value
value
650,579
13,686
13,503
10,783
10,653
604,320
9,628
9,703
13,750
14,076
60,252
60
51
49
53
57,198
68
70
86
65
59,691
789
8
533
14
68,325
761
1,090
40,868
5
874
5
432
47,484
722
1,105
4,366
1
2,130
2
1
1,798
1
1
1,111
1
1
1
41,607
88,423
8
5
29,167
953
1,197
954
1,439
25,580
1,072
851
835
966
197,690
3,953
4,549
4,079
4,669
241,610
4,821
5,117
4,874
5,963
26,223
388
639
24,896
558
429
15,081
401
675
27,693
398
479
375
6
6
317
8
2
154
10
14
541
130
7,235
697
78
267
92
6,352
604
111
963
92
10
2
2
9
3,615
1,000
528
5,612
710
988
4,489
908
491
5,350
524
769
13,863
694
646
5,564
519
619
12,305
537
537
6,381
445
471
639
101
2
19
1,170,711
22,233
22,117
18,483
19,059
1,218,448
18,754
17,957
23,635
24,001
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Notional principal
Percentage of 2003 amount maturing
amounts
Within
1 to 5
2003
2002
1 year
years
Thereafter
Total
332,779
337,940
43.26
%
30.21
%
18.73
%
92.20
%
23,654
32,430
4.54
%
1.41
%
0.60
%
6.55
%
4,499
2,052
0.81
%
0.35
%
0.09
%
1.25
%
360,932
372,422
48.61
%
31.97
%
19.42
%
100.00
%
Notional amounts of contracts maturing as of December 31, 2003
Within 1 year
1 to 5 years
Thereafter
Total
79,304
48,064
34,253
161,621
2.77
%
4.19
%
3.50
%
3.34
%
2.05
%
1.99
%
1.26
%
1.86
%
56,054
57,039
27,599
140,692
1.95
%
2.43
%
2.07
%
2.16
%
2.59
%
3.31
%
4.02
%
3.16
%
3,544
3,255
1,520
8,319
3.92
%
4.98
%
3.53
%
4.26
%
3.83
%
4.45
%
4.48
%
4.19
%
138,902
108,358
63,372
310,632
7.12.
Business combinations
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Table of Contents
Amounts are in millions of euros, unless otherwise stated
2002
8,077
2,836
977
191
1,022
13,103
462
(24
)
(75
)
363
Table of Contents
Amounts are in millions of euros, unless otherwise stated
Asset
Asia/
Manage-
Europe
Americas
Pacific
ment
Total
2,468
11,318
1,844
436
16,066
(1,168
)
(10,913
)
(1,022
)
(13,103
)
1,300
405
822
436
2,963
713
245
218
1,176
2,013
650
1,040
436
4,139
579
(29
)
(88
)
462
7.13.
Dividend restrictions
7.14.
Minimum capital requirements
Table of Contents
Amounts are in millions of euros, unless otherwise stated
7.15.
Stock option plan
2003
2002
2001
4,491
(9,648
)
1,749
4,443
(9,741
)
1,620
2.23
(5.00
)
0.91
2.21
(5.05
)
0.84
2.23
(5.00
)
0.90
2.21
(5.05
)
0.83
(1)
The compensation cost for ING Groups employee stock-based compensation
expenses determined based on the fair value at grant dates
consistent with the disclosure requirements of SFAS 148 is EUR 48 million in
2003 (2002: EUR 93 million; 2001: EUR 129 million).
2003
2002
2001
3.16
%
4.98
%
4.80
%
52.03
%
27.73
%
26.49
%
7.73
%
4.02
%
2.48
%
7.16.
Restructuring charges
Table of Contents
Amounts are in millions of euros, unless otherwise stated
7.17.
Impact of the Terrorist Attacks of September 11, 2001
Table of Contents
March 8, 2004
Table of Contents
FOR THE YEAR ENDED DECEMBER 31, 2002 TO THE
SHAREHOLDERS MEETING OF ING BANK BELGIUM S.A./N.V.
Table of Contents
own shares held by group companies are deducted from the total number
of ordinary shares in issue;
the computation is based on daily averages;
in
the case of exercised warrants, the day of exercise is taken into
consideration.
deductible temporary differences;
the carry forward of unused tax losses; and
Table of Contents
the carry forward of
unused tax credits.
a contractual right to receive cash or another financial asset from another
company;
a contractual right to exchange financial instruments with another
company under conditions that are potentially favourable; or
an equity
instrument of another company.
to deliver cash or another
financial asset to another company; or
to exchange financial instruments with
another company under conditions that are potentially unfavourable.
Table of Contents
An irrevocable letter of
credit cannot be
cancelled or adjusted by
the bank that has granted
it during the duration of
the agreement unless all
those concerned agree.
Table of Contents
intends either to settle on a net basis, or to
realise the financial asset and settle the financial liability
simultaneously; and
has a legally enforceable right to set off the
recognized amounts; and
the financial asset and the financial liability are
identical in nature.
are held by an entity (a fund) that is legally separate from the
reporting enterprise and exists solely to pay or fund employee benefits; and
are available to be used only to pay or fund employee benefits, are not
available to the reporting enterprises own creditors (even in bankruptcy), and
cannot be returned to the reporting enterprise, unless either the remaining
assets of the fund are sufficient to meet all the related employee benefit
obligations of the plan or the reporting enterprise or the assets are returned
to the reporting enterprise to reimburse it for employee benefits already paid.
Table of Contents
can be used only to pay
or fund employee benefits under a defined benefit plan; and
are not available
to the reporting enterprises own creditors (even in bankruptcy) and cannot be
paid to the reporting enterprise, unless either the proceeds represent surplus
assets that are not needed for the policy to meet all the related employee
benefit obligations or the proceeds are returned to the reporting enterprise to
reimburse it for employee benefits already paid.
it is probable that any
future economic benefit
associated with the item
will flow to or from the
enterprise; and
the
item has a cost or value
that can be measured
reliably.
Table of Contents
in which, by agreement with other holders of voting rights or otherwise, more
than half of the voting rights in a general meeting can be exercised by the
company or one of its subsidiaries;
of which the company or a subsidiary is a
member or shareholder and can appoint or dismiss, by agreement with other
holders of voting rights or otherwise, alone or together with others more than
half of the executive board or the supervisory board.
Table of Contents
RELATED PARTIES
Column A
Column B
Column C
Column D
Amount at
which
shown
in the
balance
Type of investment
Cost
Fair Value
sheet
6,627
6,812
6,632
66,798
69,803
66,084
5,898
6,190
5,841
43,662
44,342
43,451
329
346
323
84,770
87,343
83,815
3,730
4,169
3,706
122
124
118
349
393
357
2,265
2,380
2,228
535
538
535
2,640
2,768
2,825
165
181
181
2,087
2,925
2,925
4,684
6,066
6,066
1,376
1,496
1,496
17
20
20
25,895
26,421
25,802
5,971
8,994
8,994
2,894
2,898
2,895
260,814
274,209
264,294
Table of Contents
Amounts are in millions of euros
Column
Column
Column
Column
Column
Column
Column
Column
Column
Column
Column
A
B
C
D
E
F
G
H
I
J
K
Net
invest-
ment
income
(inclu-
ding
other
Future
income
Amorti-
policy
and other
zation
benefits,
Other
expenses)
Benefits,
of
losses,
policy
allocated
Claims,
deferred
Deferred
claims,
Un-
and
to
Losses
policy
Other
policy
and
earned
claims
under-
and
acqui-
opera-
Pre-
acquisition
loss
Pre-
benefits
Premium
writing
Settlement
sition
ting
miums
Segment
costs
expenses
miums
payable
revenue
accounts
expenses
costs
expenses
written
9,399
187,435
786
37,129
8,285
39,236
1,244
2,456
37,129
361
7,297
2,487
30
6,128
920
3,945
118
1,977
6,358
9,760
194,732
2,487
816
43,257
9,205
43,181
1,362
4,433
43,487
10,299
185,136
848
43,274
8,289
44,804
1,454
2,702
43,274
337
7,299
2,432
116
6,297
732
4,390
94
1,978
6,642
10,636
192,435
2,432
964
49,571
9,021
49,194
1,548
4,680
49,916
11,035
203,677
910
43,157
8,330
44,513
1,444
3,245
43,157
320
5,892
3,382
125
5,283
649
3,717
82
1,626
5,289
11,355
209,569
3,382
1,035
48,440
8,979
48,230
1,526
4,871
48,446
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Amounts are in millions of euros
Column A
Column B
Column C
Column D
Column E
Column F
Assumed
Percentage
Ceded to
from
of amount
other
other
assumed
Gross Amount
companies
companies
Net amount
to net
36,914
1,102
1,317
37,129
3.5
%
7,226
930
62
6,358
1.0
%
44,140
2,032
1,379
43,487
3.2
%
43,076
1,093
1,291
43,274
3.0
%
7,869
1,275
48
6,642
0.7
%
50,945
2,368
1,339
49,916
2.7
%
43,045
1,400
1,512
43,157
3.5
%
5,858
614
45
5,289
0.9
%
48,903
2,014
1,557
48,446
3.2
%
Table of Contents
NON-LIFE INSURANCE OPERATIONS
Amounts are in millions of euros
Column
Column
Column
Column
Column
Column
Column
Column
Column
Column
Column
A
B
C
D
E
F
G
H
I
J
K
Net
Invest-
ment
income
(inclu-
ding
other
income
Reserves
and other
for
Discount,
expenses)
Claims and claims
Deferred
unpaid
if any,
allocated
adjustment
Paid
Policy
claims &
deducted
to
expenses incurred
claims
acqui-
claims
in
non-life
related to
Amortiza-
& claims
Pre-
Affiliation
sition
adjusted
Column
Unearned
Earned-
opera-
accident years
tion of
adjusted
miums
with the registrant
costs
expenses
C
premiums
premiums
tions
Current
Prior
DPAC(1)
expenses
Written
361
7,297
365
2,487
6,128
920
3,579
67
118
3,738
6,358
337
7,299
559
2,432
6,297
732
4,431
164
94
3,765
6,642
320
5,892
349
3,382
5,283
649
3,663
18
82
3,491
5,289
(1)
DPAC : Deferred policy acquisition costs
EXHIBIT 1.1
ARTICLES OF ASSOCIATION
of
ING GROEP N.V.
as formulated since 23 June 2003.
ARTICLES OF ASSOCIATION MV/MC/694362/21726.dlt
OF ING GROEP N.V.
having its registered office in Amsterdam, as formulated following the execution of a deed of amendment on 23 June 2003 in the presence of P.J. Dortmond, civil-law notary practising in Amsterdam, in respect of which amendment a declaration of no objection was issued by the Minister of Justice on 18 June 2003 under no. N.V. 402759.
Name.
Article 1.
The name of the company is ING Groep N.V.
Registered office.
Article 2.
The company has its registered office in Amsterdam.
Object.
Article 3.
The object of the company is to participate in, manage, finance, furnish personal or real security for the obligations of and provide services to other enterprises and institutions of any kind, but in particular enterprises and institutions which are active in the field of insurance, lending, investment and/or other financial services, and to engage in any activity which may be related or conducive to the foregoing.
Definitions
Article 4.
In these Articles of Association, the following terms shall have the meanings assigned below, except where expressly stated otherwise:
a. shares: ordinary shares, preference shares and cumulative preference shares in the company's capital;
b. shareholder: a holder of one or more shares;
c. depositary receipts: depositary receipts for shares issued or deemed to have been issued with the company's cooperation;
d. depositary receipt holder: a holder of one or more depositary receipts;
e. preference shares: the A preference shares and B preference shares in the company's capital;
f. B preference shares: the B preference shares in the company's capital, irrespective of the series.
Capital.
Article 5.
The authorised capital of the company amounts to two billion one hundred and sixty million euros (EUR 2,160,000,000), divided as follows:
a. three billion (3,000,000,000) ordinary shares, each having a nominal value of twenty-four euro cents (EUR 0.24);
b. one hundred million (100,000,000) A preference shares, each having a nominal value of one euro and twenty cents (EUR 1.20);
c. two hundred million (200,000,000) B preference shares, each having a nominal value of one euro and twenty cents (EUR 1.20), divided into five (5) series designated by the figures 1, 2, 3, 4 and 5:
- five million (5,000,000) series 1 B preference shares;
- five million (5,000,000) series 2 B preference shares;
- forty million (40,000,000) series 3 B preference shares;
- seventy-five million (75,000,000) series 4 B preference shares;
- seventy-five million (75,000,000) series 5 B preference shares;
each series of B preference shares counting as a separate class of shares, and
d. nine hundred million (900,000,000) cumulative preference shares, each having a nominal value of one euro and twenty cents (EUR 1.20).
Shares.
Article 6.
1. The shares shall be registered.
2. No share certificates shall be issued.
Share register.
Article 7.
1. The Executive Board shall keep a register in which shall be recorded the names and addresses of all the shareholders, stating the amount paid on each share.
The register shall be regularly updated and such further information shall be recorded therein as the law prescribes or the Executive Board considers necessary.
2. The Executive Board shall permit the share register to be inspected by persons who are entitled to do so by law.
3. The Executive Board shall provide extracts from the share register to persons who are entitled thereto by law.
4. Each shareholder and each holder of a limited right in respect of shares shall be obliged to notify the company of his name and address.
Approval of transfer of cumulative preference shares.
Article 8.
1. Each transfer of cumulative preference shares shall require the approval of the Executive Board. Requests for approval shall be made in writing, stating the name and address of the intended transferee and the price or other consideration which the intended transferee is willing to pay or give.
2. If approval is refused, the Executive Board shall simultaneously nominate one or more interested parties who are willing to purchase all the cumulative preference shares to which the request relates for cash at a price to be determined in consultation between the vendor and the Executive Board within two months of said nomination. The company may be nominated as an interested party only with the vendor's consent.
3. If the vendor does not receive a written communication from the company concerning the request for approval of the proposed transfer within three months of receipt by the company of that request or receives a written notice of refusal of approval within that period which omits to nominate one or more interested parties to whom the cumulative preference shares in question might be transferred pursuant to the provisions of this article, approval of the transfer shall be deemed to have been given on expiry of the said period or on receipt of such notice of refusal.
4. If the vendor and the Executive Board are unable to reach agreement on the price referred to in paragraph 2 of this article within two months of the refusal of approval, the price shall be determined by an expert appointed by the vendor and the Executive Board by mutual agreement or, in the absence of
agreement within three months of the refusal of approval, by the President of the Chamber of Commerce and Industry of The Hague, at the request of the more diligent party.
5. The vendor shall have the right to decline to transfer the shares, provided he notifies the Executive Board of his decision in writing within one month of being notified of both the name(s) of interested parties and the price as determined.
6. If a transfer within the meaning of paragraph 1 or paragraph 3 of this article is approved, the vendor shall be entitled to transfer, within three months of such approval, all the shares to which his request relates to the transferee specified in his request at the price or for the consideration stated by the vendor as referred to in the second sentence of paragraph 1 of this article.
7. The costs incurred by the company in connection with the transfer may be charged to the new holder.
8. The provisions of this article shall apply mutatis mutandis to transfers of shares upon the partition of a community of property.
Transfer of shares.
Article 9.
Unless provided otherwise by law, the transfer of shares shall require a deed of transfer intended for that purpose and, except where the company is itself a party to such legal act, written acknowledgement by the company of the transfer. The acknowledgement shall be given in the deed or by a dated statement of acknowledgement on the deed or on a copy thereof or extract therefrom signed as a true copy by the notary or the vendor. The service of such a deed, copy or extract on the company shall be deemed equivalent to acknowledgement. In the case of the transfer of part-paid shares, such acknowledgement may be given only if the deed bears a fixed date.
Pledge on shares.
Article 10.
1. A pledge may be established on shares.
2. If a pledge has been established on shares, the voting rights attaching to those shares shall vest exclusively in the pledgeor and may not be assigned to the pledgee.
3. The rights conferred by law on holders of depositary receipts for shares issued with the cooperation of a company shall not vest in the pledgee.
4. The provisions of Article 9 shall apply mutatis mutandis to the establishment and removal of a pledge on shares. A pledge may also be established without acknowledgement by or service of notice on the company, in which case Section 239 of Book 3 of the Netherlands Civil Code shall be applicable mutatis mutandis, whereby service of notice on the company shall take the place of the notification referred to in subsection 3 of that section.
Usufruct on shares.
Article 11.
1. A usufruct may be established on shares.
2. If a usufruct has been established on shares, the voting rights attaching to those shares shall vest exclusively in the shareholder and may not be assigned to the usufructuary.
3. The rights conferred by law on holders of depositary receipts for shares issued with the cooperation of a company shall not vest in the usufructuary.
4. The provisions of Article 9 shall apply mutatis mutandis to the establishment, assignment and removal of a usufruct on shares.
Issue of new shares.
Article 12.
1. Shares shall be issued pursuant to a resolution of the General Meeting of Shareholders or of another body designated for that purpose by a resolution of the General Meeting of Shareholders or by these Articles of Association for a determinate period not exceeding five years.
2. At the time of designation of a body as referred to in paragraph 1 of this article, the number of shares which may be issued shall be defined. The designation may be extended for not more than five years at a time. Unless otherwise provided at the time of designation, it may not be revoked.
3. A resolution of the General Meeting of Shareholders to issue shares or designate a body to do so shall only be valid if prior or simultaneous approval is given by each group of holders of shares of the same class whose rights are adversely affected by the issue.
4. A resolution of the General Meeting of Shareholders or a body other than the Executive Board to issue shares and a resolution to designate a body as referred to in paragraph 1 of this article may be passed only if it has been proposed by the Executive Board with the approval of the Supervisory Board.
5. If a body other than the General Meeting of Shareholders adopts a resolution to issue cumulative preference shares (not including a resolution to grant rights to subscribe for them), such resolution shall require the specific approval of the General Meeting of Shareholders if the issue of cumulative preference shares concerned causes the amount of cumulative preference shares in issue to exceed half the amount of the capital issued in the form of ordinary shares and preference shares.
6. If a body other than the General Meeting of Shareholders adopts a resolution to issue cumulative preference shares (not including a resolution to grant rights to subscribe for them) which does not require the approval of the General Meeting of Shareholders as referred to in the preceding paragraph, the Executive Board shall convene and hold a General Meeting of Shareholders within four weeks of such issue, at which the reasons for the issue shall be explained.
7. If cumulative preference shares are issued pursuant to a resolution to issue cumulative preference shares or a resolution to grant a right to subscribe for cumulative preference shares which has been adopted by a body other than the General Meeting of Shareholders without the prior approval of the General Meeting of Shareholders, the Executive Board shall convene a General Meeting of Shareholders within two years of such issue, at which it shall bring forward a resolution to repurchase or cancel the said cumulative preference shares which have been issued. If the resolution to repurchase or cancel the cumulative preference shares is not adopted by the General Meeting of Shareholders, the Executive Board shall be obliged to convene, within two years of the said resolution being brought forward, a further General Meeting of Shareholders at which the same resolution shall again be brought forward, said obligation being extinguished once the said cumulative
preference shares cease to be in issue or cease to be held by an entity other than the company.
8. The Executive Board shall be authorised to perform the legal acts referred to in Section 94 of Book 2 of the Netherlands Civil Code without the approval of the General Meeting of Shareholders.
9. Ordinary shares and preference shares may only be issued on payment of at least the nominal amount. In the case of cumulative preference shares, at least one-quarter of the nominal amount shall be paid up.
Pre-emptive rights to issues of ordinary shares.
Article 13.
1. Except in the cases provided by law, each holder of ordinary shares shall have a pre-emptive right to issues of ordinary shares.
2. Pre-emptive rights may be restricted or excluded by resolution of the General Meeting of Shareholders. Pre-emptive rights may be restricted or excluded by a body designated in accordance with Article 12 provided such body has been authorised to restrict or exclude pre-emptive rights by a resolution of the General Meeting of Shareholders for a determinate period not exceeding five years.
3. A resolution of the General Meeting of Shareholders to restrict or exclude preemptive rights or designate another body to do so in accordance with paragraph 2 of this article shall require a majority of at least two-thirds of the votes cast if less than half of the issued capital is represented at the General Meeting of Shareholders.
Rights to subscribe for shares.
Article 14.
1. Paragraphs 1, 2, 3, 4 and 7 of Article 12 shall apply mutatis mutandis to resolutions to grant rights to subscribe for shares.
2. If a body other than the General Meeting of Shareholders adopts a resolution to grant rights to subscribe for cumulative preference shares, such resolution shall require the specific approval of the General Meeting of Shareholders if the issue of cumulative preference shares concerned causes the amount of cumulative preference shares in issue to exceed half the amount of the capital issued in the form of ordinary shares and preference shares.
3. If a body other than the General Meeting of Shareholders adopts a resolution to grant rights to subscribe for cumulative preference shares which does not require the approval of the General Meeting of Shareholders as referred to in the preceding paragraph, the Executive Board shall convene and hold a General Meeting of Shareholders, within four weeks of the adoption of such resolution, at which the reasons for the granting of said rights shall be explained.
4. When rights to subscribe for ordinary shares are granted, the holders of ordinary shares shall have a right of pre-emption; Article 13 shall apply mutatis mutandis. Shareholders shall have no pre-emptive rights in respect of ordinary shares issued to a person exercising a previously acquired right to subscribe for shares.
5. Ordinary shares and preference shares which are issued to a person exercising a previously acquired right to subscribe for those shares shall be paid up in full at the time of subscription.
Acquisition by the company of its own shares.
Article 15.
1. The acquisition by the company of shares in its own capital which are not fully paid shall be null and void.
2. Fully paid shares in its own capital may only be acquired by the company for no consideration or if the acquisition is within the limits prescribed by law.
3. With due observance of the statutory provisions, the Executive Board shall require the authorisation of the General Meeting of Shareholders for the acquisition of own shares other than for no consideration.
4. Such authorisation shall not be required for the acquisition by the company of shares in its own capital in order to transfer them to employees of the company or of a group company under a scheme applicable to such employees.
5. The preceding paragraphs shall not apply to shares which the company acquires by universal succession.
6. The term `shares' in this article shall include depositary receipts for shares, whether or not issued with the cooperation of the company.
Reduction of capital.
Article 16.
1. With due observance of the statutory provisions, the General Meeting of Shareholders may resolve to reduce the issued capital by cancelling shares or reducing the nominal value of shares by means of an amendment of the Articles of Association.
2. A resolution to redeem shares may relate only to the A preference shares and/or one or more of the series of B preference shares and/or the cumulative preference shares. A resolution to redeem the A preference shares and/or one or more of the series of B preference shares may only be adopted on condition that the distribution referred to in Article 38, paragraph 5, can be made simultaneously with the redemption.
3. Partial repayments on shares may also be made exclusively in respect of the ordinary shares, the A preference shares, one or more of the series of B preference shares or the cumulative preference shares. Release from the obligation to pay on shares may only be granted in respect of the cumulative preference shares.
Depositary receipts for ordinary shares and preference shares.
Article 17.
1. Pursuant to a resolution of the Executive Board with the approval of the Supervisory Board, the company may cooperate in the issue of depositary receipts for ordinary shares and/or preference shares.
2. Depositary receipts for ordinary shares and/or preference shares issued by the trust office shall be deemed to have been issued with the cooperation of the company, provided that the relevant trust conditions have been approved by the Executive Board and stipulate that they may only be amended with the approval of the Executive Board.
Management.
Article 18.
The company shall be managed by an Executive Board.
Composition and appointment of the Executive Board.
Article 19.
1. The Supervisory Board shall determine the number of members of the Executive Board. The Executive Board shall consist of at least three members.
2. Members of the Executive Board shall be appointed by the General Meeting of Shareholders from a binding list of at least two candidates for each vacancy, which shall be drawn up by the Supervisory Board.
The binding list of candidates shall be drawn up not later than the day before the date of the notice convening of the General Meeting of Shareholders at which the appointment is to be considered.
If the Supervisory Board declines to exercise its right to draw up a binding list of candidates or fails to do so in time, the General Meeting of Shareholders shall be free in its choice of appointee.
A binding list of candidates may be declared non-binding by the General Meeting of Shareholders by a resolution adopted by at least(1) two-thirds of the votes cast which together represent more than one-third of the issued capital.
The provisions of Section 120, subsection 3, of Book 2 of the Netherlands Civil Code shall not be applicable.
3. Members of the Executive Board may be suspended or dismissed at any time by the General Meeting of Shareholders.
A resolution to suspend or dismiss members of the Executive Board which has not been brought forward by the Supervisory Board may only be adopted by the General Meeting of Shareholders by at least two-thirds of the votes cast which together represent at least one-third of the issued capital.
The provisions of Section 120, subsection 3, of Book 2 of the Netherlands Civil Code shall not be applicable.
4. Members of the Executive Board may be suspended at any time by the Supervisory Board.
5. A suspension, which may be extended on one or more occasions, shall not last more than three months unless a resolution to dismiss the member is adopted, in which case the period of suspension may extend until termination of the member's service.
Organisation of the Executive Board.
Article 20.
1. The Supervisory Board shall appoint a chairman of the Executive Board from among the members of the Executive Board and may appoint one or more vice-chairmen of the Executive Board from among the other members.
2. The Executive Board shall draw up by-laws governing the conduct of meetings of and decision-making by the Executive Board. The by-laws and any alterations to them shall require the approval of the Supervisory Board.
3. In the event of the absence or inability to act of one or more, but not all, of the members of the Executive Board, the remaining member or members of the Executive Board shall be responsible for the management of the company. In the event of the absence or inability to act of all the members of the Executive
Board, the Supervisory Board shall be temporarily responsible for the management of the company. In the latter case, the Supervisory Board may temporarily entrust the management of the company to one or more persons designated by the Supervisory Board, from among its members or from outside.
Terms of employment of Executive Board members.
Article 21.
The terms of employment of the members of the Executive Board shall be determined by the Supervisory Board.
Executive Board resolutions which require the approval of the Supervisory Board or General Meeting of Shareholders.
Article 22.
1. Without prejudice to the other provisions of these Articles of Association, the Executive Board shall require the approval of the Supervisory Board for resolutions which relate to:
a. the issue or acquisition of shares and debentures issued by the company or debentures issued by a limited partnership or general partnership in which the company is the general partner;
b. cooperation in the issue of depositary receipts for shares;
c. application for listing in or removal from the price list of any stock exchange of the securities referred to in a. or b.;
d. entry into or termination of lasting cooperation between the company or a dependent company and another legal entity or partnership or as general partner in a limited partnership or general partnership where such cooperation or termination thereof has material significance for the company;
e. acquisition by the company or a dependent company of a participating interest in the capital of another company amounting to one-quarter or more of the company's issued capital and reserves as disclosed in its balance sheet and notes thereto or a material increase or decrease in the magnitude of such a participating interest;
f. investments involving an amount equal to one-quarter or more of the company's issued capital and reserves as disclosed in its balance sheet and notes thereto;
g. a proposal to amend the Articles of Association;
h. a proposal to wind up the company;
i. filing of a petition for bankruptcy or moratorium;
j. termination of the employment of a substantial number of employees of the company or of a dependent company simultaneously or within a short period of time;
k. a material change in the working conditions of a substantial number of employees of the company or of a dependent company;
l. a proposal to reduce the issued capital; and
m. other resolutions which the Supervisory Board has determined, in consultation with the Executive Board, to be subject to its approval.
2. Without prejudice to the other provisions of these Articles of Association, the Executive Board shall require the approval of the General Meeting of Shareholders for resolutions which relate to:
a. transfer to a third party of the entire enterprise conducted by the company or the transfer or other assignment of the enterprises of subsidiaries as a consequence of which the company or the group over which the company exercises central control ceases to engage in both insurance and banking;
b. formation or termination of a permanent relationship between the company and another legal entity or partnership whereby the relationship or its termination is of material significance to the company;
c. acquisition by the company of an interest in the capital of a company amounting to one-third or more of the assets as disclosed in the company's last-adopted balance sheet and notes thereto;
d. cooperation in the acquisition of control over the activities constituting the company's enterprise within the meaning of the Merger Code 2000 of the Social and Economic Council, irrespective of whether that code is applicable.
3. The absence of approval by the Supervisory Board or the General Meeting of Shareholders of a resolution as referred to in paragraph 1 or paragraph 2, respectively, shall not affect the representative authority of the Executive Board or of the members of the Executive Board.
Representation of the company.
Article 23.
1. In so far as the law does not provide otherwise, the Executive Board shall be authorised to represent the company.
2. Representative authority shall also vest in each member of the Executive Board.
3. If a member of the Executive Board has a conflict of interest with the company, he shall be authorised to represent the company like any other member of the Executive Board, unless the conflict of interest is in a private capacity, in which case the chairman of the Supervisory Board, or another member of the Supervisory Board appointed by the Supervisory Board, shall be authorised to represent the company.
4. The Executive Board may vest powers of attorney or other continuing representative authority in one or more persons, whether or not employees of the company, and to confer on one or more such persons as referred to above, and on other persons provided they are employees of the company, the title of general manager or such other title as the Executive Board deems fit.
Supervisory Board.
Article 24.
1. The company shall have a Supervisory Board.
2. The function of the Supervisory Board shall be to supervise the policy of the Executive Board and the general course of affairs of the company and the enterprise associated therewith. It shall assist the Executive Board in an advisory capacity. In the performance of their duties, the members of the Supervisory Board shall be guided by the interests of the company and the enterprise associated therewith.
Composition and appointment of the Supervisory Board.
Article 25.
1. The Supervisory Board shall consist of at least three members. The number of members of the Supervisory Board shall be determined by the Supervisory Board, having due regard for the provision of the preceding sentence.
2. Members of the Supervisory Board shall be appointed by the General Meeting of Shareholders from a binding list of at least two candidates for each vacancy, which shall be drawn up by the Supervisory Board.
The binding list of candidates shall be drawn up not later than the day before the date of the notice convening of the General Meeting of Shareholders at which the appointment is to be considered.
If the Supervisory Board declines to exercise its right to draw up a binding list of candidates or fails to do so in time, the General Meeting of Shareholders shall be free in its choice of appointee.
A binding list of candidates may be declared non-binding by the General Meeting of Shareholders by a resolution adopted by at least(2) two-thirds of the votes cast which together represent more than one-third of the issued capital. The provisions of Section 120, subsection 3, of Book 2 of the Netherlands Civil Code shall not be applicable.
3. Members of the Supervisory Board may be suspended or dismissed at any time by the General Meeting of Shareholders.
A resolution to suspend or dismiss members of the Supervisory Board which has not been brought forward by the Supervisory Board may only be adopted by the General Meeting of Shareholders by at least two-thirds of the votes cast which together represent at least one-third of the issued capital.
The provisions of Section 120, subsection 3, of Book 2 of the Netherlands Civil Code shall not be applicable.
4. A member of the Supervisory Board shall retire not later than the end of the first General Meeting of Shareholders held after the fourth anniversary of his last appointment or reappointment.
Upon retirement, a member of the Supervisory Board shall be eligible for immediate reappointment, but may not be reappointed more than twice unless the Supervisory Board grants dispensation from that provision in exceptional circumstances, at the Board's discretion.
5. A member of the Supervisory Board may not be:
a. an employee of the company;
b. an employee of a dependent company; or
c. a manager or employee of an employees' organisation which is customarily involved in determining the terms of employment of the persons referred to in a. and b. above.
Organisation of the Supervisory Board.
Article 26.
1. The Supervisory Board shall appoint a chairman and may appoint one or more vice-chairmen from among its members.
2. The Supervisory Board shall draw up by-laws governing the conduct of meetings of and decision-making by the Supervisory Board.
3. The members of the Executive Board shall attend the meetings of the Supervisory Board unless the Supervisory Board decides otherwise.
4. The Executive Board shall provide the Supervisory Board in good time with the information required for the discharge of its duties.
5. The Supervisory Board shall be entitled to enlist the assistance of one or more experts at the company's expense.
6. The Supervisory Board shall be entitled to designate one or more of its members as authorised - to the extent determined by the Board - to have access to all the company's premises, to inspect all books, correspondence and other documents and to take cognisance of all other acts which have taken place.
7. The Supervisory Board may delegate one or more of its members to maintain more frequent contact with the Executive Board and to report their findings to the Supervisory Board.
8. The Supervisory Board shall be authorised to appoint committees consisting of members of the Supervisory Board and other corporate bodies, including but not limited to an Audit Committee, a Corporate Governance Committee and an Appointment and Remuneration Committee. The tasks, powers and titles of the committees shall be determined by the Supervisory Board.
Remuneration of Supervisory Board members.
Article 27.
The members of the Supervisory Board shall receive remuneration for their services, which shall be determined by the General Meeting of Shareholders.
General Meetings of Shareholders.
Article 28.
1. At least one General Meeting of Shareholders shall be held each year within six months of the end of the financial year.
2. Further General Meetings of Shareholders shall be held whenever the Executive Board or Supervisory Board considers it desirable or whenever one or more holders of shares or depositary receipts for shares which together represent at least one-tenth of the issued capital request the Executive Board in writing to convene a General Meeting of Shareholders, precisely stating the business to be transacted.
Notice of meetings.
Article 29.
1. The shareholders and holders of depositary receipts shall be given notice of General Meetings of Shareholders.
2. The notice of meeting shall be given by placing an announcement in a national daily newspaper not later than the fifteenth day before the date of the meeting and in the organ of Euronext Amsterdam N.V.
3. The notice of meeting shall state the business to be transacted or shall state that the agenda is available for inspection by shareholders and holders of depositary receipts at the office of the company and at a place in Amsterdam to be determined by the Executive Board. Except in cases where the Supervisory Board and Executive Board consider there to be compelling reasons in the company's interest to exclude them from the agenda, the meeting shall consider items which are precisely defined in a written request,
signed by one or more holders of shares or depositary receipts for shares who together represent at least one-thousandth of the issued capital, submitted to the Executive Board or the Chairman of the Supervisory Board no later than fifty days before the date of the meeting.
4. If the agenda includes a motion to reduce the capital or amend the Articles of Association, the notice of meeting shall also comply with the provisions of Sections 99 and 123 of Book 2 of the Netherlands Civil Code in so far as they are applicable.
Venue of the General Meeting of Shareholders.
Article 30.
General Meetings of Shareholders shall be held in Amsterdam, The Hague, Rotterdam or Utrecht, at the discretion of the Executive Board.
Admission to General Meetings of Shareholders.
Article 31.
1. Provided the requirements set out below in this article are fulfilled, each shareholder and each holder of depositary receipts shall be entitled to attend and address the meeting, either in person or represented by a proxy appointed in writing; shareholders shall also be entitled to vote at the meeting.
2. Holders of registered shares wishing to attend the meeting shall send the company written notice of their intention, or the instrument appointing their proxies, by the date determined by the Executive Board and stated in the notice of meeting, which date shall not be earlier than the seventh day before the date of the meeting.
The requirement referred to in the first sentence of this paragraph shall not apply to holders of cumulative preference shares or to the trust office referred to in Article 17.
3. The Executive Board shall be authorised for an indefinite period to set a registration date as referred to in Section 119 of Book 2 of the Netherlands Civil Code.
If this authority is exercised, the provisions of subsection 3 of said section shall also apply even if the provisions of these Articles of Association are departed from - with due observance of the provisions of said section - in their application.
4. A person named in a written statement by an affiliated institution within the meaning of the Securities Giro Transfer Act, to the effect that:
(i) the stated number of depositary receipts are part of its aggregate collective stock deposit; and (ii) if the Executive Board has not set a registration date, the person named in the statement is the holder of the stated number of depositary receipts and will remain so until after the meeting; or iii)(3) if the Executive Board has set a registration date, the person named in the statement was(4) the holder of the stated number of depositary receipts on the registration date; ---------- |
(3) Translator's Note: in the interests of clarity, this subparagraph has been numbered sequentially by the translator. The original Dutch source document states literally: ` . . . or ii) if the Executive Board has set a registration date . . . '.
shall be deemed to be the holder of depositary receipts which form part of an aggregate or central collective stock deposit, provided that the relevant statement is deposited at the request of the depositary receipt holder concerned at the office of the company, or at one or more other places to be determined by the Supervisory Board in municipalities to be determined by the Supervisory Board, by the date set by the Executive Board and stated in the notice of meeting.
Instruments appointing proxies for depositary receipt holders shall also be deposited at the office of the company or at one of the places referred to above no later than the date determined by the Executive Board and stated in the notice of meeting.
5. The admission of persons other than shareholders, depositary receipt holders and their proxies and members of the Supervisory Board and Executive Board shall be at the discretion of the chairman of the meeting.
6. If a share forms part of a community of property, the rights attaching to the share may only be exercised by the joint owners via a person appointed jointly by them in writing.
7. Before being admitted to a meeting, a shareholder or depositary receipt holder or his proxy shall sign an attendance register, stating his name and, if applicable, the number of votes he is entitled to cast.
Where a shareholder or depositary receipt holder is represented by a proxy, the name(s) of the person(s) represented by the proxy shall also be stated.
Chairmanship of the meeting and minutes.
Article 32.
1. The meetings shall be presided over by the chairman of the Supervisory Board or, in his absence, by one of the other members of the Supervisory Board appointed by the Supervisory Board.
2. The minutes shall be kept by a person appointed by the chairman of the meeting.
3. The minutes shall be adopted by the chairman of the meeting and by a shareholder or depositary receipt holder appointed by the meeting and signed by the latter, the chairman and the person appointed pursuant to paragraph 2. Barring evidence to the contrary, the minutes shall thereafter serve as evidence vis-a-vis shareholders and depositary receipt holders of what is stated therein.
4. The provisions of paragraphs 2 and 3 of this article shall not be applicable if and to the extent that a notarial record is made of the business transacted at the meeting.
5. Without prejudice to the provisions of Section 13, subsections 3 and 4, of Book 2 of the Netherlands Civil Code, all matters regarding admission to the General Meeting of Shareholders, the exercise of voting rights, the result of votes and all other matters relating to the conduct of the meeting shall be at the discretion of the chairman of the meeting in question.
Voting rights and voting.
Article 33.
1. Only shareholders shall have voting rights.
2. A shareholder may cast as many votes as the whole number of times the aggregate nominal amount of his shares can be divided by twenty-four euro cents (EUR 0.24).
3. In determining how the shareholders vote, what proportion of the shareholders are present or represented and what proportion of the share capital is present or represented, no account shall be taken of shares in respect of which voting is prohibited by law.
4. Except where a larger majority is prescribed by law or these Articles of Association, resolutions of the General Meeting of Shareholders shall require an absolute majority of the votes cast.
5. The method of voting shall be determined by the chairman of the meeting, including orally, by ballot, electronically or by acclamation.
6. In the event of a tied vote on matters other than persons, the resolution shall be deemed to have been defeated.
7. Blank and invalid votes shall be deemed not to have been cast.
8. In elections, a separate vote shall be held for each vacancy to be filled. If no candidate obtains an absolute majority in the first vote, a second vote shall be held, but, if there is a tie between persons appearing on a binding list of nominees, the person appearing earlier on the list shall be elected. If no-one obtains an absolute majority in a second vote, a third vote shall be held between the two candidates who together obtain the most votes.
9. If, because of a tie between two or more candidates, the second vote fails to decide who is to take part in the third ballot, intermediate votes shall be held between those candidates, if necessary at one or more subsequent meetings at the discretion of the chairman, to determine who is to take part in the third vote.
10. In the event of a tie in an intermediate vote, further intermediate votes shall be held, if necessary at a subsequent meeting at the discretion of the chairman, until an absolute majority is obtained.
11. Unless provided otherwise by law or these Articles of Association, the validity of resolutions shall not depend on the proportion of the share capital represented at the meeting.
Meetings of holders of shares of a particular class.
Article 34.
1. The provisions of paragraph 2 of Article 28 and Articles 29-33 inclusive shall apply mutatis mutandis to meetings of holders of ordinary shares, holders of A preference shares, holders of a series of the B preference shares and holders of cumulative preference shares, save that the holders of other classes of shares need not be notified of such meetings and shall not be admitted to them and that notice of meetings of holders of cumulative preference shares may be given by letter to the holder's address as notified to the company.
2. Provided the resolution is passed unanimously, a valid resolution may be adopted at a meeting of holders of cumulative preference shares at which the entire issued capital in the form of cumulative preference shares is represented, even if the procedures prescribed by law and these Articles of Association for the convening and holding of such meetings have not been complied with.
3. Resolutions of the meeting of holders of cumulative preference shares may also be adopted without holding a meeting, if the resolution is supported unanimously by the written votes of all the holders of cumulative preference shares who are entitled to vote.
Financial year, annual accounts and annual report.
Article 35.
1. The company's financial year shall be concurrent with the calendar year.
2. Within five months of the end of each financial year, save where that period has been extended for a maximum of six months by the General Meeting of Shareholders on account of special circumstances, the Executive Board shall prepare the annual accounts and deposit them at the company's office and at a place in Amsterdam to be determined by the Supervisory Board, for inspection by shareholders and depositary receipt holders.
The Executive Board shall also present the annual report within the same period.
3. The annual accounts shall be signed by all the members of the Executive Board and all the members of the Supervisory Board; if the signature of one or more of them is missing, this shall be stated and the reason shall be given.
4. The annual accounts shall be adopted by the General Meeting of Shareholders.
When the resolution to adopt the annual accounts has been considered, a resolution shall be brought before the General Meeting of Shareholders to ratify the actions of the members of the Executive in respect of their management and those of the members of the Supervisory Board in respect of their supervision of the management in the financial year, to the extent that this is reflected in the financial statements or has been reported upon at the General Meeting of Shareholders.
5. The Executive Board shall ensure that the annual accounts, the annual report and the other documents required by law are published, deposited at the company's office and laid open for inspection and that copies are available, all in accordance with the statutory provisions.
Expert examination.
Article 36.
1. The company shall engage a registeraccountant or other suitably qualified auditor to examine the annual accounts. It may alternatively engage an organisation in which suitably qualified auditors work together.
2. The General Meeting of Shareholders shall be authorised to appoint the auditor. If it fails to do so, the Supervisory Board shall be authorised to appoint the auditor, failing which that responsibility shall fall to the Executive Board.
3. The auditor shall report on his examination to the Supervisory Board and the Executive Board.
4. The auditor shall present the result of his examination in a report indicating whether the annual accounts present a true and fair view.
5. The annual accounts shall not be adopted if the General Meeting of Shareholders has been unable to take cognisance of the auditor's report which is to be appended to the annual accounts, unless a legitimate reason for the absence of the auditor's report is given in the other information.
Profit appropriation, reserves and distributions.
Article 37.
1. The company may make distributions to the shareholders only to the extent that its shareholders' equity exceeds the sum of the paid-up and called capital and the reserves prescribed by law.
2. No distribution of profit may be made before adoption of the annual accounts showing that distribution is permissible.
3. Out of the profit shall if possible first be distributed a dividend on the cumulative preference shares amounting to the percentage referred to below of the amount compulsorily paid up or yet to be paid up on the cumulative preference shares at the start of the financial year to which the distribution relates or, if the cumulative preference shares have been subscribed for in the course of the financial year, on the date on which the shares were subscribed for. The percentage referred to above shall be two and a half points above the time-weighted average of(5) the Euro OverNight Index Average (EONIA) as calculated by the European Central Bank for the financial year to which the distribution relates. If the amount compulsorily paid up on the cumulative preference shares is reduced or, pursuant to a resolution to make a further call on shares, increased, the distribution shall be reduced or if possible increased, respectively, by an amount equal to the aforementioned percentage of the reduction or increase, calculated from the date of the reduction or the date on which the capital call is payable. If and to the extent that the profit is not sufficient to make the distribution referred to in the first sentence in full, the shortfall shall be paid out of the reserves provided this is not in breach of the provisions of paragraph 1 of this article. If and to the extent that the distribution referred to in the first sentence cannot be made from the reserves, profits in subsequent years shall first be applied for distributions to the holders of cumulative preference shares to make up the shortfall, before the provisions of the following paragraphs of this article are applied. No distributions shall be made on the cumulative preference shares other than those provided for in this article and in Articles 38 and 41. If annual accounts showing that distribution of profit is permissible are adopted(6) for a financial year in which one or more cumulative preference shares have been redeemed, the holders of these cumulative preference shares at the time of said redemption according to the register referred to in Article 7 shall have an inalienable right to distribution of profit as referred to below. The profit to be distributed if possible to such holder(s) shall be equal to the distribution to which they would have been entitled by virtue of the provisions of the first sentence of this paragraph if they had still been holders of the cumulative preference shares at the time of the declaration of the profit, reduced pro rata relative to the period of the said financial year for which they held these cumulative preference shares, less the amount of the distribution
(6) Translator's Note: in the interests of clarity, a reference to the adoption of annual accounts has been inserted here by the translator. The original Dutch source document states literally: `If the profit for a financial year is adopted and in that financial year . . . '.
made in accordance with the provisions of Article 38, paragraph 4. If an issue of cumulative preference shares takes place in the course of a financial year, the dividend payable on those cumulative preference shares for that financial year shall be reduced pro rata relative to the date of issue.
4. a. A dividend shall then be paid on the preference shares, determined as provided for below in this paragraph.
b. On each A preference share a dividend shall be paid of a percentage of the amount (including share premium) for which A preference shares were first subscribed for, said percentage being related to the average effective yield on the five longest-dated government loans calculated as set forth below.
c. The percentage dividend on all A preference shares shall be adjusted, for the first time on the first of January, two thousand and four, and thereafter at ten-yearly intervals, to bring it into line with the average effective yield at that time on the five longest-dated government loans, calculated as set forth in d. below.
d. The percentage dividend on the A preference shares shall be the arithmetic mean of the average effective yields on the five longest-dated government loans as referred to above in b. and c. of this paragraph, as calculated by Statistics Netherlands (CBS) and published in the organ of Euronext Amsterdam N.V., for the twenty trading days immediately preceding the date of issue of the first A preference shares or preceding the date on which the dividend percentage is adjusted, where necessary increased or decreased at the Executive Board's discretion, subject to the approval of the Supervisory Board, by a maximum of half a percentage point depending on the market conditions then obtaining.
e. On the B preference shares a dividend shall be paid of a percentage of the amount (including share premium) for which B preference shares in the relevant series were first subscribed for, said percentage being related to the average effective yield on government loans with a remaining maturity as referred to below.
f. The percentage dividend on all the B preference shares of the relevant series shall be adjusted, for the first time on the first of January of the calendar year following the day after the seventh anniversary of the issue of the first B preference shares in the relevant series and thereafter at seven-yearly intervals, to bring it into line with the average effective yield at that time on government loans with a remaining maturity as referred to below.
g. The percentage dividend on each series of B preference shares shall be the arithmetic mean of the average effective yields on government loans with a (remaining) maturity of six to seven years, as calculated by Statistics Netherlands (CBS) and published in the organ of Euronext Amsterdam N.V., for the twenty trading days immediately preceding the date of issue of the first B preference shares of the relevant series or preceding the date on which the dividend percentage is adjusted, where necessary increased or decreased at the Executive Board's discretion, subject to the approval of the Supervisory Board, by a maximum of one percentage point depending on the market conditions then obtaining.
h. If the amount compulsorily paid up on the A preference shares and/or one or more of the series of B preference shares is reduced in the financial year in respect of which the distribution referred to above in this paragraph is made, the distribution on the relevant preference shares shall be reduced by an amount equal to the dividend percentage on the relevant preference shares of the amount of the reduction, proportional to the time elapsed between the reduction and the end of the relevant financial year.
i. No distributions shall be made on the preference shares other than those provided for in this article and in Articles 38 and 41.
j. If annual accounts showing that distribution of profit is permissible are adopted(7) for a financial year in which A preference shares and/or B preference shares in one or more series have been redeemed, the holders of preference shares in one or more of the relevant series(8) at the time of said redemption according to the register referred to in Article 7 shall have an inalienable right to distribution of profit as referred to below. The profit to be distributed if possible to such holders shall be equal to the distribution to which they would have been entitled by virtue of the right referred to above in this paragraph if they had still been holders of the preference shares at the time of the declaration of the profit, reduced pro rata relative to the period of the said financial year for which they held the preference shares referred to above, less the amount of the distribution made in accordance with the provisions of Article 38, paragraph 4.
k. If the first issue of a series of B preference shares takes place in the course of a financial year, the dividend payable on the preference shares of the relevant series for that financial year shall be reduced pro rata relative to the first date of issue.
l. If the profit remaining after the application of the provisions of paragraph 3 of this article is insufficient to enable the distribution referred to above in this paragraph to be made in full, part of the profit shall be distributed to the holders of preference shares on a pro rata basis relative to their entitlement to the full amount which would have been distributed if the profit had been sufficient.
5. The Executive Board shall determine, subject to the approval of the Supervisory Board, what part of the profit remaining after application of the provisions of the preceding paragraphs is to be appropriated to reserves.
6. Without prejudice to the provisions of paragraph 8 of this article, the profit remaining after application of the provisions of the preceding paragraphs shall be at the disposal of the General Meeting of Shareholders.
(8) Translator's Note: in the interests of clarity, a reference to `one or more of the relevant series' has been inserted here by the translator. The original Dutch source document states literally: ` . . . the holders of one or more of the relevant preference shares at the time of said redemption . . . '.
7. Without prejudice to the provisions of Article 38, the General Meeting of Shareholders shall be authorised to resolve, on a motion of the Executive Board which has been approved by the Supervisory Board, to make a distribution from reserves to the holders of ordinary shares.
8. Entitlement to dividend or other form of distribution on an ordinary share, an A preference share, a B preference share of a particular series or a cumulative preference share shall vest in the person in whose name the relevant share is registered on a date determined by the Executive Board with the approval of the Supervisory Board, which may be different for each of the aforementioned classes of share. The date for ordinary shares for which registered depositary receipts have been issued and in which trading is permitted, with the cooperation of the company, via a stock exchange or similar institution in a country other than the Netherlands may be different from the date for the other ordinary shares. Each date determined in this way shall be announced in accordance with the regulations applicable to the company.
9. The Executive Board may, with the approval of the Supervisory Board, determine that a distribution in cash on ordinary shares for which registered depositary receipts have been issued and in which trading is permitted, with the cooperation the company, via a stock exchange or similar institution in a country other than the Netherlands shall be paid in the currency of the country concerned, unless the company is prevented from doing so by government measures or other circumstances beyond its control. If a distribution is made in a foreign currency pursuant to the provisions of the preceding sentence, it shall be converted for that purpose at the exchange rate on a date to be determined by the Executive Board with the approval of the Supervisory Board. That date shall not be before the date of adoption of the resolution to make the distribution nor after the date determined pursuant to the provisions of Article 39, paragraph 1, for the relevant shares. Each date determined in this way shall be announced in accordance with the regulations applicable to the company.
10. If the Executive Board has been designated as a body authorised to resolve to issue shares in accordance with the provisions of Article 12, it shall be authorised, with the approval of the Supervisory Board, to determine that, instead of in cash, a distribution on ordinary shares shall be made in the form of ordinary shares, A preference shares or B preference shares in one or more series or to determine that the holders of ordinary shares shall be given the choice of receiving the distribution in cash or in the form of ordinary shares, A preference shares or B preference shares in one or more series. The terms on which that choice is given shall be determined by the Executive Board, with the approval of the Supervisory Board.
If, in any financial year, the method by which distributions are made departs from the distribution policy applied by the company in the preceding financial years, the Executive Board shall explain the reasons in the annual report, unless the shareholders are given the choice of receiving the distribution in cash or in shares in that financial year.
11. Shares which the company holds in its own capital shall not be taken into account in calculating the distribution of profit, unless such shares are subject to a pledge or usufruct.
Interim dividends.
Article 38.
1. The Executive Board shall be authorised, with the approval of the Supervisory Board, to make interim distributions on one or more classes of share.
2. An interim distribution may only be made if the requirement of paragraph 1 of Article 37 has been fulfilled, as evidenced by an interim statement of assets and liabilities drawn up in accordance with the statutory requirements.
3. The provisions of paragraph 10 of Article 37 shall apply mutatis mutandis to interim distributions.
4. If preference shares or cumulative preference shares are redeemed, a distribution shall be made on the cancelled preference shares or cumulative preference shares on the date of redemption, calculated in accordance with the provisions of paragraph 4 or paragraph 3, respectively, of Article 37, in respect of the period for which a distribution as referred to in the first sentence of paragraph 4 of Article 37 or paragraph 3 of that article, respectively, has not previously been made, up to the date of redemption, provided the requirements of paragraph 1 of Article 37 have been fulfilled, as evidenced by an interim statement of assets and liabilities drawn up in such a case by the Executive Board in accordance with the statutory requirements.
5. If preference shares are redeemed, a distribution shall be made of the amount stipulated below on each cancelled preference share on the date of redemption, in addition to the repayment, provided the requirements of paragraph 1 of Article 37 have been fulfilled, as evidenced by an interim statement of assets and liabilities drawn up in such a case by the Executive Board in accordance with the statutory requirements. The amount referred to in the first sentence of this paragraph for each cancelled A preference share shall be equal to the amount (including share premium) for which A preference shares were first subscribed for less the nominal value of the share and for each cancelled B preference share in a given series shall be equal to the difference between the amount (including share premium) for which B preference shares in the relevant series were first subscribed for and the nominal value of the share.
Payment and forfeiture.
Article 39.
1. Distributions shall be due and payable with effect from a date set by the Executive Board, with the approval of the Supervisory Board, which may be different for distributions on ordinary shares, distributions on A preference shares, distributions on one or more of the series of B preference shares and distributions on cumulative preference shares. The date on which the distribution on ordinary shares first becomes due and payable may, in the case of ordinary shares for which registered depositary receipts have been issued and in which trading is permitted, with the cooperation the company, via a stock exchange or similar institution in a country other than the Netherlands, be different from the date for the other ordinary shares. Each date determined in this way shall be announced in accordance with the regulations applicable to the company.
2. The shareholder's claim to the distribution shall lapse five years from the beginning of the second day after the day on which the distribution becomes due.
Amendment of the Articles of Association.
Article 40.
1. The General Meeting of Shareholders shall be authorised to resolve to amend these Articles of Association, provided the resolution is adopted on a motion of the Executive Board which has been approved by the Supervisory Board. Without prejudice to the provisions of paragraph 11 of Article 33, such a resolution of the General Meeting of Shareholders shall require a majority of at least two-thirds of the votes cast at a General Meeting of Shareholders at which at least two-thirds of the issued capital is represented.
2. An amendment of the Articles of Association shall not take effect until a declaration as referred to in Section 125 of Book 2 of the Netherlands Civil Code has been issued by the Minister of Justice.
3. A notarial deed embodying the amendment to the Articles of Association shall be drawn up, failing which the amendment shall be null and void.
Winding up and liquidation.
Article 41.
1. The General Meeting of Shareholders shall be authorised to resolve to wind up the company, provided the resolution is adopted on a motion of the Executive Board which has been approved by the Supervisory Board. Without prejudice to the provisions of paragraph 11 of Article 33, such a resolution of the General Meeting of Shareholders shall require a majority of at least two-thirds of the votes cast at a General Meeting of Shareholders at which at least two-thirds of the issued capital is represented.
2. If a resolution to wind up the company is adopted, the liquidation shall be conducted by the Executive Board under the supervision of the Supervisory Board, unless other liquidators are appointed by the Supervisory Board.
3. The provisions of these Articles of Association shall remain in force as far as possible during the liquidation.
4. The company's assets remaining after payment of all debts and liquidation costs shall be divided as follows:
a. first, the holders of cumulative preference shares shall as far as possible be paid an amount equal to the nominal amount paid on their cumulative preference shares plus the percentage referred to in paragraph 3 of Article 37 of the amount compulsorily paid on the cumulative preference shares, for each year or part of a year in the period commencing on the day after the period in respect of which the last dividend was paid and ending on the date of the distribution on preference shares referred to in this article;
b. the holders of preference shares shall then as far as possible be paid an amount as defined in this sub-paragraph b. for each preference share they hold:
(i) on each A preference share shall be paid an amount equal to the amount (including share premium) for which the A preference shares were first subscribed for, plus an amount equal to the percentage referred to in paragraph 4.b. of Article 37 (which may have been adjusted pursuant to the provisions of that paragraph) of the amount (including share premium) paid on the relevant share, for each year or part of a year in the period commencing on the first day of the last full calendar year prior to the winding-up
and ending on the date of the distribution on
preference shares referred to in this article;
(ii) on each B preference share in a given series shall be paid an amount equal to the amount (including share premium) for which the B preference shares in that series were first subscribed for, plus an amount equal to the percentage referred to in paragraph 4.e. of Article 37 (which may have been adjusted pursuant to the provisions of that paragraph) of the amount (including share premium) for which the B preference shares in that series were first subscribed for, for each year or part of a year in the period commencing on the first day of the last full calendar year prior to the winding-up and ending on the date of the distribution on preference shares referred to in this article;
(iii) all dividends paid on the relevant preference shares for the period referred to above in this sub-paragraph shall be deducted from the distribution pursuant to the provisions of (i) or (ii) of this sub-paragraph b.;
(iv) if the company's assets remaining after the
application of the provisions of sub-paragraph a. of
this paragraph are insufficient to enable the
distribution referred to above in this sub-paragraph
b. to be made in full, the assets shall be
distributed to the holders of preference shares on a
pro rata basis relative to their entitlement to the
full amount which would have been distributed
pursuant to the provisions of this sub-paragraph b.
if the assets had been sufficient;
c. the company's assets remaining after the application of the provisions of sub-paragraphs a. and b. of this paragraph shall be distributed to the holders of ordinary shares in proportion to the number of ordinary shares held by each of them.
EXHIBIT 1.2
AMENDMENT OF TRUST CONDITIONS
STICHTING ING AANDELEN
Deed dated 23 June 2003
Stamp of the Royal Netherlands Society of Notaries AMENDMENT OF TRUST CONDITIONS PD/PJ/694362/34488.wij STICHTING ADMINISTRATIEKANTOOR ING GROEP 23-06-03 3 (21706) |
This day, the twenty-third of June, two thousand and three, there appeared
before me, Peter Jakob Dortmond, civil-law notary practising in Amsterdam:
Robert Michel FISCHMANN, residing at Hectorstraat 47 II, Amsterdam (postcode
1076 PP), born in Eindhoven on the sixth of August, nineteen hundred and
sixty-eight, unmarried and with no registered partner, holder of Netherlands
driving licence no. 3159334326, acting for the purposes of this deed as holder
of a written power of attorney granted by the foundation referred to below.
The appearer declared:
- that the Executive Committee of STICHTING ING AANDELEN (formerly named Stichting Administratiekantoor ING Groep), a foundation with its registered office in Amsterdam and its principal place of business at Amstelveenseweg 500, Amsterdam (postcode 1081 KL), and entered in the Trade Register under no. 41156637 (the `foundation'), had resolved on the third of December, two thousand and two, to amend the trust conditions under which the foundation is willing to take shares in the capital of the aforementioned company[A1] into administration and to issue depositary receipts in exchange;
- that the Executive Committee of the foundation had authorised the
[A2]grantor of the power of attorney to execute the deed of amendment
of the trust conditions;
- that these resolutions were evidenced by a copy of an extract from the minutes of the relevant meeting, which will be attached to this deed;
- that Euronext Amsterdam N.V. and the Executive Board and Supervisory Board of ING Groep N.V. had given the requisite approval for the present amendment to the trust conditions, as evidenced by a declaration and by minutes of the meetings, respectively, copies of which will be attached to this deed.
In implementation of the aforementioned resolutions, the appearer declared that he amended the trust conditions of the foundation such that the full text would read as follows:
Object
Article 1.
1. Pursuant to its Constitution, the object of Stichting ING Aandelen (the `trust office'), a foundation with its registered office in Amsterdam, is:
a) to foster the interests of the holders of depositary receipts for shares (hereinafter referred to as `depositary receipt holders') in the capital of ING Groep N.V., a public limited company with its registered office in Amsterdam (hereinafter referred to as the `company'), while having regard
for the interests of (i) the company itself, (ii) the enterprises carried on by the company and companies associated with it in a group and (iii) all other stakeholders in the company, such that all those interests are balanced and safeguarded as effectively as possible;
b) to acquire and administer for the purposes of management, issuing exchangeable depositary receipts (hereinafter referred to as `depositary receipts') in their place, registered shares in the capital of the company and any bonus shares which may be distributed thereon or shares acquired as stock dividend or by the exercise of subscription rights, to exercise voting rights and all other rights attaching to the shares, to exercise subscription rights and to receive dividends and other distributions, including proceeds of liquidation, subject to the obligation to distribute the income to the holders of depositary receipts for shares of the relevant class, save that depositary receipts shall be issued for bonus shares, shares acquired as stock dividend and shares acquired on behalf of depositary receipt holders by virtue of the exercise of subscription rights;
c) to foster the exchange of information between the company on the one hand and the depositary receipt holders and shareholders in the company on the other;
d) to promote and organise the solicitation of proxies of shareholders other than the foundation itself and of specific proxies and/or voting instructions of depositary receipt holders;
and further to engage in any activity which may be related to the foregoing in the widest sense, whereby all activities which entail commercial risk shall be excluded from the foundation's object.
2. The foundation may take into administration ordinary shares, A preference shares and, irrespective of the series, B preference shares in the capital of ING Groep N.V., a public limited liability company with its registered office in Amsterdam, (the `company'), issuing in exchange for each share of any class a depositary receipt for a share of the same class, in the case of depositary receipts for ordinary shares with a nominal value of twenty-four euro cents (EUR 0.24) and in the case of depositary receipts for A preference shares and B preference shares, irrespective of the series, with a nominal value of one euro and twenty cents (EUR 1.20).
3. Unless expressly stated otherwise, the terms `shares', `depositary receipts' and `depositary receipt holders' shall denote all classes of shares referred to in the preceding paragraph, whereby each series of B preference shares shall count as a separate class, depositary receipts for all those classes of shares and the holders of depositary receipts for all those classes of shares, respectively. Unless expressly stated otherwise, the term `preference shares' shall mean both the A preference shares and the B preference shares, irrespective of the series.
Bearer depositary receipts
Article 2.
1. The depositary receipts shall be made out to bearer and shall be embodied in a single depositary receipt for each class of shares for which they have been issued, hereinafter referred to as a `global depositary receipt'. The global depositary receipt may include a stipulation as referred to in Section 36, subsection 5, of the Securities Giro Transfer Act (hereinafter referred to as `WGE').
2. The global depositary receipts referred to in paragraph 1 of this article shall be placed in custody by the foundation on behalf of the depositary receipt holders with Nederlands Centraal Instituut voor Giraal Effectenverkeer (hereinafter referred to as `Necigef'), the `central institution' within the meaning of the WGE, in exchange for which each depositary receipt holder shall be credited, on a pro rata basis relative to his entitlement as a participant, in the collective deposit of depositary receipts for the relevant class of shares which is maintained by an affiliated institution within the meaning of the WGE.
3. Each depositary receipt holder shall be required to nominate an affiliated institution as referred to in paragraph 2 of this article, through which the global depositary receipts referred to in paragraph 1 of this article are to be held in custody on his behalf.
4. Return of the global depositary receipts referred to in paragraph 1 of this article to a party other than the foundation shall not be permitted without the foundation's consent.
5. Management of the global depositary receipts shall be irrevocably assigned to Necigef by the holder(s) and Necigef shall be irrevocably authorised to perform any necessary act on behalf of the holder(s) in respect of the relevant depositary receipts, including acceptance and transfer, and to cooperate in making additions to and deletions from the relevant global depositary receipt in accordance with the provisions of the WGE.
6. For the purposes of exercise of rights attaching to a depositary receipt and without prejudice to the provisions of Article 12, the foundation shall consider as the depositary receipt holder the person named in a written statement by an affiliated institution to the effect that the person named in the statement was a participant in the relevant collective stock deposit in respect of the stated number of depositary receipts on the date stipulated by the foundation.
7. Both a usufruct and a pledge may be established on depositary receipts. If no agreement is made with the foundation concerning the voting rights and rights to attend meetings attaching to the depositary receipts at the time of establishment of the usufruct or pledge, those rights shall vest in the depositary receipt holder.
8. In special cases the Executive Committee of the foundation may resolve, with the approval of Necigef and the Executive Board of the company, that the bearer depositary receipts shall be embodied in an instrument other than the global depositary receipt referred to in paragraph 1 of this article.
9. The respective global depositary receipts shall be signed by the foundation, which may apply the signature in facsimile.
10. The civil-law notaries associated now and in the future with the firm of De Brauw Blackstone Westbroek N.V., Amsterdam, or their successors shall be designated as third parties within the meaning of Appendix II of the Listing and Issuing Rules of Euronext Amsterdam N.V., each of whom shall be authorised to act individually. The third party shall assume no liability other than that devolving upon the third party under the trust conditions. The foundation and the company may, if either party expresses the wish to do so, designate one or more other persons as third parties instead of the persons referred to in the preceding paragraph and shall announce that fact immediately in the manner prescribed in Article 6.
Issue of depositary receipts.
Article 3.
1. The relevant share, unencumbered by any limited right and free of any attachment, shall be transferred to and registered in the name of the foundation before a depositary receipt is issued. A person who transfers a share in the company to the foundation shall be liable to the foundation for any loss sustained by the foundation if it transpires that he was not entitled or was not fully entitled to effect such a transfer.
2. The shares taken into administration, for which no certificates shall be issued, shall be evidenced by an entry in the company's share register. The entry in the company's share register shall be in the name of the foundation, with an annotation that the shares shall be at the disposal of no party other than the foundation acting jointly with the third party referred to in Article 2. The company shall provide that third party with written notification of such entry and annotation.
Exercise of voting rights.
Article 4.
1. Even if he is also a shareholder, a depositary receipt holder who has given notice, in the manner prescribed by the company's Articles of Association, of his intention to attend the General Meeting of Shareholders of the company shall be granted power of attorney by the foundation to exercise voting rights at the meeting on shares for which the depositary receipt holder in question holds the depositary receipts.
2. A depository receipt holder may assign to another person the power of attorney granted pursuant to paragraph 1, provided he notifies the foundation of his intention to do so before the start of the General Meeting of Shareholders within a period to be determined by the foundation.
3. The foundation shall not exercise voting rights on shares in respect of which a power of attorney has been granted to a depositary receipt holder if the depositary receipt holder to whom the power of attorney has been granted is present or represented at the General Meeting of Shareholders of the company.
4. Depositary receipt holders may issue instructions to the foundation, in respect of each General Meeting of Shareholders of the company, as to the way in which the foundation is to exercise voting rights at the General Meeting of Shareholders in respect of the shares for which the depositary receipt holder concerned holds the depositary receipts, and the foundation shall comply with such instructions.
5. The foundation shall not be liable for the voting behaviour of a depositary receipt holder or the consequences thereof, nor for the casting of a vote in accordance with a voting instruction which has been issued or the consequences thereof.
6. The foundation shall announce, by means of an advertisement as provided in Article 6, the date (i)(1) by which written voting instructions to the foundation are to be submitted and (ii) by which a power of attorney in respect of voting may be assigned to a third party in the manner stipulated in paragraph 2 of this article.
7. Save as provided above in this article, the foundation shall exercise the voting rights attaching to the shares in accordance with its object pursuant to its Constitution.
8. The foundation may in principle determine the way in which it votes in accordance with the provisions of paragraph 7 without consulting depositary receipt holders.
9. If a change is proposed to the rights attaching to the shares which have been taken into administration, the foundation shall notify the depositary receipt holders by means of an advertisement, if possible at least fourteen days in advance, whether it intends to exercise the voting rights, but shall not be obliged to indicate the way in which it intends to vote.
Distributions.
Article 5.
1. The foundation shall collect from the company all dividends and other distributions on the shares which it holds for the purposes of management and shall make a corresponding dividend or distribution payable on the depositary receipts for the relevant class of shares within one week of receipt.
2. Payment of dividends and other distributions, partial redemption of depositary receipts on and preparation and exchange of depositary receipts and all other actions shall be effected at an address in Amsterdam to be announced by means of an advertisement. The relevant facility shall be open between the hours of nine o'clock and noon on all business days except Saturdays and at such other times as the foundation shall determine.
3. Distributions to the holders of ordinary shares by the company in the form of bonus shares, writing-up of shares, stock dividends and the like shall as far as possible be made available by the foundation to the holders of depositary receipts for ordinary shares in the form of depositary receipts for shares of the relevant class or by writing up the depositary receipts for shares of the relevant class. Distributions to the holders of preference shares by the company in the form of bonus shares, writing-up of shares, stock dividends and the like shall as far as possible be made available by the foundation to the holders of depositary receipts for preference shares in the form of depositary receipts for shares of the relevant class or by writing up the depositary receipts for shares of the relevant class.
4. If pre-emptive rights to issues of new shares by the company are granted to the holders of shares of one or more particular classes, the foundation shall give the holders of depositary receipts for shares of the relevant class(es) an opportunity to exercise pre-emptive rights to depositary receipts on the same basis.
5. If there is a choice between a distribution in cash and a distribution in other securities, the foundation shall announce this in advance by advertisement and shall as far as possible give each holder of depositary receipts for shares of the relevant class an opportunity to indicate their choice up to the fourth day before the date on which the foundation is required to state its choice.
6. If the wishes of the depositary receipt holders concerned have not been communicated to the foundation by the fourth day before the date on which the foundation is required to state its choice, the foundation shall make the choice as it sees fit, in the interests of the depositary receipt holders concerned.
7. Save where a shorter period of limitation or forfeiture is prescribed by law, the claims of depositary receipt holders to payment of dividends and other distributions shall lapse after five years.
Notices.
Article 6.
All notices, announcements and communications to depositary receipt holders shall be given by advertisement in a national daily newspaper and in the Official List of Euronext or an official publication substituted for it pursuant to a resolution of Euronext Amsterdam N.V.
Costs.
Article 7.
1. All costs arising out of these conditions, with the exception of those referred to in Article 10, shall be borne by the company.
2. The foundation shall not charge depositary receipt holders fees for exchanging original shares for depositary receipts, management fees or other fees, except in the cases referred to in Article 10.
3. The dividends and other distributions collected by the foundation shall be paid to depositary receipt holders by the foundation without deduction of commission or expenses.
4. The foundation shall be free to recover from the holders of depositary receipts for shares of the relevant class all charges, taxes and expenses of any kind incurred by the foundation as holder of the original shares by virtue of their possession or with respect to the income received therefrom.
Replacement of global depositary receipts.
Article 8.
1. Lost, missing or damaged global depositary receipts may be replaced by the foundation with new global depositary receipts at such time, subject to such conditions and guarantees and after publication of such notices as the foundation shall determine. With the issue of a new global depositary receipt, the old global depositary receipt shall be valueless. The foundation shall in no circumstances be held liable for any loss sustained by holders of depositary receipts if it
subsequently transpires that, despite the conditions imposed and guarantees required in that regard, a new global depositary receipt has been issued in error.
2. The cost of printing and management of the respective global depositary receipts shall be borne by the company.
Exchange.
Article 9.
1. With due observance of the provisions of Articles 8a., 8b. and 9 of the Articles of Association of the company, if and for as long as those articles are in force, holders of depositary receipts may reclaim shares of the relevant class to the same aggregate nominal value as the depositary receipts they exchange.
2. The shares shall be delivered in exchange for the depositary receipts with the minimum delay by (a) transferring the shares to the shareholder by deed, (b) removing the relevant depositary receipts from the global depositary receipt of the relevant class and (c) by the affiliated institution concerned making a corresponding debit entry in its collective stock deposit, which acts shall form an indivisible whole.
Article 10.
A person presenting depositary receipts for exchange for shares as referred to in Article 9 shall be charged a fee by the foundation of one euro cent (EUR 0.01) per depositary receipt, with a minimum of twenty-five euros (EUR 25) per exchange transaction.
Temporary suspension of printing and exchange of depositary receipts.
Article 11.
If necessary due to special circumstances and after announcement in the manner prescribed in Article 6, the foundation may, with the prior approval of Euronext Amsterdam N.V., temporarily suspend the facilities for printing or exchanging depositary receipts.
Consultation of depositary receipt holders.
Article 12.
1. The foundation may, but only if and when it considers it necessary or desirable, consult depositary receipt holders or holders of depositary receipts for shares of a particular class, subject to such conditions as it may determine, with due observance of these trust conditions.
2. Meetings of depositary receipt holders shall be convened in the manner prescribed in Article 6. The advertisement shall state the items on the agenda and the contents of all documents with which the depositary receipt holders need to be familiar in considering the items on the agenda or shall state that those documents are available free of charge in Amsterdam, and, if the foundation considers it desirable, in one or more other places. Copies of the aforementioned documents shall be deposited with Euronext Amsterdam N.V. Notice of the meeting shall be given and the documents shall be made available and deposited not later than the fifteenth day before the date of the meeting.
3. Provided the requirements set out below in this paragraph are fulfilled, each depositary receipt holder shall be entitled to attend, address and vote at the meeting of depositary receipt holders, either in person or represented by a proxy appointed in writing. For the purposes of determining the rights of bearer
depositary receipt holders to attend and vote at meetings, the foundation shall consider as a depositary receipt holder a person named in a written statement by an affiliated institution to the effect that the number of bearer depositary receipts referred to in the statement are part of its collective stock deposit and that the person named in the statement is a participant in its collective stock deposit in respect of the stated number of bearer depositary receipts and will remain so until after the meeting, provided the relevant statement is deposited with the foundation or at one or more other places to be determined by the Executive Committee - one of which shall be in Amsterdam - not later than three days before the date of the meeting. The notice of meeting shall stipulate the place where and the latest date by which the statement by the affiliated institution is to be deposited, which date shall not be earlier than the seventh day before the date of the meeting; the notice of meeting shall include this information in all cases.
4. A depositary receipt holder may cast as many votes at a meeting of depositary receipt holders as the whole number of times the aggregate nominal amount of the shares for which he holds depositary receipts can be divided by twenty-four euro cents (EUR 0.24).
5. The provisions of paragraphs 2 and 3 of this article shall apply mutatis mutandis to meetings of holders of depositary receipts for a particular class of shares, save that the holders of depositary receipts for other classes of shares need not be notified of such meetings and shall not be admitted to them.
6. For the purposes of application of the provisions of the preceding paragraphs of this article, the foundation may determine that rights to attend and vote at meetings shall be vested in those in whom such rights are vested at a time specified in the notice convening the meeting of depositary receipt holders, irrespective of the owner of the depositary receipts at the time of the meeting of depositary receipt holders. In that case, the affiliated institution shall not be required to certify that the depositary receipt holder will continue to be a participant in its collective stock deposit until after the meeting. The aforementioned date shall not be earlier than the seventh day before the date of the meeting.
Amendment of trust conditions.
Article 13.
1. Provided that due notice is given by the foundation, the trust conditions may be amended. If amendments are made to the trust conditions which diminish the rights or collateral of holders of depositary receipts or impose obligations on depositary receipt holders, an opportunity shall be provided for the depositary receipt holders, for a period of at least three months from the date of the announcement of the amendment, to exchange their depositary receipts free of charge, with due observance of the provisions of Articles 8a., 8b. and 9 of the Articles of Association of the company, if and for as long as those articles are in force. Such amendments shall not take effect for three months from the date of the announcement. Depositary receipt holders shall not be entitled to exchange their depositary receipts free of charge in the case of amendments which are
necessary or desirable as a consequence of changes affecting the shares which have been taken into administration.
2. Amendments to the trust conditions shall not take effect until approved by Euronext Amsterdam N.V. and the Executive Board of the company.
Termination of administration by the foundation.
Article 14.
1. If the foundation is wound up or wishes to terminate its function under these Trust Conditions(2) or if the company wishes to terminate the foundation's function, the company shall, in consultation with the foundation and with the approval of the meeting of depositary receipt holders, appoint a successor to which the administration can be transferred. If such consultation is unsuccessful or if the required approval of the meeting of depositary receipt holders is not obtained, the most diligent party may apply to Euronext Amsterdam N.V. for a decision on this matter, which shall be binding on all the parties. The successor shall assume all obligations under the trust conditions. The appointment of a successor shall take effect two months after announcement in the manner prescribed in Article 6.
2. Within the period stated in the preceding paragraph, the foundation shall transfer into the name of the successor the shares which it has in administration. This shall be arranged by the foundation with the institutions affiliated to Necigef. Upon transfer of the administration, holders of depositary receipts shall be able if they wish, for a period of two months after announcement of the transfer, to exchange their depositary receipts free of charge for the same nominal amount of shares of the same class as the depositary receipts which they hold, with due observance of the provisions of Articles 8a. and 8b. of the of Articles of Association of the company, if and for as long as those articles are in force.
3. The administration shall only be terminated with the approval of the company.
4. Notification of termination or transfer of the administration shall be given in the manner prescribed in Article 6. Upon termination of the administration, depositary receipts shall be exchanged free of charge for the same nominal amount of shares of the relevant class, with due observance of the provisions of Articles 8a. and 8b. of the of Articles of Association of the company, if and for as long as those articles are in force.
5. Upon termination of the administration, a period of at least two years from the date of notification shall be stipulated within which depositary receipts may be exchanged for shares in the manner described above. These trust conditions shall remain in force during that period, subject to any amendments as referred to in Article 13 and except that, save as provided in paragraph 7, the issue of depositary receipts shall be discontinued in that case.
6. Upon expiry of the period referred to in the preceding paragraph, the foundation shall be entitled, after consulting Euronext Amsterdam N.V. and issuing an announcement in the manner prescribed in Article 6, either to transfer the shares still in administration to a third party at the expense and risk of the holders of the
depositary receipts then still in issue or to sell them and to keep the proceeds available for holders of the depositary receipts then still in issue.
7. For two months after the notification referred to in paragraph 4, it shall continue to be possible to add depositary receipts to the relevant global depositary receipt as referred to Article 2, provided that the foundation is informed, not later than the fourth day after the date of the announcement in the Official List of Euronext Amsterdam N.V., of the number of shares to be presented for which depositary receipts are to be printed and provided it can be demonstrated that the shares were acquired on or before the date of the announcement referred to in paragraph 4.
8. No charge shall be made to the depositary receipt holders for exchanges as referred to above.
Report.
Article 15.
Immediately on publication of the annual accounts and annual report of the Executive Board of the company, the foundation shall present a report to the depositary receipt holders on its activities during the year under review, stating the number or nominal value of the securities taken into administration. If the report is not included in the company's annual report, it shall be made available free of charge to the depositary receipt holders in Amsterdam, which shall be announced by advertisement.
Applicable law. Competent court.
Article 16.
1. The legal relationship between depositary receipt holders or former depositary receipt holders on the one hand and the foundation and/or the third party referred to in Article 2 on the other shall be the governed in its entirety by the laws of the Netherlands.
2. Any disputes arising in connection with or as a consequence of the trust conditions shall be brought in the first instance before the competent court in Amsterdam.
Subjection to trust conditions.
Article 17.
By offering shares for exchange for depositary receipts, those by whom or on whose behalf such shares are offered and those who subsequently acquire depositary receipts shall be bound by the provisions of these trust conditions and any subsequent amendments thereto.
Exclusion of liability.
Article 18.
The foundation shall not be liable for loss or damage sustained as a consequence of any action relating to the administration, nor for individuals or institutions whose services it has employed in good faith.
Article 19.
Copies of the trust conditions shall be available free of charge from the foundation and at a place in Amsterdam to be announced in the manner prescribed in Article 6 and shall be laid open to inspection by depositary receipt holders there and at the office of the third party referred to Article 2.
CF certificates
Article 20.
1. Bearer depositary receipts for which certificates have been issued in the form of a body with a dividend sheet not consisting of separate dividend coupons and a talon (CF certificates) and which are in the possession of a party other than Necigef may be exchanged for bearer depositary receipts which are embodied in the global depositary receipt referred to in Article 2.
2. The foundation shall be entitled to charge a fee for exchanges as referred to above.
3. The holder of a bearer depositary receipt in the form of a CF certificate which is in the possession of a party other than Necigef may not exercise any of the rights attaching to that depositary receipt with respect to the foundation until the exchange referred to in this paragraph has taken place.
CERTIFICATE
STICHTING ING AANDELEN
Dated 21 July 2003
Stamp of the
Royal Netherlands
Society of Notaries
KH/MC/694362/21973.cer
CERTIFICATE
The undersigned, Peter Jakob Dortmond, civil-law notary practising in Amsterdam, hereby certifies:
- that the Constitution of STICHTING ING AANDELEN, having its registered office in Amsterdam (the `Foundation'), were amended by deed executed in my presence on 23 June 2003;
- that a copy of the Constitution as it reads after that amendment is attached to this certificate.
The undersigned is not aware of any facts or circumstances which would lead to the conclusion that the Constitution of the Foundation has been amended since 23 June 2003.
Amsterdam, 21 July 2003 Seal of signature P.J. Dortmond (illegible) Civil-Law Notary Amsterdam |
CONSTITUTION OF MV/MC/694362/21728.dlt
STICHTING ING AANDELEN
having its registered office in Amsterdam, as formulated following the execution of a deed of amendment on 23 June 2003 in the presence of P.J. Dortmond, civil-law notary practising in Amsterdam.
Name.
Article 1.
The name of the foundation is Stichting ING Aandelen.
Registered office.
Article 2.
The foundation has its registered office in Amsterdam.
Object.
Article 3.
The object of the foundation is:
a) to foster the interests of the holders of depositary receipts for shares (hereinafter referred to as `depositary receipt holders') in the capital of ING Groep N.V., a public limited company with its registered office in Amsterdam (hereinafter referred to as the `company'), while having regard for the interests of (i) the company itself, (ii) the enterprises carried on by the company and companies associated with it in a group and (iii) all other stakeholders in the company, such that all those interests are balanced and safeguarded as effectively as possible;
b) to acquire and administer for the purposes of management, issuing exchangeable depositary receipts (hereinafter referred to as `depositary receipts') in their place, registered shares in the capital of the company and any bonus shares which may be distributed thereon or shares acquired as stock dividend or by the exercise of subscription rights, to exercise voting rights and all other rights attaching to the shares, to exercise subscription rights and to receive dividends and other distributions, including proceeds of liquidation, subject to the obligation to distribute the income to the holders of depositary receipts for shares of the relevant class, save that depositary receipts shall be issued for bonus shares, shares acquired as stock dividend and shares acquired on behalf of depositary receipt holders by virtue of the exercise of subscription rights;
c) to foster the exchange of information between the company on the one hand and the depositary receipt holders and shareholders in the company on the other;
d) to promote and organise the solicitation of proxies of shareholders other than the foundation itself and of specific proxies and/or voting instructions of depositary receipt holders;
and further to engage in any activity which may be related to the foregoing in the widest sense, whereby all activities which entail commercial risk shall be excluded from the foundation's object.
Exercise of voting and other rights.
Article 4.
1. Save as provided in paragraph 2 and without prejudice to the provisions of paragraph 3, the foundation shall exercise the rights attaching to the shares in accordance with the object stipulated in its Constitution.
2. Provided the other requirements of or pursuant to the applicable trust conditions are satisfied, the foundation shall grant power of attorney to the depositary receipt holders concerned to exercise at their discretion the voting rights attaching to shares held by the foundation.
3. Voting rights on shares held by the foundation for the purposes of management in respect of which the depositary receipt holder (i) has not requested a power of attorney to exercise voting rights, (ii) has requested such power of attorney but is not present or represented at a General Meeting of Shareholders and (iii) has not issued voting instructions to the foundation, all as defined in the trust conditions, shall be exercised by the foundation at a General Meeting of Shareholders of the company (a `General Meeting') in accordance with provisions of paragraph 1. The provisions of the preceding sentence shall be applicable mutatis mutandis to the exercise of voting rights on shares by the foundation as proxy of a shareholder if the shareholder concerned has issued no voting instructions when granting the power of attorney.
Trust conditions.
Article 5.
1. The shares referred to in Article 3 shall be administered and the rights attaching thereto shall be exercised with due observance of the applicable trust conditions.
2. The foundation may not encumber the shares which it holds nor dispose of them other than in exchange for depositary receipts which it has issued, on transfer of the administration of shares to a successor designated by the Executive Board of the company or after termination of its administration of the shares in accordance with the provisions of the trust conditions.
Executive Committee.
Article 6.
1. The foundation shall be managed by an Executive Committee.
2. Only natural persons may be members of the Executive Committee of the foundation.
3. The number of members of the Executive Committee shall be determined by the Executive Committee, with a minimum of three and a maximum of seven.
Appointment.
Article 7.
1. Members of the Executive Committee shall be appointed by the Executive Committee of the foundation itself.
2. The following shall not be appointed to the Executive Committee:
a. a member of the Executive Board or Supervisory Board of the company and/or its subsidiaries;
b. a spouse or relative by blood or marriage up to the fourth remove of a member of the Executive Board or Supervisory Board of the company and/or its subsidiaries;
c. an employee of the company and/or its subsidiaries;
d. a permanent adviser to the company, including an expert as referred to in Section 393 of Book 2 of the Netherlands Civil Code, or the civil-law notary or lawyer engaged by the company;
e. a former member of the Executive Board or Supervisory Board or a former employee of the company and/or its subsidiaries;
f. a former permanent adviser to the company as referred to in d. above, but only during for the first three years after termination of his engagement as adviser;
g. a director or employee of a bank with which the company has a lasting and significant relationship.
3. When a member of the Executive Committee is due to retire by rotation, a successor shall be appointed by the time the vacancy arises. In all other cases in which a vacancy arises on the Executive Committee, it shall be filled within two months if possible.
4. The members of the Executive Committee shall be appointed for a term of three years. Upon retirement, a member of the Executive Committee shall be eligible for immediate reappointment.
5. A person who is appointed to fill an interim vacancy in accordance with this article shall hold office for his predecessor's remaining term.
6. A person who has reached the age of seventy may not be appointed a member of the Executive Committee.
7. For the purposes of this article, `appoint' shall also be taken to mean `reappoint'.
8. The foundation shall announce the proposed appointment of a member of the Executive Committee at least thirty days before the date of the proposed appointment in a national daily newspaper and in the Official List or an official publication substituted for it pursuant to a resolution of Euronext Amsterdam N.V.
Vacation of office.
Article 8.
Without prejudice to the statutory provisions, a member of the Executive Committee shall cease to hold office:
a. upon death;
b. upon resignation or retirement by rotation;
c. upon being declared bankrupt, applying for moratorium, being placed under guardianship or otherwise ceasing to have full control of his property;
d. upon falling within the scope of one of the categories referred to in Article 7, paragraph 2;
e. if and when a majority of the other members express the view in writing that a member holds an office outside the foundation of which the discharge is or may be in conflict with the interests which the foundation is required to safeguard pursuant to Article 4, paragraph 1;
f. upon expiry of the term for which he has been appointed pursuant to Article 7, paragraph 6;
g. on the first day of the month following the month in which he reaches the age of seventy.
Organisation of the Executive Committee.
Article 9.
1. The Executive Committee shall appoint one of the members as chairman. In the absence of the chairman, the meeting shall be presided over by the oldest member present.
2. The Executive Committee shall appoint a secretary, from among its members or from outside, who shall be responsible for keeping the minutes of the meeting. In the absence of the secretary, the minutes shall be kept by a person appointed for that purpose at the meeting.
3. Meetings of the Executive Committee shall be held whenever requested by a member of the Executive Committee and, if the foundation holds shares in the capital of the company, in all cases immediately after receipt of notice of a General Meeting of Shareholders of the company. Meetings shall be held at a time and place to be determined by the chairman of the Executive Committee. Meetings shall be convened by letter, telegram, telex, fax or e-mail or other electronic medium. Notice of meetings shall be sent to each member, stating the venue and time of the meeting and the business to be transacted. Notice of meetings shall be given not later than the eighth day before that of the meeting. In urgent cases, however, such at the discretion of the person convening the meeting, notice may be given not later than twenty-four hours before the time of the meeting. Agenda items which were not included in the notice of meeting may be considered only if all the members of the Executive Committee are present or represented and with their unanimous approval.
4. The Executive Committee of the foundation shall meet with the Executive Board and Supervisory Board of the company at least twice per year.
5. Without prejudice to the provisions of paragraph 9 of this article, valid resolutions may only be adopted if all members have been given notice in accordance with the above provisions, save that a valid resolution may be adopted, even if the procedure for convening meetings has not been complied with, at a meeting at which all the members of the Executive Committee are present or represented, provided the resolution is passed unanimously.
An Executive Committee member may be represented at a meeting by a fellow member holding a written power of attorney. For the purposes of the preceding sentence, `written' shall include by telegram, telex, fax or e-mail or other electronic medium.
6. An Executive Committee member may participate in a meeting of the Executive Committee by telephone, including videoconferencing, provided the member is able at all times to hear and be heard by the other Executive Committee members participating in the meeting. In all such cases, the Executive Committee member shall be deemed to be present at the meeting in person and shall be allowed to vote at and participate in the meeting in all respects as if he were
attending the meeting in person. The Executive Board may hold meetings by telephone, including videoconferencing, provided all the Executive Committee members participating in the meeting are able to hear one another at all times.
7. Resolutions of the Executive Committee shall require an absolute majority of the votes cast. Blank and invalid votes shall be deemed not to have been cast. In the event of a tied vote in a meeting of the Executive Committee, the resolution shall be deemed to have been defeated.
8. Each member of the Executive Committee shall have one vote.
9. The minutes of a meeting shall be adopted and signed in witness of adoption by the chairman and secretary of the meeting or adopted by a subsequent meeting and signed in witness of adoption by the chairman and secretary of that subsequent meeting.
10. Resolutions of the Executive Committee may be adopted without holding a meeting, if all the members vote in favour of the motion in writing, including by telegram, telex, fax or e-mail or other electronic medium. Documentary evidence of the adoption of such a resolution shall be kept with the minute book.
11. The remaining members of the Executive Committee shall continue to constitute a competent body while one or more vacancies exist on the Executive Committee.
Representation.
Article 10.
1. The foundation shall be represented by the Executive Committee or by two members acting jointly.
2. The foundation may authorise a member of the Executive Committee or a third party by written power of attorney to represent it. For the purposes of the preceding sentence, `written' shall include by telegram, telex, fax or e-mail or other electronic medium.
Delegation.
Article 11.
The foundation may delegate the activities associated with the administration of the shares, except for the exercise of voting rights, to a trust office (administratiekantoor) duly authorised by it for that purpose. The title of `administrator' may be conferred upon such trust office.
Financial year. Balance sheet and statement of income and expenditure.
Article 12.
1. The financial year shall be concurrent with the company's financial year.
2. The Executive Committee shall keep such records of the foundation's financial position and all matters relating to its activities, in compliance with the requirements arising out of those activities, and shall keep the relevant records, documents and other data carriers in such a way as to enable the foundation's rights and obligations to be ascertained at all times.
3. Without prejudice to the statutory provisions, the Executive Committee shall prepare the foundation's balance sheet and statement of income and expenditure within six months of the end of each financial year.
4. The Executive Committee shall provide the company with copies of the documents referred to in paragraph 3.
5. The Executive Committee shall keep the records, documents and other data carriers referred to in paragraphs 2 and 3 for the period prescribed by law.
Amendment of the Constitution. Liquidation.
Article 13.
1. The Executive Committee shall be authorised to amend this Constitution and wind up the foundation.
2. A resolution to amend this Constitution or wind up the foundation may only be adopted at a meeting of the Executive Committee at which all the members are present or represented.
3. A resolution to amend this Constitution or wind up the foundation shall require the prior approval of the company and of Euronext Amsterdam N.V., a public limited company with its registered office in Amsterdam.
4. Amendment of this Constitution shall be effected by notarial deed. Each member of the Executive Committee acting individually shall be authorised to cause such a deed to be executed.
5. A resolution to wind up the foundation may not be adopted until title to the shares acquired by the foundation for the purposes of management has been transferred to the depositary receipt holders on grounds of termination of management, thereby cancelling the depositary receipts, or title to the shares has been transferred, again for the purposes of management, to the successor referred to in Article 5, paragraph 2, which shall then assume the foundation's obligations to depositary receipt holders.
6. If the foundation is wound up, the liquidation shall be conducted by the Executive Committee. Any liquidation proceeds shall be donated to a charitable or social cause to be determined by the liquidators.
7. After completion of the liquidation, the foundation's books and documents shall be retained for the period prescribed by law by a person appointed by the Executive Committee for that purpose.
EXHIBIT 2.2
FIRST SUPPLEMENTAL INDENTURE
between
ING GROEP N.V.,
as Issuer
and
THE BANK OF NEW YORK,
as Trustee
Dated as of July 18, 2002
to the Subordinated Indenture between
ING GROEP N.V.,
as Issuer
and
THE BANK OF NEW YORK,
as Trustee
Dated as of July 18, 2002
$750,000,000 principal amount of 7.05% ING Perpetual Debt Securities
ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions of Terms............................................................ 2 ARTICLE 2 GENERAL TERMS AND CONDITIONS OF THE ING PERPETUAL DEBT SECURITIES SECTION 2.01. Designation and Principal Amount................................................ 12 SECTION 2.02. Maturity........................................................................ 12 SECTION 2.03. Form, Issuance, Registration and Exchange....................................... 12 SECTION 2.04. Payments........................................................................ 12 SECTION 2.05. Mandatory Payment Events; Mandatory Partial Payment Events...................... 16 ARTICLE 3 OPTIONAL REDEMPTION AND REDEMPTION UPON CERTAIN EVENTS SECTION 3.01. Optional Redemption............................................................. 17 SECTION 3.02. Optional Purchase............................................................... 18 ARTICLE 4 ALTERNATIVE INTEREST SATISFACTION MECHANISM SECTION 4.01. Conditions Precedent............................................................ 18 SECTION 4.02. Notices of Exercise of Alternative Interest Satisfaction Mechanism.............. 18 SECTION 4.03. Alternative Interest Satisfaction Mechanism..................................... 19 SECTION 4.04. Insufficient Payment Ordinary Shares............................................ 21 SECTION 4.05. Market Disruption Event......................................................... 23 ARTICLE 5 REMEDIES SECTION 5.01. Defaults; Collection of Indebtedness and Suits for Enforcement by Trustee....... 24 ARTICLE 6 COVENANTS OF THE ISSUER SECTION 6.01. Dividend Restrictions for Deferred Interest Payments............................ 25 SECTION 6.02. Calculation Agent............................................................... 25 |
SECTION 6.03. Mandatory Interest Payments..................................................... 26 SECTION 6.04. Deferral of Certain Payments.................................................... 26 SECTION 6.05. Sufficiency of Ordinary Shares.................................................. 26 SECTION 6.06. Ranking......................................................................... 27 SECTION 6.07. Payment of Proceeds from Sale of Payment Ordinary Shares and Associated Cost Ordinary Shares.................................................................. 27 SECTION 6.08. Listing......................................................................... 27 SECTION 6.09. Calculation Agency Agreement.................................................... 28 SECTION 6.10. Officer's Certificate on Deferral............................................... 28 SECTION 6.11. Officer's Certificate for Market Disruption Event............................... 28 ARTICLE 7 SUBORDINATION SECTION 7.01. Agreement to Subordinate........................................................ 28 SECTION 7.02. Section 1401 of the Subordinated Indenture...................................... 29 ARTICLE 8 FORM OF ING PERPETUAL DEBT SECURITIES SECTION 8.01. Form of ING Perpetual Debt Securities........................................... 29 ARTICLE 9 ORIGINAL ISSUE OF ING PERPETUAL DEBT SECURITIES SECTION 9.01. Original Issue of ING Perpetual Debt Securities................................. 30 ARTICLE 10 WINDING UP SECTION 10.01. Winding Up...................................................................... 30 ARTICLE 11 SATISFACTION AND DISCHARGE SECTION 11.01. Satisfaction and Discharge...................................................... 31 ARTICLE 12 MISCELLANEOUS SECTION 12.01. Issuance of Definitive Securities............................................... 31 SECTION 12.02. Ratification of Subordinated Indenture; First Supplemental Indenture Controls... 32 SECTION 12.03. Trustee Not Responsible for Recitals............................................ 32 |
SECTION 12.04. Governing Law.................................................................. 32 SECTION 12.05. Severability................................................................... 33 SECTION 12.06. Counterparts................................................................... 33 EXHIBIT A Form of ING Perpetual Debt Securities.......................................... A-1 |
FIRST SUPPLEMENTAL INDENTURE dated as of July 18, 2002 (the "FIRST SUPPLEMENTAL INDENTURE") between ING Groep N.V., a company incorporated in The Netherlands (the "COMPANY"), having its statutory seat in Amsterdam and its principal office at Strawinskylaan 2631, 1077 ZZ Amsterdam, P.O. Box 810, 1000 AV Amsterdam, The Netherlands, and The Bank of New York, a New York banking corporation having its Corporate Trust Office at 101 Barclay Street, New York, New York, 10286, as trustee (the "TRUSTEE") to the Subordinated Indenture dated as of July 18, 2002 between the Company and the Trustee, as from time to time supplemented or amended (the "SUBORDINATED INDENTURE" and together with this First Supplemental Indenture, the "INDENTURE"). In addition, The Bank of New York, through its New York and London branches, has agreed to act as Paying Agent hereunder.
WHEREAS, the Company and the Trustee executed and delivered the Subordinated Indenture to provide for the future issuance of the Company's Securities to be issued from time to time in one or more series as might be determined by the Company under the Subordinated Indenture, in an unlimited aggregate principal amount, which may be authenticated and delivered as provided in the Subordinated Indenture;
WHEREAS, Section 301 of the Subordinated Indenture permits the terms of any series of Securities to be established pursuant to a Board Resolution or in one or more indentures supplemental to the Subordinated Indenture;
WHEREAS, the Company desires to issue a series of Securities, the terms of which it deems appropriate to set out in this First Supplemental Indenture;
WHEREAS, pursuant to the terms of the Subordinated Indenture, the Company may issue Securities now and additional Securities of the same or different series at later dates under the Subordinated Indenture, as established by the Company, and the Company desires to initially issue $750,000,000 aggregate principal amount of securities, entitled the 7.05% ING Perpetual Debt Securities (the "ING PERPETUAL DEBT SECURITIES"), the form and substance of such ING Perpetual Debt Securities and the terms, provisions and conditions thereof to be set forth as provided in the Subordinated Indenture as supplemented by this First Supplemental Indenture;
WHEREAS, pursuant to Section 301 of the Subordinated Indenture, the Company desires to appoint The Bank of New York, through its New York and London branches, to act as Paying Agent with respect to the ING Perpetual Debt Securities and ING Financial Markets LLC as Calculation Agent with respect to the ING Perpetual Debt Securities;
WHEREAS, the ING Perpetual Debt Securities shall be treated as a separate series of Securities in accordance with the terms of the Indenture and for all purposes under the Indenture; and
WHEREAS, the Company has duly authorized the execution and delivery of this First Supplemental Indenture and requested that the Trustee execute and deliver this First Supplemental Indenture, and all requirements necessary to make this First Supplemental Indenture a valid and binding instrument in accordance with its terms have been done.
NOW THEREFORE, in consideration of the purchase and acceptance of the ING Perpetual Debt Securities by the Holders thereof, and for the purpose of setting forth, as provided in the Indenture, the form and substance of the ING Perpetual Debt Securities and the terms, provisions and conditions thereof, the Company covenants and agrees with the Trustee and the Paying Agent as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions of Terms. For all purposes of the Indenture, except as otherwise expressly provided or unless the context otherwise requires:
(a) a term defined in the Subordinated Indenture and not otherwise defined herein has the same meaning when used in this First Supplemental Indenture;
(b) unless otherwise specified, a reference to a Section or Article is to a Section or Article of this First Supplemental Indenture;
(c) headings are for convenience of reference only and do not affect interpretation; and
(d) the following terms have the meanings given to them in this Section 1.01(d) and shall have the meaning set forth below for purposes of this First Supplemental Indenture and the Subordinated Indenture as it relates to the series of ING Perpetual Debt Securities created hereunder.
"ACCRUED INTEREST PAYMENT" means Interest that shall continue to accrue after an Interest Payment Date in respect of an Elective Deferral Interest Payment, the failure to make a payment when due on a date of redemption, certain Payments which cannot be made due to insufficient Ordinary Shares to satisfy the
Alternative Interest Satisfaction Mechanism and failure to make a Payment more than 14 days after its due date due to a Market Disruption Event.
"ADDITIONAL AMOUNTS" has the meaning specified in Section 1006 of the Subordinated Indenture.
"ALTERNATIVE INTEREST SATISFACTION MECHANISM" has the meaning specified in Section 4.03.
"ASSETS" means the non-consolidated gross assets of the Company as shown by the most recently published audited balance sheet of the Company, but adjusted for contingencies and subsequent events and to such extent as the directors or, as the case may be, the liquidator may determine to be appropriate.
"ASSOCIATED COSTS" has the meaning assigned to such term in the Calculation Agency Agreement.
"ASSOCIATED COST ORDINARY SHARES" means Ordinary Shares issued by the Company in accordance with Section 4.03(c)(iii).
"BASE REDEMPTION PRICE" in respect of the ING Perpetual Debt Securities means a redemption price equal to 100% of the aggregate principal amount, together with any Outstanding Payments accrued to and including the date fixed for redemption.
"CALCULATION AGENCY AGREEMENT" means the calculation agency agreement, dated as of July 18, 2002, between the Company, the Trustee and the Calculation Agent, relating to the ING Perpetual Debt Securities, as the same may be amended from time to time.
"CALCULATION AGENT" means ING Financial Markets LLC, as calculation agent in relation to the ING Perpetual Debt Securities, or its successor or successors for the time being appointed under the Calculation Agency Agreement.
"DEFERRAL INTEREST RATE" means an interest rate equal to the Fixed Interest Rate.
"DEFERRAL NOTICE" means a notice to the Trustee, the Holders, the Paying Agent, if different than the Trustee, and the Calculation Agent that a Payment will be deferred in accordance with the Indenture.
"DEFERRED INTEREST PAYMENT" means any Elective Deferral Interest Payment, or part thereof, which has not subsequently been satisfied, or any Required Deferral Interest Payment, or part thereof, which has not subsequently been either (i) satisfied or (ii) deferred pursuant to Section 2.04(f).
"DEFERRED INTEREST SATISFACTION DATE" means the earlier of
(i) with respect to a Required Deferral Interest Payment, the Interest Payment Date following the 19th Business Day after the Required Deferral Condition fails to be met;
(ii) the date on which the Company has resolved to satisfy a Deferred Interest Payment as set forth in a notice to the Trustee, the Holders, the Paying Agent, if different than the Trustee, and the Calculation Agent; or
(iii) the date on which the Company is required to satisfy all Deferred Interest Payments due to the occurrence of a Mandatory Payment Event or a Mandatory Partial Payment Event.
"DEPOSITARY" means the Depository Trust Company or such successor Depositary designated in accordance with Section 305 of the Subordinated Indenture.
"DTC" means the Depository Trust Company.
"ELECTIVE DEFERRAL INTEREST PAYMENT" means any Payment on the ING
Perpetual Debt Securities that is deferred due to the circumstances set forth in
Section 2.04(f).
"FIXED INTEREST RATE" has the meaning set forth in Section 2.04(a), 2.04(b).
"INDENTURE" has the meaning set forth in the recitals of this First Supplemental Indenture.
"ING PERPETUAL DEBT SECURITIES" has the meaning set forth in the recitals of this First Supplemental Indenture, and shall include, unless the context otherwise requires, any further ING Perpetual Debt Securities which the Company is permitted to issue and which will form a single series with the ING Perpetual Debt Securities.
"INTEREST" shall, where appropriate, include Interest Amounts, Deferred Interest Payments and Accrued Interest Payments.
"INTEREST AMOUNT" means
(i) in respect of an Interest Payment, the amount of Interest payable on an ING Perpetual Debt Security for the relevant Interest Period; and
(ii) in the event of redemption due to a Tax Event or Regulatory Event, any Interest accrued from (and including) the preceding Interest Payment Date (or, if none, the Issue Date) to (but excluding) the due date for redemption, if not an Interest Payment Date, as calculated using the Interest Calculation Basis.
"INTEREST CALCULATION BASIS" means the calculation of Interest on the basis of a 360-day year of twelve 30-day months.
"INTEREST PAYMENT" means, in respect of an Interest Payment Date, the aggregate Interest Amounts for the Interest Period ending on such Interest Payment Date.
"INTEREST PAYMENT DATE" has the meaning set forth in Section 2.04(c).
"INTEREST PERIOD" means the period commencing on (and including) the Issue Date and ending on (but excluding) the first Interest Payment Date and each successive period commencing on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date.
"ISSUE DATE" means July 18, 2002.
"JUNIOR GUARANTEE" means any guarantee, indemnity or other contractual support arrangement entered into by the Company in respect of securities (regardless of name or designation) issued by a Subsidiary or Undertaking and ranking junior to the ING Perpetual Debt Securities upon a liquidation of the Company or in respect of distributions or payment of dividends or any other payment thereon.
"JUNIOR SECURITIES" means the Ordinary Shares or any other securities of the Company that rank junior to the ING Perpetual Debt Securities with respect to distributions on a return of assets upon a liquidation of the Company or in respect of distributions, payments of dividends or any other payment thereon.
"LIABILITIES" means the non-consolidated gross liabilities of the Company as shown by the most recently published audited balance sheet of the Company, but adjusted for contingencies and for subsequent events and to such extent as the Company's directors, external auditors or, as the case may be, liquidator may determine.
"MANDATORY PARTIAL PAYMENT" payable on any Interest Payment Date means a payment in respect of each ING Perpetual Debt Security in an amount that results in payment of a proportion of a full Interest Payment on the ING Perpetual Debt Security on such Interest Payment Date equal to the proportion of a full dividend on the relevant Parity Securities and/or payment on the relevant
Parity Guarantee paid on the dividend or payment date in respect of the relevant Parity Securities and/or Parity Guarantee immediately preceding such Interest Payment Date.
"MANDATORY PARTIAL PAYMENT EVENT" means the occurrence of any of the following:
(i) the Company declares, pays or distribuptes a dividend or makes a payment on any of its Parity Securities or Parity Guarantees; or
(ii) any Subsidiary or Undertaking declares, pays or distributes a dividend on any security issued by it benefitting from a Parity Guarantee or makes a payment on any security issued by it benefitting from a Parity Guarantee.
"MANDATORY PAYMENT EVENT" means the occurrence of any of the following:
(i) the Company declares, pays or distributes a dividend or makes a payment (other than a dividend in the form of Ordinary Shares) on any of its Junior Securities or makes a payment on a Junior Guarantee;
(ii) any Subsidiary or Undertaking declares, pays or distributes a dividend on any security issued by it benefitting from a Junior Guarantee or makes a payment (other than a dividend in the form of ordinary shares) on any security issued by it benefitting from a Junior Guarantee;
(iii) the Company or any Subsidiary or Undertaking redeems,
purchases on otherwise acquires any of the Company's Junior Securities,
any Parity Securities or any securities issued by any Subsidiary or
Undertaking benefitting from a Junior Guarantee or Parity Guarantee,
other than (1) by conversion into or in exchange for Ordinary Shares,
(2) in connection with transactions effected by or for the account of
customers of the Company or any Subsidiary or in connection with the
distribution, trading or market-making activities in respect of those
securities, (3) in connection with the satisfaction by the Company or
any Subsidiary of its obligations under any employee benefit plans or
similar arrangements with or for the benefit of employees, officers,
directors or consultants, (4) as a result of a reclassification of the
Company or any Subsidiary or the exchange or conversion of one class or
series of capital stock for another class or series of capital stock,
or (5) the purchase of the fractional interests in shares of the
capital stock of the Company or of any Subsidiary pursuant to the
conversion or exchange provisions of that capital stock or the security
being converted or exchanged; or
(iv) any moneys are paid to or made available for a sinking fund or for redemption of any Junior Securities, Parity Securities or any securities issued by any Subsidiary or Undertaking benefitting from a Junior Guarantee or Parity Guarantee.
"MARKET DISRUPTION EVENT" means
(i) the occurrence or existence of any suspension of or limitation imposed on trading by reason of movements in price exceeding limits permitted by Euronext Amsterdam N.V. or on settlement procedures for transactions in the Ordinary Shares on Euronext Amsterdam N.V. if, in any such case, that suspension or limitation is, in the determination of the Calculation Agent, material in the context of the sale of the Ordinary Shares;
(ii) in the Company's opinion, there has been a substantial deterioration in the price and/or value of the Ordinary Shares, or circumstances are such as to prevent or to a material extent restrict the issue or delivery of the Payment Ordinary Shares; or
(iii) where, pursuant to the terms of the Indenture, moneys are required to be converted from one currency into another currency in respect of any Payment, but the occurrence of any event that makes it impracticable to effect such conversion.
"NOTIONAL PREFERENCE SHARES" has the meaning set forth in Section 10.01.
"ORDINARY SHARES" means the Company's ordinary shares or bearer depository receipts issued in respect of such ordinary shares as the context may require.
"OUTSTANDING PAYMENT" means:
(i) in relation to any Interest Payment, Deferred Interest Payment or Interest Amount not falling within the definition of Interest Payment, that such payment (a) has either become due and payable or would have become due and payable except for the non-satisfaction on the relevant date due to a Solvency Condition not being satisfied or the deferral, postponement or suspension of such payment, due to a Required Deferral Condition, an Elective Deferral Interest Payment, insufficient Ordinary Shares available to satisfy the Alternative Interest Satisfaction Mechanism, or failure to make a payment more than 14 days after its due date due to a
Market Disruption Event, and (b) in any such case has not been satisfied; and
(ii) in relation to any Accrued Interest Payment, any amount thereof which has not been satisfied whether or not payment has become due.
"PARITY GUARANTEE" means any guarantee, indemnity or other contractual support arrangements of the Company of securities of any Subsidiary or Undertaking, under which
(i) the holders of such securities as the party who has the benefit of any such guarantee, indemnity or other contractual support agreement is entitled, effectively from a financial point of view, to distributions on a return of assets or on a liquidation, moratorium of payments or bankruptcy of the Company or to distributions or payments of dividends and/or any other amounts thereunder by the Company, to the same extent as the most senior class of preference shares and which
(ii)(a) are expressed to be similarly subordinated to Senior Debt as, and accordingly rank pari passu with, the ING Perpetual Debt Securities as regards any such distribution or payment or (b) rank pari passu as expressed by such ING Perpetual Debt Securities' own terms with the ING Perpetual Debt Securities. Parity Guarantee includes the Company's guarantees (collectively the "TRUST PREFERRED SECURITIES GUARANTEES") of the:
- 7.70% Non-cumulative Guaranteed Trust Preferred Securities issued by ING Capital Funding Trust I;
- 9.20% Non-cumulative Guaranteed Trust Preferred Securities issued by ING Capital Funding Trust II; and
- 8.439% Non-cumulative Guaranteed Trust Preferred Securities issued by ING Capital Funding Trust III.
"PARITY SECURITIES" means
(i) the most senior class of preference shares of the Company,
(ii) any preference shares of the Company of similar rank as the most
senior class of preference shares of the Company or
(iii) other securities of the Company the holders of which have claims that rank, effectively from a financial point of view pursuant to a Parity Guarantee or pursuant to the provisions of such securities, as the
most senior class of preference shares of the Company, in each case as regards distributions on a return of assets or on a liquidation, moratorium of payments or bankruptcy of the Company or in respect of distributions or payments of dividends and/or any other amounts thereunder by the Company and which are expressed to be similarly subordinated to Senior Debt as, and accordingly rank pari passu with, the ING Perpetual Debt Securities as regards any such distributions or payments. Parity Securities includes the Company's 6.50% ING Perpetual Securities issued on September 28, 2001.
"PAYING AGENT" means The Bank of New York as paying agent in relation to the ING Perpetual Debt Securities, or its successor or successors for the time being appointed in accordance with the terms of the Indenture.
"PAYMENT" means any Interest Payment, Deferred Interest Payment, Accrued Interest Payment or Interest Amount not falling within the definition of Interest Payment.
"PAYMENT DEFAULT" has the meaning set forth in Section 5.01(a).
"PAYMENT EVENT" has the meaning set forth in Section 5.01(b).
"PAYMENT ORDINARY SHARES" means Ordinary Shares issued by the Company in accordance with Section 4.03(c)(ii).
"REGULAR RECORD DATE" means the March 1, June 1, September 1 and December 1 preceding an Interest Payment Date.
"REGULATORY EVENT" means any time after the Company becomes subject to capital adequacy regulations, the relevant regulator makes a determination that securities in the nature of the ING Perpetual Debt Securities can no longer qualify as Tier 1 capital (or instruments of a similar nature which qualify as core capital) for purposes of such capital adequacy regulations.
"RELEVANT DATE" means
(i) in respect of any payment other than a Winding-Up Claim, the date on which such payment first becomes due and payable but, if the full amount of the monies payable on such date has not been received by the Trustee on or prior to such date, the "Relevant Date" means the date on which such monies shall have been so received and notice to that effect shall have been given to the Holders in accordance with Section 106 of the Subordinated Indenture; and
(ii) in respect of a Winding-Up Claim, the date which is one day prior to the commencement of the winding up.
The "REQUIRED DEFERRAL CONDITION" will be met if the Company determines that the Solvency Conditions (i) are not satisfied on the Relevant Date, or (ii) will not be satisfied as a result of making the relevant Payment.
"REQUIRED DEFERRAL INTEREST PAYMENT" has the meaning set forth in
Section 2.04(e).
"SECURITIES" has the meaning set forth in the Subordinated Indenture.
"SENIOR DEBT" means
(i) all claims of unsubordinated creditors of the Company;
(ii) all claims of creditors whose claims are, or are expressed to be, subordinated (whether only in the event of the insolvency of the Company or otherwise) only to the claims of unsubordinated creditors of the Company; or
(iii) all claims of all other creditors of the Company except those whose claims are, or are expressed to rank, pari passu with, or junior to, the claims of the Holders.
"SOLVENCY CONDITIONS" means
(i) the Company is able to make payments on its Senior Debt as such payments become due; and
(ii) the Company's Assets exceed the sum of its Liabilities (excluding Liabilities not considered Senior Debt).
"SUBORDINATED INDENTURE" has the meaning set forth in the first paragraph of this First Supplemental Indenture.
"TAX EVENT" means a determination by the Company that on the next Interest Payment Date:
(i) the Company would, for reasons outside its control, be unable to make the required payment on such date without being required to pay Additional Amounts and the Company cannot avoid such requirement or circumstance by taking such measures the Company, acting in good faith, deems appropriate;
(ii) payments of amounts in respect of Interest on the ING Perpetual Debt Securities (including, for the avoidance of doubt, where the payment of Interest is to be satisfied by the issue of Ordinary Shares pursuant to the Alternative Interest Satisfaction Mechanism), may be treated as "distributions" within the meaning of Section II of the Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965; or such other provision as may from time to time supersede or replace Section II of the Dividend Withholding Tax Act of 1965 for the purposes of such definition) and the Company cannot avoid such requirement or circumstance by taking such measures the Company, acting in good faith, deems appropriate; or
(iii) there is more than an insubstantial risk that the Company will not obtain substantially full relief for the purposes of the corporation tax of The Netherlands for any payment of Interest (including, for the avoidance of doubt, where the payment of Interest is to be satisfied by the issue of Ordinary Shares pursuant to the Alternative Interest Satisfaction Mechanism), due to any proposed change or amendment to the laws of The Netherlands, or any proposed change in the application of official or generally published interpretation of such laws, or any interpretation or pronouncement by any relevant tax authority that provides for a position with respect to such laws or regulations that differs from the previously generally accepted position in relation to similar transactions or which differs from any specific written confirmation given by a tax authority in respect of the ING Perpetual Debt Securities, where such change or amendment becomes, or would become, effective, or in the case of a change or proposed change in law if such change is enacted (or, in the case of a proposed change, is expected to be enacted) by an Act of Parliament or made by Statutory Instrument on or after July 11, 2002, and the Company cannot avoid this risk by taking such measures the Company, acting in good faith, deem appropriate.
"TRUST PREFERRED SECURITIES GUARANTEES" has the meaning given such term in the definition of Parity Guarantee.
"TRUSTEE" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor trustee shall have become such pursuant to the applicable provisions of the Subordinated Indenture, and thereafter "Trustee" shall mean the Person who is then the Trustee thereunder, and if at any time there is more than one such Person, "Trustee" shall mean and include each such Person.
"UNDERTAKING" means a corporate body, partnership, limited partnership, cooperative or an incorporated association carrying on a trade or business with or
without a view to profit in which the Company has direct or indirect financial, commercial or contractual majority interest.
"WINDING-UP CLAIM" means amounts in respect of principal or Payments in respect of which a Solvency Condition is not satisfied on the date upon which such principal or Payments would otherwise be due and payable by the Company in connection with its liquidation (upon dissolution or otherwise) and on any redemption of ING Perpetual Debt Securities.
ARTICLE 2
GENERAL TERMS AND CONDITIONS OF THE ING PERPETUAL DEBT SECURITIES
SECTION 2.01. Designation and Principal Amount. The following series of Securities are hereby authorized as the 7.05% ING Perpetual Debt Securities, initially to be issued in the aggregate principal amount of $750,000,000.
SECTION 2.02. Maturity. The ING Perpetual Debt Securities have no maturity date.
SECTION 2.03. Form, Issuance, Registration and Exchange. The ING Perpetual Debt Securities shall:
(a) be issued as registered Securities in minimum denominations of $25 (or in any integral multiple thereof) in book-entry global form, and shall not be exchangeable for definitive securities except as provided in Section 305 of the Subordinated Indenture;
(b) not be exchangeable at any time for bearer securities; and
(c) be issued as global ING Perpetual Debt Securities registered in the name of DTC or its nominee (initially the nominee will be Cede & Co.); provided, however, (i) such global securities may not be transferred except as a whole by DTC to a nominee or a successor of DTC, unless and until the ING Perpetual Debt Securities are exchanged for definitive securities in the limited instances described in Section 12.01; (ii) beneficial interests in global ING Perpetual Debt Securities may be held through organizations that participate, directly or indirectly, in the DTC system; (iii) beneficial interests in the global ING Perpetual Debt Securities and all transfers relating to the global ING Perpetual Debt Securities will be reflected in the book-entry records of DTC; and (iv) so long as DTC, or its nominee, is the holder of a global ING Perpetual Debt Security, it will be considered the sole holder of the global ING Perpetual Debt Security for all purposes under the Indenture.
SECTION 2.04. Payments.
(a) Payment Method. (i) Any Payment on ING Perpetual Debt Securities
which is payable, and is paid or duly provided for, on any Payment Date or on
any date on which the Company makes any Payment on the ING Perpetual Debt
Securities (including any payment of Additional Amounts in accordance with
Section 1006 of the Subordinated Indenture) shall be paid by the Trustee to the
Holder in whose name such ING Perpetual Debt Securities are registered, by
wire-transfer of same-day funds to the Holder or, at the option of the Company, by check mailed to the address of the Holder as it appears in the Company's Security Register. For so long as the ING Perpetual Debt Securities are held in global form, all payments shall be made by wire-transfer of same-day funds.
(ii) All payments made with respect to the ING Debt Securities will be subject to any fiscal or other laws and regulations applicable thereto in the place of payment. Except as expressly stated, such fiscal or other laws and regulations will not affect the Company's obligation to pay Additional Amounts.
(b) Interest Rate. The ING Perpetual Debt Securities will bear Interest from the Issue Date at a fixed rate per annum on their outstanding principal amount equal to 7.05% (the "FIXED INTEREST RATE").
(c) Interest Payment Dates. Subject to the provisions herein, Interest on the ING Perpetual Debt Securities (calculated in accordance with the Interest Calculation Basis) will be payable from July 18, 2002 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, quarterly in arrears on March 15, June 15, September 15 and December 15 in each year, commencing on September 15, 2002.
(d) Accrued Interest Payments. The aggregate amount of any Accrued Interest Payments on the ING Perpetual Debt Securities will bear Interest at the Fixed Interest Rate (to the extent permitted by applicable law) as if such Accrued Interest Payments were considered part of principal and will become payable as and when the Payment in respect of which such Interest has accrued becomes payable. The amount of Interest which accrues (the "ADDITIONAL INTEREST") in respect of any such Accrued Interest Payments shall be calculated by the Trustee in consultation with the Company and shall be added, for purposes only of the calculation of the amount of Additional Interest due on any Interest Payment Date or Deferred Interest Satisfaction Date, as the case may be, to the corresponding amount of Payments unpaid as at such Interest Payment Date or Deferred Interest Satisfaction Date, as applicable, as if such amount would itself constitute a Payment.
When used with respect to any ING Perpetual Debt Securities, "INTEREST PAYMENT DATE" means the date for payment of any Interest on such ING Perpetual Debt Securities, as determined by the Company and set forth in this First Supplemental Indenture and the form of ING Perpetual Debt Securities. If any Interest Payment Date would otherwise fall on a day which is not a Business Day, it shall be postponed to the next day that is a Business Day.
(e) Required Deferral of Payments.
(i) Other than in the case of a Mandatory Payment Event or a Mandatory Partial Payment Event, the Company is required to give a Deferral Notice in accordance with Section 2.04(h) and to defer any payment where the Required Deferral Condition has occurred or is continuing on the 20th Business Day preceding the date on which such Payment would be due and payable and no Interest Payment shall be payable on such Interest Payment Date. When used with respect to any ING Perpetual Debt Securities, "REQUIRED DEFERRAL INTEREST PAYMENT" means any Payment deferred in accordance with this Section 2.04(e).
(ii) Interest will not accrue on any Required Deferral Interest Payment except under circumstances described under Section 4.03.
(iii) Any Required Deferral Interest Payment, except in the case of a Mandatory Payment Event or a Mandatory Partial Payment Event, shall be satisfied on the relevant Deferred Interest Satisfaction Date if the Required Deferral Condition is no longer met as of the 20th Business Day preceding any subsequent Interest Payment Date and the Company (x) does not validly elect to defer such payment in accordance with Section 2.04(f)(i); or (y) has not elected to pay such Deferred Interest Payment earlier in accordance with Section 2.04(f)(iii).
(iv) At least 16 Business Days prior to the relevant Deferred Interest Satisfaction Date, the Company shall give notice to the Trustee of the Deferred Interest Satisfaction Date on which such Required Deferral Interest Payment will be satisfied. As soon as practicable after receiving such notice but within two business days, the Trustee shall provide notice to the Company of the amount of Accrued Interest Payments, (including any Additional Interest) if any, payable on such Deferred Interest Satisfaction Date.
(v) At least 16 Business Days prior to such Deferred Interest
Satisfaction Date, the Company shall provide a notice to the Paying
Agent, the Calculation Agent and the Holders in accordance with Section
106 of the Subordinated Indenture (a) that the Company will satisfy
such Required Deferral Interest Payment on the relevant Deferred
Interest Satisfaction Date, (b) the amount of the Accrued Interest
Payments (including Additional Interest), if any, payable on such
Deferred Interest Satisfaction Date, as calculated by the Trustee and
(c) the Special Record Date for such Deferred Interest Satisfaction
Date.
(f) Elective Deferral of Payments.
(i) The Company may defer any Payment that is due and payable under the ING Perpetual Debt Securities, other than in the case of a Mandatory Payment Event or a Mandatory Partial Payment Event, by giving a Deferral Notice to the Trustee, the Calculation Agent and the Holders in accordance with Section 2.04(h), including any Payment referred to in Section 2.04(e)(iii), 2.04(e)(iv), 2.04(e)(v) (except as otherwise provided therein), and no Interest Payment shall be payable on such Interest Payment Date. When used with respect to any ING Perpetual Debt Securities, "ELECTIVE DEFERRAL INTEREST PAYMENT" means any Payment deferred in accordance with this Section 2.04(f).
(ii) Elective Deferral Interest Payments will accrue interest at the Deferral Interest Rate from, and including, the date on which (but for such deferral) the Deferred Interest Payment would otherwise have been due to be made to, but excluding, the relevant Deferred Interest Satisfaction Date.
(iii) Except in the case of a Mandatory Payment Event or a
Mandatory Partial Payment Event, the Company may satisfy any Elective
Deferral Interest Payment at anytime; provided, however, any such
Payment shall be satisfied by delivering a notice in accordance with
Section 4.03(c)(i) not less than 16 Business Days prior to the relevant
Deferred Interest Satisfaction Date informing of the Company's election
to so satisfy such Payment and specifying the relevant Deferred
Interest Satisfaction Date.
(g) Conditions Precedent for any Payment.
(i) Except in a bankruptcy, all payments on the ING Perpetual Debt Securities will be conditional upon not triggering the Required Deferral Condition.
(ii) Unless the Company obtains permission from its relevant regulator, it shall satisfy any Deferred Interest Payments only in accordance with the Alternative Interest Satisfaction Mechanism set forth in Article 4 below; provided, however, that the Company is not required to utilize the Alternative Interest Satisfaction Mechanism to satisfy any Mandatory Partial Payment payable on a Mandatory Partial Payment Date that coincides with the date on which a Deferred Interest Payment has become mandatorily due and payable in full.
(h) Deferral Notice.
(i) The Company shall give any Deferral Notice not less than 16 Business Days prior to the date on which any Payment would, in the absence of deferral, be due and payable.
(ii) The Company must give a Deferral Notice in the case of a Required Deferral Condition.
(iii) Any Deferral Notice as to a Payment required to be paid pursuant to a Mandatory Payment Event or a Mandatory Partial Payment Event will have no force or effect.
SECTION 2.05. Mandatory Payment Events; Mandatory Partial Payment Events.
(a) Deferred Interest Payments. Upon the occurrence of a Mandatory Payment Event or a Mandatory Partial Payment Event, all Deferred Interest Payments will become mandatorily due and payable in full on the date of either such event, notwithstanding any further Deferral Notice or an occurrence or continuance of a Required Deferral Condition.
(b) Satisfaction of Interest Payments following a Mandatory Payment Event. The Interest Payments payable on the next four consecutive Interest Payment Dates following a Mandatory Payment Event will be mandatorily due and payable in full, notwithstanding any Deferral Notice as to such Interest Payments or the occurrence or continuance of any Required Deferral Condition; provided, however, that if the Mandatory Payment Event is (x) a payment on a Junior Security, a Junior Guarantee or a security benefitting from a Junior Guarantee or relates to the purchase or other acquisition of any Junior Security, Parity Security or a security benefitting from a Junior Guarantee or a Parity Guarantee, and (y) such payment is in respect of a semi-annual or quarterly payment or the security purchased or acquired was payable semi-annually or quarterly, only the Interest Payments payable on the next two Interest Payment Dates or the next Interest Payment, respectively, shall be mandatorily due and payable notwithstanding any Deferral Notice as to such Interest Payment or the occurrence or continuance of any Required Deferral Condition. Such Mandatory Interest Payments may, at the Company's election, be satisfied in accordance with the Alternative Interest Satisfaction Mechanism.
(c) Satisfaction of Interest Payments following a Mandatory Partial Payment Event. Mandatory Partial Payments will be mandatorily due and payable, on the next four consecutive Interest Payment Dates, following a Mandatory Partial Payment Event, notwithstanding any Deferral Notice or occurrence of the Required Deferral Condition; provided, however, that if such Mandatory Partial Payments (x) is a payment on a Parity Security, a Parity
Guarantee or a security benefitting from a Parity Guarantee, and (y) such payment is in respect of a semi-annual or quarterly payment, only Mandatory Partial Payments payable on the next two consecutive Interest Payment Dates or the next Interest Payment Date, respectively, shall be mandatorily due and payable notwithstanding any Deferral Notice as to such Interest Payment or the occurrence or continuance of any Required Deferral Condition. Such Mandatory Partial Payments may, at the Company's election, be satisfied in accordance with the Alternative Interest Satisfaction Mechanism.
ARTICLE 3
OPTIONAL REDEMPTION AND REDEMPTION UPON CERTAIN EVENTS
SECTION 3.01. Optional Redemption. (a) Any redemption made in accordance with this Article 3 shall be - made in accordance with Sections 1101 through Section 1108 of the Subordinated Indenture.
(b) Upon giving not less than 30 nor more than 60 days' notice to the Holders of ING Perpetual Debt Securities, and provided the Solvency Conditions are satisfied at the time of such notice and at the time of redemption, the ING Perpetual Debt Securities may be redeemed in whole (but not in part) at the Base Redemption Price, at the option of the Company and without the consent of the Holders or the Trustee, as follows:
(i) on September 15, 2007, and thereafter on any Interest Payment Date;
(ii) upon the occurrence of a Tax Event, provided that the Company has already delivered to the Trustee a written legal opinion in a form satisfactory to the Trustee of independent Dutch counsel of recognized standing, selected by the Company, confirming that such Tax Event has occurred; or
(iii) upon the occurrence of a Regulatory Event.
(c) Cancellation of any ING Perpetual Debt Securities redeemed by the Company pursuant to this Indenture will be effectuated by reducing the principal amount of the global ING Perpetual Debt Securities, and any ING Perpetual Debt Securities so cancelled will be discharged. Any ING Perpetual Debt Securities purchased by the Company may be held, reissued, resold or, at the Company's option, cancelled. Such cancellation shall be effectuated by decreasing in an equal amount the number of ING Perpetual Debt Securities represented by the global security.
(d) In the event the Base Redemption Price in respect of any ING Perpetual Debt Securities is improperly withheld or refused and is not paid by the Company, Interest on the ING Perpetual Debt Securities will continue to be payable and accrue in accordance with Section 2.04(d) until the date the Base Redemption Price is actually paid (the "DELAYED REDEMPTION PAYMENT DATE"). Prior to the payment of any Base Redemption Price which previously has been improperly withheld or refused, the Company shall inform the Trustee of the proposed Delayed Redemption Payment Date and the Trustee shall, as soon as practicable after receiving such notice, provide notice to the Company of the amount of Accrued Interest Payments (together with Additional Interest) payable in connection therewith. The Company shall then provide notice to the Paying Agent, if different than the Trustee, and the Holders in accordance with Section 106 of the Subordinated Indenture of (i) the Delayed Redemption Payment Date, (ii) the Special Record Date for the Delayed Redemption Payment Date and (iii) the Accrued Interest Payments payable on such date, as calculated by the Trustee.
SECTION 3.02. Optional Purchase. The Company may at any time, subject to satisfaction of the Solvency Conditions, purchase ING Perpetual Debt Securities on the open market in any manner and at any price.
ARTICLE 4
ALTERNATIVE INTEREST SATISFACTION MECHANISM
SECTION 4.01. Conditions Precedent. Subject to the provisions of Article 5 of this First Supplemental Indenture and Article 5 of the Subordinated Indenture and notwithstanding any other provision of this Indenture to the contrary, the Company's ability to use the Alternative Interest Satisfaction Mechanism to satisfy its Payment obligations with respect to the ING Perpetual Debt Securities is subject to Section 4.04 and Section 4.05 hereof.
SECTION 4.02. Notices of Exercise of Alternative Interest Satisfaction Mechanism. The Company shall give notice to the Trustee, the Paying Agent, if different than the Trustee, the Calculation Agent and the Holders of the ING Perpetual Debt Securities in accordance with Sections 105 and 106, as applicable, of the Subordinated Indenture and in accordance with the Calculation Agency Agreement at least 16 Business Days prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date, as applicable, of its election pursuant to Section 2.04, to pay all or part of a Deferred Interest Payment or to make any other Payment pursuant to the Alternative Interest Satisfaction Mechanism, subject to Section 4.03(b) below.
SECTION 4.03. Alternative Interest Satisfaction Mechanism.
(a) Unless otherwise expressly provided in this Indenture, the Company shall satisfy any Deferred Interest Payments in accordance with the Alternative Interest Satisfaction Mechanism.
(b) Subject to the satisfaction of the Solvency Conditions, the Company may, at its option, satisfy any Payment in accordance with the Alternative Interest Satisfaction Mechanism; provided, however, that at the time of such election the Company shall have sufficient authorized ordinary shares to issue such shares to satisfy such Payment in full.
(c) Subject to and in accordance with the terms of the Calculation Agency Agreement, under the "ALTERNATIVE INTEREST SATISFACTION MECHANISM":
(i) the Company shall give notice to the Trustee, the Paying Agent, if different than the Trustee, the Calculation Agent and the Holders of the ING Perpetual Debt Securities as provided in Section 4.02;
(ii) on or prior to the eleventh business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date the Calculation Agent shall, pursuant to the Calculation Agency Agreement, calculate the number of Payment Ordinary Shares that have an aggregate market value (converted from euros into U.S. dollars) of not less than 110% of the relevant Payment and shall notify the Trustee and the Company accordingly of such number of Payment Ordinary Shares to be issued;
(iii) on or prior to the eleventh business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date the Calculation Agent shall, pursuant to the Calculation Agency Agreement, calculate the number of Associated Cost Ordinary Shares required to be issued by the Company as, on sale, produce a net amount (converted, where necessary, into euros) of not less than the Associated Costs and shall notify the Trustee and the Company of such number of Associated Cost Ordinary Shares to be issued;
(iv) by the close of business on or before the seventh business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date, the Company shall notify the Calculation Agent that it has a sufficient number of Ordinary Shares and corporate authorization to issue such number of Payment Ordinary Shares and Associated Cost Ordinary Shares as shall have been notified to the Trustee and the
Company by the Calculation Agent in accordance with Sections 4.03(c)(ii) and 4.03(c)(iii) above;
(v) the Calculation Agent will use reasonable efforts on normal market terms to procure purchasers for such Ordinary Shares as soon as reasonably practicable following receipt of the notice referred to in clause (iv), in accordance with the terms of the Calculation Agency Agreement, but no later than the fourth business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date;
(vi) one business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date, the Company will issue or transfer such Payment Ordinary Shares and Associated Cost Ordinary Shares in the open market as instructed by the Calculation Agent, and will collect any sales proceeds;
(vii) upon receipt of the sales proceeds, the Company shall immediately transfer the sales proceeds (or such amount of sales proceeds as is necessary to make the relevant Payment in full (after conversion from euros into U.S. dollars as necessary)) to the Trustee or its agent who shall convert any proceeds received in a currency other than U.S. dollars into U.S. dollars;
(viii) the Trustee will apply the sales proceeds received from the Company (as converted, if applicable) on the day the relevant Payment is due, towards the Payment to be satisfied;
(ix) if, following the procedures set forth in Sections 4.03(c)(i) to 4.03(c)(viii) above, there is a shortfall in the proceeds necessary to satisfy the relevant Payment that is due or to pay the Associated Costs, the Calculation Agent, pursuant to its obligations under the Calculation Agency Agreement, shall promptly notify the Trustee and the Company, and the Calculation Agent, the Trustee, the Paying Agent and the Company shall then take such steps as are reasonably necessary to ensure, so far as practicable, that through issuing and selling additional Payment Ordinary Shares or Associated Cost Ordinary Shares in accordance with Sections 4.03(c)(i) to 4.03(c)(viii) above, proceeds from the additional sales together with the proceeds referred to in Section 4.03(c)(vi) are at least equal to, respectively, the relevant Payment and any Associated Costs, such that the Payment and any Associated Costs may be satisfied in full on the relevant Interest Payment Date or Deferred Interest Satisfaction Date; provided that for such purpose, Sections 4.03(c)(i) to 4.03(c)(viii) above shall be modified as follows:
(A) references therein to "Payment" shall be deemed to be references to the amount by which the aggregate sum then paid to the Trustee by the Company in respect of the relevant Payment pursuant to the provisions of this Section 4.03 is less than the full amount due (the "PAYMENT SHORTFALL");
(B) references therein to "Associated Costs" shall be deemed to be references to the aggregate of (a) the amount by which the sum received by the Company in respect of Associated Costs is less than the Associated Costs and (b) the Associated Costs determined in accordance with the Calculation Agency Agreement but by reference to the numbers of additional Ordinary Shares required to be issued in order to satisfy the Shortfall (such aggregate being the "COSTS SHORTFALL"); and
(C) all matters required to be done by a stated time shall be done as soon as practicable.
For the purposes of this Section 4.03(c)(ix), "Shortfall" means the aggregate of the Payment Shortfall and the Costs Shortfall;
(x) if the aggregate amounts paid to the Paying Agent are less than the amount necessary to satisfy any Payment, after the Trustee receives any Shortfall amounts it will pay such amounts to the Paying Agent for payment to the Holders;
(xi) if, despite these provisions, such a Shortfall still exists on the relevant Interest Payment Date or Deferred Interest Satisfaction Date, the Company may, in accordance with the provisions of this Indenture, either pay an amount equal to such Shortfall as soon as practicable to the Trustee or continue to issue Payment Ordinary Shares or Associated Cost Ordinary Shares, as the case may be, until the Trustee has received funds equal to the full amount of such Shortfall. The Company shall be obligated to issue additional Ordinary Shares to cover any Shortfall unless it satisfies the Shortfall by making a direct payment to the Trustee; and
(xii) if, pursuant to the Alternative Interest Satisfaction Mechanism, proceeds are raised in excess of the amount required to pay the applicable Payments plus the Associated Costs in connection with using the Alternative Interest Satisfaction Mechanism, any remaining proceeds shall be retained by the Company.
SECTION 4.04. Insufficient Payment Ordinary Shares. (a)(i) If the Company is to satisfy a Payment pursuant to the Alternative Interest Satisfaction Mechanism and it does not, on the date when the number of Payment Ordinary Shares required to be issued is determined, have a sufficient number of Ordinary Shares available for issue, it shall notify the Trustee, the Calculation Agent and the Holders that all or part, as the case may be, of the relevant Payment cannot be satisfied due to an insufficient number of authorized Ordinary Shares.
(ii) In that case the Payment or part thereof shall be satisfied following the date of the Company's next annual general meeting or extraordinary general meeting of its shareholders at which a resolution is passed authorizing a sufficient number of Ordinary Shares to be made available to satisfy all or such part of the relevant Payment.
(iii) However, if the number of Ordinary Shares authorized to be issued at any such meeting is insufficient to satisfy all or such part of the relevant Payment, then those Ordinary Shares so issued will be applied by the Company in partial satisfaction of all or such part of the Relevant Payment.
(b) Following the passage of a resolution which authorizes the Company to issue additional Ordinary Shares for this purpose:
(i) the Company shall give notice to the Trustee at least 16 Business Days prior to the date upon which the relevant Payment or, as the case may be, the part thereof is to be made and the Trustee shall provide notice to the Company and the Calculation Agent of the amount of the Accrued Interest Payments (together with Additional Interest), if any, payable in connection with such Payment; and
(ii) the Company shall provide at least 16 Business Days notice in accordance with Section 106 of the Subordinated Indenture to the Calculation Agent and the Holders of the date upon which the relevant Payment or, as the case may be, the part thereof is to be made, which notice shall include the amount of the Accrued Interest Payments (together with Additional Interest), if any, payable in connection with such Payment, as calculated by the Trustee.
(c) The relevant Payment or, as the case may be, the part thereof which is not so satisfied will, unless it is a Required Deferred Interest Payment and has not been subsequently either satisfied or deferred pursuant to an Elective Deferral Interest Payment, will continue to accrue Interest at the Deferral Interest Rate from (and including) the date on which Payment would otherwise have been due to (but excluding) the date on which such Payment or part thereof is satisfied or, in the event of a Market Disruption Event, the date on which such payment or part thereof, would, but for the occurrence of such Market Disruption Event have been satisfied (from which date Interest (if any) will accrue on such Payment as provided below).
(d) If the Company does not have a sufficient number of Ordinary Shares and does not hold an annual general meeting within six months of giving the notice set forth in Section 4.03(c)(i), at which a resolution to make a sufficient
number of Ordinary Shares available is proposed, the Trustee will by notice require the Company to convene an extraordinary general meeting at which such a resolution will be proposed on a date falling within 10 weeks of such notice from the Trustee.
(e) In the event that a resolution to make a sufficient number of Ordinary Shares available is proposed at any such annual general meeting or extraordinary general meeting is rejected, the resolution will be proposed at each general annual meeting or any extraordinary general meeting thereafter until such time as the resolution has been passed by the Company's shareholders.
SECTION 4.05. Market Disruption Event. (a) If a Market Disruption Event on or after the 15th Business Day preceding any date upon which a Payment or part thereof is due to be made or satisfied pursuant to the Alternative Interest Satisfaction Mechanism, the Company may give notice to the Trustee, the Paying Agent, the Calculation Agent and the Holders as soon as possible after the Market Disruption Event has arisen or occurred, whereupon the relevant Payment will be deferred until such time as, in the opinion of the Company, the Market Disruption Event no longer exists.
(b) Any such deferred Payment or part thereof will be satisfied as soon as practicable after the Market Disruption Event no longer exists. The Company shall notify the Trustee of the date on which such deferred Payment or part thereof will be satisfied and the Trustee shall provide notice to the Company and the Calculation Agent of the amount of the Accrued Interest Payments (together with Additional Interest), if any, payable in connection with such deferred Payment. The Company shall then notify the Paying Agent, the Calculation Agent and the Holders in accordance with Section 106 of the Subordinated Indenture of the date on which such deferred Payment or part thereof will be satisfied and the amount of the Accrued Interest Payments (together with Additional Interest), if any, payable in connection with such deferred Payment, as calculated by the Trustee.
(c) Interest will not accrue on any deferred Payment or part thereof during a Market Disruption Event; provided, however, that if the Company does not make a relevant payment or part thereof for a period of 14 days or more after its due date, even if the Market Disruption Event is continuing, such deferred Payments or part thereof will accrue Interest from (and including) the date on which the relevant Payment or part thereof was due to be made to (but excluding) the date on which such Payment or part thereof is made. Any such Interest shall accrue at the Fixed Interest Rate and shall be satisfied only in accordance with the Alternative Interest Satisfaction Mechanism and as soon as reasonably practicable after the relevant deferred Payment is made. No liability shall attach to the Trustee or its agents if, as a result of a Market Disruption Event or any other event outside the control of the Trustee or any such agent, the Trustee or any such agent
is unable to comply with its duties in connection with any payment made pursuant to the Alternative Interest Satisfaction Mechanism.
ARTICLE 5
REMEDIES
SECTION 5.01. Defaults; Collection of Indebtedness and Suits for Enforcement by Trustee.
(a) "PAYMENT DEFAULT", wherever used herein with respect to the ING Perpetual Debt Securities, means solely the following event (regardless of the reason for such Payment Default and whether it is voluntary, involuntary or is effected by operation of law pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
The Company fails to pay or set aside for payment the amount due to satisfy any Payment on the ING Perpetual Debt Securities when due, and such failure continues for 14 days; provided, however, that if the Company fails to make any Mandatory Interest Payment as a result of failure to satisfy the Solvency Conditions, or due to a deferral of an Interest Payment as permitted under the terms of this Indenture, that payment will constitute an Outstanding Payment and will accumulate with any other Outstanding Payments until paid, but will not constitute a Payment Default.
(b) If a Payment Default occurs and is continuing, the Trustee may pursue all legal remedies available to it, including commencing a judicial proceeding for the collection of the sums so due and unpaid or a bankruptcy proceeding in The Netherlands (but not elsewhere) of the Company, but the Trustee may not declare the principal amount of any outstanding ING Perpetual Debt Securities to be due and payable. If the Company fails to make payment and the Solvency Conditions are not satisfied at the end of the 14-day period set forth in Section 5.01(a), such failure does not constitute a Payment Default but instead constitutes a "PAYMENT EVENT". On a Payment Event, the Trustee may institute bankruptcy proceedings against the Company exclusively in The Netherlands, but may not pursue any other legal remedy, including a judicial proceeding for the collection of the sums due and unpaid.
(c) Notwithstanding the foregoing, Holders of the ING Perpetual Debt Securities have the absolute and unconditional right to institute suit for the enforcement of any payment when due and such right may not be impaired
without the consent of the Holder as provided in Section 508 of the Subordinated Indenture. In addition, to the extent the Trustee is not permitted to pursue the remedies provided for in clause 5.01(b) as a matter of Dutch law, the Holders of the ING Perpetual Debt Securities may pursue such remedies in accordance with the terms of the Subordinated Indenture.
(d) Without prejudice to Section 5.04 and Section 5.05 of the Subordinated Indenture, the Trustee is and shall be fully authorized by each and any holder of record of an ING Perpetual Debt Security to commence proceedings in The Netherlands in accordance with Section 5.01(a) and 5.01(b) above, in the name and on behalf of such holder, as if the Trustee were such holder of record, with a view to having the Company declared bankrupt in The Netherlands.
(e) The provisions of this Section 5.01 replace Sections 501, 502 and 503 of the Subordinated Indenture in their entirety which is hereby amended and restated in its entirety by this Section 5.01.
ARTICLE 6
COVENANTS OF THE ISSUER
SECTION 6.01. Dividend Restrictions for Deferred Interest Payments. From the date the Company delivers a Deferral Notice until any Deferred Interest Payment is paid in full on the ING Perpetual Debt Securities, the Company agrees that it will not recommend to its shareholders, and to the fullest extent permitted by applicable law will otherwise act to prevent, any action that would constitute a Mandatory Payment Event or Mandatory Partial Payment Event.
SECTION 6.02. Calculation Agent. (a) For so long as any ING Perpetual Debt Securities remain outstanding, there shall at all times be a Calculation Agent hereunder. The current Calculation Agent is set forth in Article 1. If the Calculation Agent is unable or unwilling to act as such, or if it fails to make a determination, calculation or otherwise fails to perform its duties under the Indenture or the Calculation Agency Agreement, the Company shall appoint an independent investment bank acceptable to the Trustee to act as such in its place. Neither the termination of the appointment of the Calculation Agent nor the resignation of the Calculation Agent will be effective without a successor having been appointed.
(b) All calculations and determinations made by the Calculation Agent with respect to the ING Perpetual Debt Securities (absent manifest error) are final and binding on the Company, the Trustee, the Paying Agent and the Holders.
(c) Neither the Company nor the Trustee have any responsibility to anyone for any errors or omissions in any calculation by the Calculation Agent.
SECTION 6.03. Mandatory Interest Payments. Subject to satisfaction of the Solvency Conditions, the Company agrees that it will not defer any Payment on the ING Perpetual Debt Securities on the Interest Payment Date falling on a Mandatory Interest Payment Date.
SECTION 6.04. Deferral of Certain Payments. The Company agrees that if Payments stated to be payable on any date have not been made on the Company's preference shares or any other Parity Securities, then it will defer Payments on the ING Perpetual Debt Securities payable on such date, unless a Mandatory Interest Payment is due.
SECTION 6.05. Sufficiency of Ordinary Shares.
(a) The Company represents and warrants that at the date of this Supplemental Indenture, the Company has a sufficient number of authorized but unissued Ordinary Shares necessary, and the Company's Executive Board has the necessary authority to make the Interest Payments required to be made on the ING Perpetual Debt Securities during the next 12-month period, assuming the Alternative Interest Satisfaction Mechanism is used for each Interest Payment during such 12-month period.
(b) The Company agrees to keep available for issue a sufficient number of authorized but unissued Ordinary Shares as it reasonably considers would be required to be issued as Payment Ordinary Shares in connection with the next four Interest Payments. Should the Company fail to comply with this condition, no damages shall be payable in connection with such failure. The Trustee may require that the Company, as soon as practicable, hold an extraordinary general meeting of its shareholders at which a resolution will be passed to remedy such failure as provided in Section 4.04(d).
(c) The Trustee is not obligated to monitor whether the Company has a sufficient number of uninsured Ordinary Shares available for issuance as Payment Ordinary Shares and the Trustee is entitled to assume, unless it has actual knowledge to the contrary, that the Company is complying with its obligations to do so.
SECTION 6.06. Ranking. The Company agrees that, for so long as any ING Perpetual Debt Securities remain outstanding, it will not issue any preference shares (or other securities which are akin to preference shares as regards distributions on a return of Assets or upon a liquidation, moratorium of payments
or bankruptcy of the Company or in respect of distributions or payments of dividends and/or any other amounts thereunder by the Company) or give any guarantee or contractual support arrangement in respect of any of its preference shares or such other securities or in respect of any other entity if such preference shares, preferred securities, guarantees or contractual support arrangements would rank (as regards distributions on a return of Assets or on a liquidation, moratorium of payments or bankruptcy of the Company or in respect of distributions of payments of dividends and/or any other amounts thereunder by the Company) senior to the ING Perpetual Debt Securities, unless the Company amends the terms of the ING Perpetual Debt Securities such that the ING Perpetual Debt Securities rank pari passu effectively from a financial point of view with any such preference shares, such other securities akin to preference shares or such guarantee or support undertaking.
SECTION 6.07. Payment of Proceeds from Sale of Payment Ordinary Shares and Associated Cost Ordinary Shares. The Company agrees that immediately on receipt of the proceeds of the sale of Payment Ordinary Shares or Associated Cost Ordinary Shares in connection with the Alternative Interest Satisfaction Mechanism, it shall (a) pay proceeds from the sale of Payment Ordinary Shares to the Trustee (or any Paying Agent), either in Euros or converted into U.S. dollars, in such amount as shall enable the Trustee to make the relevant Payment in full on the relevant Interest Payment Date or Deferred Interest Satisfaction Date, and (b) pay proceeds from the sale of Associated Cost Ordinary Shares in Payment of all Associated Costs.
SECTION 6.08. Listing. The Company will use reasonable efforts to maintain the listing of the ING Perpetual Debt Securities on the stock exchange on which they were listed on or about the Issue Date or, if it is unable to do so having used such efforts or if the maintenance of any such listing is agreed by the Trustee to be unduly burdensome, use all reasonable efforts to obtain and maintain a quotation or listing of such ING Perpetual Debt Securities on such other stock exchange or exchanges or securities market or markets as the Company may (with the prior written approval of the Trustee) decide so that the ING Perpetual Debt Securities are listed on at least one stock exchange or securities market. The Company will also use its best efforts to furnish to any stock exchange(s) or securities market(s) such information as such stock exchange(s) or securities market(s) may require to be furnished in accordance with its requirements.
SECTION 6.09. Calculation Agency Agreement. The Company shall comply with and perform all its obligations under the Calculation Agency Agreement and use its reasonable efforts to procure that the Calculation Agent complies with and perform all its respective obligations under the Calculation Agency Agreement and not make any amendment or modification to such agreement without the prior written approval of the Trustee.
SECTION 6.10. Officer's Certificate on Deferral. If the Company elects or is obliged to defer any Payment in accordance with Section 2.04, it shall deliver to the Trustee, no later than the sixteenth business day prior to the relevant Interest Payment Date, an Officer's Certificate, certifying that the Required Deferral Condition was met on the twentieth Business Day prior to the relevant Interest Payment Date and if the Company shall elect to satisfy a Deferred Interest Payment on an earlier date than the Interest Payment Date following that on which the Required Deferral Condition fails to be met, deliver to the Trustee not later than the sixteenth business day prior to make such payment an Officer's Certificate certifying that the Required Deferral Condition was no longer, on a date no more than sixteen business days prior to the delivery of such certificate, met.
SECTION 6.11. Officer's Certificate for Market Disruption Event. If, in the opinion of the Company, there exists a Market Disruption Event as a consequent of which a Payment may be deferred under Section 4.05, it shall deliver to the Trustee within two Business Days of such Market Disruption Event having arisen or the Company having become aware of the same, an Officer's Certificate specifying the details of such Market Disruption Event.
ARTICLE 7
SUBORDINATION
SECTION 7.01. Agreement to Subordinate. (a) The Company covenants and
agrees, and each Holder of ING Perpetual Debt Securities issued hereunder, by
such Holder's acceptance thereof, likewise covenants and agrees, that the ING
Perpetual Debt Securities issued hereunder (i)(A) shall rank pari passu with
respect to each other (B) shall be similarly subordinated as, and accordingly
rank pari passu with, the Trust Preferred Securities Guarantees and (C) shall
rank pari passu with other Parity Guarantees and other debt obligations
expressed to be similarly subordinated and, accordingly, ranking pari passu
with, the ING Perpetual Debt Securities and such other Parity Guarantees, and
(ii) are and will be subordinated ("achtergesteld"), and accordingly be subject
in right of payment to prior payment in full upon liquidation, moratorium of
payments or bankruptcy of the Company, of all Senior Debt.
(b) The Company further covenants and agrees, and each Holder of ING Perpetual Debt Securities issued hereunder, by such Holder's acceptance thereof, likewise covenants and agrees, that the rights regarding payments and the issuance of Ordinary Shares in accordance with the Alternative Interest Satisfaction Mechanism will be subject to the Solvency Conditions. In the event of liquidation, moratorium of payments or bankruptcy of the Company, the Payments payable on the ING Perpetual Debt Securities shall be an amount equal to the
lesser of (i) the aggregate amount of Payments pursuant to the terms and
conditions of the ING Perpetual Debt Securities without giving effect to this
Section 7.01(b) and (ii) an amount equal to (A) the remaining assets of the
Company after satisfaction of all claims which, as a matter of law, are prior to
those of holders of ING Perpetual Debt Securities or any Parity Security, Parity
Guarantee and similarly ranking debt or any similarly subordinated debt
multiplied by (B) a fraction, (x) the numerator of which is the aggregate amount
of Payments due on the ING Perpetual Debt Securities pursuant to the terms and
conditions thereof without giving effect to this Section 7.01(b) and (y) the
denominator of which is the sum (without duplication) of the aggregate amount of
all claims under the ING Perpetual Debt Securities, the aggregate liquidation
preference of any outstanding Parity Securities and Parity Guarantees and
similarly subordinated debt obligations with a formula or arrangement
substantially similar to this Section 7.01(b), without application of this
Section 7.01(b) and the corresponding similar formula or arrangement.
SECTION 7.02. Section 1401 of the Subordinated Indenture. The
provisions of Section 7.01 replaces in its entirety Section 1401 of the
Subordinated Indenture which is hereby amended and restated in its entirety by
Section 7.01. In addition Section 1402 through Section 1414 of Article Fourteen
of the Subordinated Indenture is hereby amended by replacing the term "Senior
Debt" as used in such sections with the term "Senior Debt" as defined in this
First Supplemental Indenture.
ARTICLE 8
FORM OF ING PERPETUAL DEBT SECURITIES
SECTION 8.01. Form of ING Perpetual Debt Securities. The ING Perpetual Debt Securities shall be substantially in the form of Exhibit A. Exhibit A is hereby incorporated into and expressly made a part of this First Supplemental Indenture.
ARTICLE 9
ORIGINAL ISSUE OF ING PERPETUAL DEBT SECURITIES
SECTION 9.01. Original Issue of ING Perpetual Debt Securities. ING Perpetual Debt Securities in the initial aggregate principal amount of
$750,000,000 may, upon execution of this First Supplemental Indenture, be
executed by the Company and delivered to the Trustee for authentication, and the
Trustee shall thereupon authenticate and deliver such ING Perpetual Debt
Securities to or upon the written order of the Company, in accordance with
Section 303 of the Subordinated Indenture.
There is no limit on the amount of ING Perpetual Debt Securities which may be issued subsequent to this First Supplemental Indenture.
ARTICLE 10
WINDING UP
SECTION 10.01. Winding Up. If any action causes the Company's liquidation (except solely for the purpose of the Company's reconstruction, amalgamation or the substitution of a successor in business for the Company, the terms of which have previously been approved in writing by the Trustee or by not less than a majority of the Holders) the Company will pay with respect to each ING Perpetual Debt Security (in lieu of any other payment) an amount that would have been payable in respect of the ING Perpetual Debt Securities if, on and after the day immediately before the winding up began, any Holder of those ING Perpetual Debt Securities had been the holder of the Company's most senior class of preference shares (the "NOTIONAL PREFERENCE SHARES") which have a preferential right to a return of Assets upon liquidation over and so rank ahead of the holders of all other classes of the Company's issued shares for the time being in the Company's capital, but ranking junior to Senior Debt claims. Any such payment shall be made on the assumption that the amount that such Holder was entitled to receive in respect of each Notional Preference Share on a return of Assets upon such liquidation was an amount equal to the principal amount of $25 of the relevant ING Perpetual Debt Security and any other Outstanding Payments together with, and to the extent not otherwise included within the foregoing, the pro rata share of any Winding Up Claims attributable to the ING Perpetual Debt Security.
ARTICLE 11
SATISFACTION AND DISCHARGE
SECTION 11.01. Satisfaction and Discharge. The Company covenants and agrees, and each Holder of ING Perpetual Debt Securities issued hereunder, by such Holder's acceptance thereof likewise covenants and agrees, that all ING
Perpetual Debt Securities shall be issued as Securities subject to the provisions of Article 4 of the Subordinated Indenture.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Issuance of Definitive Securities. (a) So long as DTC holds the global ING Perpetual Debt Securities, the global securities will not be exchangeable for definitive securities unless: (i) DTC notifies the Trustee that it is unwilling or unable to continue to hold the book-entry ING Perpetual Debt Securities or DTC ceases to be a clearing agency registered under the Exchange Act and the Trustee does not appoint a successor to DTC which is registered under the Exchange Act within 120 days; (ii) a Payment Default has occurred and is continuing, (iii) a Payment Event has occurred, (iv) in the event of the Company's winding-up it fails to make a payment on the ING Perpetual Debt Securities when due; or (v) at any time following a determination by the Company in its sole discretion that the global securities of a particular series should be exchanged for definitive debt securities of that series in registered form.
(b) Each person having an ownership or other interest in ING Perpetual Debt Securities must rely exclusively on the rules and procedures of DTC, Euroclear or Clearstream, Luxembourg, as the case may be, or any other securities intermediary through which that person holds its interest to receive or direct the delivery of possession of any definitive security.
(c) Any definitive securities will be issued in registered form only in denominations of $25.00 and any integral multiples thereof and shall be substantially in the form of the global security included as Exhibit A with such insertions, omissions, substitutions and other variations as appropriate for definitive securities as evidenced by the execution of such securities. To the extent permitted by law, the Company and the Trustee are entitled to treat the person in whose name any definitive security is registered as its absolute owner.
(d) Payments in respect of each series of definitive securities will be made to the person in whose name the definitive securities are registered as it appears in the register for that series. Payments will be made in respect of the ING Perpetual Debt Securities by check drawn on a bank in New York or, if the Holder requests, by transfer to the holder's account in New York. Definitive securities must be presented to the Paying Agent for redemption.
(e) If the Company issues definitive securities in exchange for global ING Perpetual Debt Securities, DTC, as holder of the global ING Perpetual Debt Securities, will surrender it against receipt of the definitive securities, cancel the book-entry securities of that series and distribute the definitive securities of that series to the person in the amounts that DTC specifies.
(f) If definitive securities are issued in the limited circumstances as set forth above, such securities may be transferred in whole or in part in denominations of any whole number of securities upon surrender of the definitive securities certificates together with the form of transfer endorsed on it, duly completed and executed at the specified office of the trustee. If only part of a securities certificate is transferred, a new securities certificate representing the balance not transferred will be issued to the transferor.
SECTION 12.02. Ratification of Subordinated Indenture; First Supplemental Indenture Controls. The Subordinated Indenture, as supplemented by this First Supplemental Indenture, is in all respects ratified and confirmed. This First Supplemental Indenture shall be deemed part of the Subordinated Indenture in the manner and to the extent herein and therein provided. The provisions of this First Supplemental Indenture shall supersede the provisions of the Subordinated Indenture to the extent the Subordinated Indenture is inconsistent herewith.
SECTION 12.03. Trustee Not Responsible for Recitals. The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the accuracy thereof. The Trustee makes no representation as to the validity or sufficiency of this First Supplemental Indenture or the ING Perpetual Debt Securities. The Trustee shall not be accountable for the use or application by the Company of the ING Perpetual Debt Securities or the proceeds thereof.
SECTION 12.04. Governing Law. This First Supplemental Indenture and each ING Perpetual Debt Securities shall be governed by and construed in accordance with the laws of the State of New York, except for Article 7, which shall be governed by and construed in accordance with the laws of The Netherlands.
SECTION 12.05. Severability. If any provision in the Subordinated Indenture, this First Supplemental Indenture or in the ING Perpetual Debt Securities is determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.06. Counterparts. The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Any signed copy shall be sufficient proof of this First Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the day and year first above written.
ING GROEP N.V.
as Issuer
By: /s/ J.D. WOLVIUS --------------------------------------- Name: J.D. Wolvius Title: Head of Capital Management By: /s/ DON TAGGART --------------------------------------- Name: Don Taggart Title: Authorized Signatory |
THE BANK OF NEW YORK, as Trustee and Paying Agent
By: /s/ LUIS PEREZ --------------------------------------- Name: Luis Perez Title: Assistant Vice President |
EXHIBIT A
FORM OF ING Perpetual Debt Security
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
The rights of the Holders of the Securities are, to the extent and in the manner set forth in Section 1401 of the Subordinated Indenture and Article 7 of the First Supplemental Indenture, subordinated to Senior Debt, and this Security is issued subject to the provisions of Article 14 of the Subordinated Indenture and Article 7 of the First Supplemental Indenture, and the Holder of this Security, by accepting the same, agrees to and shall be bound by such provisions. The terms of this paragraph are governed by, and shall be construed in accordance with, the laws of The Netherlands.
ING Groep N.V.
7.05% ING PERPETUAL DEBT SECURITIES (THE "SECURITIES")
No. 1
CUSIP No.: 456837 20 2 $500,000,000
ISIN No.: US4568372027
COMMON CODE: 015168706
ING Groep N.V., a holding company duly organized and existing under the laws of The Netherlands, having its corporate seat in Amsterdam, The Netherlands (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or registered assigns, the principal sum of Five Hundred Million Dollars ($500,000,000) (but only at such times as set forth in the Indenture with respect to Optional Redemption and Redemption Upon Certain Events in Article 3 of the First Supplemental Indenture) and to pay interest thereon from July 18, 2002 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, quarterly in arrears on March 15, June 15, September 15 and December 15 in each year, commencing on September 15, 2002, and at such other times as are set forth in the Indenture at the rate of 7.05% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the March 1, June 1, September 1 or December 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. If interest is required to be calculated for any period less than a year, it will be calculated based on a 360-day year consisting of twelve 30-day months. If any Interest Payment Date would otherwise fall on a
day that is not a Business Day, it shall be postponed to the next day which is a Business Day (without any interest or other payment in respect of the delay).
Subject to the immediately following paragraph, if applicable, any Payment on this Security which is payable, and is paid or duly provided for, on any Interest Payment Date or on any date on which the Company makes any Payment (including any payment of Additional Amounts in accordance with Section 1006 of the Subordinated Indenture) shall be paid in U.S. dollars to the registered Holder, including through a Paying Agent by wire-transfer of same-day funds to the Holder or, at the option of the Company, by check mailed to the address of the Holder as it appears in the Company's Security Register. For so long as this Security is held in global form, all payments shall be made in U.S. dollars by wire-transfer of same-day funds.
The Company shall under certain circumstances, and in accordance with the Indenture, defer payments of interest on this Security. Any interest on this Security which is not paid or duly provided for on any applicable Interest Payment Date, together with any other payments in respect of this Security not paid on any date on which such Payment has become due and payable or would have become due and payable except that payment is not made as permitted by the Indenture, so long as the same remains unpaid, shall constitute "Outstanding Payments." Outstanding Payments will accumulate until paid. Outstanding Payments on this Security, when paid, as provided subject to the conditions in the Indenture, will be paid on the Deferred Interest Satisfaction Date to the Holder in whose name this Security is registered at the close of business on a Special Record Date for the Payment due on such Deferred Interest Satisfaction Date to be fixed by the Trustee, notice of which shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid in any other lawful manner not inconsistent with the requirements of any securities exchange on which this Security may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.
Outstanding Payments, other than Accrued Interest Payments, shall not bear interest. Accrued Interest Payments will accrue interest at the Fixed Interest Rate. The amount of interest so accrued in respect of any Accrued Interest Payments will be satisfied as and when the Outstanding Payments are satisfied in accordance herewith. The amount of additional interest payable with respect to any Accrued Interest Payments will be calculated by the Trustee in accordance with the provisions of the Indenture.
Except in the case of a Mandatory Payment Event or a Mandatory Partial Payment Event, the Company may satisfy any Elective Deferral Interest Payment at any time on not less than 16 Business Days' notice to the Trustee, the Calculation Agent and Holders in accordance with the Indenture, and any Required Deferral Interest Payment shall be satisfied on the relevant Deferred Interest Satisfaction Date, by giving not less than 16 Business Days' notice to the Trustee, the Calculation Agent and Holders, if the Required Deferral Condition is no longer met on the 20th Business Day preceding any subsequent Interest Payment Date provided that the Company has not previously paid such amount and does not validly elect to defer such payment as an Elective Deferral Interest Payment.
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.
NG Groep N.V.
y:______________________________________________________________________________ Name:
Title:
y:______________________________________________________________________________ Name:
Title:
Attest:
..................................
This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture.
Dated: July 18, 2002
The Bank of New York, As Trustee
By.............................
Authorized Signatory
[Reverse of Security]
This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under a Subordinated Debt Indenture, dated as of July 18, 2002 (herein called the "Subordinated Indenture"), and a First Supplemental Indenture, dated as of July 18, 2002 (herein called the "First Supplemental Indenture" and together with the Subordinated Indenture, the "Indenture"), between the Company and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the terms of the Securities and the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee, the holders of Senior Debt and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities are subject to all such terms. This Security is one of the series designated on the face hereof and there is no limitation on the amount of Securities of such series which may be issued.
Except in a bankruptcy, all payments on this Security will be conditional upon not triggering the Required Deferral Condition. The "Required Deferral Condition" will be met if the Company determines that the Solvency Conditions (i) are not satisfied on the Relevant Date, or (ii) will not be satisfied following the relevant Payment. The "Solvency Conditions" are satisfied where (i) the Company is able to make payments on its Senior Debt as such payments become due, and (ii) the Company's Assets exceed the sum of its Liabilities (excluding Liabilities not considered Senior Debt). The amount payable in respect of this Security will be determined in accordance with the provisions of Article 14 of the Subordinated Indenture and Articles 7 and 10 of the First Supplemental Indenture.
The Securities will constitute direct, unsecured subordinated obligations of the Company, subject to the Solvency Conditions, and the subordination provisions described herein and in the Indenture, and will rank pari passu without any preference among themselves.
If the Company fails to pay or set aside for payment the amount due to satisfy any Payment on the Securities when due and such failure continues for 14 days, it will constitute a "Payment Default" ( provided, however, that if the Company fails to make any Mandatory Interest Payment as a result of failure to satisfy the Solvency Conditions, or due to a deferral of an Interest Payment as permitted under the terms of the Indenture, that payment will constitute an Outstanding Payment and will accumulate with any other Outstanding Payments until paid, but will not constitute a Payment Default). If any Payment Default occurs and is continuing, the Trustee may pursue all legal remedies available to it, including commencing a judicial proceeding for the collection of the sums due and unpaid or a bankruptcy proceeding in The Netherlands (but not elsewhere) of the Company, but the Trustee may not declare the principal amount of any outstanding Securities to be due and payable. If the Company fails to make payment when due, and such failure continues for 14 days, and the Solvency Conditions are not satisfied at the end of such 14-day period, such failure does not constitute a Payment Default but instead constitutes a "Payment Event." On a Payment Event, the Trustee may institute bankruptcy proceedings exclusively in The Netherlands, but may not pursue any other legal remedy, including a judicial proceeding for the collection of the sums due and unpaid. To the extent the Trustee is not permitted to pursue the remedies provided for herein as a matter of
Dutch law, the Holders of the Securities may pursue such remedies in accordance with the terms of the Subordinated Indenture. Notwithstanding the foregoing, Holders of this Security have the absolute and unconditional right to institute suit for the enforcement of any payment when due and such right may not be impaired without the consent of the Holder as provided in Section 508 of the Subordinated Indenture.
Payments under the Securities will be made without withholding or deduction for or on account of any present or future tax, duty, assessment or governmental charge imposed by the government of The Netherlands upon or as a result of such payments, or the government of a jurisdiction in which a successor to the Company is organized (or any political subdivision or taxing authority thereof or therein) (a "Relevant Jurisdiction") ("Taxes"), unless required by law. To the extent any such Taxes are so levied or imposed, the Company will, subject to the exceptions and limitations set forth in Section 1006 of the Indenture, pay such additional amounts ("Additional Amounts") to the Holder of any Security who is not a resident of a Relevant Jurisdiction as may be necessary in order that the net payment of the principal of and interest on such Security and any other amounts payable on such Security, after withholding for or on account of such Taxes imposed upon or as a result of such payment, will not be less than the amount provided for in such Security to be then due and payable.
Except as provided below, the Securities are not redeemable at the option of the Company prior to September 15, 2007.
The Securities may be redeemed in whole (but not in part), at
the option of the Company and without the consent of the Holders or the Trustee,
at a redemption price equal to their aggregate principal amount, together with
any Outstanding Payments accrued to and including the date fixed for redemption,
subject to the Solvency Condition: (i) on September 15, 2007, or any Interest
Payment Date thereafter; (ii) upon the occurrence of a Tax Event, provided that
the Company has already delivered to the Trustee a written legal opinion in a
form satisfactory to the Trustee of independent Dutch counsel of recognized
standing, selected by the Company, confirming that a Tax Event has occurred; or
(iii) upon the occurrence of a Regulatory Event.
The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Debt, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (i) agrees to and shall be bound by such provisions; (ii) authorizes and directs the Trustee on his or her behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided; and (iii) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or her acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Debt, whether now outstanding or hereafter created, incurred, assumed or guaranteed, and waives reliance by each such holder upon said provisions.
References herein to principal, interest amounts, Accrued Interest Payments, Payments or Outstanding Payments on the Securities shall be deemed also to refer to any Additional Amounts which may be payable under the foregoing provisions.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities of
each series to be affected under the Indenture at any time by the Company and
the Trustee with the consent of the Holders of a majority in principal amount of
the Securities at the time Outstanding of all series to be affected (considered
together as one class for this purpose). The Indenture also contains provisions
(i) permitting the Holders of a majority in principal amount of the Securities
of each series at the time outstanding, on behalf of the Holders of all
Securities of such series, to waive compliance by the Company with certain
provisions of the Indenture and (ii) permitting the Holders of a majority in
principal amount of the Securities at the time outstanding of any series to be
affected under the Indenture (with each such series considered separately for
this purpose), on behalf of the Holders of all Securities of such series, to
waive certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series shall be represented by a Global Security and are not exchangeable for definitive Securities of this series except in specific circumstances set forth in the Indenture.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this
Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
This Security is a Global Security and is subject to the provisions of the Indenture relating to Global Securities, including the limitations in Section 305 thereof on transfers and exchanges of Global Securities.
This Security and the Indenture shall be governed by and construed in accordance with the laws of the State of New York except for the subordination provisions contained herein and in the Indenture, which shall be governed by and construed in accordance with the laws of The Netherlands.
All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
EXHIBIT 2.3
SECOND SUPPLEMENTAL INDENTURE
between
ING GROEP N.V.,
as Issuer
and
THE BANK OF NEW YORK,
as Trustee
Dated as of December 12, 2002
to the Subordinated Indenture between
ING GROEP N.V.,
as Issuer
and
THE BANK OF NEW YORK,
as Trustee
Dated as of July 18, 2002
$1,000,000,000 principal amount of 7.20% ING Perpetual Debt Securities
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions of Terms...................................... 2 ARTICLE 2 GENERAL TERMS AND CONDITIONS OF THE 7.20% ING PERPETUAL DEBT SECURITIES SECTION 2.01. Designation and Principal Amount ......................... 12 SECTION 2.02. Maturity ................................................. 12 SECTION 2.03. Form, Issuance, Registration and Exchange ................ 12 SECTION 2.04. Payments ................................................. 13 SECTION 2.05. Mandatory Payment Events; Mandatory Partial Payment Events........................................................... 17 ARTICLE 3 OPTIONAL REDEMPTION AND REDEMPTION UPON CERTAIN EVENTS SECTION 3.01. Optional Redemption ...................................... 18 SECTION 3.02. Optional Purchase ........................................ 19 ARTICLE 4 ALTERNATIVE INTEREST SATISFACTION MECHANISM SECTION 4.01. Conditions Precedent...................................... 19 SECTION 4.02. Notices of Exercise of Alternative Interest Satisfaction Mechanism........................................................ 19 SECTION 4.03. Alternative Interest Satisfaction Mechanism............... 19 SECTION 4.04. Insufficient Payment Ordinary Shares...................... 22 SECTION 4.05. Market Disruption Event................................... 24 ARTICLE 5 REMEDIES SECTION 5.01. Defaults; Collection of Indebtedness and Suits for Enforcement by Trustee........................................... 25 |
ARTICLE 6
COVENANTS OF THE ISSUER
SECTION 6.01. Dividend Restrictions for Deferred Interest Payments....... 26 SECTION 6.02. Calculation Agent.......................................... 26 SECTION 6.03. Mandatory Interest Payments................................ 27 SECTION 6.04. Deferral of Certain Payments............................... 27 SECTION 6.05. Sufficiency of Ordinary Shares............................. 27 SECTION 6.06. Ranking.................................................... 28 SECTION 6.07. Payment of Proceeds from Sale of Payment Ordinary Shares and Associated Cost Ordinary Shares....................... 28 SECTION 6.08. Listing.................................................... 28 SECTION 6.09. Calculation Agency Agreement............................... 29 SECTION 6.10. Officer's Certificate on Deferral.......................... 29 SECTION 6.11. Officer's Certificate for Market Disruption Event.......... 29 ARTICLE 7 SUBORDINATION SECTION 7.01. Agreement to Subordinate................................... 29 SECTION 7.02. Section 1401 of the Subordinated Indenture................. 30 ARTICLE 8 FORM OF 7.20% ING PERPETUAL DEBT SECURITIES SECTION 8.01. Form of 7.20% ING Perpetual Debt Securities................ 30 ARTICLE 9 ORIGINAL ISSUE OF 7.20% ING PERPETUAL DEBT SECURITIES SECTION 9.01. Original Issue of 7.20% ING Perpetual Debt Securities...... 31 ARTICLE 10 WINDING UP SECTION 10.01. Winding Up................................................. 31 ARTICLE 11 SATISFACTION AND DISCHARGE SECTION 11.01. Satisfaction and Discharge................................. 32 |
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Issuance of Definitive Securities.......................... 32 SECTION 12.02. Ratification of Subordinated Indenture; Second Supplemental Indenture Controls................................. 33 SECTION 12.03. Trustee Not Responsible for Recitals....................... 33 SECTION 12.04. Governing Law.............................................. 33 SECTION 12.05. Severability............................................... 33 SECTION 12.06. Counterparts............................................... 34 EXHIBIT A Form of 7.20% ING Perpetual Debt Securities........... A-l |
SECOND SUPPLEMENTAL INDENTURE dated as of December 12, 2002 (the "SECOND SUPPLEMENTAL INDENTURE") between ING Groep N.V., a company incorporated in The Netherlands (the "COMPANY"), having its statutory seat in Amsterdam and its principal office at Amstelveenseweg 500, 1081 KL Amsterdam, P.O. Box 810, 1000 AV Amsterdam, The Netherlands, and The Bank of New York, a New York banking corporation having its Corporate Trust Office at 101 Barclay Street, New York, New York, 10286, as trustee (the "TRUSTEE") to the Subordinated Indenture, dated July 18, 2002, between the Company and the Trustee (the "SUBORDINATED INDENTURE", and together with this Second Supplemental Indenture, the "INDENTURE"). In addition, The Bank of New York, through its New York and London branches, has agreed to act as Paying Agent hereunder.
WHEREAS, the Company and the Trustee executed and delivered the Subordinated Indenture to provide for the future issuance of the Company's Securities to be issued from time to time in one or more series as might be determined by the Company under the Subordinated Indenture, in an unlimited aggregate principal amount, which may be authenticated and delivered as provided in the Subordinated Indenture;
WHEREAS, Section 301 of the Subordinated Indenture permits the terms of any series of Securities to be established pursuant to a Board Resolution or in one or more indentures supplemental to the Subordinated Indenture;
WHEREAS, the Company desires to issue a series of Securities, the terms of which it deems appropriate to set out in this Second Supplemental Indenture;
WHEREAS, pursuant to the terms of the Subordinated Indenture, the Company may issue Securities now and additional Securities of the same or different series at later dates under the Subordinated Indenture, as established by the Company, and the Company desires to initially issue $1,000,000,000 aggregate principal amount of securities, entitled the 7.20% ING Perpetual Debt Securities (the "7.20% ING PERPETUAL DEBT SECURITIES"), the form and substance of such 7.20% ING Perpetual Debt Securities and the terms, provisions and conditions thereof to be set forth as provided in the Subordinated Indenture as supplemented by this Second Supplemental Indenture;
WHEREAS, pursuant to Section 301 of the Subordinated Indenture, the Company desires to appoint The Bank of New York, through its New York and London branches, to act as Paying Agent with respect to the 7.20% ING Perpetual Debt Securities and ING Financial Markets LLC, as Calculation Agent with respect to the 7.20% ING Perpetual Debt Securities;
WHEREAS, the 7.20% ING Perpetual Debt Securities shall be treated as a separate series of Securities in accordance with the terms of the Indenture and for all purposes under the Indenture; and
WHEREAS, the Company has duly authorized the execution and delivery of this Second Supplemental Indenture and requested that the Trustee execute and deliver this Second Supplemental Indenture, and all requirements necessary to make this Second Supplemental Indenture a valid and binding instrument in accordance with its terms have been done.
NOW THEREFORE, in consideration of the purchase and acceptance of the 7.20% ING Perpetual Debt Securities by the Holders thereof, and for the purpose of setting forth, as provided in the Indenture, the form and substance of the 7.20% ING Perpetual Debt Securities and the terms, provisions and conditions thereof, the Company covenants and agrees with the Trustee and the Paying Agent as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions of Terms. For all purposes of the Indenture, except as otherwise expressly provided or unless the context otherwise requires:
(a) a term defined in the Subordinated Indenture and not otherwise defined herein has the same meaning when used in this Second Supplemental Indenture;
(b) unless otherwise specified, a reference to a
Section or Article is to a Section or Article of this Second
Supplemental Indenture;
(c) headings are for convenience of reference only and do not affect interpretation; and
(d) the following terms have the meanings given to them in this Section 1.01(d) and shall have the meaning set forth below for purposes of this Second Supplemental Indenture and the Subordinated Indenture as it relates to the series of 7.20% ING Perpetual Debt Securities created hereunder.
"ACCRUED INTEREST PAYMENT" means Interest that shall continue to accrue after an Interest Payment Date in respect of an Elective Deferral Interest Payment,
the failure to make a payment when due on a date of redemption, certain Payments which cannot be made due to insufficient Ordinary Shares to satisfy the Alternative Interest Satisfaction Mechanism and failure to make a Payment more than 14 days after its due date due to a Market Disruption Event.
"ADDITIONAL AMOUNTS" has the meaning specified in Section 1006 of the Subordinated Indenture.
"ALTERNATIVE INTEREST SATISFACTION MECHANISM" has the meaning specified in Section 4.03 hereof.
"ASSETS" means the non-consolidated gross assets of the Company as shown by the most recently published audited balance sheet of the Company, but adjusted for contingencies and subsequent events and to such extent as the directors, external auditors or, as the case may be, the liquidator may determine to be appropriate.
"ASSOCIATED COSTS" has the meaning assigned to such term in the Calculation Agency Agreement.
"ASSOCIATED COST ORDINARY SHARES" means Ordinary Shares issued by the Company in accordance with Section 4.03 (c)(iii) hereof.
"BASE REDEMPTION PRICE" in respect of the 7.20% ING Perpetual Debt Securities means a redemption price equal to 100% of the aggregate principal amount, together with any Outstanding Payments accrued to and including the date fixed for redemption.
"BUSINESS DAY" means a Monday, Tuesday, Wednesday, Thursday or Friday that is not a day on which banking institutions in The Netherlands or New York City generally are authorized or obligated by law, regulation or executive order to close.
"CALCULATION AGENCY AGREEMENT" means the calculation agency agreement, dated as of December 12, 2002, between the Company and the Calculation Agent, relating to the 7.20% ING Perpetual Debt Securities, as the same may be amended from time to time.
"CALCULATION AGENT" means ING Financial Markets LLC, as calculation agent in relation to the 7.20% ING Perpetual Debt Securities, or its successor or successors for the time being appointed under the Calculation Agency Agreement.
"DEFERRAL INTEREST RATE" means an interest rate equal to the Fixed Interest Rate.
"DEFERRAL NOTICE" means a notice to the Trustee, the Holders, the Paying Agent, if different than the Trustee, and the Calculation Agent that a Payment will be deferred in accordance with the Indenture.
"DEFERRED INTEREST PAYMENT" means any Elective Deferral Interest Payment, or part thereof, which has not subsequently been satisfied, or any Required Deferral Interest Payment, or part thereof, which has not subsequently been either (i) satisfied, or (ii) deferred pursuant to Section 2.04(f) hereof.
"DEFERRED INTEREST SATISFACTION DATE" means the earlier of
(i) with respect to a Required Deferral Interest Payment, the Interest Payment Date following the 19th Business Day after the Required Deferral Condition fails to be met;
(ii) the date on which the Company has resolved to satisfy a Deferred Interest Payment as set forth in a notice to the Trustee, the Holders, the Paying Agent, if different than the Trustee, and the Calculation Agent; or
(iii) the date on which the Company is required to satisfy all Deferred Interest Payments due to the occurrence of a Mandatory Payment Event or a Mandatory Partial Payment Event.
"DTC" means the Depository Trust Company.
"ELECTIVE DEFERRAL INTEREST PAYMENT" means any Payment on the 7.20% ING
Perpetual Debt Securities that is deferred due to the circumstances set forth in
Section 2.04(f) hereof.
"FIXED INTEREST RATE" has the meaning set forth in Section 2.04(b) hereof.
"INDENTURE" has the meaning set forth in the recitals of this Second Supplemental Indenture.
"7.20% ING PERPETUAL DEBT SECURITIES" has the meaning set forth in the recitals of this Second Supplemental Indenture, and shall include, unless the context otherwise requires, any further 7.20% ING Perpetual Debt Securities which the Company is permitted to issue and which will form a single series with the 7.20% ING Perpetual Debt Securities.
"INTEREST" means interest payments on the 7.20% ING Perpetual Debt Securities as calculated in accordance with Sections 2.04(b) and (c) hereof and shall, where appropriate, include Interest Amounts, Deferred Interest Payments and Accrued Interest Payments.
"INTEREST AMOUNT" means
(i) in respect of an Interest Payment, the amount of Interest payable on a 7.20% ING Perpetual Debt Security for the relevant Interest Period; and
(ii) in the event of redemption due to a Tax Event or Regulatory Event, any Interest accrued from (and including) the preceding Interest Payment Date (or, if none, the Issue Date) to (but excluding) the due date for redemption, if not an Interest Payment Date, as calculated using the Interest Calculation Basis.
"INTEREST CALCULATION BASIS" means the calculation of Interest on the basis of a 360-day year of twelve 30-day months.
"INTEREST PAYMENT" means, in respect of an Interest Payment Date, the aggregate Interest Amounts for the Interest Period ending on such Interest Payment Date.
"INTEREST PAYMENT DATE" has the meaning set forth in Section 2.04(d) hereof.
"INTEREST PERIOD" means the period commencing on (and including) the Issue Date and ending on (but excluding) the first Interest Payment Date and each successive period commencing on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date.
"ISSUE DATE" means December 12, 2002.
"JUNIOR GUARANTEE" means any guarantee, indemnity or other contractual support arrangement entered into by the Company in respect of securities (regardless of name or designation) issued by a Subsidiary or Undertaking and ranking junior to the 7.20% ING Perpetual Debt Securities upon a liquidation of the Company or in respect of distributions or payment of dividends or any other payment thereon.
"JUNIOR SECURITIES" means the Ordinary Shares or any other securities of the Company that rank junior to the 7.20% ING Perpetual Debt Securities with
respect to distributions on a return of assets, upon a liquidation of the Company or in respect of distributions, payments of dividends or any other payment thereon.
"LIABILITIES" means the non-consolidated gross liabilities of the Company as shown by the most recently published audited balance sheet of the Company, but adjusted for contingencies and for subsequent events and to such extent as the Company's directors, external auditors or, as the case may be, liquidator may determine.
"MANDATORY PARTIAL PAYMENT" payable on any Interest Payment Date means a payment in respect of each 7.20% ING Perpetual Debt Security in an amount that results in payment of a proportion of a full Interest Payment on the 7.20% ING Perpetual Debt Security on such Interest Payment Date equal to the proportion of a full dividend or full interest payment on the relevant Parity Securities and/or payment on the relevant Parity Guarantee paid on the dividend or payment date in respect of the relevant Parity Securities and/or Parity Guarantee immediately preceding such Interest Payment Date.
"MANDATORY PARTIAL PAYMENT EVENT" means the occurrence of any of the following:
(i) the Company declares, pays or distributes a dividend or makes a payment on any of its Parity Securities or Parity Guarantees; or
(ii) any Subsidiary or Undertaking declares, pays or distributes a dividend on any security issued by it benefitting from a Parity Guarantee or makes a payment on any security issued by it benefitting from a Parity Guarantee.
"MANDATORY PAYMENT EVENT" means the occurrence of any of the following:
(i) the Company declares, pays or distributes a dividend or makes a payment (other than a dividend in the form of Ordinary Shares) on any of its Junior Securities or makes a payment on a Junior Guarantee;
(ii) any Subsidiary or Undertaking declares, pays or distributes a dividend on any security issued by it benefitting from a Junior Guarantee or makes a payment (other than a dividend in the form of ordinary shares) on any security issued by it benefitting from a Junior Guarantee;
(iii) the Company or any Subsidiary or Undertaking redeems, purchases or otherwise acquires any of the Company's Junior Securities,
any Parity Securities or any securities issued by any Subsidiary or Undertaking benefitting from a Junior Guarantee or Parity Guarantee, other than (1) by conversion into or in exchange for Ordinary Shares, (2) in connection with transactions effected by or for the account of customers of the Company or any Subsidiary or in connection with the distribution, trading or market-making activities in respect of those securities, (3) in connection with the satisfaction by the Company or any Subsidiary of its obligations under any employee benefit plans or similar arrangements with or for the benefit of employees, officers, directors or consultants, (4) as a result of a reclassification of the Company or any Subsidiary or the exchange or conversion of one class or series of capital stock for another class or series of capital stock, or (5) the purchase of the fractional interests in shares of the capital stock of the Company or of any Subsidiary pursuant to the conversion or exchange provisions of that capital stock or the security being converted or exchanged; or
(iv) any moneys are paid to or made available for a sinking fund or for redemption of any Junior Securities, Parity Securities or any securities issued by any Subsidiary or Undertaking benefitting from a Junior Guarantee or Parity Guarantee.
"MARKET DISRUPTION EVENT" means
(i) the occurrence or existence of any suspension of or limitation imposed on trading by reason of movements in price exceeding limits permitted by Euronext Amsterdam N.V. or on settlement procedures for transactions in the Ordinary Shares on Euronext Amsterdam N.V. if, in any such case, that suspension or limitation is, in the determination of the Calculation Agent, material in the context of the sale of the Ordinary Shares;
(ii) in the Company's opinion, there has been a substantial deterioration in the price and/or value of the Ordinary Shares, or circumstances are such as to prevent or, to a material extent, restrict the issue or delivery of the Payment Ordinary Shares; or
(iii) where, pursuant to the terms of the Indenture, moneys are required to be converted from one currency into another currency in respect of any Payment, but the occurrence of any event that makes it impracticable to effect such conversion.
"NOTIONAL PREFERENCE SHARES" has the meaning set forth in Section 10.01 hereof.
"ORDINARY SHARES" means the Company's ordinary shares or bearer depository receipts issued in respect of such ordinary shares as the context may require.
"OUTSTANDING PAYMENT" means:
(i) in relation to any Interest Payment,
Deferred Interest Payment or Interest Amount not falling
within the definition of Interest Payment, that such payment
(a) has either become due and payable or would have become due
and payable except for the non-satisfaction on the relevant
date due to a Solvency Condition not being satisfied or the
deferral, postponement or suspension of such payment, due to a
Required Deferral Condition, an Elective Deferral Interest
Payment, insufficient Ordinary Shares available to satisfy the
Alternative Interest Satisfaction Mechanism, or failure to
make a payment more than 14 days after its due date due to a
Market Disruption Event, and (b) in any such case has not been
satisfied; and
(ii) in relation to any Accrued Interest Payment, any amount thereof which has not been satisfied whether or not payment has become due.
"PARITY GUARANTEE" means any guarantee, indemnity or other contractual support arrangements of the Company of securities of any Subsidiary or Undertaking, under which the holders of such securities as the party who has the benefit of any such guarantee, indemnity or other contractual support agreement is entitled, effectively from a financial point of view, to distributions on a return of assets or on a liquidation, moratorium of payments or bankruptcy of the Company or to distributions or payments of dividends and/or any other amounts thereunder by the Company, to the same extent as the most senior class of preference shares and which (a) are expressed to be similarly subordinated to Senior Debt as, and accordingly rank pari passu with, the 7.20% ING Perpetual Debt Securities as regards any such distribution or payment or (b) rank pari passu as expressed by such 7.20% ING Perpetual Debt Securities' own terms with the 7.20% ING Perpetual Debt Securities.
Parity Guarantee includes the Company's guarantees (collectively the
"TRUST PREFERRED SECURITIES GUARANTEES") of the:
- 7.70% Non-cumulative Guaranteed Trust Preferred Securities issued by ING Capital Funding Trust I;
- 9.20% Non-cumulative Guaranteed Trust Preferred Securities issued by ING Capital Funding Trust II; and
- 8.439% Non-cumulative Guaranteed Trust Preferred Securities issued by ING Capital Funding Trust III.
"PARITY INTEREST PAYMENT" has the meaning set forth in Section 6.05(a) hereof.
"PARITY PERPETUAL SECURITIES" means the Company's 6.50% ING Perpetual Securities issued on September 28, 2001 and the Company's 7.05% ING Perpetual Debt Securities issued on July 18, 2002.
"PARITY SECURITIES" means
(i) the most senior class of preference shares of the Company;
(ii) any preference shares of the Company of similar rank as the most senior class of preference shares of the Company; or
(iii) other securities of the Company, the holders of which have claims that rank, effectively from a financial point of view, pursuant to a Parity Guarantee or pursuant to the provisions of such securities, as the most senior class of preference shares of the Company, in each case as regards distributions on a return of assets or on a liquidation, moratorium of payments or bankruptcy of the Company or in respect of distributions or payments of dividends and/or any other amounts thereunder by the Company and which are expressed to be similarly subordinated to Senior Debt as, and accordingly rank pari passu with, the 7.20% ING Perpetual Debt Securities as regards any such distributions or payments.
Parity Securities includes the Parity Perpetual Securities.
"PAYING AGENT" means The Bank of New York as paying agent in relation to the 7.20% ING Perpetual Debt Securities, or its successor or successors for the time being appointed in accordance with the terms of the Indenture.
"PAYMENT" means any Interest Payment, Deferred Interest Payment, Accrued Interest Payment or Interest Amount not falling within the definition of Interest Payment.
"PAYMENT DEFAULT" has the meaning set forth in Section 5.01(a) hereof.
"PAYMENT EVENT" has the meaning set forth in Section 5.01(b) hereof.
"PAYMENT ORDINARY SHARES" means Ordinary Shares issued by the Company in accordance with Section 4.03(c)(ii) hereof.
"REGULAR RECORD DATE" means the March 1, June 1, September 1 and December 1 preceding an Interest Payment Date.
"REGULATORY EVENT" means any time after the Company becomes subject to capital adequacy regulations, the relevant regulator makes a determination that securities in the nature of the 7.20% ING Perpetual Debt Securities can no longer qualify as Tier 1 capital (or instruments of a similar nature which qualify as core capital) for purposes of such capital adequacy regulations.
"RELEVANT DATE" means
(i) in respect of any payment other than a
Winding-Up Claim, the date on which such payment first becomes
due and payable but, if the full amount of the monies payable
on such date has not been received by the Trustee on or prior
to such date, the "Relevant Date" means the date on which such
monies shall have been so received and notice to that effect
shall have been given to the Holders in accordance with
Section 106 of the Subordinated Indenture; and
(ii) in respect of a Winding-Up Claim, the date which is one day prior to the commencement of the winding up.
"REQUIRED DEFERRAL CONDITION" means a determination by the Company that the Solvency Conditions (i) are not satisfied on the Relevant Date, or (ii) will not be satisfied as a result of making the relevant Payment.
"REQUIRED DEFERRAL INTEREST PAYMENT" has the meaning set forth in
Section 2.04(e) hereof.
"SECURITIES" has the meaning set forth in the Subordinated Indenture.
"SENIOR DEBT" means
(i) all claims of unsubordinated creditors of the Company;
(ii) all claims of creditors whose claims are, or are expressed to be, subordinated (whether only in the event of the insolvency of the Company
or otherwise) only to the claims of unsubordinated creditors of the Company; and
(iii) all claims of all other creditors of the Company except those whose claims are, or are expressed to rank, pari passu with, or junior to, the claims of the Holders.
"SOLVENCY CONDITIONS" means
(i) the Company is able to make payments on its Senior Debt as such payments become due; and
(ii) the Company's Assets exceed the sum of its Liabilities (excluding Liabilities not considered Senior Debt).
"SUBORDINATED INDENTURE" has the meaning set forth in the first paragraph of this Second Supplemental Indenture.
"TAX EVENT" means a determination by the Company that on the next Interest Payment Date:
(i) the Company would, for reasons outside its control, be unable to make the required payment on such date without being required to pay Additional Amounts and the Company cannot avoid such requirement or circumstance by taking such measures the Company, acting in good faith, deems appropriate;
(ii) payments of amounts in respect of Interest on the 7.20% ING Perpetual Debt Securities (including, for the avoidance of doubt, where the payment of Interest is to be satisfied by the issue of Ordinary Shares pursuant to the Alternative Interest Satisfaction Mechanism), may be treated as "distributions" within the meaning of Section II of the Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965); or such other provision as may from time to time supersede or replace Section II of the Dividend Withholding Tax Act of 1965 for the purposes of such definition) and the Company cannot avoid such requirement or circumstance by taking such measures the Company, acting in good faith, deems appropriate; or
(iii) there is more than an insubstantial risk that the Company will not obtain substantially full relief for the purposes of the corporation tax of The Netherlands for any payment of Interest (including, for the avoidance of doubt, where the payment of Interest is to be satisfied by the issue of
Ordinary Shares pursuant to the Alternative Interest Satisfaction Mechanism), due to any proposed change or amendment to the laws of The Netherlands, or any proposed change in the application of official or generally published interpretation of such laws, or any interpretation or pronouncement by any relevant tax authority that provides for a position with respect to such laws or regulations that differs from the previously generally accepted position in relation to similar transactions or which differs from any specific written confirmation given by a tax authority in respect of the 7.20% ING Perpetual Debt Securities, where such change or amendment becomes, or would become, effective, or in the case of a change or proposed change in law if such change is enacted (or, in the case of a proposed change, is expected to be enacted) by an Act of Parliament or made by Statutory Instrument on or after December 6, 2002, and the Company cannot avoid this risk by taking such measures the Company, acting in good faith, deems appropriate.
"TRUST PREFERRED SECURITIES GUARANTEES" has the meaning given such term in the definition of Parity Guarantee.
"TRUSTEE" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor trustee shall have become such pursuant to the applicable provisions of the Subordinated Indenture, and thereafter "Trustee" shall mean the Person who is then the Trustee thereunder, and if at any time there is more than one such Person, "Trustee" shall mean and include each such Person.
"UNDERTAKING" means a corporate body, partnership, limited partnership, cooperative or an incorporated association carrying on a trade or business with or without a view to profit in which the Company has direct or indirect financial, commercial or contractual majority interest.
"WINDING-UP CLAIM" means amounts in respect of principal or Payments in respect of which a Solvency Condition is not satisfied on the date upon which such principal or Payments would otherwise be due and payable by the Company in connection with its liquidation (upon dissolution or otherwise) and on any redemption of 7.20% ING Perpetual Debt Securities.
ARTICLE 2
GENERAL TERMS AND CONDITIONS OF THE 7.20%
ING PERPETUAL DEBT SECURITIES
SECTION 2.01. Designation and Principal Amount. The following series of Securities are hereby authorized as the 7.20% ING Perpetual Debt Securities, initially to be issued in the aggregate principal amount of $1,000,000,000.
SECTION 2.02. Maturity. The 7.20% ING Perpetual Debt Securities have no maturity date.
SECTION 2.03. Form, Issuance, Registration and Exchange. The 7.20% ING Perpetual Debt Securities shall:
(a) be issued as registered Securities in
minimum denominations of $25.00 (or in any integral multiple
thereof) in book-entry global form, and shall not be
exchangeable for definitive securities except as provided in
Section 305 of the Subordinated Indenture;
(b) not be exchangeable at any time for bearer securities; and
(c) be issued as global 7.20% ING Perpetual Debt
Securities registered in the name of DTC or its nominee
(initially the nominee will be Cede & Co.); provided, however,
(i) such global securities may not be transferred except as a
whole by DTC to a nominee or a successor of DTC, unless and
until the 7.20% ING Perpetual Debt Securities are exchanged
for definitive securities in the limited instances described
in Section 12.01 hereof; (ii) beneficial interests in global
7.20% ING Perpetual Debt Securities may be held through
organizations that participate, directly or indirectly, in the
DTC system; (iii) beneficial interests in the global 7.20% ING
Perpetual Debt Securities and all transfers relating to the
global 7.20% ING Perpetual Debt Securities will be reflected
in the book-entry records of DTC; and (iv) so long as DTC, or
its nominee, is the holder of a global 7.20% ING Perpetual
Debt Security, it will be considered the sole holder of the
global 7.20% ING Perpetual Debt Security for all purposes
under the Indenture.
SECTION 2.04. Payments.
(a) Payment Method. (i) Any Payment on 7.20% ING Perpetual Debt Securities which is payable, and is paid or duly provided for, on any Payment Date or on any date on which the Company makes any Payment on the 7.20% ING Perpetual Debt Securities (including any payment of Additional Amounts in
accordance with Section 1006 of the Subordinated Indenture) shall be paid by the Trustee to the Holder in whose name such 7.20% ING Perpetual Debt Securities are registered, by wire-transfer of same-day funds to the Holder or, at the option of the Company, by check mailed to the address of the Holder as it appears in the Company's Security Register. For so long as the 7.20% ING Perpetual Debt Securities are held in global form, all payments shall be made by wire-transfer of same-day funds.
(ii) All payments made with respect to the 7.20% ING Perpetual Debt Securities will be subject to any fiscal or other laws and regulations applicable thereto in the place of payment. Except as expressly stated, such fiscal or other laws and regulations will not affect the Company's obligation to pay Additional Amounts.
(b) Interest Rate. The 7.20% ING Perpetual Debt Securities will bear Interest from the Issue Date at a fixed rate per annum on their outstanding principal amount equal to 7.20% (the "FIXED INTEREST RATE").
(c) Interest Payment Dates. Subject to the provisions herein, Interest on the 7.20% ING Perpetual Debt Securities (calculated in accordance with the Interest Calculation Basis) will be payable from December 12, 2002 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, quarterly in arrears on March 15, June 15, September 15 and December 15 in each year, commencing on March 15, 2003.
(d) Accrued Interest Payments. The aggregate amount of any Accrued Interest Payments on the 7.20% ING Perpetual Debt Securities will bear Interest at the Fixed Interest Rate (to the extent permitted by applicable law) as if such Accrued Interest Payments were considered part of principal and will become payable as and when the Payment in respect of which such Interest has accrued becomes payable. The amount of Interest which accrues (the "ADDITIONAL INTEREST") in respect of any such Accrued Interest Payments shall be calculated by the Trustee in consultation with the Company and shall be added, for purposes only of the calculation of the amount of Additional Interest due on any Interest Payment Date or Deferred Interest Satisfaction Date, as the case may be, to the corresponding amount of Payments unpaid as at such Interest Payment Date or Deferred Interest Satisfaction Date, as applicable, as if such amount would itself constitute a Payment.
When used with respect to any 7.20% ING Perpetual Debt Securities, "INTEREST PAYMENT DATE" means the date for payment of any Interest on such 7.20% ING Perpetual Debt Securities, as determined by the Company and set forth in this Second Supplemental Indenture and the form of 7.20% ING Perpetual
Debt Securities attached as Exhibit A hereto. If any Interest Payment Date would otherwise fall on a day which is not a Business Day, it shall be postponed to the next day that is a Business Day.
(e) Required Deferral of Payments.
(i) Other than in the case of a Mandatory Payment Event or a Mandatory Partial Payment Event, the Company is required to give a Deferral Notice in accordance with Section 2.04(h) hereof and to defer any payment where the Required Deferral Condition has occurred or is continuing on the 20th Business Day preceding the date on which such Payment would be due and payable and no Interest Payment shall be payable on such Interest Payment Date. When used with respect to any 7.20% ING Perpetual Debt Securities, "REQUIRED DEFERRAL INTEREST PAYMENT" means any Payment deferred in accordance with this Section 2.04(e).
(ii) Interest will not accrue on any Required Deferral Interest Payment except under circumstances described under Section 4.03 hereof.
(iii) Any Required Deferral Interest Payment,
except in the case of a Mandatory Payment Event or a Mandatory
Partial Payment Event, shall be satisfied on the relevant
Deferred Interest Satisfaction Date if the Required Deferral
Condition is no longer met as of the 20th Business Day
preceding any subsequent Interest Payment Date and the Company
(x) does not validly elect to defer such payment in accordance
with Section 2.04(f) (i) hereof; or (y) has not elected to pay
such Deferred Interest Payment earlier in accordance with
Section 2.04(f)(iii) hereof.
(iv) At least 16 Business Days prior to the relevant Deferred Interest Satisfaction Date, the Company shall give notice to the Trustee of the Deferred Interest Satisfaction Date on which such Required Deferral Interest Payment will be satisfied. As soon as practicable after receiving such notice but within two business days, the Trustee shall provide notice to the Company of the amount of Accrued Interest Payments, (including any Additional Interest) if any, payable on such Deferred Interest Satisfaction Date.
(v) At least 16 Business Days prior to such Deferred Interest Satisfaction Date, the Company shall provide a notice to the Paying Agent, the Calculation Agent and the Holders in accordance with Section 106 of the Subordinated Indenture (a) that the Company will satisfy such Required Deferral Interest Payment on the relevant Deferred Interest
Satisfaction Date, (b) the amount of the Accrued Interest Payments (including Additional Interest), if any, payable on such Deferred Interest Satisfaction Date, as calculated by the Trustee and (c) the Special Record Date for such Deferred Interest Satisfaction Date.
(f) Elective Deferral of Payments.
(i) The Company may defer any Payment that is due and payable under the 7.20% ING Perpetual Debt Securities, other than in the case of a Mandatory Payment Event or a Mandatory Partial Payment Event, by giving a Deferral Notice to the Trustee, the Calculation Agent and the Holders in accordance with Section 2.04(h) hereof, including any Payment referred to in Section 2.04(e)(iii), 2.04(e)(iv), 2.04(e)(v) hereof (except as otherwise provided therein), and no Interest Payment shall be payable on such Interest Payment Date. When used with respect to any 7.20% ING Perpetual Debt Securities, "ELECTIVE DEFERRAL INTEREST PAYMENT" means any Payment deferred in accordance with this Section 2.04(f).
(ii) Elective Deferral Interest Payments will accrue interest at the Deferral Interest Rate from, and including, the date on which (but for such deferral) the Deferred Interest Payment would otherwise have been due to be made to, but excluding, the relevant Deferred Interest Satisfaction Date.
(iii) Except in the case of a Mandatory Payment Event or a Mandatory Partial Payment Event, the Company may satisfy any Elective Deferral Interest Payment at any time; provided, however, any such Payment shall be satisfied by delivering a notice in accordance with Section 4.03(c)(i) hereof not less than 16 Business Days prior to the relevant Deferred Interest Satisfaction Date informing of the Company's election to so satisfy such Payment and specifying the relevant Deferred Interest Satisfaction Date.
(g) Conditions Precedent for any Payment.
(i) Except in a bankruptcy, all payments on the 7.20% ING Perpetual Debt Securities will be conditional upon not triggering the Required Deferral Condition.
(ii) Unless the Company obtains permission from its relevant regulator, it shall satisfy any Deferred Interest Payments only in accordance with the Alternative Interest Satisfaction Mechanism set forth in Article 4 below; provided, however, that the Company is not required to utilize the Alternative Interest Satisfaction Mechanism to satisfy any
Mandatory Partial Payment payable on a Mandatory Partial Payment Date that coincides with the date on which a Deferred Interest Payment has become mandatorily due and payable in full.
(h) Deferral Notice.
(i) The Company shall give any Deferral Notice not less than 16 Business Days prior to the date on which any Payment would, in the absence of deferral, be due and payable.
(ii) The Company must give a Deferral Notice in the case of a Required Deferral Condition.
(iii) Any Deferral Notice as to a Payment required to be paid pursuant to a Mandatory Payment Event or a Mandatory Partial Payment Event will have no force or effect.
SECTION 2.05. Mandatory Payment Events; Mandatory Partial Payment Events.
(a) Deferred Interest Payments. Upon the occurrence of a Mandatory Payment Event or a Mandatory Partial Payment Event, all Deferred Interest Payments will become mandatorily due and payable in full on the date of either such event, notwithstanding any further Deferral Notice or an occurrence or continuance of a Required Deferral Condition.
(b) Satisfaction of Interest Payments following a Mandatory Payment Event. The Interest Payments payable on the next four consecutive Interest Payment Dates following a Mandatory Payment Event will be mandatorily due and payable in full, notwithstanding any Deferral Notice as to such Interest Payments or the occurrence or continuance of any Required Deferral Condition; provided, however, that if the Mandatory Payment Event is (x) a payment on a Junior Security, a Junior Guarantee or a security benefitting from a Junior Guarantee or relates to the purchase or other acquisition of any Junior Security, Parity Security or a security benefitting from a Junior Guarantee or a Parity Guarantee, and (y) such payment is in respect of a semi-annual or quarterly payment or the security purchased or acquired was payable semi-annually or quarterly, only the Interest Payments payable on the next two Interest Payment Dates or the next Interest Payment, respectively, shall be mandatorily due and payable notwithstanding any Deferral Notice as to such Interest Payment or the occurrence or continuance of any Required Deferral Condition. Such Mandatory Interest Payments may, at the Company's election, be satisfied in accordance with the Alternative Interest Satisfaction Mechanism.
(c) Satisfaction of Interest Payments following a Mandatory Partial Payment Event. Mandatory Partial Payments will be mandatorily due and payable, on the next four consecutive Interest Payment Dates, following a Mandatory Partial Payment Event, notwithstanding any Deferral Notice or occurrence of the Required Deferral Condition; provided, however, that if such Mandatory Partial Payment (x) is a payment on a Parity Security, a Parity Guarantee or a security benefitting from a Parity Guarantee, and (y) such payment is in respect of a semi-annual or quarterly payment, only Mandatory Partial Payments payable on the next two consecutive Interest Payment Dates or the next Interest Payment Date, respectively, shall be mandatorily due and payable notwithstanding any Deferral Notice as to such Interest Payment or the occurrence or continuance of any Required Deferral Condition. Such Mandatory Partial Payments may, at the Company's election, be satisfied in accordance with the Alternative Interest Satisfaction Mechanism.
ARTICLE 3
OPTIONAL REDEMPTION AND REDEMPTION UPON CERTAIN EVENTS
SECTION 3.01. Optional Redemption. (a) Any redemption made in accordance with this Article 3 shall be made in accordance with Sections 1101 through Section 1108 of the Subordinated Indenture.
(b) Upon giving not less than 30 nor more than 60 days' notice to the Holders of 7.20% ING Perpetual Debt Securities, and provided the Solvency Conditions are satisfied at the time of such notice and at the time of redemption, the 7.20% ING Perpetual Debt Securities may be redeemed in whole (but not in part) at the Base Redemption Price, at the option of the Company and without the consent of the Holders or the Trustee, as follows:
(i) on December 15, 2007, and thereafter on any Interest Payment Date;
(ii) upon the occurrence of a Tax Event, provided that the Company has already delivered to the Trustee, in a form satisfactory to the Trustee, a written legal opinion of independent Dutch counsel of recognized standing, selected by the Company, confirming that such Tax Event has occurred; or
(iii) upon the occurrence of a Regulatory Event.
(c) Cancellation of any 7.20% ING Perpetual Debt Securities redeemed by the Company pursuant to this Indenture will be effectuated by reducing the
principal amount of the 7.20% ING Perpetual Debt Securities, and any 7.20% ING Perpetual Debt Securities so cancelled will be discharged. Any 7.20% ING Perpetual Debt Securities purchased by the Company may be held, reissued, resold or, at the Company's option, cancelled. Such cancellation shall be effectuated by decreasing in an equal amount the number of 7.20% ING Perpetual Debt Securities represented by the global security.
(d) In the event the Base Redemption Price in respect of any 7.20% ING Perpetual Debt Securities is improperly withheld or refused and is not paid by the Company, Interest on the 7.20% ING Perpetual Debt Securities will continue to be payable and accrue in accordance with Section 2.04(d) hereof until the date the Base Redemption Price is actually paid (the "DELAYED REDEMPTION PAYMENT DATE"). Prior to the payment of any Base Redemption Price which previously has been improperly withheld or refused, the Company shall inform the Trustee of the proposed Delayed Redemption Payment Date and the Trustee shall, as soon as practicable after receiving such notice, provide notice to the Company of the amount of Accrued Interest Payments (together with Additional Interest) payable in connection therewith. The Company shall then provide notice to the Paying Agent, if different than the Trustee, and the Holders in accordance with Section 106 of the Subordinated Indenture of (i) the Delayed Redemption Payment Date, (ii) the Special Record Date for the Delayed Redemption Payment Date and (iii) the Accrued Interest Payments payable on such date, as calculated by the Trustee.
SECTION 3.02. Optional Purchase. The Company may at any time, subject to satisfaction of the Solvency Conditions, purchase 7.20% ING Perpetual Debt Securities on the open market in any manner and at any price.
ARTICLE 4
ALTERNATIVE INTEREST SATISFACTION MECHANISM
SECTION 4.01. Conditions Precedent. Subject to the provisions of Article 5 of this Second Supplemental Indenture and Article 5 of the Subordinated Indenture and notwithstanding any other provision of this Indenture to the contrary, the Company's ability to use the Alternative Interest Satisfaction Mechanism to satisfy its Payment obligations with respect to the 7.20% ING Perpetual Debt Securities is subject to Section 4.04 and Section 4.05 hereof.
SECTION 4.02. Notices of Exercise of Alternative Interest Satisfaction Mechanism. The Company shall give notice to the Trustee, the Paying Agent, if different than the Trustee, the Calculation Agent and the Holders of the 7.20% ING Perpetual Debt Securities in accordance with Sections 105 and 106, as
applicable, of the Subordinated Indenture and in accordance with the Calculation Agency Agreement at least 16 Business Days prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date, as applicable, of its election pursuant to Section 2.04 hereof, to pay all or part of a Deferred Interest Payment or to make any other Payment pursuant to the Alternative Interest Satisfaction Mechanism, subject to Section 4.03(b) below.
SECTION 4.03. Alternative Interest Satisfaction Mechanism.
(a) Unless otherwise expressly provided in this Indenture, the Company shall satisfy any Deferred Interest Payments in accordance with the Alternative Interest Satisfaction Mechanism.
(b) Subject to the satisfaction of the Solvency Conditions, the Company may, at its option, satisfy any Payment in accordance with the Alternative Interest Satisfaction Mechanism; provided, however, that at the time of such election the Company shall have sufficient authorized Ordinary Shares to issue such shares to satisfy such Payment in full.
(c) Subject to and in accordance with the terms of the Calculation Agency Agreement, under the "ALTERNATIVE INTEREST SATISFACTION MECHANISM":
(i) the Company shall give notice to the Trustee, the Paying Agent, if different than the Trustee, the Calculation Agent and the Holders of the 7.20% ING Perpetual Debt Securities as provided in Section 4.02 hereof;
(ii) on or prior to the eleventh business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date, the Calculation Agent shall, pursuant to the Calculation Agency Agreement, calculate the number of Payment Ordinary Shares that have an aggregate market value (converted from euros into U.S. dollars) of not less than 110% of the relevant Payment and shall notify the Trustee and the Company accordingly of such number of Payment Ordinary Shares to be issued;
(iii) on or prior to the eleventh business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date, the Calculation Agent shall, pursuant to the Calculation Agency Agreement, calculate the number of Associated Cost Ordinary Shares required to be issued by the Company as, on sale, produce a net amount (converted, where necessary, into euros) of not less than the Associated Costs and shall notify the Trustee and the Company of such number of Associated Cost Ordinary Shares to be issued;
(iv) by the close of business on or before the seventh business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date, the Company shall notify the Calculation Agent that it has a sufficient number of Ordinary Shares and corporate authorization to issue such number of Payment Ordinary Shares and Associated Cost Ordinary Shares as shall have been notified to the Trustee and the Company by the Calculation Agent in accordance with Sections 4.03(c)(ii) and 4.03(c)(iii) above;
(v) the Calculation Agent will use reasonable efforts on normal market terms to procure purchasers for such Ordinary Shares as soon as reasonably practicable following receipt of the notice referred to in clause (iv) above, in accordance with the terms of the Calculation Agency Agreement, but no later than the fourth business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date;
(vi) one business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date, the Company will issue or transfer such Payment Ordinary Shares and Associated Cost Ordinary Shares in the open market as instructed by the Calculation Agent, and will collect any sales proceeds;
(vii) upon receipt of the sales proceeds, the Company shall immediately transfer the sales proceeds (or such amount of sales proceeds as is necessary to make the relevant Payment in full (after conversion from euros into U.S. dollars as necessary)) to the Trustee or its agent who shall convert any proceeds received in a currency other than U.S. dollars into U.S. dollars;
(viii) the Trustee will apply the sales proceeds received from the Company (as converted, if applicable) on the day the relevant Payment is due, towards the Payment to be satisfied;
(ix) if, following the procedures set forth in Sections 4.03(c)(i) to 4.03(c)(viii) above, there is a shortfall in the proceeds necessary to satisfy the relevant Payment that is due or to pay the Associated Costs, the Calculation Agent, pursuant to its obligations under the Calculation Agency Agreement, shall promptly notify the Trustee, the Paying Agent, if different than the Trustee, and the Company, and the Calculation Agent, the Trustee, the Paying Agent and the Company shall then take such steps as are reasonably necessary to ensure, so far as practicable, that through issuing and selling additional Payment Ordinary Shares or Associated Cost Ordinary Shares in accordance with Sections 4.03(c)(i) to 4.03(c)(viii)
above, proceeds from the additional sales together with the proceeds referred to in Section 4.03(c)(vi) above are at least equal to, respectively, the relevant Payment and any Associated Costs, such that the Payment and any Associated Costs may be satisfied in full on the relevant Interest Payment Date or Deferred Interest Satisfaction Date; provided that for such purpose, Sections 4.03(c)(i) to 4.03(c)(viii) above shall be modified as follows:
(A) references therein to "Payment" shall be deemed to be references to the amount by which the aggregate sum then paid to the Trustee by the Company in respect of the relevant Payment pursuant to the provisions of this Section 4.03 is less than the full amount due (the "PAYMENT SHORTFALL");
(B) references therein to "Associated Costs" shall be deemed to be references to the aggregate of (a) the amount by which the sum received by the Company in respect of Associated Costs is less than the Associated Costs and (b) the Associated Costs determined in accordance with the Calculation Agency Agreement but by reference to the numbers of additional Ordinary Shares required to be issued in order to satisfy the Shortfall (such aggregate being the "COSTS SHORTFALL"); and
(C) all matters required to be done by a stated time shall be done as soon as practicable.
For the purposes of this Section 4.03(c)(ix). "SHORTFALL" means the aggregate of the Payment Shortfall and the Costs Shortfall;
(x) if the aggregate amounts paid to the Paying Agent are less than the amount necessary to satisfy any Payment, after the Trustee receives any Shortfall amounts it will pay such amounts to the Paying Agent for payment to the Holders;
(ix) if, despite these provisions, such a Shortfall still exists on the relevant Interest Payment Date or Deferred Interest Satisfaction Date, the Company may, in accordance with the provisions of this Indenture, either pay an amount equal to such Shortfall as soon as practicable to the Trustee or continue to issue Payment Ordinary Shares or Associated Cost Ordinary Shares, as the case may be, until the Trustee has received funds equal to the full amount of such Shortfall. The Company shall be obligated to issue additional Ordinary Shares to cover any Shortfall unless it satisfies the Shortfall by making a direct payment to the Trustee; and
(xii) if, pursuant to the Alternative Interest Satisfaction Mechanism, proceeds are raised in excess of the amount required to pay the applicable Payments plus the Associated Costs in connection with using the Alternative Interest Satisfaction Mechanism, any remaining proceeds shall be retained by the Company.
SECTION 4.04. Insufficient Payment Ordinary Shares. (a) (i) If the Company is to satisfy a Payment pursuant to the Alternative Interest Satisfaction Mechanism and it does not, on the date when the number of Payment Ordinary Shares required to be issued is determined, have a sufficient number of Ordinary Shares available for issue, it shall notify the Trustee, the Calculation Agent and the Holders that all or part, as the case may be, of the relevant Payment cannot be satisfied due to an insufficient number of authorized Ordinary Shares.
(ii) Upon the occurrence of the circumstances contemplated in Section 4.04(a)(i), the Payment or part thereof shall be satisfied following the date of the Company's next annual general meeting or extraordinary general meeting of its shareholders at which a resolution is passed authorizing a sufficient number of Ordinary Shares to be made available to satisfy all or such part of the relevant Payment.
(iii) However, if the number of Ordinary Shares
authorized to be issued at any such meeting contemplated in
Section 4.04(a)(ii) above is insufficient to satisfy all or
such part of the relevant Payment, then those Ordinary Shares
so issued will be applied by the Company in partial
satisfaction of all or such part of the Relevant Payment.
(b) Following the passage of a resolution which authorizes the Company to issue additional Ordinary Shares for this purpose:
(i) the Company shall give notice to the Trustee at least 16 Business Days prior to the date upon which the relevant Payment or, as the case may be, the part thereof is to be made and the Trustee shall provide notice to the Company and the Calculation Agent of the amount of the Accrued Interest Payments (together with Additional Interest), if any, payable in connection with such Payment; and
(ii) the Company shall provide at least 16 Business Days notice in accordance with Section 106 of the Subordinated Indenture to the Calculation Agent and the Holders of the date upon which the relevant Payment or, as the case may be, the part thereof is to be made, which notice shall include the amount of the Accrued Interest Payments (together with Additional Interest), if any, payable in connection with such Payment, as calculated by the Trustee.
(c) The relevant Payment or, as the case may be, the part thereof which is not so satisfied will, unless it is a Required Deferred Interest Payment and has not been subsequently either satisfied or deferred pursuant to an Elective Deferral Interest Payment, will continue to accrue Interest at the Deferral Interest Rate from (and including) the date on which Payment would otherwise have been due to (but excluding) the date on which such Payment or part thereof is satisfied or, in the event of a Market Disruption Event, the date on which such payment or part thereof, would, but for the occurrence of such Market Disruption Event, have been satisfied (from which date Interest (if any) will accrue on such Payment as provided below).
(d) If the Company does not have a sufficient number of Ordinary Shares and does not hold an annual general meeting within six months of giving the notice set forth in Section 4.03(c)(i) above, at which a resolution to make a sufficient number of Ordinary Shares available is proposed, the Trustee will by notice require the Company to convene an extraordinary general meeting at which such a resolution will be proposed on a date falling within 10 weeks of such notice from the Trustee.
(e) In the event that a resolution to make a sufficient number of Ordinary Shares available is proposed at any such annual general meeting or extraordinary general meeting is rejected, the resolution will be proposed at each general annual meeting or any extraordinary general meeting thereafter until such time as the resolution has been passed by the Company's shareholders.
SECTION 4.05. Market Disruption Event. (a) If a Market Disruption Event exists on or after the 15th Business Day preceding any date upon which a Payment or part thereof is due to be made or satisfied pursuant to the Alternative Interest Satisfaction Mechanism, the Company may give notice to the Trustee, the Paying Agent, the Calculation Agent and the Holders as soon as possible after the Market Disruption Event has arisen or occurred, whereupon the relevant Payment will be deferred until such time as, in the opinion of the Company, the Market Disruption Event no longer exists.
(b) Any such deferred Payment or part thereof will be satisfied as soon as practicable after the Market Disruption Event no longer exists. The Company shall notify the Trustee of the date on which such deferred Payment or part thereof will be satisfied and the Trustee shall provide notice to the Company and the Calculation Agent of the amount of the Accrued Interest Payments (together with Additional Interest), if any, payable in connection with such deferred Payment. The Company shall then notify the Paying Agent, the Calculation Agent and the Holders in accordance with Section 106 of the Subordinated Indenture of the date on which such deferred Payment or part thereof will be satisfied and the amount
of the Accrued Interest Payments (together with Additional Interest), if any, payable in connection with such deferred Payment, as calculated by the Trustee.
(c) Interest will not accrue on any deferred Payment or part thereof during a Market Disruption Event; provided, however, that if the Company does not make a relevant payment or part thereof for a period of 14 days or more after its due date, even if the Market Disruption Event is continuing, such deferred Payments or part thereof will accrue Interest from (and including) the date on which the relevant Payment or part thereof was due to be made to (but excluding) the date on which such Payment or part thereof is made. Any such Interest shall accrue at the Fixed Interest Rate and shall be satisfied only in accordance with the Alternative Interest Satisfaction Mechanism and as soon as reasonably practicable after the relevant deferred Payment is made. No liability shall attach to the Trustee or its agents if, as a result of a Market Disruption Event or any other event outside the control of the Trustee or any such agent, the Trustee or any such agent is unable to comply with its duties in connection with any payment made pursuant to the Alternative Interest Satisfaction Mechanism.
ARTICLE 5
REMEDIES
SECTION 5.01. Defaults; Collection of Indebtedness and Suits for Enforcement by Trustee.
(a) "PAYMENT DEFAULT", wherever used herein with respect to the 7.20% ING Perpetual Debt Securities, means solely the following event (regardless of the reason for such Payment Default and whether it is voluntary, involuntary or is effected by operation of law pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
The Company fails to pay or set aside for payment the amount due to satisfy any Payment on the 7.20% ING Perpetual Debt Securities when due, and such failure continues for 14 days; provided, however, that if the Company fails to make any Mandatory Interest Payment as a result of failure to satisfy the Solvency Conditions, or due to a deferral of an Interest Payment as permitted under the terms of this Indenture, that payment will constitute an Outstanding Payment and will accumulate with any other Outstanding Payments until paid, but will not constitute a Payment Default.
(b) If a Payment Default occurs and is continuing, the Trustee may pursue all legal remedies available to it, including commencing a judicial proceeding for the collection of the sums so due and unpaid or a bankruptcy
proceeding in The Netherlands (but not elsewhere) of the Company, but the Trustee may not declare the principal amount of any outstanding 7.20% ING Perpetual Debt Securities to be due and payable. If the Company fails to make payment and the Solvency Conditions are not satisfied at the end of the 14-day period set forth in Section 5.01 (a) hereof, such failure does not constitute a Payment Default but instead constitutes a "PAYMENT EVENT". On a Payment Event, the Trustee may institute bankruptcy proceedings against the Company exclusively in The Netherlands, but may not pursue any other legal remedy, including a judicial proceeding for the collection of the sums due and unpaid.
(c) Notwithstanding the foregoing, Holders of the 7.20% ING Perpetual Debt Securities have the absolute and unconditional right to institute suit for the enforcement of any payment when due and such right may not be impaired without the consent of the Holder as provided in Section 508 of the Subordinated Indenture. In addition, to the extent the Trustee is not permitted to pursue the remedies provided for in clause 5.01(b) above as a matter of Dutch law, the Holders of the 7.20% ING Perpetual Debt Securities may pursue such remedies in accordance with the terms of the Subordinated Indenture.
(d) Without prejudice to Section 5.04 and Section 5.05 of the Subordinated Indenture, the Trustee is and shall be fully authorized by each and any holder of record of a 7.20% ING Perpetual Debt Security to commence proceedings in The Netherlands in accordance with Section 5.01 (a) and 5.01(b) above, in the name and on behalf of such holder, as if the Trustee were such holder of record, with a view to having the Company declared bankrupt in The Netherlands.
(e) The provisions of this Section 5.01 replace Sections 501, 502 and 503 of the Subordinated Indenture in their entirety which is hereby amended and restated in its entirety by this Section 5.01.
ARTICLE 6
COVENANTS OF THE ISSUER
SECTION 6.01. Dividend Restrictions for Deferred Interest Payments. From the date the Company delivers a Deferral Notice until any Deferred Interest Payment is paid in full on the 7.20% ING Perpetual Debt Securities, the Company agrees that it will not recommend to its shareholders, and to the fullest extent permitted by applicable law will otherwise act to prevent, any action that would constitute a Mandatory Payment Event or Mandatory Partial Payment Event.
SECTION 6.02. Calculation Agent. (a) For so long as any 7.20% ING Perpetual Debt Securities remain outstanding, there shall at all times be a Calculation Agent hereunder. The current Calculation Agent is set forth in Article 1 hereof. If the Calculation Agent is unable or unwilling to act as such, or if it fails to make a determination, calculation or otherwise fails to perform its duties under the Indenture or the Calculation Agency Agreement, the Company shall appoint an independent investment bank acceptable to the Trustee to act as such in its place. Neither the termination of the appointment of the Calculation Agent nor the resignation of the Calculation Agent will be effective without a successor having been appointed.
(b) All calculations and determinations made by the Calculation Agent with respect to the 7.20% ING Perpetual Debt Securities (absent manifest error) are final and binding on the Company, the Trustee, the Paying Agent and the Holders.
(c) Neither the Company nor the Trustee have any responsibility to anyone for any errors or omissions in any calculation by the Calculation Agent.
SECTION 6.03. Mandatory Interest Payments. Subject to satisfaction of the Solvency Conditions, the Company agrees that it will not defer any Payment on the 7.20% ING Perpetual Debt Securities on the Interest Payment Date falling on a Mandatory Interest Payment Date.
SECTION 6.04. Deferral of Certain Payments. The Company agrees that if Payments stated to be payable on any date have not been made on the Company's preference shares or any other Parity Securities, then it will defer Payments on the 7.20% ING Perpetual Debt Securities payable on such date, unless a Mandatory Interest Payment is due.
SECTION 6.05. Sufficiency of Ordinary Shares.
(a) The Company represents and warrants that at the date of this Second Supplemental Indenture, the Company has a sufficient number of authorized but unissued Ordinary Shares necessary, and, subject to the approval of the Company's Supervisory Board, the Company's Executive Board has the necessary authority to make, during the next 12-month period, (i) the Interest Payments required to be made on the 7.20% ING Perpetual Debt Securities and (ii) the interest payments required to be made on the Parity Perpetual Securities (each, a "PARITY INTEREST PAYMENT"), assuming the Alternative Interest Satisfaction Mechanism or, in the case of the Parity Perpetual Securities, any similar mechanism by which Parity Interest Payments may be satisfied pursuant to a sale of the Company's Ordinary Shares, is used for each Interest Payment and Parity Interest Payment during such 12-month period.
(b) The Company agrees to keep available for issue a sufficient number of authorized but unissued Ordinary Shares as it reasonably considers would be required to be issued as Payment Ordinary Shares in connection with the next four Interest Payments. Should the Company fail to comply with this condition, no damages shall be payable in connection with such failure. The Trustee may require that the Company, as soon as practicable, hold an extraordinary general meeting of its shareholders at which a resolution will be passed to remedy such failure as provided in Section 4.04(d) hereof.
(c) The Trustee is not obligated to monitor whether the Company has a sufficient number of uninsured Ordinary Shares available for issuance as Payment Ordinary Shares and the Trustee is entitled to assume, unless it has actual knowledge to the contrary, that the Company is complying with its obligations to do so.
SECTION 6.06. Ranking. The Company agrees that, for so long as any 7.20% ING Perpetual Debt Securities remain outstanding, it will not issue any preference shares (or other securities which are akin to preference shares as regards distributions on a return of Assets or upon a liquidation, moratorium of payments or bankruptcy of the Company or in respect of distributions or payments of dividends and/or any other amounts thereunder by the Company) or give any guarantee or contractual support arrangement in respect of any of its preference shares or such other securities or in respect of any other entity if such preference shares, preferred securities, guarantees or contractual support arrangements would rank (as regards distributions on a return of Assets or on a liquidation, moratorium of payments or bankruptcy of the Company or in respect of distributions of payments of dividends and/or any other amounts thereunder by the Company) senior to the 7.20% ING Perpetual Debt Securities, unless the Company amends the terms of the 7.20% ING Perpetual Debt Securities such that the 7.20% ING Perpetual Debt Securities rank pari passu effectively from a financial point of view with any such preference shares, such other securities akin to preference shares or such guarantee or support undertaking.
SECTION 6.07. Payment of Proceeds from Sale of Payment Ordinary Shares and Associated Cost Ordinary Shares. The Company agrees that immediately on receipt of the proceeds of the sale of Payment Ordinary Shares or Associated Cost Ordinary Shares in connection with the Alternative Interest Satisfaction Mechanism, it shall (a) pay proceeds from the sale of Payment Ordinary Shares to the Trustee (or any Paying Agent), either in Euros or converted into U.S. dollars, in such amount as shall enable the Trustee to make the relevant Payment in full on the relevant Interest Payment Date or Deferred Interest Satisfaction Date, and (b) pay proceeds from the sale of Associated Cost Ordinary Shares in Payment of all Associated Costs.
SECTION 6.08. Listing. The Company will use reasonable efforts to maintain the listing of the 7.20% ING Perpetual Debt Securities on the stock exchange on which they were listed on or about the Issue Date or, if it is unable to do so having used such efforts or if the maintenance of any such listing is agreed by the Trustee to be unduly burdensome, use all reasonable efforts to obtain and maintain a quotation or listing of such 7.20% ING Perpetual Debt Securities on such other stock exchange or exchanges or securities market or markets as the Company may (with the prior written approval of the Trustee) decide so that the 7.20% ING Perpetual Debt Securities are listed on at least one stock exchange or securities market. The Company will also use its best efforts to furnish to any stock exchange(s) or securities market(s) such information as such stock exchange(s) or securities market(s) may require to be furnished in accordance with its requirements.
SECTION 6.09. Calculation Agency Agreement. The Company shall comply with and perform all its obligations under the Calculation Agency Agreement and use its reasonable efforts to procure that the Calculation Agent complies with and performs all of its respective obligations under the Calculation Agency Agreement and not make any amendment or modification to such agreement without the prior written approval of the Trustee.
SECTION 6.10. Officer's Certificate on Deferral. If the Company elects or is obliged to defer any Payment in accordance with Section 2.04 hereof, it shall deliver to the Trustee, no later than the sixteenth business day prior to the relevant Interest Payment Date, an Officer's Certificate, certifying that the Required Deferral Condition was met on the 20th Business Day prior to the relevant Interest Payment Date and if the Company shall elect to satisfy a Deferred Interest Payment on an earlier date than the Interest Payment Date following that on which the Required Deferral Condition fails to be met, deliver to the Trustee not later than the sixteenth Business Day prior to making such payment an Officer's Certificate certifying that the Required Deferral Condition was no longer, on a date no more than 16 Business Days prior to the delivery of such certificate, met.
SECTION 6.11. Officer's Certificate for Market Disruption Event. If, in the opinion of the Company, there exists a Market Disruption Event as a consequence of which a Payment may be deferred under Section 4.05 hereof, it shall deliver to the Trustee within two Business Days of such Market Disruption Event having arisen or the Company having become aware of the same, an Officer's Certificate specifying the details of such Market Disruption Event.
ARTICLE 7
SUBORDINATION
SECTION 7.01. Agreement to Subordinate, (a) The Company covenants and
agrees, and each Holder of 7.20% ING Perpetual Debt Securities issued hereunder,
by such Holder's acceptance thereof, likewise covenants and agrees, that the
7.20% ING Perpetual Debt Securities issued hereunder (i)(A) shall rank pari
passu with respect to each other, (B) shall be similarly subordinated as, and
accordingly rank pari passu with, the Trust Preferred Securities Guarantees and
(C) shall rank pari passu with other Parity Guarantees, the Parity Perpetual
Securities and other debt obligations expressed to be similarly subordinated as
and, accordingly, ranking pari passu with, the 7.20% ING Perpetual Debt
Securities, such other Parity Guarantees and the Parity Perpetual Securities,
and (ii) are and will be subordinated ("achtergesteld"), and accordingly be
subject in right of payment to prior payment in full upon liquidation,
moratorium of payments or bankruptcy of the Company, of all Senior Debt.
(b) The Company further covenants and agrees, and each Holder of
7.20% ING Perpetual Debt Securities issued hereunder, by such Holder's
acceptance thereof, likewise covenants and agrees, that the rights regarding
payments and the issuance of Ordinary Shares in accordance with the Alternative
Interest Satisfaction Mechanism will be subject to the Solvency Conditions. In
the event of liquidation, moratorium of payments or bankruptcy of the Company,
the Payments payable on the 7.20% ING Perpetual Debt Securities shall be an
amount equal to the lesser of (i) the aggregate amount of Payments pursuant to
the terms and conditions of the 7.20% ING Perpetual Debt Securities without
giving effect to this Section 7.01(b) and (ii) an amount equal to (A) the
remaining assets of the Company after satisfaction of all claims which, as a
matter of law, are prior to those of holders of 7.20% ING Perpetual Debt
Securities or any Parity Security, Parity Guarantee or any similarly
subordinated debt multiplied by (B) a fraction, (x) the numerator of which is
the aggregate amount of Payments due on the 7.20% ING Perpetual Debt Securities
pursuant to the terms and conditions thereof without giving effect to this
Section 7.01(b) and (y) the denominator of which is the sum (without
duplication) of the aggregate amount of all claims under the 7.20% ING Perpetual
Debt Securities, the aggregate liquidation preference of, and aggregate amount
of all claims under, any outstanding Parity Securities and Parity Guarantees and
similarly subordinated debt obligations with a formula or arrangement
substantially similar to this Section 7.01(b). without application of this
Section 7.01(b) and the corresponding similar formula or arrangement.
SECTION 7.02. Section 1401 of the Subordinated Indenture. The
provisions of Section 7.01 hereof replaces in its entirety Section 1401 of the
Subordinated Indenture which is hereby amended and restated in its entirety by
Section 7.01 hereof. In addition Section 1402 through Section 1414 of Article
Fourteen of the Subordinated Indenture is hereby amended by replacing the term "Senior Debt" as used in such sections with the term "Senior Debt" as defined in this Second Supplemental Indenture.
ARTICLE 8
FORM OF 7.20% ING PERPETUAL DEBT SECURITIES
SECTION 8.01. Form of 7.20% ING Perpetual Debt Securities. The 7.20% ING Perpetual Debt Securities shall be substantially in the form of Exhibit A hereto. Exhibit A hereto is hereby incorporated into and expressly made a part of this Second Supplemental Indenture.
ARTICLE 9
ORIGINAL ISSUE OF 7.20% ING PERPETUAL DEBT SECURITIES
SECTION 9.01. Original Issue of 7.20% ING Perpetual Debt Securities.
7.20% ING Perpetual Debt Securities in the initial aggregate principal amount of
$1,000,000,000 may, upon execution of this Second Supplemental Indenture, be
executed by the Company and delivered to the Trustee for authentication, and the
Trustee shall thereupon authenticate and deliver such 7.20% ING Perpetual Debt
Securities to or upon the written order of the Company, in accordance with
Section 303 of the Subordinated Indenture.
There is no limit on the amount of 7.20% ING Perpetual Debt Securities which may be issued subsequent to this Second Supplemental Indenture.
ARTICLE 10
WINDING UP
SECTION 10.01. Winding Up. If any action causes the Company's liquidation (except solely for the purpose of the Company's reconstruction, amalgamation or the substitution of a successor in business for the Company, the terms of which have previously been approved in writing by the Trustee or by not less than a majority of the Holders) the Company will pay with respect to each 7.20% ING Perpetual Debt Security (in lieu of any other payment) an amount that would have been payable in respect of the 7.20% ING Perpetual Debt Securities if, on and after the day immediately before the winding up began, any Holder of
those 7.20% ING Perpetual Debt Securities had been the holder of the Company's most senior class of preference shares (the "NOTIONAL PREFERENCE SHARES") which have a preferential right to a return of Assets upon liquidation over and so rank ahead of the holders of all other classes of the Company's issued shares for the time being in the Company's capital, but ranking junior to Senior Debt claims. Any such payment shall be made on the assumption that the amount that such Holder was entitled to receive in respect of each Notional Preference Share on a return of Assets upon such liquidation was an amount equal to the principal amount of $25 of the relevant 7.20% ING Perpetual Debt Security and any other Outstanding Payments together with, and to the extent not otherwise included within the foregoing, the pro rota share of any Winding-Up Claims attributable to the 7.20% ING Perpetual Debt Security.
ARTICLE 11
SATISFACTION AND DISCHARGE
SECTION 11.01. Satisfaction and Discharge. The Company covenants and agrees, and each Holder of 7.20% ING Perpetual Debt Securities issued hereunder, by such Holder's acceptance thereof, likewise covenants and agrees, that all 7.20% ING Perpetual Debt Securities shall be issued as Securities subject to the provisions of Article 4 of the Subordinated Indenture.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Issuance of Definitive Securities. (a) So long as DTC holds the global 7.20% ING Perpetual Debt Securities, the global securities will not be exchangeable for definitive securities unless: (i) DTC notifies the Trustee that it is unwilling or unable to continue to hold the book-entry 7.20% ING Perpetual Debt Securities or DTC ceases to be a clearing agency registered under the Exchange Act and the Trustee does not appoint a successor to DTC which is registered under the Exchange Act within 120 days; (ii) a Payment Default has occurred and is continuing; (iii) a Payment Event has occurred; (iv) in the event of the Company's winding up it fails to make a payment on the 7.20% ING Perpetual Debt Securities when due; or (v) at any time following a determination by the Company in its sole discretion that the global securities of a particular series should be exchanged for definitive debt securities of that series in registered form.
(b) Each person having an ownership or other interest in 7.20% ING Perpetual Debt Securities must rely exclusively on the rules and procedures of DTC, Euroclear or Clearstream, Luxembourg, as the case may be, or any other
securities intermediary through which that person holds its interest to receive or direct the delivery of possession of any definitive security.
(c) Any definitive securities will be issued in registered form only in denominations of $25.00 and any integral multiples thereof and shall be substantially in the form of the global security included as Exhibit A hereto with such insertions, omissions, substitutions and other variations as appropriate for definitive securities as evidenced by the execution of such securities. To the extent permitted by law, the Company and the Trustee are entitled to treat the person in whose name any definitive security is registered as its absolute owner.
(d) Payments in respect of each series of definitive securities will be made to the person in whose name the definitive securities are registered as it appears in the register for that series. Payments will be made in respect of the 7.20% ING Perpetual Debt Securities by check drawn on a bank in New York or, if the Holder requests, by transfer to the Holder's account in New York. Definitive securities must be presented to the Paying Agent for redemption.
(e) If the Company issues definitive securities in exchange for global 7.20% ING Perpetual Debt Securities, DTC, as holder of the global 7.20% ING Perpetual Debt Securities, will surrender it against receipt of the definitive securities, cancel the book-entry securities of that series and distribute the definitive securities of that series to the person in the amounts that DTC specifies.
(f) If definitive securities are issued in the limited circumstances as set forth above, such securities may be transferred in whole or in part in denominations of any whole number of securities upon surrender of the definitive securities certificates together with the form of transfer endorsed on it, duly completed and executed at the specified office of the trustee. If only part of a securities certificate is transferred, a new securities certificate representing the balance not transferred will be issued to the transferor.
SECTION 12.02. Ratification of Subordinated Indenture; Second Supplemental Indenture Controls. The Subordinated Indenture, as supplemented by this Second Supplemental Indenture, is in all respects ratified and confirmed. This Second Supplemental Indenture shall be deemed part of the Subordinated Indenture in the manner and to the extent herein and therein provided. The provisions of this Second Supplemental Indenture shall supersede the provisions of the Subordinated Indenture to the extent the Subordinated Indenture is inconsistent herewith.
SECTION 12.03. Trustee Not Responsible for Recitals. The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the accuracy thereof. The Trustee makes no
representation as to the validity or sufficiency of this Second Supplemental Indenture or the 7.20% ING Perpetual Debt Securities. The Trustee shall not be accountable for the use or application by the Company of the 7.20% ING Perpetual Debt Securities or the proceeds thereof.
SECTION 12.04. Governing Law. This Second Supplemental Indenture and each 7.20% ING Perpetual Debt Security shall be governed by and construed in accordance with the laws of the State of New York, except for Article 7, which shall be governed by and construed in accordance with the laws of The Netherlands.
SECTION 12.05. Severability. If any provision in the Subordinated Indenture, this Second Supplemental Indenture or in the 7.20% ING Perpetual Debt Securities is determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.06. Counterparts. The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Any signed copy shall be sufficient proof of this Second Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the day and year first above written.
ING GROEP N.V.
as Issuer
By: /s/ Johannes Wolvius ------------------------------ Name: Johannes Wolvius Title: Authorized Officer By: /s/ Koos Timmermans ------------------------------ Name: Koos Timmermans Title: Authorized Officer |
THE BANK OF NEW YORK, as Trustee and Paying Agent
By: /s/ Luis Perez ------------------------------ Name: Luis Perez Title: Assistant Vice President |
EXHIBIT A
FORM OF 7.20% ING Perpetual Debt Securities
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
The rights of the Holders of the Securities are, to the extent and in the manner set forth in Section 1401 of the Subordinated Indenture and Article 7 of the Second Supplemental Indenture, subordinated to Senior Debt, and this Security is issued subject to the provisions of Article 14 of the Subordinated Indenture and Article 7 of the Second Supplemental Indenture, and the Holder of this Security, by accepting the same, agrees to and shall be bound by such provisions. The terms of this paragraph are governed by, and shall be construed in accordance with, the laws of The Netherlands.
ING Groep N.V.
7.20% ING PERPETUAL DEBT SECURITIES (THE "SECURITIES")
No. 3
CUSIP No.: 456837 30 1$
ISIN No.: US4568373017
COMMON CODE: 15966637
ING Groep N.V., a holding company duly organized and existing under the laws of The Netherlands, having its corporate seat in Amsterdam, The Netherlands (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or registered assigns, the principal sum of o (but only at such times as set forth in the Indenture with respect to Optional Redemption and Redemption Upon Certain Events in Article 3 of the Second Supplemental Indenture) and to pay interest thereon from December 12, 2002 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, quarterly in arrears on March 15, June 15, September 15 and December 15 in each year, commencing on March 15, 2003, and at such other times as are set forth in the Indenture at the rate of 7.20% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the March 1, June 1, September 1 or December 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. If interest is required to be calculated for any period less than a year, it will be calculated based on a 360-day year consisting of twelve 30-day months. If any Interest Payment Date would otherwise fall on a day that is not a Business
Day, it shall be postponed to the next day which is a Business Day (without any interest or other payment in respect of the delay).
Subject to the immediately following paragraph, if applicable, any Payment on this Security which is payable, and is paid or duly provided for, on any Interest Payment Date or on any date on which the Company makes any Payment (including any payment of Additional Amounts in accordance with Section 1006 of the Subordinated Indenture) shall be paid in U.S. dollars to the registered Holder, including through a Paying Agent by wire-transfer of same-day funds to the Holder or, at the option of the Company, by check mailed to the address of the Holder as it appears in the Company's Security Register. For so long as this Security is held in global form, all payments shall be made in U.S. dollars by wire-transfer of same-day funds.
The Company shall under certain circumstances, and in accordance with the Indenture, defer payments of interest on this Security. Any interest on this Security which is not paid or duly provided for on any applicable Interest Payment Date, together with any other payments in respect of this Security not paid on any date on which such Payment has become due and payable or would have become due and payable except that payment is not made as permitted by the Indenture, so long as the same remains unpaid, shall constitute "Outstanding Payments." Outstanding Payments will accumulate until paid. Outstanding Payments on this Security, when paid, as provided subject to the conditions in the Indenture, will be paid on the Deferred Interest Satisfaction Date to the Holder in whose name this Security is registered at the close of business on a Special Record Date for the Payment due on such Deferred Interest Satisfaction Date to be fixed by the Trustee, notice of which shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid in any other lawful manner not inconsistent with the requirements of any securities exchange on which this Security may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture.
Outstanding Payments, other than Accrued Interest Payments, shall not bear interest. Accrued Interest Payments will accrue interest at the Fixed Interest Rate. The amount of interest so accrued in respect of any Accrued Interest Payments will be satisfied as and when the Outstanding Payments are satisfied in accordance herewith. The amount of additional interest payable with respect to any Accrued Interest Payments will be calculated by the Trustee in accordance with the provisions of the Indenture.
Except in the case of a Mandatory Payment Event or a Mandatory Partial Payment Event, the Company may satisfy any Elective Deferral Interest Payment at any time on not less than 16 Business Days' notice to the Trustee, the Calculation Agent and Holders in accordance with the Indenture, and any Required Deferral Interest Payment shall be satisfied on the relevant Deferred Interest Satisfaction Date, by giving not less than 16 Business Days' notice to the Trustee, the Calculation Agent and Holders, if the Required Deferral Condition is no longer met on the 20th Business Day preceding any subsequent Interest Payment Date, provided that the Company has not previously paid such amount and does not validly elect to defer such payment as an Elective Deferral Interest Payment.
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. ING Groep N.V.
By:
Name:
Title:
By:
Name:
Title:
Attest:
.............................
This is one of the Securities of the series designated herein and referred to in the Indenture.
Dated: December 12, 2002
The Bank of New York, As Trustee
By..................................
Authorized Signatory
[Reverse of Security]
This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under a Subordinated Debt Indenture, dated as of July 18, 2002 (herein called the "Subordinated Indenture"), and a Second Supplemental Indenture, dated as of December 12, 2002 (herein called the "Second Supplemental Indenture" and together with the Subordinated Indenture, the "Indenture"), between the Company and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the terms of the Securities and the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee, the holders of Senior Debt and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities are subject to all such terms. This Security is one of the series designated on the face hereof and there is no limitation on the amount of Securities of such series which may be issued.
Except in a bankruptcy, all payments on this Security will be conditional upon
not triggering the Required Deferral Condition. The "Required Deferral
Condition" will be met if the Company determines that the Solvency Conditions
(i) are not satisfied on the Relevant Date, or (ii) will not be satisfied
following the relevant Payment. The "Solvency Conditions" are satisfied where
(i) the Company is able to make payments on its Senior Debt as such payments
become due, and (ii) the Company's Assets exceed the sum of its Liabilities
(excluding Liabilities not considered Senior Debt). The amount payable in
respect of the principal of this Security will be determined in accordance with
the provisions of Article 14 of the Subordinated Indenture and Articles 7 and 10
of the Second Supplemental Indenture.
The Securities will constitute direct, unsecured subordinated obligations of the Company, subject to the Solvency Conditions, and the subordination provisions described herein and in the Indenture, and will rank pari passu without any preference among themselves.
If the Company fails to pay or set aside for payment the amount due to satisfy any Payment on the Securities when due and such failure continues for 14 days, it will constitute a "Payment Default" ( provided, however, that if the Company fails to make any Mandatory Interest Payment as a result of failure to satisfy the Solvency Conditions, or due to a deferral of an Interest Payment as permitted under the terms of the Indenture, that payment will constitute an Outstanding Payment and will accumulate with any other Outstanding Payments until paid, but will not constitute a Payment Default). If any Payment Default occurs and is continuing, the Trustee may pursue all legal remedies available to it, including commencing a judicial proceeding for the collection of the sums due and unpaid or a bankruptcy proceeding in The Netherlands (but not elsewhere) of the Company, but the Trustee may not declare the principal amount of any outstanding Securities to be due and payable. If the Company fails to make payment when due, and such failure continues for 14 days, and the Solvency Conditions are not satisfied at the end of such 14-day period, such failure does not constitute a Payment Default but instead constitutes a "Payment Event." On a Payment Event, the Trustee may institute bankruptcy proceedings exclusively in The Netherlands, but may not pursue any other legal remedy, including a judicial proceeding for the collection of the sums due and unpaid. To the extent the Trustee is not permitted to pursue the remedies provided for herein as a matter of Dutch law, the Holders of the Securities may pursue such remedies in accordance with the terms of the Subordinated Indenture.
Notwithstanding the foregoing, Holders of this Security have the absolute and unconditional right to institute suit for the enforcement of any payment when due and such right may not be impaired without the consent of the Holder as provided in Section 508 of the Subordinated Indenture.
Payments under the Securities will be made without withholding or deduction for or on account of any present or future tax, duty, assessment or governmental charge imposed by the government of The Netherlands upon or as a result of such payments, or the government of a jurisdiction in which a successor to the Company is organized (or any political subdivision or taxing authority thereof or therein) (a "Relevant Jurisdiction") ("Taxes"), unless required by law. To the extent any such Taxes are so levied or imposed, the Company will, subject to the exceptions and limitations set forth in Section 1006 of the Indenture, pay such additional amounts ("Additional Amounts") to the Holder of any Security who is not a resident of a Relevant Jurisdiction as may be necessary in order that the net payment of the principal of and interest on such Security and any other amounts payable on such Security, after withholding for or on account of such Taxes imposed upon or as a result of such payment, will not be less than the amount provided for in such Security to be then due and payable.
Except as provided below, the Securities are not redeemable at the option of the Company prior to December 15, 2007.
The Securities may be redeemed in whole (but not in part), at the option of the Company and without the consent of the Holders or the Trustee, at a redemption price equal to their aggregate principal amount, together with any Outstanding Payments accrued to and including the date fixed for redemption, subject to the Solvency Condition: (i) on December 15, 2007, or any Interest Payment Date thereafter; (ii) upon the occurrence of a Tax Event, provided that the Company has already delivered to the Trustee a written legal opinion in a form satisfactory to the Trustee of independent Dutch counsel of recognized standing, selected by the Company, confirming that a Tax Event has occurred; or (iii) upon the occurrence of a Regulatory Event.
The indebtedness evidenced by this Security is, to the extent provided in the
Indenture, subordinate and subject in right of payment to the prior payment in
full of all Senior Debt, and this Security is issued subject to the provisions
of the Indenture with respect thereto. Each Holder of this Security, by
accepting the same, (i) agrees to and shall be bound by such provisions; (ii)
authorizes and directs the Trustee on his or her behalf to take such actions as
may be necessary or appropriate to effectuate the subordination so provided; and
(iii) appoints the Trustee his or her attorney-in-fact for any and all such
purposes. Each Holder hereof, by his or her acceptance hereof, waives all notice
of the acceptance of the subordination provisions contained herein and in the
Indenture by each holder of Senior Debt, whether now outstanding or hereafter
created, incurred, assumed or guaranteed, and waives reliance by each such
holder upon said provisions.
References herein to principal, interest amounts, Accrued Interest Payments, Payments or Outstanding Payments on the Securities shall be deemed also to refer to any Additional Amounts which may be payable under the foregoing provisions.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the
Trustee with the consent of the Holders of a majority in principal amount of the
Securities at the time Outstanding of all series to be affected (considered
together as one class for this purpose). The Indenture also contains provisions
(i) permitting the Holders of a majority in principal amount of the Securities
of each series at the time outstanding, on behalf of the Holders of all
Securities of such series, to waive compliance by the Company with certain
provisions of the Indenture and (ii) permitting the Holders of a majority in
principal amount of the Securities at the time outstanding of any series to be
affected under the Indenture (with each such series considered separately for
this purpose), on behalf of the Holders of all Securities of such series, to
waive certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $25.00 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series shall be represented by a Global Security and are not exchangeable for definitive Securities of this series except in specific circumstances set forth in the Indenture.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
This Security is a Global Security and is subject to the provisions of the Indenture relating to Global Securities, including the limitations in Section 305 thereof on transfers and exchanges of Global Securities.
This Security and the Indenture shall be governed by and construed in accordance with the laws of the State of New York except for the subordination provisions contained herein and in the Indenture, which shall be governed by and construed in accordance with the laws of The Netherlands.
All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
EXHIBIT 2.4
THIRD SUPPLEMENTAL INDENTURE
between
ING GROEP N.V.,
as Issuer
and
THE BANK OF NEW YORK,
as Trustee
Dated as of October 28, 2003
to the Subordinated Indenture between
ING GROEP N.V.,
as Issuer
and
THE BANK OF NEW YORK,
as Trustee
Dated as of July 18, 2002
$500,000,000 principal amount of 6.20% ING Perpetual Debt Securities
ARTICLE 1 DEFINITIONS
SECTION 1.01. Definitions of Terms............................................................ 2 ARTICLE 2 GENERAL TERMS AND CONDITIONS OF THE 6.20% ING PERPETUAL DEBT SECURITIES SECTION 2.01. Designation and Principal Amount................................................ 13 SECTION 2.02. Maturity........................................................................ 13 SECTION 2.03. Form, Issuance, Registration and Exchange....................................... 13 SECTION 2.04. Payments........................................................................ 13 SECTION 2.05. Mandatory Payment Events; Mandatory Partial Payment Events...................... 17 ARTICLE 3 OPTIONAL REDEMPTION AND REDEMPTION UPON CERTAIN EVENTS SECTION 3.01. Optional Redemption............................................................. 18 SECTION 3.02. Optional Purchase............................................................... 19 ARTICLE 4 ALTERNATIVE INTEREST SATISFACTION MECHANISM SECTION 4.01. Conditions Precedent............................................................ 19 SECTION 4.02. Notices of Exercise of Alternative Interest Satisfaction Mechanism.............. 19 SECTION 4.03. Alternative Interest Satisfaction Mechanism..................................... 20 SECTION 4.04. Insufficient Payment Ordinary Shares............................................ 23 SECTION 4.05. Market Disruption Event......................................................... 24 ARTICLE 5 REMEDIES SECTION 5.01. Defaults; Collection of Indebtedness and Suits for Enforcement by Trustee............................................................................... 25 ARTICLE 6 COVENANTS OF THE ISSUER SECTION 6.01. Dividend Restrictions for Deferred Interest Payments............................ 26 SECTION 6.02. Calculation Agent............................................................... 27 |
SECTION 6.03. Mandatory Interest Payments..................................................... 27 SECTION 6.04. Deferral of Certain Payments.................................................... 27 SECTION 6.05. Sufficiency of Ordinary Shares.................................................. 27 SECTION 6.06. Ranking......................................................................... 28 SECTION 6.07. Payment of Proceeds from Sale of Payment Ordinary Shares and Associated Cost Ordinary Shares.................................................................. 28 SECTION 6.08. Listing......................................................................... 29 SECTION 6.09. Calculation Agency Agreement.................................................... 29 SECTION 6.10. Officer's Certificate on Deferral............................................... 29 SECTION 6.11. Officer's Certificate for Market Disruption Event............................... 29 ARTICLE 7 SUBORDINATION SECTION 7.01. Agreement to Subordinate........................................................ 30 SECTION 7.02. Section 1401 of the Subordinated Indenture...................................... 30 ARTICLE 8 FORM OF 6.20% ING PERPETUAL DEBT SECURITIES SECTION 8.01. Form of 6.20% ING Perpetual Debt Securities..................................... 31 ARTICLE 9 ORIGINAL ISSUE OF 6.20% ING PERPETUAL DEBT SECURITIES SECTION 9.01. Original Issue of 6.20% ING Perpetual Debt Securities........................... 31 ARTICLE 10 WINDING UP SECTION 10.01. Winding Up..................................................................... 31 ARTICLE 11 SATISFACTION AND DISCHARGE SECTION 11.01. Satisfaction and Discharge..................................................... 32 ARTICLE 12 MISCELLANEOUS SECTION 12.01. Issuance of Definitive Securities.............................................. 32 SECTION 12.02. Ratification of Subordinated Indenture; Third Supplemental Indenture Controls.............................................................................. 33 SECTION 12.03. Trustee Not Responsible for Recitals........................................... 33 |
SECTION 12.04. Governing Law.................................................................. 34 SECTION 12.05. Severability................................................................... 34 SECTION 12.06. Counterparts................................................................... 34 EXHIBIT A Form of 6.20% ING Perpetual Debt Securities.................................... A-1 |
THIRD SUPPLEMENTAL INDENTURE dated as of October 28, 2003 (the "THIRD SUPPLEMENTAL INDENTURE") between ING Groep N.V., a company incorporated in The Netherlands (the "COMPANY"), having its statutory seat in Amsterdam and its principal office at Amstelveenseweg 500, 1081 KL Amsterdam, P.O. Box 810, 1000 AV Amsterdam, The Netherlands, and The Bank of New York, a New York banking corporation having its Corporate Trust Office at 101 Barclay Street, New York, New York, 10286, as trustee (the "TRUSTEE") to the Subordinated Indenture, dated July 18, 2002, between the Company and the Trustee (the "SUBORDINATED INDENTURE", and together with this Third Supplemental Indenture, the "INDENTURE"). In addition, The Bank of New York, through its New York and London branches, has agreed to act as Paying Agent hereunder.
WHEREAS, the Company and the Trustee executed and delivered the Subordinated Indenture to provide for the future issuance of the Company's Securities to be issued from time to time in one or more series as might be determined by the Company under the Subordinated Indenture, in an unlimited aggregate principal amount, which may be authenticated and delivered as provided in the Subordinated Indenture;
WHEREAS, Section 301 of the Subordinated Indenture permits the terms of any series of Securities to be established pursuant to a Board Resolution or in one or more indentures supplemental to the Subordinated Indenture;
WHEREAS, the Company desires to issue a series of Securities, the terms of which it deems appropriate to set out in this Third Supplemental Indenture;
WHEREAS, pursuant to the terms of the Subordinated Indenture, the Company may issue Securities now and additional Securities of the same or different series at later dates under the Subordinated Indenture, as established by the Company, and the Company desires to initially issue $500,000,000 aggregate principal amount of securities, entitled the 6.20% ING Perpetual Debt Securities (the "6.20% ING PERPETUAL DEBT SECURITIES"), the form and substance of such 6.20% ING Perpetual Debt Securities and the terms, provisions and conditions thereof to be set forth as provided in the Subordinated Indenture as supplemented by this Third Supplemental Indenture;
WHEREAS, pursuant to Section 301 of the Subordinated Indenture, the Company desires to appoint The Bank of New York, through its New York and London branches, to act as Paying Agent with respect to the 6.20% ING Perpetual Debt Securities and ING Financial Markets LLC, as Calculation Agent with respect to the 6.20% ING Perpetual Debt Securities;
WHEREAS, the 6.20% ING Perpetual Debt Securities shall be treated as a separate series of Securities in accordance with the terms of the Indenture and for all purposes under the Indenture; and
WHEREAS, the Company has duly authorized the execution and delivery of this Third Supplemental Indenture and requested that the Trustee execute and deliver this Third Supplemental Indenture, and all requirements necessary to make this Third Supplemental Indenture a valid and binding instrument in accordance with its terms have been done.
NOW THEREFORE, in consideration of the purchase and acceptance of the 6.20% ING Perpetual Debt Securities by the Holders thereof, and for the purpose of setting forth, as provided in the Indenture, the form and substance of the 6.20% ING Perpetual Debt Securities and the terms, provisions and conditions thereof, the Company covenants and agrees with the Trustee and the Paying Agent as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions of Terms. For all purposes of the Indenture, except as otherwise expressly provided or unless the context otherwise requires:
(a) a term defined in the Subordinated Indenture and not otherwise defined herein has the same meaning when used in this Third Supplemental Indenture;
(b) unless otherwise specified, a reference to a Section or Article is to a Section or Article of this Third Supplemental Indenture;
(c) headings are for convenience of reference only and do not affect interpretation; and
(d) the following terms have the meanings given to them in this Section 1.01(d) and shall have the meaning set forth below for purposes of this Third Supplemental Indenture and the Subordinated Indenture as it relates to the series of 6.20% ING Perpetual Debt Securities created hereunder.
"ACCRUED INTEREST PAYMENT" means Interest that shall continue to accrue after an Interest Payment Date in respect of an Elective Deferral Interest Payment,
the failure to make a payment when due on a date of redemption, certain Payments which cannot be made due to insufficient Ordinary Shares to satisfy the Alternative Interest Satisfaction Mechanism and failure to make a Payment more than 14 days after its due date due to a Market Disruption Event.
"ADDITIONAL AMOUNTS" has the meaning specified in Section 1006 of the Subordinated Indenture.
"ALTERNATIVE INTEREST SATISFACTION MECHANISM" has the meaning specified in Section 4.03 hereof.
"ASSETS" means the non-consolidated gross assets of the Company as shown by the most recently published audited balance sheet of the Company, but adjusted for contingencies and subsequent events and to such extent as the directors, external auditors or, as the case may be, the liquidator may determine to be appropriate.
"ASSOCIATED COSTS" has the meaning assigned to such term in the Calculation Agency Agreement.
"ASSOCIATED COST ORDINARY SHARES" means Ordinary Shares issued by the Company in accordance with Section 4.03(c)(iii) hereof.
"BASE REDEMPTION PRICE" in respect of the 6.20% ING Perpetual Debt Securities means a redemption price equal to 100% of the aggregate principal amount, together with any Outstanding Payments accrued to and including the date fixed for redemption.
"BUSINESS DAY" means a Monday, Tuesday, Wednesday, Thursday or Friday that is not a day on which banking institutions in The Netherlands or New York City generally are authorized or obligated by law, regulation or executive order to close.
"CALCULATION AGENCY AGREEMENT" means the calculation agency agreement, dated as of October 28, 2003, between the Company and the Calculation Agent, relating to the 6.20% ING Perpetual Debt Securities, as the same may be amended from time to time.
"CALCULATION AGENT" means ING Financial Markets LLC, as calculation agent in relation to the 6.20% ING Perpetual Debt Securities, or its successor or successors for the time being appointed under the Calculation Agency Agreement.
"DEFERRAL INTEREST RATE" means an interest rate equal to the Fixed Interest Rate.
"DEFERRAL NOTICE" means a notice to the Trustee, the Holders, the Paying Agent, if different than the Trustee, and the Calculation Agent that a Payment will be deferred in accordance with the Indenture.
"DEFERRED INTEREST PAYMENT" means any Elective Deferral Interest Payment, or part thereof, which has not subsequently been satisfied, or any Required Deferral Interest Payment, or part thereof, which has not subsequently been either (i) satisfied, or (ii) deferred pursuant to Section 2.04(f) hereof.
"DEFERRED INTEREST SATISFACTION DATE" means the earlier of
(i) with respect to a Required Deferral Interest Payment, the Interest Payment Date following the 19th Business Day after the Required Deferral Condition fails to be met;
(ii) the date on which the Company has resolved to satisfy a Deferred Interest Payment as set forth in a notice to the Trustee, the Holders, the Paying Agent, if different than the Trustee, and the Calculation Agent; or
(iii) the date on which the Company is required to satisfy all Deferred Interest Payments due to the occurrence of a Mandatory Payment Event or a Mandatory Partial Payment Event.
"DTC" means the Depository Trust Company.
"ELECTIVE DEFERRAL INTEREST PAYMENT" means any Payment on the 6.20% ING
Perpetual Debt Securities that is deferred due to the circumstances set forth in
Section 2.04(f) hereof.
"FIXED INTEREST RATE" has the meaning set forth in Section 2.04(b) hereof.
"INDENTURE" has the meaning set forth in the recitals of this Third Supplemental Indenture.
"6.20% ING PERPETUAL DEBT SECURITIES" has the meaning set forth in the recitals of this Third Supplemental Indenture, and shall include, unless the context otherwise requires, any further 6.20% ING Perpetual Debt Securities which the Company is permitted to issue and which will form a single series with the 6.20% ING Perpetual Debt Securities.
"INTEREST" means interest payments on the 6.20% ING Perpetual Debt Securities as calculated in accordance with Sections 2.04(b) and (c) hereof and shall, where appropriate, include Interest Amounts, Deferred Interest Payments and Accrued Interest Payments.
"INTEREST AMOUNT" means
(i) in respect of an Interest Payment, the amount of Interest payable on a 6.20% ING Perpetual Debt Security for the relevant Interest Period; and
(ii) in the event of redemption due to a Tax Event or Regulatory Event, any Interest accrued from (and including) the preceding Interest Payment Date (or, if none, the Issue Date) to (but excluding) the due date for redemption, if not an Interest Payment Date, as calculated using the Interest Calculation Basis.
"INTEREST CALCULATION BASIS" means the calculation of Interest on the basis of a 360-day year of twelve 30-day months.
"INTEREST PAYMENT" means, in respect of an Interest Payment Date, the aggregate Interest Amounts for the Interest Period ending on such Interest Payment Date.
"INTEREST PAYMENT DATE" has the meaning set forth in Section 2.04(d) hereof.
"INTEREST PERIOD" means the period commencing on (and including) the Issue Date and ending on (but excluding) the first Interest Payment Date and each successive period commencing on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date.
"ISSUE DATE" means October 28, 2003.
"JUNIOR GUARANTEE" means any guarantee, indemnity or other contractual support arrangement entered into by the Company in respect of securities (regardless of name or designation) issued by a Subsidiary or Undertaking and ranking junior to the 6.20% ING Perpetual Debt Securities upon a liquidation of the Company or in respect of distributions or payment of dividends or any other payment thereon.
"JUNIOR SECURITIES" means the Ordinary Shares or any other securities of the Company that rank junior to the 6.20% ING Perpetual Debt Securities with respect to distributions on a return of assets, upon a liquidation of the Company or in respect of distributions, payments of dividends or any other payment thereon.
"LIABILITIES" means the non-consolidated gross liabilities of the Company as shown by the most recently published audited balance sheet of the Company, but adjusted for contingencies and for subsequent events and to such extent as the
Company's directors, external auditors or, as the case may be, liquidator may determine.
"MANDATORY PARTIAL PAYMENT" payable on any Interest Payment Date means a payment in respect of each 6.20% ING Perpetual Debt Security in an amount that results in payment of a proportion of a full Interest Payment on the 6.20% ING Perpetual Debt Security on such Interest Payment Date equal to the proportion of a full dividend or full interest payment on the relevant Parity Securities and/or payment on the relevant Parity Guarantee paid on the dividend or payment date in respect of the relevant Parity Securities and/or Parity Guarantee immediately preceding such Interest Payment Date.
"MANDATORY PARTIAL PAYMENT EVENT" means the occurrence of any of the following:
(i) the Company declares, pays or distributes a dividend or makes a payment on any of its Parity Securities or Parity Guarantees; or
(ii) any Subsidiary or Undertaking declares, pays or distributes a dividend on any security issued by it benefitting from a Parity Guarantee or makes a payment on any security issued by it benefitting from a Parity Guarantee.
"MANDATORY PAYMENT EVENT" means the occurrence of any of the following:
(i) the Company declares, pays or distributes a dividend or makes a payment (other than a dividend in the form of Ordinary Shares) on any of its Junior Securities or makes a payment on a Junior Guarantee;
(ii) any Subsidiary or Undertaking declares, pays or distributes a dividend on any security issued by it benefitting from a Junior Guarantee or makes a payment (other than a dividend in the form of ordinary shares) on any security issued by it benefitting from a Junior Guarantee;
(iii) the Company or any Subsidiary or Undertaking redeems,
purchases or otherwise acquires any of the Company's Junior Securities,
any Parity Securities or any securities issued by any Subsidiary or
Undertaking benefitting from a Junior Guarantee or Parity Guarantee,
other than (1) by conversion into or in exchange for Ordinary Shares,
(2) in connection with transactions effected by or for the account of
customers of the Company or any Subsidiary or in connection with the
distribution, trading or market-making activities in respect of those
securities, (3) in connection with the satisfaction by the Company or
any Subsidiary of its obligations under any employee benefit plans or
similar arrangements with
or for the benefit of employees, officers, directors or consultants,
(4) as a result of a reclassification of the Company or any Subsidiary
or the exchange or conversion of one class or series of capital stock
for another class or series of capital stock, or (5) the purchase of
the fractional interests in shares of the capital stock of the Company
or of any Subsidiary pursuant to the conversion or exchange provisions
of that capital stock or the security being converted or exchanged; or
(iv) any moneys are paid to or made available for a sinking fund or for redemption of any Junior Securities, Parity Securities or any securities issued by any Subsidiary or Undertaking benefitting from a Junior Guarantee or Parity Guarantee.
"MARKET DISRUPTION EVENT" means
(i) the occurrence or existence of any suspension of or limitation imposed on trading by reason of movements in price exceeding limits permitted by Euronext Amsterdam N.V. or on settlement procedures for transactions in the Ordinary Shares on Euronext Amsterdam N.V. if, in any such case, that suspension or limitation is, in the determination of the Calculation Agent, material in the context of the sale of the Ordinary Shares;
(ii) in the Company's opinion, there has been a substantial deterioration in the price and/or value of the Ordinary Shares, or circumstances are such as to prevent or, to a material extent, restrict the issue or delivery of the Payment Ordinary Shares; or
(iii) where, pursuant to the terms of the Indenture, moneys are required to be converted from one currency into another currency in respect of any Payment, but the occurrence of any event that makes it impracticable to effect such conversion.
"NOTIONAL PREFERENCE SHARES" has the meaning set forth in Section 10.01 hereof.
"ORDINARY SHARES" means the Company's ordinary shares or bearer depository receipts issued in respect of such ordinary shares as the context may require.
"OUTSTANDING PAYMENT" means:
(i) in relation to any Interest Payment, Deferred Interest Payment or Interest Amount not falling within the definition of Interest Payment, that such payment (a) has either become due and payable or would have
become due and payable except for the non-satisfaction on the relevant date due to a Solvency Condition not being satisfied or the deferral, postponement or suspension of such payment, due to a Required Deferral Condition, an Elective Deferral Interest Payment, insufficient Ordinary Shares available to satisfy the Alternative Interest Satisfaction Mechanism, or failure to make a payment more than 14 days after its due date due to a Market Disruption Event, and (b) in any such case has not been satisfied; and
(ii) in relation to any Accrued Interest Payment, any amount thereof which has not been satisfied whether or not payment has become due.
"PARITY GUARANTEE" means any guarantee, indemnity or other contractual support arrangements of the Company of securities of any Subsidiary or Undertaking, under which the holder of such securities as the party who has the benefit of any such guarantee, indemnity or other contractual support agreement is entitled, effectively from a financial point of view, to distributions on a return of assets or on a liquidation, moratorium of payments or bankruptcy of the Company or to distributions or payments of dividends and/or any other amounts thereunder by the Company, to the same extent as the most senior class of preference shares and which (a) are expressed to be similarly subordinated to Senior Debt as, and accordingly rank pari passu with, the 6.20% ING Perpetual Debt Securities as regards any such distribution or payment or (b) rank pari passu as expressed by such 6.20% ING Perpetual Debt Securities' own terms with the 6.20% ING Perpetual Debt Securities.
Parity Guarantee includes the Company's guarantees (collectively the
"TRUST PREFERRED SECURITIES GUARANTEES") of the:
- 7.70% Non-cumulative Guaranteed Trust Preferred Securities issued by ING Capital Funding Trust I;
- 9.20% Non-cumulative Guaranteed Trust Preferred Securities issued by ING Capital Funding Trust II; and
- 8.439% Non-cumulative Guaranteed Trust Preferred Securities issued by ING Capital Funding Trust III.
"PARITY INTEREST PAYMENT" has the meaning set forth in Section 6.05(a) hereof.
"PARITY PERPETUAL SECURITIES" means the Company's 6.50% ING Perpetual Securities issued on September 28, 2001, the Company's 7.05% ING Perpetual Debt Securities issued on July 18, 2002, the Company's 7.20% ING
Perpetual Debt Securities issued on December 12, 2002 and the Company's Variable Rate ING Perpetual Securities issued on June 20 2003.
"PARITY SECURITIES" means
(i) the most senior class of preference shares of the Company;
(ii) any preference shares of the Company of similar rank as the most senior class of preference shares of the Company; or
(iii) other securities of the Company, the holders of which have claims that rank, effectively from a financial point of view, pursuant to a Parity Guarantee or pursuant to the provisions of such securities, as the most senior class of preference shares of the Company, in each case as regards distributions on a return of assets or on a liquidation, moratorium of payments or bankruptcy of the Company or in respect of distributions or payments of dividends and/or any other amounts thereunder by the Company and which are expressed to be similarly subordinated to Senior Debt as, and accordingly rank pari passu with, the 6.20% ING Perpetual Debt Securities as regards any such distributions or payments.
Parity Securities includes the Parity Perpetual Securities.
"PAYING AGENT" means The Bank of New York as paying agent in relation to the 6.20% ING Perpetual Debt Securities, or its successor or successors for the time being appointed in accordance with the terms of the Indenture.
"PAYMENT" means any Interest Payment, Deferred Interest Payment, Accrued Interest Payment or Interest Amount not falling within the definition of Interest Payment.
"PAYMENT DEFAULT" has the meaning set forth in Section 5.01(a) hereof.
"PAYMENT EVENT" has the meaning set forth in Section 5.01(b) hereof.
"PAYMENT ORDINARY SHARES" means Ordinary Shares issued by the Company in accordance with Section 4.03(c)(ii) hereof.
"REGULAR RECORD DATE" means the January 1, April 1, July 1 and October 1 preceding an Interest Payment Date (whether or not a Business Day).
"REGULATORY EVENT" means any time after the Company becomes subject to capital adequacy regulations, the relevant regulator makes a determination that securities in the nature of the 6.20% ING Perpetual Debt Securities can no longer
qualify as Tier 1 capital (or instruments of a similar nature which qualify as core capital) for purposes of such capital adequacy regulations.
"RELEVANT DATE" means
(i) in respect of any payment other than a Winding-Up Claim, the date on which such payment first becomes due and payable but, if the full amount of the monies payable on such date has not been received by the Trustee on or prior to such date, the "Relevant Date" means the date on which such monies shall have been so received and notice to that effect shall have been given to the Holders in accordance with Section 106 of the Subordinated Indenture; and
(ii) in respect of a Winding-Up Claim, the date which is one day prior to the commencement of the winding up.
"REQUIRED DEFERRAL CONDITION" means a determination by the Company that the Solvency Conditions (i) are not satisfied on the Relevant Date, or (ii) will not be satisfied as a result of making the relevant Payment.
"REQUIRED DEFERRAL INTEREST PAYMENT" has the meaning set forth in
Section 2.04(e) hereof.
"SECURITIES" has the meaning set forth in the Subordinated Indenture.
"SENIOR DEBT" means
(i) all claims of unsubordinated creditors of the Company;
(ii) all claims of creditors whose claims are, or are expressed to be, subordinated (whether only in the event of the insolvency of the Company or otherwise) only to the claims of unsubordinated creditors of the Company; and
(iii) all claims of all other creditors of the Company except those whose claims are, or are expressed to rank, pari passu with, or junior to, the claims of the Holders.
"SOLVENCY CONDITIONS" means
(i) the Company is able to make payments on its Senior Debt as such payments become due; and
(ii) the Company's Assets exceed the sum of its Liabilities (excluding Liabilities not considered Senior Debt).
"SUBORDINATED INDENTURE" has the meaning set forth in the first paragraph of this Third Supplemental Indenture.
"TAX EVENT" means a determination by the Company that on the next Interest Payment Date:
(i) the Company would, for reasons outside its control, be unable to make the required payment on such date without being required to pay Additional Amounts and the Company cannot avoid such requirement or circumstance by taking such measures the Company, acting in good faith, deems appropriate;
(ii) payments of amounts in respect of Interest on the 6.20%
ING Perpetual Debt Securities (including, for the avoidance of doubt,
where the payment of Interest is to be satisfied by the issue of
Ordinary Shares pursuant to the Alternative Interest Satisfaction
Mechanism), may be treated as "distributions" within the meaning of
Section II of the Dividend Withholding Tax Act 1965 (Wet op de
dividendbelasting 1965); or such other provision as may from time to
time supersede or replace Section II of the Dividend Withholding Tax
Act of 1965 for the purposes of such definition) and the Company cannot
avoid such requirement or circumstance by taking such measures the
Company, acting in good faith, deems appropriate; or
(iii) there is more than an insubstantial risk that the Company will not obtain substantially full relief for the purposes of the corporation tax of The Netherlands for any payment of Interest (including, for the avoidance of doubt, where the payment of Interest is to be satisfied by the issue of Ordinary Shares pursuant to the Alternative Interest Satisfaction Mechanism), due to any proposed change or amendment to the laws of The Netherlands, or any proposed change in the application of official or generally published interpretation of such laws, or any interpretation or pronouncement by any relevant tax authority that provides for a position with respect to such laws or regulations that differs from the previously generally accepted position in relation to similar transactions or which differs from any specific written confirmation given by a tax authority in respect of the 6.20% ING Perpetual Debt Securities, where such change or amendment becomes, or would become, effective, or in the case of a change or proposed change in law if such change is enacted (or, in the case of a proposed change, is expected to be enacted) by an Act of Parliament or made by Statutory Instrument on or after October 17, 2003, and the Company cannot avoid this risk by taking such measures the Company, acting in good faith, deems appropriate.
"TRUST PREFERRED SECURITIES GUARANTEES" has the meaning given such term in the definition of Parity Guarantee.
"TRUSTEE" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor trustee shall have become such pursuant to the applicable provisions of the Subordinated Indenture, and thereafter "Trustee" shall mean the Person who is then the Trustee thereunder, and if at any time there is more than one such Person, "Trustee" shall mean and include each such Person.
"UNDERTAKING" means a corporate body, partnership, limited partnership, cooperative or an incorporated association carrying on a trade or business with or without a view to profit in which the Company has direct or indirect financial, commercial or contractual majority interest.
"WINDING-UP CLAIM" means amounts in respect of principal or Payments in respect of which a Solvency Condition is not satisfied on the date upon which such principal or Payments would otherwise be due and payable by the Company in connection with its liquidation (upon dissolution or otherwise) and on any redemption of 6.20% ING Perpetual Debt Securities.
ARTICLE 2
GENERAL TERMS AND CONDITIONS OF THE 6.20% ING PERPETUAL DEBT
SECURITIES
SECTION 2.01. Designation and Principal Amount. The following series of Securities are hereby authorized as the 6.20% ING Perpetual Debt Securities, initially to be issued in the aggregate principal amount of $500,000,000.
SECTION 2.02. Maturity. The 6.20% ING Perpetual Debt Securities have no maturity date.
SECTION 2.03. Form, Issuance, Registration and Exchange. The 6.20% ING Perpetual Debt Securities shall:
(a) be issued as registered Securities in minimum denominations of $25.00 (or in any integral multiple thereof) in book-entry global form, and shall not be exchangeable for definitive securities except as provided in Section 305 of the Subordinated Indenture;
(b) not be exchangeable at any time for bearer securities; and
(c) be issued as global 6.20% ING Perpetual Debt Securities registered in the name of DTC or its nominee (initially the nominee will be Cede & Co.); provided, however, (i) such global securities may not be transferred except as a whole by DTC to a nominee or a successor of DTC, unless and until the 6.20% ING Perpetual Debt Securities are exchanged for definitive securities in the limited instances described in Section 12.01 hereof; (ii) beneficial interests in global 6.20% ING Perpetual Debt Securities may be held through organizations that participate, directly or indirectly, in the DTC system; (iii) beneficial interests in the global 6.20% ING Perpetual Debt Securities and all transfers relating to the global 6.20% ING Perpetual Debt Securities will be reflected in the book-entry records of DTC; and (iv) so long as DTC, or its nominee, is the holder of a global 6.20% ING Perpetual Debt Security, it will be considered the sole holder of the global 6.20% ING Perpetual Debt Security for all purposes under the Indenture.
SECTION 2.04. Payments.
(a) Payment Method. (i) Any Payment on 6.20% ING Perpetual Debt Securities which is payable, and is paid or duly provided for, on any Payment Date or on any date on which the Company makes any Payment on the 6.20% ING Perpetual Debt Securities (including any payment of Additional Amounts in accordance with Section 1006 of the Subordinated Indenture) shall be paid by the Trustee to the Holder in whose name such 6.20% ING Perpetual Debt Securities are registered, by wire-transfer of same-day funds to the Holder or, at the option of the Company, by check mailed to the address of the Holder as it appears in the Company's Security Register. For so long as the 6.20% ING Perpetual Debt Securities are held in global form, all payments shall be made by wire-transfer of same-day funds.
(ii) All payments made with respect to the 6.20% ING Perpetual Debt Securities will be subject to any fiscal or other laws and regulations applicable thereto in the place of payment. Except as expressly stated, such fiscal or other laws and regulations will not affect the Company's obligation to pay Additional Amounts.
(b) Interest Rate. The 6.20% ING Perpetual Debt Securities will bear Interest from the Issue Date at a fixed rate per annum on their outstanding principal amount equal to 6.20% (the "FIXED INTEREST RATE").
(c) Interest Payment Dates. Subject to the provisions herein, Interest on the 6.20% ING Perpetual Debt Securities (calculated in accordance with the Interest Calculation Basis) will be payable from October 28, 2003 or from the most recent Interest Payment Date to which interest has been paid or duly pro-
vided for, quarterly in arrears on January 15, April 15, July 15 and October 15 in each year, commencing on January 15, 2004.
(d) Accrued Interest Payments. The aggregate amount of any Accrued Interest Payments on the 6.20% ING Perpetual Debt Securities will bear Interest at the Fixed Interest Rate (to the extent permitted by applicable law) as if such Accrued Interest Payments were considered part of principal and will become payable as and when the Payment in respect of which such Interest has accrued becomes payable. The amount of Interest which accrues (the "ADDITIONAL INTEREST") in respect of any such Accrued Interest Payments shall be calculated by the Trustee in consultation with the Company and shall be added, for purposes only of the calculation of the amount of Additional Interest due on any Interest Payment Date or Deferred Interest Satisfaction Date, as the case may be, to the corresponding amount of Payments unpaid as at such Interest Payment Date or Deferred Interest Satisfaction Date, as applicable, as if such amount would itself constitute a Payment.
When used with respect to any 6.20% ING Perpetual Debt Securities, "INTEREST PAYMENT DATE" means the date for payment of any Interest on such 6.20% ING Perpetual Debt Securities, as determined by the Company and set forth in this Third Supplemental Indenture and the form of 6.20% ING Perpetual Debt Securities attached as Exhibit A hereto. If any Interest Payment Date would otherwise fall on a day which is not a Business Day, it shall be postponed to the next day that is a Business Day.
(e) Required Deferral of Payments.
(i) Other than in the case of a Mandatory Payment Event or a Mandatory Partial Payment Event, the Company is required to give a Deferral Notice in accordance with Section 2.04(h) hereof and to defer any payment where the Required Deferral Condition has occurred or is continuing on the 20th Business Day preceding the date on which such Payment would be due and payable and no Interest Payment shall be payable on such Interest Payment Date. When used with respect to any 6.20% ING Perpetual Debt Securities, "REQUIRED DEFERRAL INTEREST PAYMENT" means any Payment deferred in accordance with this Section 2.04(e).
(ii) Interest will not accrue on any Required Deferral Interest Payment except under circumstances described under Section 4.03 hereof.
(iii) Any Required Deferral Interest Payment, except in the case of a Mandatory Payment Event or a Mandatory Partial Payment Event, shall be satisfied on the relevant Deferred Interest Satisfaction Date if the
Required Deferral Condition is no longer met as of the 20th Business Day preceding any subsequent Interest Payment Date and the Company (x) does not validly elect to defer such payment in accordance with Section 2.04(f)(i) hereof; or (y) has not elected to pay such Deferred Interest Payment earlier in accordance with Section 2.04(f)(iii) hereof.
(iv) At least 16 Business Days prior to the relevant Deferred Interest Satisfaction Date, the Company shall give notice to the Trustee of the Deferred Interest Satisfaction Date on which such Required Deferral Interest Payment will be satisfied. As soon as practicable after receiving such notice but within two business days, the Trustee shall provide notice to the Company of the amount of Accrued Interest Payments, (including any Additional Interest) if any, payable on such Deferred Interest Satisfaction Date.
(v) At least 16 Business Days prior to such Deferred Interest
Satisfaction Date, the Company shall provide a notice to the Paying
Agent, the Calculation Agent and the Holders in accordance with Section
106 of the Subordinated Indenture (a) that the Company will satisfy
such Required Deferral Interest Payment on the relevant Deferred
Interest Satisfaction Date, (b) the amount of the Accrued Interest
Payments (including Additional Interest), if any, payable on such
Deferred Interest Satisfaction Date, as calculated by the Trustee and
(c) the Special Record Date for such Deferred Interest Satisfaction
Date.
(f) Elective Deferral of Payments.
(i) The Company may defer any Payment that is due and payable under the 6.20% ING Perpetual Debt Securities, other than in the case of a Mandatory Payment Event or a Mandatory Partial Payment Event, by giving a Deferral Notice to the Trustee, the Calculation Agent and the Holders in accordance with Section 2.04(h) hereof, including any Payment referred to in Section 2.04(e)(iii), 2.04(e)(iv), 2.04(e)(v) hereof (except as otherwise provided therein), and no Interest Payment shall be payable on such Interest Payment Date. When used with respect to any 6.20% ING Perpetual Debt Securities, "ELECTIVE DEFERRAL INTEREST PAYMENT" means any Payment deferred in accordance with this Section 2.04(f).
(ii) Elective Deferral Interest Payments will accrue interest at the Deferral Interest Rate from, and including, the date on which (but for such deferral) the Deferred Interest Payment would otherwise have been due to be made to, but excluding, the relevant Deferred Interest Satisfaction Date.
(iii) Except in the case of a Mandatory Payment Event or a
Mandatory Partial Payment Event, the Company may satisfy any Elective
Deferral Interest Payment at any time; provided, however, any such
Payment shall be satisfied by delivering a notice in accordance with
Section 4.03(c)(i) hereof not less than 16 Business Days prior to the
relevant Deferred Interest Satisfaction Date informing of the Company's
election to so satisfy such Payment and specifying the relevant
Deferred Interest Satisfaction Date.
(g) Conditions Precedent for any Payment.
(i) Except in a bankruptcy, all payments on the 6.20% ING Perpetual Debt Securities will be conditional upon not triggering the Required Deferral Condition.
(ii) Unless the Company obtains permission from its relevant regulator, it shall satisfy any Deferred Interest Payments only in accordance with the Alternative Interest Satisfaction Mechanism set forth in Article 4 below; provided, however, that the Company is not required to utilize the Alternative Interest Satisfaction Mechanism to satisfy any Mandatory Partial Payment payable on a Mandatory Partial Payment Date that coincides with the date on which a Deferred Interest Payment has become mandatorily due and payable in full.
(h) Deferral Notice.
(i) The Company shall give any Deferral Notice not less than 16 Business Days prior to the date on which any Payment would, in the absence of deferral, be due and payable.
(ii) The Company must give a Deferral Notice in the case of a Required Deferral Condition.
(iii) Any Deferral Notice as to a Payment required to be paid pursuant to a Mandatory Payment Event or a Mandatory Partial Payment Event will have no force or effect.
SECTION 2.05. Mandatory Payment Events; Mandatory Partial Payment Events.
(a) Deferred Interest Payments. Upon the occurrence of a Mandatory Payment Event or a Mandatory Partial Payment Event, all Deferred Interest Payments will become mandatorily due and payable in full on the date of either
such event, notwithstanding any further Deferral Notice or an occurrence or continuance of a Required Deferral Condition.
(b) Satisfaction of Interest Payments following a Mandatory Payment Event. The Interest Payments payable on the next four consecutive Interest Payment Dates following a Mandatory Payment Event will be mandatorily due and payable in full, notwithstanding any Deferral Notice as to such Interest Payments or the occurrence or continuance of any Required Deferral Condition; provided, however, that if the Mandatory Payment Event is (x) a payment on a Junior Security, a Junior Guarantee or a security benefitting from a Junior Guarantee or relates to the purchase or other acquisition of any Junior Security, Parity Security or a security benefitting from a Junior Guarantee or a Parity Guarantee, and (y) such payment is in respect of a semi-annual or quarterly payment or the security purchased or acquired was payable semi-annually or quarterly, only the Interest Payments payable on the next two Interest Payment Dates or the next Interest Payment, respectively, shall be mandatorily due and payable notwithstanding any Deferral Notice as to such Interest Payment or the occurrence or continuance of any Required Deferral Condition. Such Mandatory Interest Payments may, at the Company's election, be satisfied in accordance with the Alternative Interest Satisfaction Mechanism.
(c) Satisfaction of Interest Payments following a Mandatory Partial Payment Event. Mandatory Partial Payments will be mandatorily due and payable, on the next four consecutive Interest Payment Dates, following a Mandatory Partial Payment Event, notwithstanding any Deferral Notice or occurrence of the Required Deferral Condition; provided, however, that if such Mandatory Partial Payment (x) is a payment on a Parity Security, a Parity Guarantee or a security benefitting from a Parity Guarantee, and (y) such payment is in respect of a semi-annual or quarterly payment, only Mandatory Partial Payments payable on the next two consecutive Interest Payment Dates or the next Interest Payment Date, respectively, shall be mandatorily due and payable notwithstanding any Deferral Notice as to such Interest Payment or the occurrence or continuance of any Required Deferral Condition. Such Mandatory Partial Payments may, at the Company's election, be satisfied in accordance with the Alternative Interest Satisfaction Mechanism.
ARTICLE 3
OPTIONAL REDEMPTION AND REDEMPTION UPON CERTAIN EVENTS
SECTION 3.01. Optional Redemption. (a) Any redemption made in accordance with this Article 3 shall be made in accordance with Sections 1101 through Section 1108 of the - Subordinated Indenture.
(b) Upon giving not less than 30 nor more than 60 days' notice to the Holders of 6.20% ING Perpetual Debt Securities, and provided the Solvency Conditions are satisfied at the time of such notice and at the time of redemption, the 6.20% ING Perpetual Debt Securities may be redeemed in whole (but not in part) at the Base Redemption Price, at the option of the Company and without the consent of the Holders or the Trustee, as follows:
(i) on January 15, 2009, and thereafter on any Interest Payment Date;
(ii) upon the occurrence of a Tax Event, provided that the Company has already delivered to the Trustee, in a form satisfactory to the Trustee, a written legal opinion of independent Dutch counsel of recognized standing, selected by the Company, confirming that such Tax Event has occurred; or
(iii) upon the occurrence of a Regulatory Event.
(c) Cancellation of any 6.20% ING Perpetual Debt Securities redeemed by the Company pursuant to this Indenture will be effectuated by reducing the principal amount of the 6.20% ING Perpetual Debt Securities, and any 6.20% ING Perpetual Debt Securities so cancelled will be discharged. Any 6.20% ING Perpetual Debt Securities purchased by the Company may be held, reissued, resold or, at the Company's option, cancelled. Such cancellation shall be effectuated by decreasing in an equal amount the number of 6.20% ING Perpetual Debt Securities represented by the global security.
(d) In the event the Base Redemption Price in respect of any 6.20% ING
Perpetual Debt Securities is improperly withheld or refused and is not paid by
the Company, Interest on the 6.20% ING Perpetual Debt Securities will continue
to be payable and accrue in accordance with Section 2.04(d) hereof until the
date the Base Redemption Price is actually paid (the "DELAYED REDEMPTION PAYMENT
DATE"). Prior to the payment of any Base Redemption Price which previously has
been improperly withheld or refused, the Company shall inform the Trustee of the
proposed Delayed Redemption Payment Date and the Trustee shall, as soon as
practicable after receiving such notice, provide notice to the Company of the
amount of Accrued Interest Payments (together with Additional Interest) payable
in connection therewith. The Company shall then provide notice to the Paying
Agent, if different than the Trustee, and the Holders in accordance with Section
106 of the Subordinated Indenture of (i) the Delayed Redemption Payment Date,
(ii) the Special Record Date for the Delayed Redemption Payment Date and (iii)
the Accrued Interest Payments payable on such date, as calculated by the
Trustee.
SECTION 3.02. Optional Purchase. The Company may at any time, subject to satisfaction of the Solvency Conditions, purchase 6.20% ING Perpetual Debt Securities on the open market in any manner and at any price.
ARTICLE 4
ALTERNATIVE INTEREST SATISFACTION MECHANISM
SECTION 4.01. Conditions Precedent. Subject to the provisions of Article 5 of this Third Supplemental Indenture and Article 5 of the Subordinated Indenture and notwithstanding any other provision of this Indenture to the contrary, the Company's ability to use the Alternative Interest Satisfaction Mechanism to satisfy its Payment obligations with respect to the 6.20% ING Perpetual Debt Securities is subject to Section 4.04 and Section 4.05 hereof.
SECTION 4.02. Notices of Exercise of Alternative Interest Satisfaction Mechanism. The Company shall give notice to the Trustee, the Paying Agent, if different than the Trustee, the Calculation Agent and the Holders of the 6.20% ING Perpetual Debt Securities in accordance with Sections 105 and 106, as applicable, of the Subordinated Indenture and in accordance with the Calculation Agency Agreement at least 16 Business Days prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date, as applicable, of its election pursuant to Section 2.04 hereof, to pay all or part of a Deferred Interest Payment or to make any other Payment pursuant to the Alternative Interest Satisfaction Mechanism, subject to Section 4.03(b) below.
SECTION 4.03. Alternative Interest Satisfaction Mechanism.
(a) Unless otherwise expressly provided in this Indenture, the Company shall satisfy any Deferred Interest Payments in accordance with the Alternative Interest Satisfaction Mechanism.
(b) Subject to the satisfaction of the Solvency Conditions, the Company may, at its option, satisfy any Payment in accordance with the Alternative Interest Satisfaction Mechanism; provided, however, that at the time of such election the Company shall have sufficient authorized Ordinary Shares to issue such shares to satisfy such Payment in full.
(c) Subject to and in accordance with the terms of the Calculation Agency Agreement, under the "ALTERNATIVE INTEREST SATISFACTION MECHANISM":
(i) the Company shall give notice to the Trustee, the Paying
Agent, if different than the Trustee, the Calculation Agent and the
Holders of the 6.20% ING Perpetual Debt Securities as provided in
Section 4.02 hereof;
(ii) on or prior to the eleventh business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date, the Calculation Agent shall, pursuant to the Calculation Agency Agreement, calculate the number of Payment Ordinary Shares that have an aggregate market value (converted from euros into U.S. dollars) of not less than 110% of the relevant Payment and shall notify the Trustee and the Company accordingly of such number of Payment Ordinary Shares to be issued;
(iii) on or prior to the eleventh business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date, the Calculation Agent shall, pursuant to the Calculation Agency Agreement, calculate the number of Associated Cost Ordinary Shares required to be issued by the Company as, on sale, produce a net amount (converted, where necessary, into euros) of not less than the Associated Costs and shall notify the Trustee and the Company of such number of Associated Cost Ordinary Shares to be issued;
(iv) by the close of business on or before the seventh business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date, the Company shall notify the Calculation Agent that it has a sufficient number of Ordinary Shares and corporate authorization to issue such number of Payment Ordinary Shares and Associated Cost Ordinary Shares as shall have been notified to the Trustee and the Company by the Calculation Agent in accordance with Sections 4.03(c)(ii) and 4.03(c)(iii) above;
(v) the Calculation Agent will use reasonable efforts on normal market terms to procure purchasers for such Ordinary Shares as soon as reasonably practicable following receipt of the notice referred to in clause (iv) above, in accordance with the terms of the Calculation Agency Agreement, but no later than the fourth business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date;
(vi) one business day prior to the relevant Interest Payment Date or Deferred Interest Satisfaction Date, the Company will issue or transfer such Payment Ordinary Shares and Associated Cost Ordinary Shares in the open market as instructed by the Calculation Agent, and will collect any sales proceeds;
(vii) upon receipt of the sales proceeds, the Company shall immediately transfer the sales proceeds (or such amount of sales proceeds as is necessary to make the relevant Payment in full (after conversion from euros into U.S. dollars as necessary)) to the Trustee or its agent who shall convert any proceeds received in a currency other than U.S. dollars into U.S. dollars;
(viii) the Trustee will apply the sales proceeds received from the Company (as converted, if applicable) on the day the relevant Payment is due, towards the Payment to be satisfied;
(ix) if, following the procedures set forth in Sections
4.03(c)(i) to 4.03(c)(viii) above, there is a shortfall in the proceeds
necessary to satisfy the relevant Payment that is due or to pay the
Associated Costs, the Calculation Agent, pursuant to its obligations
under the Calculation Agency Agreement, shall promptly notify the
Trustee, the Paying Agent, if different than the Trustee, and the
Company, and the Calculation Agent, the Trustee, the Paying Agent and
the Company shall then take such steps as are reasonably necessary to
ensure, so far as practicable, that through issuing and selling
additional Payment Ordinary Shares or Associated Cost Ordinary Shares
in accordance with Sections 4.03(c)(i) to 4.03(c)(viii) above, proceeds
from the additional sales together with the proceeds referred to in
Section 4.03(c)(vi) above are at least equal to, respectively, the
relevant Payment and any Associated Costs, such that the Payment and
any Associated Costs may be satisfied in full on the relevant Interest
Payment Date or Deferred Interest Satisfaction Date; provided that for
such purpose, Sections 4.03(c)(i) to 4.03(c)(viii) above shall be
modified as follows:
(A) references therein to "Payment" shall be deemed to be references to the amount by which the aggregate sum then paid to the Trustee by the Company in respect of the relevant Payment pursuant to the provisions of this Section 4.03 is less than the full amount due (the "PAYMENT SHORTFALL");
(B) references therein to "Associated Costs" shall be deemed to be references to the aggregate of (a) the amount by which the sum received by the Company in respect of Associated Costs is less than the Associated Costs and (b) the Associated Costs determined in accordance with the Calculation Agency Agreement but by reference to the numbers of additional Ordinary Shares required to be issued in order to satisfy the Shortfall (such aggregate being the "COSTS SHORTFALL"); and
(C) all matters required to be done by a stated time shall be done as soon as practicable.
For the purposes of this Section 4.03(c)(ix), "Shortfall" means the aggregate of the Payment Shortfall and the Costs Shortfall;
(x) if the aggregate amounts paid to the Paying Agent are less than the amount necessary to satisfy any Payment, after the Trustee receives any Shortfall amounts it will pay such amounts to the Paying Agent for payment to the Holders;
(xi) if, despite these provisions, such a Shortfall still exists on the relevant Interest Payment Date or Deferred Interest Satisfaction Date, the Company may, in accordance with the provisions of this Indenture, either pay an amount equal to such Shortfall as soon as practicable to the Trustee or continue to issue Payment Ordinary Shares or Associated Cost Ordinary Shares, as the case may be, until the Trustee has received funds equal to the full amount of such Shortfall. The Company shall be obligated to issue additional Ordinary Shares to cover any Shortfall unless it satisfies the Shortfall by making a direct payment to the Trustee; and
(xii) if, pursuant to the Alternative Interest Satisfaction Mechanism, proceeds are raised in excess of the amount required to pay the applicable Payments plus the Associated Costs in connection with using the Alternative Interest Satisfaction Mechanism, any remaining proceeds shall be retained by the Company.
SECTION 4.04. Insufficient Payment Ordinary Shares. (a) (i) If the Company is to satisfy a Payment pursuant to the Alternative Interest Satisfaction Mechanism and it does not, on the date when the number of Payment Ordinary Shares required to be issued is determined, have a sufficient number of Ordinary Shares available for issue, it shall notify the Trustee, the Calculation Agent and the Holders that all or part, as the case may be, of the relevant Payment cannot be satisfied due to an insufficient number of authorized Ordinary Shares.
(ii) Upon the occurrence of the circumstances contemplated in
Section 4.04(a)(i), the Payment or part thereof shall be satisfied
following the date of the Company's next annual general meeting or
extraordinary general meeting of its shareholders at which a resolution
is passed authorizing a sufficient number of Ordinary Shares to be made
available to satisfy all or such part of the relevant Payment.
(iii) However, if the number of Ordinary Shares authorized to be issued at any such meeting contemplated in Section 4.04(a)(ii) above is insufficient to satisfy all or such part of the relevant Payment, then those Ordinary Shares so issued will be applied by the Company in partial satisfaction of all or such part of the Relevant Payment.
(b) Following the passage of a resolution which authorizes the Company to issue additional Ordinary Shares for this purpose:
(i) the Company shall give notice to the Trustee at least 16 Business Days prior to the date upon which the relevant Payment or, as the case may be, the part thereof is to be made and the Trustee shall provide notice to the Company and the Calculation Agent of the amount of the Accrued Interest Payments (together with Additional Interest), if any, payable in connection with such Payment; and
(ii) the Company shall provide at least 16 Business Days notice in accordance with Section 106 of the Subordinated Indenture to the Calculation Agent and the Holders of the date upon which the relevant Payment or, as the case may be, the part thereof is to be made, which notice shall include the amount of the Accrued Interest Payments (together with Additional Interest), if any, payable in connection with such Payment, as calculated by the Trustee.
(c) The relevant Payment or, as the case may be, the part thereof which is not so satisfied will, unless it is a Required Deferred Interest Payment and has not been subsequently either satisfied or deferred pursuant to an Elective Deferral Interest Payment, will continue to accrue Interest at the Deferral Interest Rate from (and including) the date on which Payment would otherwise have been due to (but excluding) the date on which such Payment or part thereof is satisfied or, in the event of a Market Disruption Event, the date on which such payment or part thereof, would, but for the occurrence of such Market Disruption Event, have been satisfied (from which date Interest (if any) will accrue on such Payment as provided below).
(d) If the Company does not have a sufficient number of Ordinary Shares and does not hold an annual general meeting within six months of giving the notice set forth in Section 4.03(c)(i) above, at which a resolution to make a sufficient number of Ordinary Shares available is proposed, the Trustee will by notice require the Company to convene an extraordinary general meeting at which such a resolution will be proposed on a date falling within 10 weeks of such notice from the Trustee.
(e) In the event that a resolution to make a sufficient number of Ordinary Shares available is proposed at any such annual general meeting or extraordinary general meeting is rejected, the resolution will be proposed at each general annual meeting or any extraordinary general meeting thereafter until such time as the resolution has been passed by the Company's shareholders.
SECTION 4.05. Market Disruption Event. (a) If a Market Disruption Event exists on or after the 15th Business Day preceding any date upon which a Payment or part thereof is due to be made or satisfied pursuant to the Alternative Interest
Satisfaction Mechanism, the Company may give notice to the Trustee, the Paying Agent, the Calculation Agent and the Holders as soon as possible after the Market Disruption Event has arisen or occurred, whereupon the relevant Payment will be deferred until such time as, in the opinion of the Company, the Market Disruption Event no longer exists.
(b) Any such deferred Payment or part thereof will be satisfied as soon as practicable after the Market Disruption Event no longer exists. The Company shall notify the Trustee of the date on which such deferred Payment or part thereof will be satisfied and the Trustee shall provide notice to the Company and the Calculation Agent of the amount of the Accrued Interest Payments (together with Additional Interest), if any, payable in connection with such deferred Payment. The Company shall then notify the Paying Agent, the Calculation Agent and the Holders in accordance with Section 106 of the Subordinated Indenture of the date on which such deferred Payment or part thereof will be satisfied and the amount of the Accrued Interest Payments (together with Additional Interest), if any, payable in connection with such deferred Payment, as calculated by the Trustee.
(c) Interest will not accrue on any deferred Payment or part thereof during a Market Disruption Event; provided, however, that if the Company does not make a relevant payment or part thereof for a period of 14 days or more after its due date, even if the Market Disruption Event is continuing, such deferred Payments or part thereof will accrue Interest from (and including) the date on which the relevant Payment or part thereof was due to be made to (but excluding) the date on which such Payment or part thereof is made. Any such Interest shall accrue at the Fixed Interest Rate and shall be satisfied only in accordance with the Alternative Interest Satisfaction Mechanism and as soon as reasonably practicable after the relevant deferred Payment is made. No liability shall attach to the Trustee or its agents if, as a result of a Market Disruption Event or any other event outside the control of the Trustee or any such agent, the Trustee or any such agent is unable to comply with its duties in connection with any payment made pursuant to the Alternative Interest Satisfaction Mechanism.
ARTICLE 5
REMEDIES
SECTION 5.01. Defaults; Collection of Indebtedness and Suits for Enforcement by Trustee.
(a) "PAYMENT DEFAULT", wherever used herein with respect to the 6.20% ING Perpetual Debt Securities, means solely the following event (regardless of the
reason for such Payment Default and whether it is voluntary, involuntary or is effected by operation of law pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
The Company fails to pay or set aside for payment the amount due to satisfy any Payment on the 6.20% ING Perpetual Debt Securities when due, and such failure continues for 14 days; provided, however, that if the Company fails to make any Mandatory Interest Payment as a result of failure to satisfy the Solvency Conditions, or due to a deferral of an Interest Payment as permitted under the terms of this Indenture, that payment will constitute an Outstanding Payment and will accumulate with any other Outstanding Payments until paid, but will not constitute a Payment Default.
(b) If a Payment Default occurs and is continuing, the Trustee may pursue all legal remedies available to it, including commencing a judicial proceeding for the collection of the sums so due and unpaid or a bankruptcy proceeding in The Netherlands (but not elsewhere) of the Company, but the Trustee may not declare the principal amount of any outstanding 6.20% ING Perpetual Debt Securities to be due and payable. If the Company fails to make payment and the Solvency Conditions are not satisfied at the end of the 14-day period set forth in Section 5.01(a) hereof, such failure does not constitute a Payment Default but instead constitutes a "PAYMENT EVENT". On a Payment Event, the Trustee may institute bankruptcy proceedings against the Company exclusively in The Netherlands, but may not pursue any other legal remedy, including a judicial proceeding for the collection of the sums due and unpaid.
(c) Notwithstanding the foregoing, Holders of the 6.20% ING Perpetual Debt Securities have the absolute and unconditional right to institute suit for the enforcement of any payment when due and such right may not be impaired without the consent of the Holder as provided in Section 508 of the Subordinated Indenture. In addition, to the extent the Trustee is not permitted to pursue the remedies provided for in clause 5.01(b) above as a matter of Dutch law, the Holders of the 6.20% ING Perpetual Debt Securities may pursue such remedies in accordance with the terms of the Subordinated Indenture.
(d) Without prejudice to Section 5.04 and Section 5.05 of the Subordinated Indenture, the Trustee is and shall be fully authorized by each and any holder of record of a 6.20% ING Perpetual Debt Security to commence proceedings in The Netherlands in accordance with Section 5.01(a) and 5.01(b) above, in the name and on behalf of such holder, as if the Trustee were such holder of record, with a view to having the Company declared bankrupt in The Netherlands.
(e) The provisions of this Section 5.01 replace Sections 501, 502 and 503 of the Subordinated Indenture in their entirety which is hereby amended and restated in its entirety by this Section 5.01.
ARTICLE 6
COVENANTS OF THE ISSUER
SECTION 6.01. Dividend Restrictions for Deferred Interest Payments. From the date the Company delivers a Deferral Notice until any Deferred Interest Payment is paid in full on the 6.20% ING Perpetual Debt Securities, the Company agrees that it will not recommend to its shareholders, and to the fullest extent permitted by applicable law will otherwise act to prevent, any action that would constitute a Mandatory Payment Event or Mandatory Partial Payment Event.
SECTION 6.02. Calculation Agent. (a) For so long as any 6.20% ING Perpetual Debt Securities remain outstanding, there shall at all times be a Calculation Agent hereunder. The current Calculation Agent is set forth in Article 1 hereof. If the Calculation Agent is unable or unwilling to act as such, or if it fails to make a determination, calculation or otherwise fails to perform its duties under the Indenture or the Calculation Agency Agreement, the Company shall appoint an independent investment bank acceptable to the Trustee to act as such in its place. Neither the termination of the appointment of the Calculation Agent nor the resignation of the Calculation Agent will be effective without a successor having been appointed.
(b) All calculations and determinations made by the Calculation Agent with respect to the 6.20% ING Perpetual Debt Securities (absent manifest error) are final and binding on the Company, the Trustee, the Paying Agent and the Holders.
(c) Neither the Company nor the Trustee have any responsibility to anyone for any errors or omissions in any calculation by the Calculation Agent.
SECTION 6.03. Mandatory Interest Payments. Subject to satisfaction of the Solvency Conditions, the Company agrees that it will not defer any Payment on the 6.20% ING Perpetual Debt Securities on the Interest Payment Date falling on a Mandatory Interest Payment Date.
SECTION 6.04. Deferral of Certain Payments. The Company agrees that if Payments stated to be payable on any date have not been made on the Company's preference shares or any other Parity Securities, then it will defer Payments on the
6.20% ING Perpetual Debt Securities payable on such date, unless a Mandatory Interest Payment is due.
SECTION 6.05. Sufficiency of Ordinary Shares.
(a) The Company represents and warrants that at the date of this Third Supplemental Indenture, the Company has a sufficient number of authorized but unissued Ordinary Shares necessary, and, subject to the approval of the Company's Supervisory Board, the Company's Executive Board has the necessary authority to make, during the next 12-month period, (i) the Interest Payments required to be made on the 6.20% ING Perpetual Debt Securities and (ii) the interest payments required to be made on the Parity Perpetual Securities (each, a "PARITY INTEREST PAYMENT"), assuming the Alternative Interest Satisfaction Mechanism or, in the case of the Parity Perpetual Securities, any similar mechanism by which Parity Interest Payments may be satisfied pursuant to a sale of the Company's Ordinary Shares, is used for each Interest Payment and Parity Interest Payment during such 12-month period.
(b) The Company agrees to keep available for issue a sufficient number of authorized but unissued Ordinary Shares as it reasonably considers would be required to be issued as Payment Ordinary Shares in connection with the next four Interest Payments. Should the Company fail to comply with this condition, no damages shall be payable in connection with such failure. The Trustee may require that the Company, as soon as practicable, hold an extraordinary general meeting of its shareholders at which a resolution will be passed to remedy such failure as provided in Section 4.04(d) hereof.
(c) The Trustee is not obligated to monitor whether the Company has a sufficient number of unissued Ordinary Shares available for issuance as Payment Ordinary Shares and the Trustee is entitled to assume, unless it has actual knowledge to the contrary, that the Company is complying with its obligations to do so.
SECTION 6.06. Ranking. The Company agrees that, for so long as any 6.20% ING Perpetual Debt Securities remain outstanding, it will not issue any preference shares (or other securities which are akin to preference shares as regards distributions on a return of Assets or upon a liquidation, moratorium of payments or bankruptcy of the Company or in respect of distributions or payments of dividends and/or any other amounts thereunder by the Company) or give any guarantee or contractual support arrangement in respect of any of its preference shares or such other securities or in respect of any other entity if such preference shares, preferred securities, guarantees or contractual support arrangements would rank (as regards distributions on a return of Assets or on a liquidation, moratorium of payments or bankruptcy of the Company or in respect of distributions of
payments of dividends and/or any other amounts thereunder by the Company) senior to the 6.20% ING Perpetual Debt Securities, unless the Company amends the terms of the 6.20% ING Perpetual Debt Securities such that the 6.20% ING Perpetual Debt Securities rank pari passu effectively from a financial point of view with any such preference shares, such other securities akin to preference shares or such guarantee or support undertaking.
SECTION 6.07. Payment of Proceeds from Sale of Payment Ordinary Shares and Associated Cost Ordinary Shares. The Company agrees that immediately on receipt of the proceeds of the sale of Payment Ordinary Shares or Associated Cost Ordinary Shares in connection with the Alternative Interest Satisfaction Mechanism, it shall (a) pay proceeds from the sale of Payment Ordinary Shares to the Trustee (or any Paying Agent), either in Euros or converted into U.S. dollars, in such amount as shall enable the Trustee to make the relevant Payment in full on the relevant Interest Payment Date or Deferred Interest Satisfaction Date, and (b) pay proceeds from the sale of Associated Cost Ordinary Shares in Payment of all Associated Costs.
SECTION 6.08. Listing. The Company will use reasonable efforts to maintain the listing of the 6.20% ING Perpetual Debt Securities on the stock exchange on which they were listed on or about the Issue Date or, if it is unable to do so having used such efforts or if the maintenance of any such listing is agreed by the Trustee to be unduly burdensome, use all reasonable efforts to obtain and maintain a quotation or listing of such 6.20% ING Perpetual Debt Securities on such other stock exchange or exchanges or securities market or markets as the Company may (with the prior written approval of the Trustee) decide so that the 6.20% ING Perpetual Debt Securities are listed on at least one stock exchange or securities market. The Company will also use its best efforts to furnish to any stock exchange(s) or securities market(s) such information as such stock exchange(s) or securities market(s) may require to be furnished in accordance with its requirements.
SECTION 6.09. Calculation Agency Agreement. The Company shall comply with and perform all its obligations under the Calculation Agency Agreement and use its reasonable efforts to procure that the Calculation Agent complies with and performs all of its respective obligations under the Calculation Agency Agreement and not make any amendment or modification to such agreement without the prior written approval of the Trustee.
SECTION 6.10. Officer's Certificate on Deferral. If the Company elects or is obliged to defer any Payment in accordance with Section 2.04 hereof, it shall deliver to the Trustee, no later than the sixteenth business day prior to the relevant Interest Payment Date, an Officer's Certificate, certifying that the Required Deferral Condition was met on the 20th Business Day prior to the relevant Interest
Payment Date and if the Company shall elect to satisfy a Deferred Interest Payment on an earlier date than the Interest Payment Date following that on which the Required Deferral Condition fails to be met, deliver to the Trustee not later than the sixteenth Business Day prior to making such payment an Officer's Certificate certifying that the Required Deferral Condition was no longer, on a date no more than 16 Business Days prior to the delivery of such certificate, met.
SECTION 6.11. Officer's Certificate for Market Disruption Event. If, in the opinion of the Company, there exists a Market Disruption Event as a consequence of which a Payment may be deferred under Section 4.05 hereof, it shall deliver to the Trustee within two Business Days of such Market Disruption Event having arisen or the Company having become aware of the same, an Officer's Certificate specifying the details of such Market Disruption Event.
ARTICLE 7
SUBORDINATION
SECTION 7.01. Agreement to Subordinate. (a) The Company covenants and
agrees, and each Holder of 6.20% ING Perpetual Debt Securities issued hereunder,
by such Holder's acceptance thereof, likewise covenants and agrees, that the
6.20% ING Perpetual Debt Securities issued hereunder (i)(A) shall rank pari
passu with respect to each other, (B) shall be similarly subordinated as, and
accordingly rank pari passu with, the Trust Preferred Securities Guarantees and
(C) shall rank pari passu with other Parity Guarantees, the Parity Perpetual
Securities and other debt obligations expressed to be similarly subordinated as
and, accordingly, ranking pari passu with, the 6.20% ING Perpetual Debt
Securities, such other Parity Guarantees and the Parity Perpetual Securities,
and (ii) are and will be subordinated ("achtergesteld"), and accordingly be
subject in right of payment to prior payment in full upon liquidation,
moratorium of payments or bankruptcy of the Company, of all Senior Debt.
(b) The Company further covenants and agrees, and each Holder of 6.20% ING Perpetual Debt Securities issued hereunder, by such Holder's acceptance thereof, likewise covenants and agrees, that the rights regarding payments and the issuance of Ordinary Shares in accordance with the Alternative Interest Satisfaction Mechanism will be subject to the Solvency Conditions. In the event of liquidation, moratorium of payments or bankruptcy of the Company, the Payments payable on the 6.20% ING Perpetual Debt Securities shall be an amount equal to the lesser of (i) the aggregate amount of Payments pursuant to the terms and conditions of the 6.20% ING Perpetual Debt Securities without giving effect to this Section 7.01(b) and (ii) an amount equal to (A) the remaining assets of the Company after satisfaction of all claims which, as a matter of law, are prior to those of holders of 6.20% ING Perpetual Debt Securities or any Parity Security,
Parity Guarantee or any similarly subordinated debt multiplied by (B) a fraction, (x) the numerator of which is the aggregate amount of Payments due on the 6.20% ING Perpetual Debt Securities pursuant to the terms and conditions thereof without giving effect to this Section 7.01(b) and (y) the denominator of which is the sum (without duplication) of the aggregate amount of all claims under the 6.20% ING Perpetual Debt Securities, the aggregate liquidation preference of, and aggregate amount of all claims under, any outstanding Parity Securities and Parity Guarantees and similarly subordinated debt obligations with a formula or arrangement substantially similar to this Section 7.01(b), without application of this Section 7.01(b) and the corresponding similar formula or arrangement.
SECTION 7.02. Section 1401 of the Subordinated Indenture. The
provisions of Section 7.01 hereof replace in their entirety Section 1401 of the
Subordinated Indenture which is hereby amended and restated in its entirety by
Section 7.01 hereof. In addition Section 1402 through Section 1414 of Article
Fourteen of the Subordinated Indenture is hereby amended by replacing the term
"Senior Debt" as used in such sections with the term "Senior Debt" as defined in
this Third Supplemental Indenture.
ARTICLE 8
FORM OF 6.20% ING PERPETUAL DEBT SECURITIES
SECTION 8.01. Form of 6.20% ING Perpetual Debt Securities. The 6.20% ING Perpetual Debt Securities shall be substantially in the form of Exhibit A hereto. Exhibit A hereto is hereby incorporated into and expressly made a part of this Third Supplemental Indenture.
ARTICLE 9
ORIGINAL ISSUE OF 6.20% ING PERPETUAL DEBT SECURITIES
SECTION 9.01. Original Issue of 6.20% ING Perpetual Debt Securities.
6.20% ING Perpetual Debt Securities in the initial aggregate principal amount of
$500,000,000 may, upon execution of this Third Supplemental Indenture, be
executed by the Company and delivered to the Trustee for authentication, and the
Trustee shall thereupon authenticate and deliver such 6.20% ING Perpetual Debt
Securities to or upon the written order of the Company, in accordance with
Section 303 of the Subordinated Indenture.
There is no limit on the amount of 6.20% ING Perpetual Debt Securities which may be issued subsequent to this Third Supplemental Indenture.
ARTICLE 10
WINDING UP
SECTION 10.01. Winding Up. If any action causes the Company's liquidation (except solely for the purpose of the Company's reconstruction, amalgamation or the substitution of a successor in business for the Company, the terms of which have previously been approved in writing by the Trustee or by not less than a majority of the Holders) the Company will pay with respect to each 6.20% ING Perpetual Debt Security (in lieu of any other payment) an amount that would have been payable in respect of the 6.20% ING Perpetual Debt Securities if, on and after the day immediately before the winding up began, any Holder of those 6.20% ING Perpetual Debt Securities had been the holder of the Company's most senior class of preference shares (the "NOTIONAL PREFERENCE SHARES") which have a preferential right to a return of Assets upon liquidation over and so rank ahead of the holders of all other classes of the Company's issued shares for the time being in the Company's capital, but ranking junior to Senior Debt claims. Any such payment shall be made on the assumption that the amount that such Holder was entitled to receive in respect of each Notional Preference Share on a return of Assets upon such liquidation was an amount equal to the principal amount of $25.00 of the relevant 6.20% ING Perpetual Debt Security and any other Outstanding Payments together with, and to the extent not otherwise included within the foregoing, the pro rata share of any Winding-Up Claims attributable to the 6.20% ING Perpetual Debt Security.
ARTICLE 11
SATISFACTION AND DISCHARGE
SECTION 11.01. Satisfaction and Discharge. The Company covenants and agrees, and each Holder of 6.20% ING Perpetual Debt Securities issued hereunder, by such Holder's acceptance thereof, likewise covenants and agrees, that all 6.20% ING Perpetual Debt Securities shall be issued as Securities subject to the provisions of Article 4 of the Subordinated Indenture.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Issuance of Definitive Securities. (a) So long as DTC holds the global 6.20% ING Perpetual Debt Securities, the global securities will not be exchangeable for definitive securities unless: (i) DTC notifies the Trustee that it is unwilling or unable to continue to hold the book-entry 6.20% ING Perpetual Debt Securities or DTC ceases to be a clearing agency registered under the Exchange Act and the Trustee does not appoint a successor to DTC which is registered under the Exchange Act within 120 days; (ii) a Payment Default has occurred and is continuing; (iii) a Payment Event has occurred; (iv) in the event of the Company's winding up it fails to make a payment on the 6.20% ING Perpetual Debt Securities when due; or (v) at any time following a determination by the Company in its sole discretion that the global securities of a particular series should be exchanged for definitive debt securities of that series in registered form.
(b) Each person having an ownership or other interest in 6.20% ING Perpetual Debt Securities must rely exclusively on the rules and procedures of DTC, Euroclear or Clearstream, Luxembourg, as the case may be, or any other securities intermediary through which that person holds its interest to receive or direct the delivery of possession of any definitive security.
(c) Any definitive securities will be issued in registered form only in denominations of $25.00 and any integral multiples thereof and shall be substantially in the form of the global security included as Exhibit A hereto with such insertions, omissions, substitutions and other variations as appropriate for definitive securities as evidenced by the execution of such securities. To the extent permitted by law, the Company and the Trustee are entitled to treat the person in whose name any definitive security is registered as its absolute owner.
(d) Payments in respect of each series of definitive securities will be made to the person in whose name the definitive securities are registered as it appears in the register for that series. Payments will be made in respect of the 6.20% ING Perpetual Debt Securities by check drawn on a bank in New York or, if the Holder requests, by transfer to the Holder's account in New York. Definitive securities must be presented to the Paying Agent for redemption.
(e) If the Company issues definitive securities in exchange for global 6.20% ING Perpetual Debt Securities, DTC, as holder of the global 6.20% ING Perpetual Debt Securities, will surrender it against receipt of the definitive securities, cancel the book-entry securities of that series and distribute the definitive securities of that series to the person in the amounts that DTC specifies.
(f) If definitive securities are issued in the limited circumstances as set forth above, such securities may be transferred in whole or in part in
denominations of any whole number of securities upon surrender of the definitive securities certificates together with the form of transfer endorsed on it, duly completed and executed at the specified office of the trustee. If only part of a securities certificate is transferred, a new securities certificate representing the balance not transferred will be issued to the transferor.
SECTION 12.02. Ratification of Subordinated Indenture; Third Supplemental Indenture Controls. The Subordinated Indenture, as supplemented by this Third Supplemental Indenture, is in all respects ratified and confirmed. This Third Supplemental Indenture shall be deemed part of the Subordinated Indenture in the manner and to the extent herein and therein provided. The provisions of this Third Supplemental Indenture shall supersede the provisions of the Subordinated Indenture to the extent the Subordinated Indenture is inconsistent herewith.
SECTION 12.03. Trustee Not Responsible for Recitals. The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the accuracy thereof. The Trustee makes no representation as to the validity or sufficiency of this Third Supplemental Indenture or the 6.20% ING Perpetual Debt Securities. The Trustee shall not be accountable for the use or application by the Company of the 6.20% ING Perpetual Debt Securities or the proceeds thereof.
SECTION 12.04. Governing Law. This Third Supplemental Indenture and each 6.20% ING Perpetual Debt Security shall be governed by and construed in accordance with the laws of the State of New York, except for Article 7, which shall be governed by and construed in accordance with the laws of The Netherlands.
SECTION 12.05. Severability. If any provision in the Subordinated Indenture, this Third Supplemental Indenture or in the 6.20% ING Perpetual Debt Securities is determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.06. Counterparts. The parties may sign any number of copies of this Third Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Any signed copy shall be sufficient proof of this Third Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed as of the day and year first above written.
ING GROEP N.V.
as Issuer
By: /s/ J.V. TIMMERMANS ----------------------------------------- Name: J.V. Timmermans Title: Authorized Officer By: /s/ J.D. WOLVIUS ----------------------------------------- Name: J.D. Wolvius Title: Authorized Officer |
THE BANK OF NEW YORK, as Trustee and Paying Agent
By: /s/ LUIS PEREZ ----------------------------------------- Name: Luis Perez Title: Assistant Vice President |
EXHIBIT A
FORM OF 6.20% ING Perpetual Debt Security
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
The rights of the Holders of the Securities are, to the extent and in the manner set forth in Section 1401 of the Subordinated Indenture and Article 7 of the Third Supplemental Indenture, subordinated to Senior Debt, and this Security is issued subject to the provisions of Article 14 of the Subordinated Indenture and Article 7 of the Third Supplemental Indenture, and the Holder of this Security, by accepting the same, agrees to and shall be bound by such provisions. The terms of this paragraph are governed by, and shall be construed in accordance with, the laws of The Netherlands.
ING Groep N.V.
6.20% ING PERPETUAL DEBT SECURITIES (THE "SECURITIES")
No. 1
CUSIP No.: 456837 40 0 $500,000,000
ISIN No.: US4568374007
COMMON CODE: 017924826
ING Groep N.V., a holding company duly organized and existing under the laws of The Netherlands, having its corporate seat in Amsterdam, The Netherlands (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or registered assigns, the principal sum of Five Hundred Million Dollars ($500,000,000) (but only at such times as set forth in the Indenture with respect to Optional Redemption and Redemption Upon Certain Events in Article 3 of the Third Supplemental Indenture) and to pay interest thereon from October 28, 2003 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, quarterly in arrears on January 15, April 15, July 15 and October 15 in each year, commencing on January 15, 2004, and at such other times as are set forth in the Indenture at the rate of 6.20% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 1, April 1, July 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. If interest is required to be calculated for
any period less than a year, it will be calculated based on a 360-day year consisting of twelve 30-day months. If any Interest Payment Date would otherwise fall on a day that is not a Business Day, it shall be postponed to the next day which is a Business Day (without any interest or other payment in respect of the delay).
Subject to the immediately following paragraph, if applicable, any Payment on this Security which is payable, and is paid or duly provided for, on any Interest Payment Date or on any date on which the Company makes any Payment (including any payment of Additional Amounts in accordance with Section 1006 of the Subordinated Indenture) shall be paid in U.S. dollars to the registered Holder, including through a Paying Agent by wire-transfer of same-day funds to the Holder or, at the option of the Company, by check mailed to the address of the Holder as it appears in the Company's Security Register. For so long as this Security is held in global form, all payments shall be made in U.S. dollars by wire-transfer of same-day funds.
The Company shall under certain circumstances, and in accordance with the Indenture, defer payments of interest on this Security. Any interest on this Security which is not paid or duly provided for on any applicable Interest Payment Date, together with any other payments in respect of this Security not paid on any date on which such Payment has become due and payable or would have become due and payable except that payment is not made as permitted by the Indenture, so long as the same remains unpaid, shall constitute "Outstanding Payments." Outstanding Payments will accumulate until paid. Outstanding Payments on this Security, when paid, as provided subject to the conditions in the Indenture, will be paid on the Deferred Interest Satisfaction Date to the Holder in whose name this Security is registered at the close of business on a Special Record Date for the Payment due on such Deferred Interest Satisfaction Date to be fixed by the Trustee, notice of which shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid in any other lawful manner not inconsistent with the requirements of any securities exchange on which this Security may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture.
Outstanding Payments, other than Accrued Interest Payments, shall not bear interest. Accrued Interest Payments will accrue interest at the Fixed Interest Rate. The amount of interest so accrued in respect of any Accrued Interest Payments will be satisfied as and when the Outstanding Payments are satisfied in accordance herewith. The amount of additional interest payable with respect to any Accrued Interest Payments will be calculated by the Trustee in accordance with the provisions of the Indenture.
Except in the case of a Mandatory Payment Event or a Mandatory Partial Payment Event, the Company may satisfy any Elective Deferral Interest Payment at any time on not less than 16 Business Days' notice to the Trustee, the Calculation Agent and Holders in accordance with the Indenture, and any Required Deferral Interest Payment shall be satisfied on the relevant Deferred Interest Satisfaction Date, by giving not less than 16 Business Days' notice to the Trustee, the Calculation Agent and Holders, if the Required Deferral Condition is no longer met on the 20th Business Day preceding any subsequent Interest Payment Date, provided that the Company has not previously paid
such amount and does not validly elect to defer such payment as an Elective Deferral Interest Payment.
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.
Groep N.V.
y:______________________________________________________________________________ Name:
Title:
y:______________________________________________________________________________ Name:
Title:
Attest:
..............................
This is one of the Securities of the series designated herein and referred to in the Indenture.
Dated: October 28, 2003
The Bank of New York, As Trustee
By..............................
Authorized Signatory
[Reverse of Security]
This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under a Subordinated Debt Indenture, dated as of July 18, 2002 (herein called the "Subordinated Indenture"), and a Third Supplemental Indenture, dated as of October 28, 2003 (herein called the "Third Supplemental Indenture" and together with the Subordinated Indenture, the "Indenture"), between the Company and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the terms of the Securities and the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee, the holders of Senior Debt and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities are subject to all such terms. This Security is one of the series designated on the face hereof and there is no limitation on the amount of Securities of such series which may be issued.
Except in a bankruptcy, all payments on this Security will be conditional upon not triggering the Required Deferral Condition. The "Required Deferral Condition" will be met if the Company determines that the Solvency Conditions (i) are not satisfied on the Relevant Date, or (ii) will not be satisfied following the relevant Payment. The "Solvency Conditions" are satisfied where (i) the Company is able to make payments on its Senior Debt as such payments become due, and (ii) the Company's Assets exceed the sum of its Liabilities (excluding Liabilities not considered Senior Debt). The amount payable in respect of the principal of this Security will be determined in accordance with the provisions of Article 14 of the Subordinated Indenture and Articles 7 and 10 of the Third Supplemental Indenture.
The Securities will constitute direct, unsecured subordinated obligations of the Company, subject to the Solvency Conditions, and the subordination provisions described herein and in the Indenture, and will rank pari passu without any preference among themselves.
If the Company fails to pay or set aside for payment the amount due to satisfy any Payment on the Securities when due and such failure continues for 14 days, it will constitute a "Payment Default" ( provided, however, that if the Company fails to make any Mandatory Interest Payment as a result of failure to satisfy the Solvency Conditions, or due to a deferral of an Interest Payment as permitted under the terms of the Indenture, that payment will constitute an Outstanding Payment and will accumulate with any other Outstanding Payments until paid, but will not constitute a Payment Default). If any Payment Default occurs and is continuing, the Trustee may pursue all legal remedies available to it, including commencing a judicial proceeding for the collection of the sums due and unpaid or a bankruptcy proceeding in The Netherlands (but not elsewhere) of the Company, but the Trustee may not declare the principal amount of any outstanding Securities to be due and payable. If the Company fails to make payment when due, and such failure continues for 14 days, and the Solvency Conditions are not satisfied at the end of such 14-day period, such failure does not constitute a Payment Default but instead constitutes a "Payment Event." On a Payment
Event, the Trustee may institute bankruptcy proceedings exclusively in The Netherlands, but may not pursue any other legal remedy, including a judicial proceeding for the collection of the sums due and unpaid. To the extent the Trustee is not permitted to pursue the remedies provided for herein as a matter of Dutch law, the Holders of the Securities may pursue such remedies in accordance with the terms of the Subordinated Indenture. Notwithstanding the foregoing, Holders of this Security have the absolute and unconditional right to institute suit for the enforcement of any payment when due and such right may not be impaired without the consent of the Holder as provided in Section 508 of the Subordinated Indenture.
Payments under the Securities will be made without withholding or deduction for or on account of any present or future tax, duty, assessment or governmental charge imposed by the government of The Netherlands upon or as a result of such payments, or the government of a jurisdiction in which a successor to the Company is organized (or any political subdivision or taxing authority thereof or therein) (a "Relevant Jurisdiction") ("Taxes"), unless required by law. To the extent any such Taxes are so levied or imposed, the Company will, subject to the exceptions and limitations set forth in Section 1006 of the Indenture, pay such additional amounts ("Additional Amounts") to the Holder of any Security who is not a resident of a Relevant Jurisdiction as may be necessary in order that the net payment of the principal of and interest on such Security and any other amounts payable on such Security, after withholding for or on account of such Taxes imposed upon or as a result of such payment, will not be less than the amount provided for in such Security to be then due and payable.
Except as provided below, the Securities are not redeemable at the option of the Company prior to January 15, 2009.
The Securities may be redeemed in whole (but not in part), at
the option of the Company and without the consent of the Holders or the Trustee,
at a redemption price equal to their aggregate principal amount, together with
any Outstanding Payments accrued to and including the date fixed for redemption,
subject to the Solvency Condition: (i) on January 15, 2009, or any Interest
Payment Date thereafter; (ii) upon the occurrence of a Tax Event, provided that
the Company has already delivered to the Trustee a written legal opinion in a
form satisfactory to the Trustee of independent Dutch counsel of recognized
standing, selected by the Company, confirming that a Tax Event has occurred; or
(iii) upon the occurrence of a Regulatory Event.
The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Debt, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (i) agrees to and shall be bound by such provisions; (ii) authorizes and directs the Trustee on his or her behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided; and (iii) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or her acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Debt, whether now outstanding or hereafter created,
incurred, assumed or guaranteed, and waives reliance by each such holder upon said provisions.
References herein to principal, interest amounts, Accrued Interest Payments, Payments or Outstanding Payments on the Securities shall be deemed also to refer to any Additional Amounts which may be payable under the foregoing provisions.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities of
each series to be affected under the Indenture at any time by the Company and
the Trustee with the consent of the Holders of a majority in principal amount of
the Securities at the time Outstanding of all series to be affected (considered
together as one class for this purpose). The Indenture also contains provisions
(i) permitting the Holders of a majority in principal amount of the Securities
of each series at the time outstanding, on behalf of the Holders of all
Securities of such series, to waive compliance by the Company with certain
provisions of the Indenture and (ii) permitting the Holders of a majority in
principal amount of the Securities at the time outstanding of any series to be
affected under the Indenture (with each such series considered separately for
this purpose), on behalf of the Holders of all Securities of such series, to
waive certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $25.00 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series shall be represented by a Global Security and are not exchangeable for definitive Securities of this series except in specific circumstances set forth in the Indenture.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
This Security is a Global Security and is subject to the provisions of the Indenture relating to Global Securities, including the limitations in Section 305 thereof on transfers and exchanges of Global Securities.
This Security and the Indenture shall be governed by and construed in accordance with the laws of the State of New York except for the subordination provisions contained herein and in the Indenture, which shall be governed by and construed in accordance with the laws of The Netherlands.
All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
.
.
.
EXHIBIT 7
RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS
2000 and 2001 restated X 1 MILLION EURO
YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 ------ ------ ------ ------ ------ ----- Total interest expense from the banking operations 13,448 12,906 18,499 18,246 16,442 15,687 (3.1.3.) Other interest expenses 571 556 757 1,270 1,288 1,124 (3.2.2.) Interest credited on investment contracts and universal life-type contracts (FAS 97) 1,066 6,343 1,494 3,105 ------ ------ ------ ------ ------ ------ Total interest expense 14,019 13,462 20,322 25,859 19,224 19,916 Capitalized interest during construction 11 6 5 10 10 5 TOTAL CHARGES 14,030 13,468 20,327 25,869 19,234 19,921 Dividend in preference shares 21 21 21 21 21 21 Dividend in preference shares - TIER1 capital - 19 54 216 199 166 TOTAL CHARGES INCLUSIVE DIVIDEND IN PREFERENCE SHARES 14,051 13,508 20,402 26,106 19,454 20,108 Pre tax profit 3,504 6,074 13,969 6,066 5,921 5,877 Total interest expense 14,019 13,462 20,322 25,859 19,224 19,916 Losses from investments accounted under the equity method - - (1) (3) (7) (4) TOTAL 17,523 19,536 34,290 31,922 25,138 25,789 Earnings to Fixed Charges: Including Interest on Deposits 1.25 1.45 1.69 1.23 1.31 1.29 Earnings to Combined Fixed Charges and Preferred Stock Dividend: Including Interest on Deposits 1.25 1.45 1.68 1.22 1.29 1.28 |
EXHIBIT 8
THE FOLLOWING TABLE SETS FORTH OUR PRINCIPAL GROUP COMPANIES:
UNLESS OTHERWISE STATED OUR PARTICIPATING INTEREST IS 100%, OR ALMOST 100%
COMPANIES TREATED AS PART OF THE INSURANCE OPERATIONS
THE NETHERLANDS ING Verzekeringen N.V. The Hague ING Vastgoed Belegging B.V. The Hague N.V. Nationale Borg-Maatschappij Amsterdam Nationale-Nederlanden Levensverzekering Maatschappij N.V. Rotterdam Nationale-Nederlanden Schadeverzekering Maatschappij N.V. The Hague Nationale-Nederlanden Zorgverzekering N.V. The Hague Parcom Ventures B.V. Utrecht Postbank Levensverzekering N.V. The Hague Postbank Schadeverzekering N.V. The Hague RVS Levensverzekering N.V. Rotterdam RVS Schadeverzekering N.V. Ede Movir N.V. Nieuwegein BELGIUM ING Insurance N.V. Antwerp REST OF EUROPE Nationale-Nederlanden Poist'ovna A.S. Bratislava, Slovakia Nationale-Nederlanden Life Insurance Company Poland Warsaw, Poland NN Pension Fund Poland Warsaw, Poland ING Nederlanden Asigurari de Viata S.A. Bucharest, Romania NN Life Insurance Company S.A. Athens, Greece NN Greek General Insurance Company S.A. Athens, Greece ING Magyarorszagi Biztosito Rt. Budapest, Hungary NN Vida, Compania de Seguros y Reasuguros S.A. Madrid, Spain NN Generales Compania de Seguros y Reasuguros S.A. Madrid, Spain NORTH AMERICA Belair Insurance Company Inc. Montreal, Quebec, Canada ING Insurance Company of Canada Toronto, Ontario, Canada ING Novex Insurance Company of Canada Toronto, Ontario, Canada ING Western Union Insurance Company Calgary, Alberta, Canada The Nordic Insurance Company of Canada Toronto, Ontario, Canada Equitable of Iowa Life Insurance Company Des Moines, Iowa, U.S.A. Golden American Life Insurance Company Wilmington, Delaware, U.S.A. ING America Insurance Holdings, Inc. Wilmington, Delaware, U.S.A. ING International Insurance Holdings, Inc. Hartford, Connecticut, U.S.A. ING Life Insurance and Annuity Company Hartford, Connecticut, U.S.A. ING North America Insurance Corporation Atlanta, Georgia, U.S.A. Life Insurance Company of Georgia Atlanta, Georgia, U.S.A. Lion Connecticut Holdings Inc. Hartford, Connecticut, U.S.A. ReliaStar Life Insurance Company Minneapolis, Minnesota, U.S.A ReliaStar Life Insurance Company of New York Woodbury, New York, U.S.A Security Life of Denver Insurance Company Denver, Colorado, U.S.A. Southland Life Insurance Company Atlanta, Georgia, U.S.A. United Life & Annuity Insurance Company Des Moines, Iowa, U.S.A. USG Annuity & Life Company Oklahoma City, Oklahoma, U.S.A. LATIN AMERICA GBM Atlantico Mexico City, Mexico ING Seguros, S.A. de C.V. Mexico City, Mexico Pensiones Bital, S.A. Mexico City, Mexico ING Seguros de Vida S.A. Santiago, Chile |
ASIA ING Life Insurance Company Ltd. Tokyo, Japan ING Life Insurance Company, Korea, Ltd. (80%) Seoul, South Korea ING Antai Life Insurance Company Taipei, Taiwan ING Life Insurance Malaysia Kuala Lumpur, Malaysia AUSTRALIA ING Australia Limited* Sydney, Australia ING Australia Pty. Ltd. Sydney, Australia REINSURANCE COMPANIES ING Re (Netherlands) N.V. The Hague, the Netherlands |
BRANCHES
In addition, ING Insurance and its subsidiaries have offices in Brazil, China,
Czech Republic, India and Luxembourg
* including ANZ (51%)
COMPANIES TREATED AS PART OF THE BANKING OPERATIONS
THE NETHERLANDS ING Bank N.V. Amsterdam Bank Mendes Gans N.V. (97.79%) Amsterdam CenE Bankiers N.V. Utrecht ING Car Lease Nederland B.V. 's-Hertogenbosch ING Bank Corporate Investments B.V. Amsterdam ING Trust (Nederland) B.V. Amsterdam ING Vastgoed B B.V. The Hague ING Vastgoed Ontwikkeling B.V. The Hague InterAdvies N.V. Amsterdam Nationale-Nederlanden Financiele Diensten B.V. Amsterdam N.V. Nationale Volksbank (NVB) Amsterdam NMB-Heller Holding N.V. (50%)* Amsterdam Postbank N.V. Amsterdam Postbank Groen N.V. Amsterdam Postkantoren B.V. (50%) Groningen Stichting Regio Bank Amsterdam Wijkertunnel Beheer II B.V. Amsterdam BELGIUM ING Belgie N.V. Brussels REST OF EUROPE Bank Slaski S.A. (87.8%) Katowice, Poland Baring Asset Management Holdings Ltd. London, United Kingdom ING BHF-BANK A.G. Frankfurt, Germany Allgemeine Deutsche Direktbank Frankfurt, Germany NORTH AMERICA Furman Selz Holding LLC New York, NY, U.S.A. ING Financial Holdings Corporation New York, NY, U.S.A. ING Bank of Canada Toronto, Ontario, Canada LATIN AMERICA ING Sociedad De Bolsa (Argentina) S.A. Buenos Aires, Argentina ING Trust (Antilles) N.V. Curacao, Netherlands Antilles Middenbank Curacao N.V. Curacao, Netherlands Antilles |
AUSTRALIA ING Bank (Australia) Ltd. Sydney, Australia ASIA ING Baring Securities (Japan) Ltd. Tokyo, Japan ING Capital Markets (Hong Kong) Ltd. Hong Kong, China ING Futures & Options (Hong Kong) Ltd. Hong Kong, China ING Merchant Bank (Singapore) Ltd. Singapore, Singapore ING Vysya Bank Ltd. (44%) Bangalore, India OTHER ING Direct N.V. Canada, Germany, Spain, Australia, France, USA, Italy, UK |
BRANCHES
ING Bank N.V. has offices in most of the major financial centres, including
London, Frankfurt, Hong Kong and Tokyo. In addition, ING Bank and/or ING Belgie
N.V. have offices in Asuncion, Bangkok, Bratislava, Bucharest, Buenos Aires,
Curacao, Dublin, Havana, Istanbul, Lima, Madrid, Manila, Milan, Paris, Prague,
Sao Paulo, Seoul, Shanghai, Singapore, Sofia, Taipei and Vienna among others.
* Proportionally consolidated
EXHIBIT 10.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in (i) the Registration Statement filed on Form F-3 (File No. 333-84226) and (ii) the Registration Statements on Form S-8 (File Nos: 333-11368, 333-11414, 333-13038, 333-13664, 333-13668, 333-14254, 333-14252, 333-81564 and 333-92220) of our report dated March 24, 2004, with respect to the consolidated financial statements and schedules of ING Groep N.V., included in this Annual Report (Form 20-F) for the year ended December 31, 2003.
Amsterdam, the Netherlands
March 24, 2004
ERNST & YOUNG
EXHIBIT 10.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in (i) the Registration Statement filed on Form F-3 (File No. 333-84226) and (ii) the Registration Statements on Form S-8 (File Nos: 333-11368, 333-11414, 333-13038, 333-13664, 333-13668, 333-14254, 333-14252, 333-81564 and 333-92220) of our report dated March 8, 2004, with respect to the consolidated financial statements of ING Bank N.V., included by reference in this Annual Report (Form 20-F) for the year ended December 31, 2003.
Amsterdam, March 24, 2004
KPMG Accountants N.V.
EXHIBIT 10.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in (i) the Registration Statement filed on Form F-3 (File No. 333-84226) and (ii) the Registration Statements on Form S-8 (File Nos: 333-11368, 333-11414, 333-13038, 333-13664, 333-13668, 333-14254, 333-14252, 333-81564 and 333-92220) of our report dated March 23, 2004, with respect to the consolidated financial statements of ING Bank Belgium SA/NV, not included in ING Groep NV Annual Report (Form 20-F) for the year ended December 31, 2003.
Brussels, March 24, 2004
ERNST & YOUNG REVISEURS D'ENTREPRISES SCC
EXHIBIT 12.1
CERTIFICATION
I, Ewald Kist, certify that:
1. I have reviewed this annual report on Form 20-F of ING Groep N.V.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) (Ommitted in accordance with the guidance of SEC Release No. 33-8238)
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financing reporting;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 24, 2004 /s/ E. Kist --------------------- Ewald Kist Chairman of the Executive Board |
EXHIBIT 12.2
CERTIFICATION
I, Cees Maas, certify that:
1. I have reviewed this annual report on Form 20-F of ING Groep N.V.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) (Ommitted in accordance with the guidance of SEC Release No. 33-8238)
a) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financing reporting;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 24, 2004 /s/ C. Maas ---------------------- Cees Maas Chief Financial Officer |
EXHIBIT 13.1
CERTIFICATION
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections
(a) and (b) of section 1350, chapter 63 of title 18, United States Code), the
undersigned officer of ING Groep N.V. ("the Company"), hereby certifies, to such
officer's knowledge, that:
The Annual Report on Form 20-F for the year ended December 31, 2003 (the "Report") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 24, 2004 /s/ E. Kist -------------------------- Name: Ewald Kist Title: Chairman of the Executive Board |
EXHIBIT 13.2
CERTIFICATION
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections
(a) and (b) of section 1350, chapter 63 of title 18, United States Code), the
undersigned officer of ING Groep N.V. ("the Company"), hereby certifies, to such
officer's knowledge, that:
The Annual Report on Form 20-F for the year ended December 31, 2003 (the "Report") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 24, 2004 /s/ C. Maas ----------------------------------- Name: Cees Maas Title: Chief Financial officer |
EXHIBIT 16
ING GROUP
STATEMENT
OF
GENERAL
BUSINESS PRINCIPLES
(C) ING Not to be reproduced
INTRODUCTION
ING Group ("ING") is a company with Dutch roots with a wide experience in the field of financial services. ING is active on a world-wide basis, offering its clients a full range of financial products and services through various distribution channels.
The basis of ING's continuity is its financial strength, its healthy profit base and careful weighing of the interests of its clients, shareholders and employees. In all its activities ING is aware of its social responsibilities.
As a premier provider of financial products and services ING plays an important role in society. In order to fulfil this role it needs to maintain the confidence of its customers, shareholders, employees, and other stakeholders by acting with professionalism and integrity as well as behaving with prudence and skill.
ING Group, therefore, attaches paramount importance to upholding its reputation. It is the responsibility of everyone in ING to maintain its standing for high ethical standards of conduct. This requires constant vigilance and application. Even a single mistake, for whatever reason, can have far-reaching consequences.
The General Business Principles described in this statement do not merely reflect laws and regulations, they are also based upon values of integrity, entrepreneurship, professionalism, responsiveness and teamwork.
These Business Principles apply to the whole of ING Group, its subsidiaries and business units, and to every employee. Every individual in ING is required to act in accordance with both the letter and spirit of these Principles and obliged to promptly report any violation of these Principles to his/her line manager or the responsible compliance officer.
Anyone becoming aware of a violation of this code of ethics by an Executive Board member is obliged to promptly report such violation to the Group Compliance Officer, who will report it to the chairman of the supervisory board of ING Group.
Notwithstanding any of the above, the ING Whistleblower Procedure is also applicable.
It is the responsibility of all those in authority in ING to ensure these Principles are fully communicated to all employees, and they are strictly observed. The Executive Board will receive regular reports, including an annual review, on the effective operation of these Business Principles.
(C) ING Not to be reproduced
VALUES
The following fundamental beliefs determine conduct throughout ING. They explain the reasons why our Principles are important to us.
INTEGRITY ING is expressly committed to integrity and onsistently high ethical standards of conduct in all our business transactions. ENTREPRENEURSHIP The basis for the continuing success of ING's business is good long-term profitability. An essential feature of this is a dynamic and innovative approach to business by the organisation and all of its employees. PROFESSIONALISM ING values professionalism in all parts of ING and regards it as essential in ensuring the provision of the highest levels of customer service. RESPONSIVENESS As an international organisation ING acknowledges the importance of being responsive to the needs of all those with whom it does business, regardless of location. TEAMWORK ING depends upon value-enhancing teamwork between its complementary businesses, and this teamwork and common cause pervades all our activities, including relations with our partners. (C) ING Not to be reproduced |
OPERATING PRINCIPLES
1. PERSONAL CONDUCT
ING expects the highest levels of personal conduct by all its employees, whatever their position. It is acknowledged that all effective business relationships, inside as well as outside the Group, depend upon honesty, integrity and fairness.
While it is recognised that limited corporate hospitality is given and received as part of building normal business relationships, employees should avoid accepting hospitality or gifts which might appear to place them under an obligation.
Bribery of any form is unacceptable. No undeclared offers or payments will be accepted or solicited by ING employees, or made by ING employees to third parties, and employees are required to avoid any contacts that might lead to, or suggest, a conflict of interest between their personal activities and the business of the Group or create an appearance of conflict of interest.
ING expects all its employees to respect the rule of law and abide by applicable laws and regulations. Furthermore, ING employees are expected to avoid doing business with any individual, company or institution if that business is connected with activities which are illegal or which could be regarded as unethical.
All employees are expected to handle information with care. In particular, the confidentiality of all proprietary information and data processing should be safeguarded in accordance with applicable laws and regulations. Proper and complete records must be made of all transactions on behalf of ING.
ING employees may not enter into - and must avoid the appearance of engaging in - securities transactions based upon insider trading or misuse of confidential information.
2. EMPLOYEE RELATIONS
Relationships with employees in all parts of ING are based upon respect for the individual. The Group aims to provide all its employees with safe conditions of work, and competitive terms of employment. ING is committed to equal opportunities and the avoidance of discrimination. Sexual or racial harassment is unacceptable. Personal career development will be encouraged through progressive personnel and training arrangements.
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3. ENVIRONMENT
ING recognises that certain resources are finite and must be used responsibly. Therefore it pursues a two-pronged, internal and external, approach designed to promote environmental protection. Its external policy is aimed at anticipating developments in the environmental field related to commercial services, and the professional management of environmental risks. Internally, the policy is aimed at controlling any environmental burdens caused by ING itself.
4. INTERNATIONAL OPERATIONS
As an international financial services provider, ING operates within the context of foreign laws and regulations, and with corporate and private customers from a range of backgrounds and cultures. It is important, therefore, that ING respects diverse cultures, while maintaining adherence to these Business Principles.
ING is committed to respecting the rule of law. The prime consideration is that ING is a commercial organisation and its activities are therefore business-orientated. ING does not intervene in political or party political matters. Nor does it make gifts or donations to political parties. However within the legitimate role of business ING reserves the right - after careful consideration - to speak out on matters that may affect its employees, shareholders or customers.
5. COMMUNICATIONS & DISCLOSURES
Within the bounds of commercial confidentiality, ING places the greatest importance on open and transparent communications with its customers, employees and shareholders, as well as society at large.
ING makes every effort to ensure full, fair, accurate, timely and understandable disclosure in reports and documents that it files with, or submits to its regulators and in other public communications ING makes.
6. COMMUNITY RELATIONS
Wherever ING operates, it recognises that good relations with its local communities are fundamental to its long term success. The Group's community relations policy is founded upon mutual respect and active partnership, aimed at sustaining lasting and trusting relationships between the Group's operations and local communities.
Cultural, sport and environmental activities are a central part of ING's community relations policy, and individual employees are encouraged to play a positive role in community activities.
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7. ECONOMIC POLICY
As a commercial organisation, ING believes that it must provide an adequate return for its shareholders. It supports a market economy as the most effective means of achieving the best returns for its customers, investors and employees, as well as for the countries and territories where it operates.
Criteria for credit and investment decisions are primarily economic and, while respecting the wishes of clients, also take into account a range of social and environmental considerations.
8. COMPETITION
ING recognises the many benefits of a competitive environment. However the best markets flourish only within an ethical framework, and no one in ING is permitted to disparage a competitor, or to use unethical means to obtain any advantage for ING.
9. CHANGES OR WAIVERS
Any changes or waivers of these Business Principles will, to the extent required, be promptly disclosed as required by applicable laws, rules and regulations.
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