Nov 5, 2011
Executives
Jan Hommen – Chief Executive Officer Patrick Flynn – Chief Financial officer Wilfred Nagel – Chief Risk Officer Matt Rider – Chief Administrative Officer Koos Timmermans – Chief Risk Officer
Analysts
Farooq Hanif – Morgan Stanley Andrew Coombs – Citigroup Jereme Omahen – Goldman Sachs Michael van Wegen – Bank of America Srivijay Raja – Barclays Capital Boissin – Exane BNP Paribas Thomas Nagtegaal – RBS Benoit Pétrarque – Kepler Duncan Russell – JP Morgan William Hawkins – KBW Matthias de Wit – Petercam Tony Silverman – S&P Equity Research Farquhar Murray – Autonomous Lemer Salah – SNS Securities Jan Willem Weidema – ABN AMRO
Operator
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Good morning, Jan. Over to you.
Jan Hommen
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I will talk you through the presentation and afterwards, we have Patrick Flynn, our CFO; Wilfred Nagel, our CRO; and Matt Rider, our CAO of Insurance. Special guest, we have Koos Timmermans who was still the CRO during the third quarter, helping us with answering the questions.
Let me take the first slide, the summary slide. You see that we reported the profit underlying net of €1.285 million in Q3 that was almost 54% from a year ago.
The underlying result that the bank before tax declined to €1.63 billion and mainly due to additional impairments on our Greek government bonds and lower financial market results. We maintained a strong capital ratio in the bank with a core Tier 1 of 9.6%.
Operating results at ING Insurance was €527 million that was up 27% from a year ago, an increase that was mainly driven by higher investment margin, higher fees and premium-based revenues. Underlying result was €561 million, where we could include favorable -- significant favorable hedging results in the Benelux which more than offsets the impairments we had to take on our Greek government bond exposure.
Income is coming a bit under pressure, so we must renew our efforts to reduce expense across the Group to adapt to a leaner environment and to make sure that we can maintain a competitive position. And Retail Banking Netherlands, we are taking now decisive steps to reduce our cost by decreasing overheads and improving efficiency through operational excellence.
And in addition, we continue to work towards a separation of our insurance companies so that we can be ready to move ahead with the IPOs when the markets have recovered.
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Operating result of Insurance improved, driven by an increase in the investment margin and higher fees and premium-based revenues. Operating result was down from the second quarter, which included seasonally high and nonrecurring items.
The underlying result before tax was €561 million and I mentioned already that we had favorable hedging results that more than offset the €200 million of impairment charges we took on Greek government bonds. For the Group, that resulted in a net profit underlying of €1.285 million and net profit of €1.692 million, but that included a gain of €516 million on divestments, which were mainly the Clarion Real Estate Securities and ING Car Lease.
Special items after tax were also €122 million negative. That has to do with all type of reorganizations and special charges for special programs also relating to restructuring and the preparation for the separation and the two IPOs.
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We have now impaired as of September 30, our Greek bond exposure to market value. This represents roughly 60% write-down of our nominal position.
In addition, we have also reduced the exposure to government bonds in Greece, in Italy, Ireland, Portugal and Spain, by €4.8 billion in the third quarter and the charges related to that were in the numbers as well. And then, on October, we were able to further reduce the exposure by another €600 million.
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Also, we made significant progress on the separation and preparation of the two IPOs. The bank and insurance company were already operationally split at the end of 2010 and the operational disentanglement of the U.S.
and then the EurAsia Insurance/IM operations are expected all to be finalized at the end of this year.
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U.S. Insurance will continue to be part of a separate, already existing legal entity that is ING America Insurance Holdings.
These are all steps that we have taken that we have no regrets. So we have to do that no matter what type of divestments strategy ultimately will result.
And the change in the legal structure is important because we now can also optimize our capital structure in the separate entities and then we can complete the disentanglement process in order to be able to move quickly towards an IPO when market conditions are getting better. And at the same time, we have flexibility with respect to timing, as well as to the sequence of the IPOs.
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We continue to see moderate growth in the underlying business. Cost income ratio picked up, it was 58.3% in the first nine months.
But if you exclude market impacts it was 54.7% and as the economic environment and financial markets remain uncertain that we will reinforce our vigilance on costs by focusing on structural improvements in our processes and our organization. Our risk costs were 48 basis points in the first nine months.
Our risk-weighted assets for the full year, we anticipate that risk costs in absolute terms are expected below the level that we saw in 2010, which were 53 basis points. Our return on equity year-to-date was 16.5% and we based that on the original plan we made in 2009 and it started as a core Tier 1 of 7.5%.
But if we take into account the current IFRS equity then the ROE was 11.4% in the first nine months of this year. Next slide is the -- you can the impact of the impairments on Greek government bonds and the lower income by our financial markets.
Yeah, underlying result was €1.63 billion. It was lower than the third quarter last year but primarily because of the €267 million impairments on Greek bonds.
If we exclude that then the result would have been 5.4% lower and mainly because of lower interest income. And in addition to loan loss provisions already mentioned for the period €438 million.
The quality of our loan book is now changing significantly. You can see that non-performing loans and on watch exposures remained stable during the quarter.
Interest margin, page 10. Interest results were down 3.5% from the third quarter a year ago and 1.5% compared with the second quarter.
Largely due to the narrowing of the interest margin by 4 basis points to 137%, of which 3 basis points came from financial markets. The increase in the average total bank assets also had an impact and the narrowing NIM was partly offset by higher client balances.
In the Benelux, the margins for mortgages and current accounts slightly improved. But margins on savings and other lending products came under pressure.
ING Direct total interest margin declined from the previous quarter and that was mainly due to increases in client saving rates. Margins in the lending book of Commercial Banking held up well, whereas margins in structured finance showed very small decline.
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We continue to see moderate growth in the underlying business. Cost income ratio picked up, it was 58.3% in the first nine months.
But if you exclude market impacts it was 54.7% and as the economic environment and financial markets remain uncertain that we will reinforce our vigilance on costs by focusing on structural improvements in our processes and our organization. Our risk costs were 48 basis points in the first nine months.
Our risk-weighted assets for the full year, we anticipate that risk costs in absolute terms are expected below the level that we saw in 2010, which were 53 basis points. Our return on equity year-to-date was 16.5% and we based that on the original plan we made in 2009 and it started as a core Tier 1 of 7.5%.
But if we take into account the current IFRS equity then the ROE was 11.4% in the first nine months of this year. Next slide is the -- you can the impact of the impairments on Greek government bonds and the lower income by our financial markets.
Yeah, underlying result was €1.63 billion. It was lower than the third quarter last year but primarily because of the €267 million impairments on Greek bonds.
If we exclude that then the result would have been 5.4% lower and mainly because of lower interest income. And in addition to loan loss provisions already mentioned for the period €438 million.
The quality of our loan book is now changing significantly. You can see that non-performing loans and on watch exposures remained stable during the quarter.
Interest margin, page 10. Interest results were down 3.5% from the third quarter a year ago and 1.5% compared with the second quarter.
Largely due to the narrowing of the interest margin by 4 basis points to 137%, of which 3 basis points came from financial markets. The increase in the average total bank assets also had an impact and the narrowing NIM was partly offset by higher client balances.
In the Benelux, the margins for mortgages and current accounts slightly improved. But margins on savings and other lending products came under pressure.
ING Direct total interest margin declined from the previous quarter and that was mainly due to increases in client saving rates. Margins in the lending book of Commercial Banking held up well, whereas margins in structured finance showed very small decline.
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Consequently, total other lending showed as a net decrease of €400 million and there was a decline in Commercial Banking, but it was not fully offset by net gross in the Retail Banking. Net production of funds entrusted at Retail Banking was €1 billion, driven mainly by ING Direct, while the Commercial Bank saw an increase of €5.5 billion and that was mainly because we took in a lot of deposits from asset managers and corporate treasurers to meet the uncertainty on the professional markets in this quarter.
Slide 12 shows our expenses and they declined. Cost income ratio increased to 61.3% or 55.8% excluding the market impact and it mainly had to do with the declining income levels.
And as a result, we are taking steps to make sure that we reduce our expense and that we stay abreast of a leaner environment and that we can maintain our competitive position. In Retail Banking, slide 13, we are taking decisive steps to reduce cost by decreasing overhead while we are maintaining customer focus and improving operational excellence.
Yeah, it is unfortunate but also inevitable that we have to take these measures that will lead to redundancies of about 200 internal people and 700 externals. But we will do our utmost to implement these steps with great care as we has always done and we will make sure that people will be very well guided from job-to-job.
In addition, we will make IT investments of about €200 million in the coming two years that will help to reduce costs and deliver faster and more accurate type of services.
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Consequently, total other lending showed as a net decrease of €400 million and there was a decline in Commercial Banking, but it was not fully offset by net gross in the Retail Banking. Net production of funds entrusted at Retail Banking was €1 billion, driven mainly by ING Direct, while the Commercial Bank saw an increase of €5.5 billion and that was mainly because we took in a lot of deposits from asset managers and corporate treasurers to meet the uncertainty on the professional markets in this quarter.
Slide 12 shows our expenses and they declined. Cost income ratio increased to 61.3% or 55.8% excluding the market impact and it mainly had to do with the declining income levels.
And as a result, we are taking steps to make sure that we reduce our expense and that we stay abreast of a leaner environment and that we can maintain our competitive position. In Retail Banking, slide 13, we are taking decisive steps to reduce cost by decreasing overhead while we are maintaining customer focus and improving operational excellence.
Yeah, it is unfortunate but also inevitable that we have to take these measures that will lead to redundancies of about 200 internal people and 700 externals. But we will do our utmost to implement these steps with great care as we has always done and we will make sure that people will be very well guided from job-to-job.
In addition, we will make IT investments of about €200 million in the coming two years that will help to reduce costs and deliver faster and more accurate type of services.
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Consequently, total other lending showed as a net decrease of €400 million and there was a decline in Commercial Banking, but it was not fully offset by net gross in the Retail Banking. Net production of funds entrusted at Retail Banking was €1 billion, driven mainly by ING Direct, while the Commercial Bank saw an increase of €5.5 billion and that was mainly because we took in a lot of deposits from asset managers and corporate treasurers to meet the uncertainty on the professional markets in this quarter.
Slide 12 shows our expenses and they declined. Cost income ratio increased to 61.3% or 55.8% excluding the market impact and it mainly had to do with the declining income levels.
And as a result, we are taking steps to make sure that we reduce our expense and that we stay abreast of a leaner environment and that we can maintain our competitive position. In Retail Banking, slide 13, we are taking decisive steps to reduce cost by decreasing overhead while we are maintaining customer focus and improving operational excellence.
Yeah, it is unfortunate but also inevitable that we have to take these measures that will lead to redundancies of about 200 internal people and 700 externals. But we will do our utmost to implement these steps with great care as we has always done and we will make sure that people will be very well guided from job-to-job.
In addition, we will make IT investments of about €200 million in the coming two years that will help to reduce costs and deliver faster and more accurate type of services.
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In slide 14, you see our risk position, we added €438 million to the loan loss provisions compared to the €374 million a year ago and €370 million in Q2, mainly attributable to provisioning for some existing large nonperforming files and selected finance and general lending and a bit to the mortgage position portfolio in ING Direct. Quality of the loan book did not change.
Nonperforming loans and on watch exposures remained stable. In fact, nonperforming loan slightly declined as a percentage of outstanding loans in the quarter.
As I said, we expect risk costs for the whole year to be lower than what we saw in 2010. Slide 15.
On the right hand you can see that the NPLs, as a percentage of total loans, slightly declined to 2%. Most areas were showing improvements.
Other mortgages remained stable at a very low level of 1% only. Real Estate Finance and Leasing and Factoring had a little increase in the NPL ratio.
The increase in Leasing and Factoring is mainly driven by the sale of Car Lease, while the increase in Real Estate is due to deterioration of the on watch files. Slide 16.
Retail Banking underlying results before tax was €811 million. That is down almost 20% versus a year early and included in there is €85 million for impairment on Greek bonds.
Of course, we had some losses from selected de-risking in ING Direct this quarter and lower margins on most products in the Netherlands. Results were higher compared with the previous quarter due to lower impairments and Greek government bonds and despite margin pressure in ING Direct.
Results in the Commercial Bank resulted were down and that mainly has to do with the loss of financial markets. The loss was triggered by €182 million impairments of Greek sovereign bonds while we have also some adverse market conditions in financial markets.
We saw a widening of bid/offer spreads, country and credit spreads resulted in significant additions to reserves on the existing inventory of trades that we do with clients. And they were partly offset by gains due to fair value of issued structured notes.
In addition, funding increased due to the liquid money markets and interest income was also lower following the sale of European government bonds and actions that we have taken to the leverage, specific securities lending and trading positions. Commercial Bank had a steady flow of business in the general lending, payment and cash management, structured finance and they had a stable pre-tax results compared to last year.
And we saw higher income that was able to offset the provisioning that we had to do. Real Estate was positive in the fourth quarter – showed a positive result for the fourth consecutive quarter.
And impairments on Greek government bonds amounted here to €9 million in Q2 2011.
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So, that concludes the Bank. Now, we turn to Insurance.
Insurance showed a clear progress towards the ambition that we have stated early in 2009 for the objectives 2013. The investment margin continued to improve and that was following the reinvestments we did last year.
Administrative expense remained tightly under control and the ratio of administrative expense over operating income improved to €39.4 million for the first nine months of this year, partly can be explained by non-recurring items in the second quarter but clearly the trend is positive here. ROE turned positive 9.3%.
Still some work to be done to get the ROE structurally into the double digits, but clearly, we can see the improvements that we have secured in the last nine months. Page 23, you see the results.
The third quarter results were €527 million that is up 27% from a year ago, mainly driven by investment margin and higher fees and premium-based revenues.
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Page 24, you see that the investment spread increased to 104 basis points. That by the way does not include the – normally, the basis points that we generated by the Latin business that would have another 3 basis points, so you can say we really have met the target we have set in the year 2009, which was 105 basis points.
Page 25, you see the premium and fees, the increase 5% from the same quarter in 2010. Increase was driven mainly by higher sales in Asia-Pacific.
Technical margin was €136 million. That is lower than the last year and reflected an increase in the guarantee provisions in the Benelux that we made during this quarter.
Compared with the previous quarter, the reduction was mainly due to €70 million of positive impact from a surrender of a contract with a large pension funds in the Netherlands in Q2. Administrative expense already mentioned, good numbers here.
The administrative expense was €750 million that is down 4.5% compared to a year ago and also 1.2% lower than the second quarter this year. The third quarter ratio of administrative expense to operating income was 40.7%, an improve compared to the third quarter last year with an increase compared to Q2 of this year as the positive impact of lower expense was offset by a substantially lower operating income due to the impact of seasonal and incidental items in Q2.
So, Q2 is a bit of an exception. Operating results improved on page 27, was €527 million.
The decline compared to the second quarter can be explained by a seasonally higher dividends income, as well as positive non-recurring items in the second quarter that I already mentioned in the Benelux. When you look at non-operating results, they totaled €34 million but included some very significant positive and negative items and you can see that we had a gain on the equity position in the Benelux.
We had changes on the provision for guarantees on separate account pension contracts. They were favorable than we have the Greek impairments.
We had losses on some sale of Italian government bonds and some subprime mortgages we still had and we had some other non-operating impact that explains the result between operating results and the underlying pre-tax result. Solvency on page 29 came down a little to 242% from 252% at the end of the second quarter, mainly due because of deterioration of market conditions about to change in the statutory test of adequacy for certain Dutch entities was not completely offset by higher revaluation reserve on the debt securities.
The expected net transaction result of approximately €1 billion on the sale of Latin America will increase the IGD ratio by roughly 13 percentage points at the closing and if you look at our risk-based capital in the U.S., it remained stable at 492%. Sales, page 30, excluding currency effects, they increased 6.5%, good quarter, mainly driven by strong sales in Asia and also, higher sales of our retirement plans in the U.S.
Insurance sales excluding currency, increased 5.2% compared with Q2 and again, driven by higher sales in Asia-Pacific.
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Operator
Thank you, sir. (Operator Instructions) The first question comes from Mr.
Farooq Hanif from Morgan Stanley. Please go ahead, sir.
Farooq Hanif – Morgan Stanley
Good morning, everybody. Three brief questions.
Firstly, on your disclosure about the EBA stress test, if we took this forward and we assumed that the ING Direct U.S. disposal and other disposals go ahead, we allow for retained earnings.
And if we then assume that you repay the Dutch government with a penalty, it seems to me that you would still just about pass the test. What comment can you make on that, so basically, can you repay the Dutch government and passed the test?
Second point – second question is, can you give us an update on the European court hearing, so that the court hearing with the European Commission? And thirdly, in the margins in Insurance, it seems to me that your investment margin is at target, fees and premiums are very strong and technical margin was affected by some one-offs.
I mean, what are -- do you think some of these sort of underlying trends here are quite sustainable going forward? Thank you.
Jan Hommen
Okay. First question, can we still do all the things you mentioned including repaying the Dutch state and maintain the 9% equity loan?
Yeah, I think that is the test we are looking at and we are not making additional amount, let me start from this point. Our main interest is to repay the Dutch state as quickly as we can.
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The court hearing, we have no further news to mention. We had -- as you know, we had public hearings in July and we are waiting anxiously what the court has to say.
And Matt, would you like to comment on the investment margin?
Matt Rider
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Farooq Hanif – Morgan Stanley
Okay. Thank you very much.
Operator
Thank you. The next question is from Andrew Coombs from Citigroup.
Please go ahead.
Andrew Coombs – Citigroup
Good morning. I have two questions, please.
Firstly, on slide 17, the financial markets business in particular, I understood just and a bit more detail there. You talked about underlying pre-tax profit €40 million versus €223 million a year ago plus stripping out the impact of the Greece markdown.
You mentioned three things specifically, the lower NIR and the reduction in sovereign divisions, the extra reserves on the inventory and also the costs of the liquid money markets. So, perhaps, given the size of the swing, the €200 million, could you perhaps quantify between those three things?
And also interested to know the costs of the liquid money markets, is about more specific on the U.S. dollar funding money market side or is that across the Board?
So, interested a bit more detail there. Second question regards to the Dutch spending in Central Bank announcement yesterday where they talked about a 1% to 3% surcharge, about 7% Dutch systemically important banks?
Is that in your mind a additional amount that you now think you have to raise in terms of capital requirement, i.e. before I think you said the low-end of the potential safety surcharge from the Basel Committee.
So, interested if that changes your thoughts and what the right capital level might be going forward? Thank you.
Jan Hommen
Okay. I think Patrick will deal with the first question.
Patrick Flynn
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Jan Hommen
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Andrew Coombs – Citigroup
Okay. Thanks very much.
Operator
Thank you. The next question is from [Jereme Omahen] from Goldman Sachs.
Please go ahead, sir.
Jereme Omahen – Goldman Sachs
Yes. Hi.
Good morning. I have a couple of questions.
The first one relates to slide four of your presentation, which is on the residual exposures to the peripheral countries in terms of sovereign debt. And I just wanted to essentially confirm the Q3 numbers as you show them here, are they the same numbers that you will be submitting to the EBA for the final run or you have submitted to the EBA for the final run of the capital shortfall calculations.
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The second question I have relates to slide eight of your presentation where you showed a return on equity targets for the bank in the range of 13% to 15% and you point out that this is calculated on a core Tier 1 ratio 7.5%. I was just wondering, given that the EBA is now asking you to run on a 9% core Tier 1, to what extent should we be thinking about this slide still being an appropriate guide for the future returns of the bank, i.e.
to what extent do you think this 7.5% is an adequate capitalization of your banking assets? And the final thing I wanted to ask and this is maybe a question which is not directly relevant to your results but more of a longer-term question, the EBA has opened an option for banks to include newly issued contingent capital notes in the core Tier 1 capital calculation, is that something that ING would contemplate in the future?
Thanks a lot.
Jan Hommen
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Koos Timmermans
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Patrick Flynn
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Jereme Omahen – Goldman Sachs
Thank you very much. I appreciate the answers.
Operator
Thank you. The next question is from Michael van Wegen.
Please go ahead from Bank of America.
Michael van Wegen – Bank of America
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Secondly, the restructuring of your legal entities within the Insurance business? How are we going to look at the debt restructuring now that you know effectively what the legal structure of these entities will be?
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Secondly, the restructuring of your legal entities within the Insurance business? How are we going to look at the debt restructuring now that you know effectively what the legal structure of these entities will be?
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Secondly, the restructuring of your legal entities within the Insurance business? How are we going to look at the debt restructuring now that you know effectively what the legal structure of these entities will be?
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Secondly, the restructuring of your legal entities within the Insurance business? How are we going to look at the debt restructuring now that you know effectively what the legal structure of these entities will be?
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Jan Hommen
Okay. The first one will be Matt Rider.
Matt?
Matt Rider
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Michael van Wegen – Bank of America
And is there any sort of sense you can give for the magnitude of or can you help us understand where your assumptions are today?
Matt Rider
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Jan Hommen
Michael, on the legal entities, I missed exactly the question. Can you repeat that again?
Michael van Wegen – Bank of America
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Jan Hommen
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Wilfred Nagel
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Michael van Wegen – Bank of America
Thank you very much.
Operator
Thank you. The next question is from [Srivijay Raja] from Barclays Capital.
Please go ahead.
Srivijay Raja – Barclays Capital
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Jan Hommen
Yeah. If we look at our liquidity coverage ratio the way how we calculate it right now, we look at transferable liquidity.
And since ING Direct was holding a lot of liquid securities but that was not really transferable out of the country, it also means divesting ING Direct will not have a lot of impact on our liquidity if we look at it for the company as a whole.
Srivijay Raja – Barclays Capital
Okay. And the net interest margin outlook?
Patrick Flynn
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Srivijay Raja – Barclays Capital
Okay. Very helpful.
Operator
Thank you. The next question is from Francois Boissin from Exane BNP Paribas.
Please go ahead.
Boissin – Exane BNP Paribas
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Jan Hommen
Yeah. Francois, we prefer at this moment not to make any -- we have given you the total number but we would not prefer to go into details on the €600 million.
I think that would be more appropriate when we do that at the end of the quarter. And Matt, would you like to do the Insurance?
Matt Rider
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And we would estimate that number, again sort of several years from now to be about 20 basis points on the 104. I think very important in this is that I think 65 or something percent of our total operating income comes from fees and premium-based revenues.
So, actually this is a relatively small percentage of the operating income for the Insurance business.
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And we would estimate that number, again sort of several years from now to be about 20 basis points on the 104. I think very important in this is that I think 65 or something percent of our total operating income comes from fees and premium-based revenues.
So, actually this is a relatively small percentage of the operating income for the Insurance business.
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And we would estimate that number, again sort of several years from now to be about 20 basis points on the 104. I think very important in this is that I think 65 or something percent of our total operating income comes from fees and premium-based revenues.
So, actually this is a relatively small percentage of the operating income for the Insurance business.
Boissin – Exane BNP Paribas
Okay. And when it comes to equities?
Matt Rider
With respect to equities, I mean, I think the results for the third quarter is something stable around this level. So, just kind of modeling along equity environment not a lot of volatility if we just see it at the current levels.
Boissin – Exane BNP Paribas
And finally, on your own debts?
Patrick Flynn
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Boissin – Exane BNP Paribas
Thank you very much.
Operator
Thank you. The next question is from Thomas Nagtegaal from RBS.
Please go ahead.
Thomas Nagtegaal – RBS
Hi. Good morning, gentlemen.
Thomas Nagtegaal, RBS. I only have one question remaining.
Could you disclose if you realized any losses in further reducing your periphery exposure during October? Thanks.
Jan Hommen
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Thomas Nagtegaal – RBS
Okay. Thank you.
Operator
Thank you. The next question is from Benoit Pétrarque from Kepler.
Please go ahead.
Benoit Pétrarque – Kepler
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And then could you give us an update on [Basel II threat] which is for sale. You have been quite aggressive this quarter and I was wondering if you see inflow of savings money actually coming from ING Bank to [Basel II threat]?
Then the final question, whether you could give us an outlook on the risk-weighted assets migration expected in coming quarters. We have seen quite some positive migration in the past 18 months.
We started to see actually a bit of more negative migration this quarter but could you give us a bit more kind of guideline for the coming quarters on that side? Thanks.
Jan Hommen
Okay. With respect to repaying other states, I told earlier we are very dedicated to repay them as quickly as we can.
And at the same time, we need to take into account the ability to do that and the requirements we have on the new regulation that you just heard, the Dutch National Bank has come up with some new requirements. We need to know exactly where we stand before we can make any firm commitments here.
But our intentions are the same. They have not changed as quickly as we can.
And that brings me to the second point, Basel III, the Dutch National Bank has yesterday given some idea about what they want to do but they have not been specific. So as soon as we have that we will communicate that with you as well.
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Patrick Flynn
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If you look at RWA migration, I think in general, where you see that happening it is most in the securities portfolios and that is why from time to time you manage that and you de-risk it so you sell off some of the securities before. And please note that the part where the securities portfolio could buy it as well in the U.S., that is something which is available for sale, so we will need less operations on that side.
Benoit Pétrarque – Kepler
All right. So no big migration to be expected -- no negative migration to be expected in the next quarters?
Patrick Flynn
No. I think in general, in the securities portfolio because you have this rating table if you have migration then you sell it before it is due and you get the migration.
Benoit Pétrarque – Kepler
Yes. And on the loan lending side?
Patrick Flynn
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Benoit Pétrarque – Kepler
Very good. Thank you very much.
Operator
Thank you. The next question is from Duncan Russell from JP Morgan.
Please go ahead.
Duncan Russell – JP Morgan
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Matt Rider
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Duncan Russell – JP Morgan
Okay.
Matt Rider
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Duncan Russell – JP Morgan
Okay.
Matt Rider
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Duncan Russell – JP Morgan
Okay. Thank you very much.
Operator
Thank you. The next question is from William Hawkins from KBW.
Please go ahead.
William Hawkins – KBW
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Jan Hommen
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Matt Rider
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William Hawkins – KBW
Thank you.
Operator
Thank you. The next question is from Matthias de Wit from Petercam.
Please go ahead.
Matthias de Wit – Petercam
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And then second on the impact of lower interest rates, could you provide any insight into the economic impact on your U.S. Insurance activities and also highlight to what extent the DAC is still recoverable at current low rates in equity markets?
And a follow-up question on the U.S. DAC accounting changes, if you would eventually adopt them retrospectively, what would be the impact then on the U.S.
DAC balance? Thank you.
Jan Hommen
Okay. We need to make some quick calculations here on the foreign exchange impact.
So, give us a minute.
Patrick Flynn
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Jan Hommen
Matt, interest rates.
Matt Rider
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Matthias de Wit – Petercam
Okay. Thank you.
Operator
Thank you. The next question is from Tony Silverman from S&P Equity Research.
Please go ahead.
Tony Silverman – S&P Equity Research
Yes. Good morning.
Just a couple of questions left. I wonder if you give an indication of how you see the outlook for risk-weighted assets in the bank, X -- any X disposals and what your plans are for that?
Second question was just a bit of detail on the Greek impairments and the bank there states €267 million, but in the table on page 27, the amounts in the balance sheet over the quarter just seems to go down from €406 to €280 million and so not in less than the impairment assuming you identified means you bought Greek debt in the meantime or not?
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Patrick Flynn
Yeah. I think if you look at risk-weighted assets, of course, you expect it to move up a little bit because of Basel 2.5.
That is I think the biggest part in terms of trend what see going forward and for rest given the fact that what I already indicated is RWA migration.
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Tony Silverman – S&P Equity Research
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Patrick Flynn
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Tony Silverman – S&P Equity Research
Okay. Yeah.
And the other question? Thank you.
Jan Hommen
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Tony Silverman – S&P Equity Research
Okay.
Matt Rider
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Tony Silverman – S&P Equity Research
Those hedging -- that hedging program against VA then, the gains on that will be from the falling interest rates that would protect the value overtime with those contracts will all be in the hedging gains that are in this quarter, which have been offset by Greek debt and other things. So you would be then left with a negative impact in succeeding quarters.
Could you quantify that if conditions remain simply as they are?
Matt Rider
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Tony Silverman – S&P Equity Research
Taking U.S. on its own I can see that.
But, yeah, thank you very much.
Operator
Thank you. The next question is from Farquhar Murray from Autonomous.
Please go ahead.
Farquhar Murray – Autonomous
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Jan Hommen
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Farquhar Murray – Autonomous
Okay. Great.
Thanks very much.
Operator
Thank you. The next question is from the Lemer Salah from SNS Securities.
Please go ahead.
Lemer Salah – SNS Securities
Good morning, gentlemen. Lemer Salah from SNS Securities.
Two questions from my side. First of all, can you give us an update with regard to the ING Direct USA deal with Capital One?
Can I presume that this deal will proceed in or will be closed in the fourth quarter of 2011? And secondly, with respect to the cost savings which are mentioned on slide 13, is the €300 million cost saving as of 2014 entirely attributable to the headcount reduction or is there something else involved?
Thank you.
Jan Hommen
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Lemer Salah – SNS Securities
Okay. Thank you.
Operator
Thank you. The next question is from Jan Willem Weidema from ABN AMRO.
Please go ahead, sir.
Jan Willem Weidema – ABN AMRO
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Jan Hommen
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Patrick Flynn
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Jan Hommen
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Jan Willem Weidema – ABN AMRO
The fair value as a percentage of the normal value of the products...
Jan Hommen
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Jan Willem Weidema – ABN AMRO
Thank you.
Matt Rider
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Jan Willem Weidema – ABN AMRO
Okay.
Jan Hommen
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Jan Willem Weidema – ABN AMRO
Okay. Thank you very much.
Operator
Thank you. (Operator Instructions) Gentlemen, there appears to be no further questions.
Jan Hommen
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Operator
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