Commission Decision
of 16 November 2012
State aid SA.33305 (2012/C) and SA.29832 (2012/C) implemented by Netherlands for ING
(notified under document C(2012) 8238)
(Only the English text is authentic)
(Text with EEA relevance)
(2013/719/EU)
THE EUROPEAN COMMISSION,
Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) thereof,
Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,
Whereas:
On 22 October 2008, the Netherlandsnotified to the Commission a EUR 10 billion capital increase ("the recapitalisation measure") in ING Groep N.V. ("ING") in the form of Core Tier 1 securities ("CT1 securities").
If no dividend is paid out for a period of two consecutive years or for three years in the next five years ;or
If after a transition period of one year following the date of the present decision, the share price over a period of two consecutive years remains on average below 13 EUR.
In the Rescue Decision the Commission considered that, while the recapitalisation measure in itself would not be called into question if either of the re-notification scenarios were to arise, such a development might call into question the conditions of compatibility of the measure and that it might, in particular, require additional behavioural constraints if that measure was to continue to be compatible with the internal market.
On 17 November 2011, the Netherlandsnotified to the Commission a request for amendment of the commitments on which the 2009 Restructuring Decision was based; the notification was registered as case SA.29832. Instead of ING divesting Westland Utrecht Bank ("WUB") as envisaged in the commitments on which the 2009 Restructuring Decision (hereafter "the WUB commitment") was based, the Netherlands proposed that ING would integrate parts of WUB with Nationale Nederlanden Bank ("NN Bank") and divest that integrated entity as part of ING Insurance Europe. The Netherlandsalso requested an extension of a divestiture period of WUB foreseen in the 2009 Restructuring Decision.
On 21 November 2011, the Netherlandsre-notified in case SA.33305 the recapitalisation measure to the Commission. That notification was triggered by ING not paying a coupon to the Netherlandsfor two consecutive years (in 2010 for 2009 and in 2011 for 2010).
whether the remuneration of the recapitalisation measure was still appropriate, given that ING had not paid coupons to the State since 2009, which triggered a re-notification for the reasons described in Recital (2);
whether the proposed amendments of commitments, and in particular the alternative proposed by the Netherlandsas a substitute for the WUB commitment, ensure compatibility of the restructuring aid;
whether ING Direct had been pricing aggressively, in particular in Italy.
The Opening Decision was published in the Official Journal of the European Union on 30 August 2012. The Commission called on interested parties to submit their comments. The Commission has received comments from several third parties.
By electronic mail of 13 June 2012, the Netherlandssent the Commission a reaction to the substance of the Opening Decision. In addition to information related to ING Direct and in particular to ING Direct Italia, that reaction included a document that aimed at answering the questions raised in the Opening Decision on the alternative to the WUB commitment and a request for suspension of the divestment deadline and appointment of a divestiture trustee.
Further meetings between the Commission, ING and the Netherlandstook place, in particular on 25 July, 24 August, 6, 17, 18 and 26 September and 1 October 2012. In parallel with those discussions, the Netherlandsprovided information on the process of divesting ING Insurance, on the business model of NN Bank and on the pricing policy of ING Direct Europe, in particular on 23 August and 14, 24 and 25 September 2012.
On 23 August 2012, the Netherlands submitted a study by RBB Economics which described possible ways to avoid negative effects on competition of the price leadership ban for ING Direct Europe, to which the latter was subject because of a commitment given by the Netherlandswhich was recorded in the Annex to the 2012 Restructuring Decision. By electronic mail of 5 September 2012 the Commission posed several questions about that study and sought quantitative data which would substantiate the claims of RBB Economics. On 13 September 2012, the Netherlandsprovided a note by RBB Economics dated 11 September 2012 which responded to the Commission’s questions but did not contain further quantitative data. ING provided some additional data used by RBB Economics on 14 September 2012 and provided additional information during a technical meeting with the Commission on 17 September 2012.
On 14 September 2012 the Netherlandssubmitted updated balance sheet projections for NN Bank (the "NN Bank business plan").
The Commission notes that the Netherlandsexceptionally accepts that the present decision be adopted in the English language.
ING is composed of ING Groep N.V., a mother holding company that controls ING's banking activities via ING Bank N.V. ("ING Bank") and its insurance activities via ING Verzekeringen N.V. ("ING Insurance").
In its segmental reporting, ING subdivides ING Bank along business lines into Retail Banking, Commercial Banking and ING Direct. By contrast, ING Insurance uses a geographical reporting structure: Insurance Benelux (which includes ING's Dutch insurance business "Nationale Nederlanden" (also known as "NN"), Insurance Central & rest of Europe, Insurance US and Insurance Asia/Pacific). A more detailed description of ING's business segments can be found in Recitals (20) to (37) of the 2012 Restructuring Decision.
Year | 2007 | 2008 | 2009 | 2010 | 2011 |
|---|---|---|---|---|---|
Total income (EUR million) | 73 672 | 64 248 | 46 928 | 54 105 | 55 794 |
Net result (in EUR million) | 9 238 | -868 | -1 006 | 2 810 | 5 766 |
Total assets (in EUR billion) | 1 313 | 1 332 | 1 164 | 1 247 | 1 279 |
Total equity (in EUR billion) | 37 | 17 | 34 | 41 | 47 |
Outstanding notional amount of CT1 securities (in EUR billion) | 10 | 5 | 5 | 3 |
ING is currently implementing the restructuring plan of 22 October 2009 based on the commitments listed in the Annex to the 2012 Restructuring Decision. A monitoring trustee monitors the implementation by ING of, amongst others, the WUB commitment and of commitments for ING and ING Direct Europe to respect price leadership bans.
ING is only required to make coupon payments on the CT1 securities to the Netherlandswhen a dividend on ordinary shares is paid. At the time of the Rescue Decision, ING stated that it would continue its then prevailing dividend policy, market circumstances permitting. However since ING did not pay dividends in 2010 and 2011, the Netherlandson 21 November 2011 re-notified the recapitalisation measure in line with its commitment on which the Rescue Decision is based. The re-notification commitment aimed at assuring a sufficient remuneration in view of the uncertainty of payment of coupons intrinsic to the CT1 securities.
Against that background ING will no longer be able to divest its insurance business by the end of 2013, which the Netherlandsconfirmed in response to Commission's Opening Decision.
In the Opening Decision the Commission indicated the following doubts with respect to the amendments proposed by the Netherlandsand their capability to continue to ensure compatibility of the recapitalisation measure and the restructuring aid with the internal market:
ING seems to have followed an opportunistic remuneration strategy in respect of the CT1 securities, which appears to be at odds with its previously declared intentions in terms of dividend distribution policy. According to the Commission, ING seemed to have pursued a distribution policy which limited coupon payments to the State while ING was in a position to pay dividends from the realised profits. Therefore, without firm behavioural constraints regarding the remuneration conditions attached to the CT1 securities the Commission doubted that it could continue to regard the recapitalisation measure as compatible with the internal market without any modification, in line with the reservations which it had expressed in Recital (32) of the Rescue Decision.
In particular, it appeared that behavioural constraints were required to address "State aid arbitrage", whereby the beneficiary takes strategic decisions which seek to minimize the return to the MemberStatewhich would have been obtained by the latter if the beneficiary had followed a normal course of business. Such constraints could in the view of the Commission either be an increase in the remuneration, a clarification of the repayment schedule, or some combination of such measures.
ING had proposed the integration of the core of WUB with NN Bank as described in Recital (4) above. The proposal to divest WUB after its integration into the newly created NN Bank was notified to the Commission. Based on a preliminary assessment of the financial information and projections described in Recitals (39) to (78) of the Opening Decision, the Commission raised doubts that NN Bank would be a stand-alone entity and doubted that its divestment would have the same competitive value as the original WUB commitment.
In particular, the Commission expressed doubts that NN Bank was comparable in scope and product offering to the WUB commitment (since the former had lower market shares and financial metrics than the latter) and was not convinced that NN Bank would grow strong enough to become a sizeable player in the foreseeable future.
Furthermore, the Commission expressed doubts that NN Bank would be in a position to function as an independent market actor. The information provided to the Commission did not allow it to sufficiently establish whether NN Bank has critical scale and have sufficient access to funding to sustain and grow its business. That information also did not establish the viability of the entity. Moreover, the Commission also wondered whether given market developments based on the latest information available, the schedule for the sale of ING Insurance by 2013, which was supposed to ensure the independence of the new bank, could be confirmed any longer and requested an updated divestment schedule for ING Insurance Europe. On that basis the Commission expressed doubts that the proposed amendment would continue to ensure the compatibility of the aid.
The Commission decided to investigate the pricing behaviour of ING Direct in Italia. The pricing behaviour of ING Direct as alleged by Mediobanca, if confirmed, would have raised doubts as to whether ING had respected the commitment on which the Rescue Decision was based, to refrain from expansion of its business activities that it would not have pursued if it had not received the recapitalisation measure. The investigation of the Commission also covers the question of whether the relevant market for the assessment of the pricing strategy of ING Direct is the overall market for savings and mortgage products or the more specialised market for internet savings and mortgages.
The Commission has obtained the following third party observations:
According to ING the re-notification commitment in the Rescue Decision merely allows the Commission to assess whether it is likely that ING will pay at least 10 % per annum remuneration.
ING redeemed 500 million CT1 securities (with a nominal value of EUR 5 billion) with a return of 15 % for the Netherlandson 21 December 2009. In addition, ING redeemed another 200 million CT1 securities (with a nominal value of EUR 2 billion) with a return for the Netherlands of 19,5 % on 13 May 2011, providing the Netherlands an overall return on the repaid EUR 7 billion of 17 % per annum. Therefore according to ING there can be no serious doubts that the State will receive an overall return of at least 10 % per annum.
ING points out that the Van Gogh scenario constitutes an enhanced opportunity to achieve the objective of the Commission to create a viable and competitive business, which is stand alone and separate from the business retained by ING.
Under the Van Gogh scenario NN Bank will have access to more customers and operate under a much stronger retail brand than was foreseen under the WUB commitment. The Van Gogh scenario furthermore includes a longer term portfolio funding than provided for in the WUB commitment, resulting in a bank which has a competitive advantage in current markets given its lack of a back book and its diversified funding possibilities. Through its combination with WUB, NN Bank is well positioned to grow in the current challenging market place.
Until the IPO of ING Insurance Europe, both ING Insurance Europe and WUB will remain operationally separated from the remainder of ING to ensure their independence. In addition, ING has proposed additional ring-fencing measures to further guarantee the independence of the integrated entity resulting from WUB and the newly created NN Bank. According to ING, the Van Gogh scenario therefore meets and even exceeds the objectives of the Commission.
ING points out that there is no evidence that ING Direct Italia breached the price leadership ban. The complaint from Mediobanca in respect of ING Direct Italia’s compliance with the price leadership ban is unsubstantiated. Mediobanca mentioned only one concrete instance (September 2011), which is however factually incorrect since Banca Sistema offered a better rate than ING. In particular, Banca Sistema was already offering a rate of 4,25 % on 30 August 2011, which was evidenced in the information provided to the Commission on 13 June 2012.
According to ING, the Commission’s doubts as to whether ING could have achieved its market share without aid are unfounded. ING demonstrated that its market share in Italyhas not increased since it received aid. In any event, none of the aid which ING received was related to ING Direct Europe (including ING Direct Italia).
ING submits that it did not pursue a high-risk strategy. The losses which ING booked on its investments, as well as the loan loss provisions ("LLPs") it made, are the result of the crisis and specific de-risking measures which ING took to shield itself from the impact of that crisis.
ING submits that it has been agreed between the Commission, the monitoring trustee and ING that the benchmark for the price leadership ban is the entire market: online and offline, and covering small and large competitors. ING is also of the opinion that there is no reason to make a distinction between the online and the offline market for financial products, since there are no longer pure on- and offline banks.
the appropriateness of the remuneration of the recapitalisation measure and on ING's decision not to pay a dividend for three consecutive years;
the replacement of the WUB divestment by the Van Gogh scenario
DNB also commented on the viability of the Van Gogh scenario. DNB argues that when it looks at WUB in isolation, the vast majority of WUB's business is asset-driven (loans) rather than liability-driven (savings). It is therefore inherent to WUB's asset-driven business model that it will always have a certain retail funding gap. Taking into account the difficulty of obtaining sufficient wholesale funding in the current economic climate, it is essential for WUB to find a strong parent company that can make significant amounts of funding available in order to ensure WUB's viability. Given the funding gap of WUB, DNB finds it understandable that ING was not able to find a buyer for WUB that was willing and able to provide for the significant amounts of funding that WUB needs.
From DNB's perspective, the major advantage of the Van Gogh scenario compared to the WUB commitment is that the asset base of WUB that will be transferred under the Van Gogh scenario is smaller than under the WUB commitment. Less funding is required to cover those assets which makes the Van Gogh scenario a more viable proposition. DNB concludes that it would not have accepted the acquisition by NN Bank of a larger asset-driven operation, but the company size implied in the Van Gogh scenario is a prudentially acceptable solution.
Nationale Nederlanden comments on the viability and the competitive power of NN Bank under the Van Gogh scenario. Nationale Nederlanden argues that it has no doubts about the viability of NN Bank and it argues that NN Bank and WUB combined will obtain more competitive power than each business stand-alone. In that regard, Nationale Nederlanden points at NN Bank's more balanced and diverse business model, the stronger balance sheet which should provide stable access to funding (a key success factor for competing), access to 2,5 million customers, a broader distribution model and increased brand awareness.
Nationale Nederlanden considers a bank without a physical branch network to be more attractive than a bank with the operational cost of a legacy branch network. With respect to current accounts, it believes that a current account offering would be more of a strategic burden to NN Bank than a competitive advantage.
Nationale Nederlanden concludes that the Van Gogh scenario will increase capabilities and scale in the retail banking activities faster than could be achieved by NN Bank on a stand-alone basis.
The Workers' Council of WUB comments on the Van Gogh scenario and indicates that it indeed needs to be ensured that the new bank will be viable in the long-term. The Workers' Council mentions a few examples of where the new bank will have to develop a dynamic policy for that purpose (product innovation to anticipate new government policy in terms of mortgages, new developments with respect to intermediaries, new distribution channels and information technology).
The Workers' Council insists that a quick decision by the Commission would also be in the interest of the workers of WUB.
The Executive Board of WUB comments on the viability and the competitive power of the new NN Bank after the integration of WUB. The Executive Board believes that the company is viable and competitive for a number of reasons.
First, in the eyes of the Executive Board, a small bank like NN Bank needs a strong parent like Nationale Nederlanden, which improves for instance wholesale market access.
Second, the Executive Board observes that the Dutch mortgage market is challenging and that the main distribution channel (independent intermediaries) is going through significant changes. The new NN Bank will be able to implement a multi-distribution strategy (with for example tied agents and direct distribution).
Third, the Executive Board also sees added value in the fact that Nationale Nederlanden has a solid name and reputation in the market.
Finally, the Executive Board also observes that the Van Gogh scenario will allow NN Bank to focus resources on one organisation and one brand. It therefore improves the efficiencies in the organisation and improves competitive impact.
As a concluding remark, the Executive Board also mentions that the Van Gogh scenario currently is the only feasible divestment option available.
In a separate letter, the independent supervisory directors of WUB express their support for the position taken by the Executive Board, saying explicitly that they endorse the latter's letter.
Vereniging Eigen Huis, a Dutch home-owners association representing 700 000 Dutch mortgage holders submitted a documentary film entitled "Uw hypotheek als melkkoe" ["Your mortgage as a milch cow"], which discusses the Dutch mortgage market (matters such as increasing mortgage prices in the Netherlands, changing competitive landscape in the Netherlands and price leadership bans). That association points to the information as relevant for the third assessment (i.e. the pricing behaviour of ING Direct Italia).
The Netherlandstakes note of the fact that observations were made by third parties about the viability issues surrounding WUB and the Van Gogh scenario. All commentators support the Van Gogh scenario as an acceptable alternative for the original WUB commitment. In addition, the Netherlandstakes note of DNB's remark that the Van Gogh scenario is a prudentially acceptable solution.
After having read all the observations, the Netherlandsremains confident that the Van Gogh scenario will lead to a viable and competitive new player in the Dutch retail market. The Netherlandsalso takes note of reflections on the negative impact of the period of uncertainty on, for instance, employees and other stakeholders. The Netherlandsis hopeful that a decision on the amendments of the restructuring plan for ING will give the necessary reassurance to WUB and its employees. Finally, with respect to the comments of Vereniging Eigen Huis, the Netherlandspoints out that the documentary relates to the Dutch mortgage market and suggests that it contact the Dutch competition authority on that issue. The Netherlands notes that the third issue to be assessed by the Commission deals with the complaints of Mediobanca about the adherence by ING Direct to the price leadership ban in Italy.
According to the Netherlands, the current crisis in Europe was not foreseen when ING submitted its restructuring plan of 22 October 2009, and the impact was clearly not reflected in the financial projections submitted at that time.
In addition, ING's funding and liquidity position has remained healthy. For instance, ING did not make use of the Long-Term Refinancing Operations made available by the ECB in December 2011 or March 2012.
As a result of the sovereign debt crisis, ING was for instance faced with significant losses on its Greek government bond portfolio that had to be written down by almost 80 % as a result of the Greek Private Sector Involvement. That write-down resulted in a cumulative loss of approximately EUR 1 billion for ING.
The Netherlandspresented the Commission on 31 October 2012 with a new proposal consisting of a series of amendments to the restructuring plan of 22 October 2009, aimed at addressing the concerns raised in the Opening Decision and committing to new deadlines for the divestment of ING Insurance accompanied by a prolongation of the restructuring period.
The Netherlands renews its commitment for ING to create a new company for divestment in that MemberState(hereinafter "the Divestment Business"), which will be carved out from ING's current Dutch retail banking business. The result has to be that the new company is a viable and competitive business, which stands alone and is separate from the businesses retained by ING. That new company will comprise parts of the business of the already carved-out WUB and the current (limited) activities of the recently established banking division of Nationale Nederlanden (NN Bank).
The Divestment Business will be placed under ING Insurance/Investment Management (IM) Europe which has a long-term strategic commitment to the Dutch retail market and will operate under the "Nationale Nederlanden" brand (as “NN Bank”), with its own funding capabilities and a broad distribution network. As a result, NN Bank will be divested as part of ING Insurance Europe no later than 31 December 2015. That divestment will probably take place through an IPO.
NN Bank will offer a broad and coherent product line, with mortgages, savings, bank annuities, investments and consumer credit products, combined with core retail insurance products of Nationale Nederlanden (which includes but life insurance products and property and casualty insurance products). NN Bank will reach customers through an integrated multi-channel distribution model, employing independent financial advisors and tied agents with nationwide coverage for advice on complex financial situations and products, and increasingly internet and call centers for sales and service. Those distribution channels cumulatively provide access to over 2,5 million Nationale Nederlanden customers.
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The new business case of the Van Gogh scenario, including the additional commitments, projects to have a return on equity ("RoE") after five years of around [7-12] %, while in the long-run the RoE grows to a range of [9-15] %.
transfer ownership of those mortgages at no additional charge for the client or charge for NN Bank; and
allow NN Bank to use the ING Bank distribution channels to offer NN Bank mortgages to ING Bank clients to achieve the targets.
transfer ownership of those consumer loans at no additional charge for the client or charge for NN Bank.
ING commits to include a payment facility to NN Bank in the form of an NN-branded credit-card at a cost to the consumer not higher than that of a debit card. With regard to the NN-branded credit-card holders, ING will provide access free of charge to its automated teller machines ("ATMs") for three years after the launch of that credit-card and ultimately until 31 December 2015.
ING will send a marketing mailing with regard to NN Bank to 350 000 of its clients in accordance with Dutch privacy law. ING will be allowed to explain to its clients that the mailing is being made in order for ING to comply with UnionStateaid rules.
ING commits that ING Bank’s yearly mortgage production (excluding renewals) will not be higher than [2-4] times the new production of NN Bank. On a quarterly basis ING’s new production cannot exceed [2,5-5] times NN Bank’s new production in the same quarter and [2,25-4,5] times NN Bank’s new production on a half-year basis. If NN Bank’s new production on a yearly basis exceeds EUR [2-8] billion, there are no restrictions on new production for ING Bank (meaning that if over one semester (half of a year) the new production of NN Bank exceeds EUR [1-4] billion, ING will not be constrained in the volume of its new production in the consecutive semester).
Mortgages Netherlands: new production and renewals (excluding WUB mortgages) | |||||||||
AMOUNTS × EUR 1 mln | jan-11 | feb-11 | mrt-11 | apr-11 | mei-11 | jun-11 | jul-11 | aug-11 | sept-11 |
|---|---|---|---|---|---|---|---|---|---|
new production | 878 | 835 | 1 020 | 856 | 921 | 888 | 762 | 679 | 549 |
renewals | [500-1 000] | [300-800] | [300-800] | [500-1 000] | [500-1 000] | [500-1 000] | [600-1 100] | [600-1 200] | [600-1 200] |
okt-11 | nov-11 | dec-11 | jan-12 | feb-12 | mrt-12 | apr-12 | mei-12 | jun-12 | |
new production | 485 | 369 | 466 | 403 | 421 | 624 | 627 | 571 | 547 |
renewals | [600-1 200] | [500-1 000] | [600-1 200] | [600-1 200] | [500-1 000] | [400-900] | [600-1 200] | [600-1 200] | [600-1 200] |
The restriction described in Recital (85) applies from 1 January 2013 until 31 December 2015. In the transitional period up to the launch of NN Bank, ING commits to a maximum new production (excluding renewals) of [2-4] times EUR [1,5-6] billion (EUR [3-24] billion) on a yearly basis. ING will report on progress on a quarterly basis.
NN Bank will be largely self-funded through retail savings and excess funding from the insurance business, complemented by external funding as needed. Nationale Nederlanden has access to funding and capital to enable growth and production of mortgages, which is a competitive advantage in current market conditions.
NN Bank needs to self‐fund its balance sheet. NN Bank’s funding profile will be in line with the projections of the balance sheet as proposed in the business case. ING will not increase its funding of NN Bank in absolute amounts beyond the amounts in the NN Bank business plan for each year and the maximum funding provided by ING in 2015 will be EUR 2,7 billion.
The funding provided by ING at the end of 2015 (with a maximum amount of EUR 2,7 billion) has to take the form of marketable securities, where ING can buy at market prices unsecured or secured notes, such as covered bonds or residential mortgage-backed securities ("RMBS"). The notes can also be bought by investors other than ING. 100 % of the notes should have a tenor at issuance of five years or more, 66 % a tenor equal or longer than seven years and 33 % a tenor equal or longer than ten years. The determination of an ‘arm's-length’ pricing will be either decided by the pricing of the security itself or, if ING is the only buyer of the security, by secondary market prices of comparable peers proposed by the Monitoring Trustee.
If, due to material changes to the regulatory environment and/or market circumstances, the actual funding is below those ranges, as a result of which the balance sheet projections need to be updated, ING will report that fact to the Monitoring Trustee and the Commission. The Monitoring Trustee in consultation with the Commission will propose which measures should be taken in order to safeguard the viability of NN Bank to be approved by Commission.
ING’s level of funding will be reviewed on an annual basis starting from the launch of NN Bank, i.e. the moment from which the described NN Bank structure becomes operational, and until 31 December 2015.
If the funding projections of the NN Bank business plan are not met by the end of each year, ING will take the following corrective measures described in Recitals (94) to (96).
After the first year, ING will send a marketing mailing with regard to NN Bank to an additional 50 000 ING clients if actual funding is under 80 % and an additional 100 000 ING clients if actual funding is under 75 % of the base case projection of the first year. After the second year, ING will send a marketing mailing with regard to NN Bank to an additional 100 000 ING clients if actual funding is under 85 % and 150 000 additional ING clients if actual funding is under 80 % of the base case projection of the second year. Mailings will be done in accordance with Dutch privacy law. ING will be allowed to explain to its clients that the mailing is required in order for ING to comply with UnionStateaid rules.
If the actual funding of 2015 is under 85 % of the base case projection of 2015, ING will, in addition to the corrective measures described in Recitals (94) to (95), provide a two-year extension of free access to the ING ATMs for NN-branded credit-card holders (until 31 December 2017).
The Commission will assess the commitments set out in Recitals (73) to (96) upon the divestment of more than 50 % of ING Insurance Europe or, as the case may be, of NN Bank or by 31 December 2015, whichever date comes earlier. The commitments will end on the date of the divestment of more than 50 % of ING Insurance Europe or, as the case may be, NN Bank, unless specified otherwise.
The creation of NN Bank will be carried out under the supervision of the currently appointed Monitoring Trustee. ING will ring-fence NN Bank up to the divestment of more than 50 % of ING Insurance Europe, to be monitored by the Monitoring Trustee. For the implementation of the ring-fencing, a leading design principle will be that it will allow NN Bank and NN Insurance to adequately execute an integrated commercial strategy between retail insurance and retail banking products & services.
ING will refrain for an interim period up to and until 12 months after the divestment of NN Bank (divestment of more than 50 % of ING Insurance Europe and NN Bank) from actively soliciting customers of NN Bank for products that NN Bank is supplying to those customers on the date of the adoption of the present Decision.
By executing NN Bank business plan, part of the existing mortgages portfolio of WUB will be retained by ING. The balance sheet of NN Bank will be modest at the start, to provide adequate matching of assets and liabilities and grow quickly to a mid-sized player. The capitalisation of NN Bank will be sufficient to execute its long-term growth plan: ING will transfer economic benefits of the ING-retained portfolio (EUR 350 million based on the net present value of the (economic) profits of that portfolio) as an upfront capital injection, and will provide additional capital (up to EUR 120 million) if and when needed but ultimately just before divestment (if Basel III leverage ratio becomes mandatory, and when NN Bank needs capital to execute its business plan). That planned evolution in capitalisation of NN Bank will ensure growth until about 2016, after which NN Bank will be able to fund its growth by itself. In sum, ING will bear all expenses and risks of the retained mortgages portfolio (until maturity) and will transfer the profits to NN Bank.
ING commits that the minimum targeted Tier-one level of NN Bank will be 12 % (which is well above the regulatory minimum requirement) by the earliest of 31 December 2015 or upon divestment of more than 50 % of ING Insurance /IM Europe or, as the case may be, NN Bank.
Divesting control of more than 50 % of ING’s interest (measured in shares) in a business qualifies as meeting the divestment requirement. In such a case, ING will lose the majority in the board and will deconsolidate the business (in line with International Financial Reporting Standards accounting rules). ING will divest its remaining interests in (i) ING Insurance Europe before 31 December 2018, (ii) ING Insurance US before 31 December 2016, and (iii) ING Insurance Asia before 31 December 2016.
ING commits to eliminate double leverage. To that end, as insurance divestments take place, divestment proceeds will be used to reduce double leverage - to the extent that proceeds are not needed to keep the leverage of the remaining insurance business at an acceptable level - ultimately leading to the full elimination of double leverage. Separately, to the extent that surplus capital is being generated in excess of what is needed to satisfy Basel III or Solvency II needs, dividends to ING Group can form an additional source to help accelerate the elimination of double leverage.
The Netherlandsfurthermore commits that ING will adhere to an acquisition ban.
Notwithstanding that prohibition, ING may, after obtaining the Commission’s approval, acquire businesses, in particular if it is essential in order to safeguard financial stability or competition in the relevant markets.
The Netherlandsfurthermore commits that ING Bank will adhere to a price leadership ban.
A monitoring trustee preselected and proposed by ING, will be appointed by the Netherlandsto monitor that commitment (the "PLB Monitoring Trustee"). The appointment of the PLB Monitoring Trustee is subject to the Commission’s approval.
No price leadership ban will apply for the Netherlands(mortgages, savings, small and medium-sized enterprises' (SMEs) deposits, private banking etc.). For other non-ING Direct businesses in the EU with a market share of more than 5 %, the restrictions in Recitals (113) to (114) apply.
Without prior authorisation of the Commission, ING will not offer more favourable prices on standardised ING products (on markets as defined in Recital (114)) than its three best-priced direct competitors with respect to EU markets in which ING has a market share of more than 5 %. As a result, ING can at best offer a price while there are at least three products on the market with a better price.
In case the number of prices in the benchmark based on the best rate from each of the top ten financial institutions is less than ten, the 11th, 12th 13th etc. largest financial institution will be used until ten prices from different financial institutions have been found.
For Spain, France and Italyspecific benchmarking agreements have been made. In the specific case of Italy (core rate), ING commits to price lower than the number 1 core rate in Italy compared to the full savings market (excluding three niche players: […]). New market entrants will be assessed by the PLB Monitoring Trustee. The benchmark for Italian variable savings promotional rates is constructed based on the top ten financial institutions. For each financial institution, the highest variable savings promotional rate will be taken into account. If the financial institution does not offer a variable savings promotional rate, the highest [1-12]-month fixed-term deposit offer will be taken instead. However, if more than [2-6] out of the top ten financial institutions offer a variable savings promotional rate, the ability to include [1-12]-month fixed term deposits is no longer valid. ING commits to price lower than the best offer in that benchmark list. Details to the exceptions and other clarifications are included in the attachment referred to in Recital (118).
In case of market changes leading to a lack of significant competition within a certain benchmark category, even after having included all financial institutions, or in case of competitors (i) providing incorrect or incomplete information to customers with regard to ING’s price leadership ban or (ii) trying to expose ING to the risk of breaching the price leadership ban, the PLB Monitoring Trustee will, after hearing the Commission, make a proposal and seek the agreement of Commission and ING in order to find a solution in the spirit of the solutions as included in the attachment.
ING will continue to orientate its non-deposit funding towards longer-term funding by issuing more debt instruments with a maturity more than one year. That strategy will imply that the relative share of outstanding long-term funding (with maturity of more than one year) in the non-deposit part of ING’s balance sheet will continue to increase. The success of that strategy depends on markets reverting to less stressed conditions.
Regarding calling of Tier 1 and Tier 2 securities the Netherlands commits that ING will propose to the Commission for authorisation every calling or buy-back of Tier 2 capital and Tier 1 hybrids until the earlier date of 18 November 2014 or the date on which ING has fully repaid the CT1 securities to the Netherlands (including the relevant accrued interest on coupons on those CT1 securities and exit premium fees).
ING will not be obliged to defer coupon payments on hybrids.
The Dutch authorities understand that the Commission is against State aid recipients remunerating own funds (equity and subordinated debt) when their activities do not generate sufficient profits and that the Commission is in that context in principle against the calling of Tier 2 capital and Tier 1 hybrids.
Notwithstanding the restriction set out in Recital (126), ING will be allowed to call the EUR 1,25 billion ING VerzekeringenNVhybrid (ISIN XS0130855108) that has a change of control trigger, upon which ING Verzekeringen NV would be in default. The calling of that instrument is a pre-requisite for the required restructuring to allow for a standalone insurance business. The change of control clause will be triggered upon the divestment of Insurance Asia.
The Netherlandscommits that ING will refrain from mass marketing invoking the recapitalisation measure as an advantage in competitive terms.
The Netherlandscommits that the full execution of ING's restructuring will be completed before 31 December 2015, unless otherwise specified e.g. the divestment of the remaining interest (i.e. interest below 50 %) in the ING Insurance business.
To bring the total payment exactly to EUR 4,5 billion, for a very small part ING will need to exercise the conversion option of the CT1 securities, because repurchase at 150 % will trigger accrued interest if not done on 13 May of each year. In case of (such) conversion (also as described under this commitment below), the DutchStatewill opt for redemption at par in cash.
Those repayments will predominantly be done by repurchasing the CT1 securities from the Netherlandsand by paying the related 50 % premium. The schedule leads to a total repayment of EUR 4,5 billion translating into an overall IRR of exactly 12,5 %, which is above the overall return of at least 10 % mentioned in the Rescue Decision. ING will only use its conversion option to the extent that coupon payments are triggered and/or accrued interest is payable, such that the proceeds will be equal to a total of EUR 4,5 billion. In such a case, the coupon and/or accrued interest payments leading to proceeds over the total of EUR 4,5 billion will be effectively deducted from or as the case may be credited against the 50 % premium payment. Bringing the total repayment to EUR 4,5 billion EUR can be achieved by a - pro rata - conversion of part of the remaining securities instead of repurchasing them. All remaining payments (notional, premium, coupons and/or accrued interest) sum up to a total of EUR 4,5 billion.
The actual repayments of the tranches within the above-mentioned schedule are conditional upon approval of DNB.
If a repayment tranche cannot be made in full or in part, ING will make it up by a corresponding increase of the subsequent tranche. The Netherlandscommits to re-notify the recapitalisation measure in the event that ING does not repay in full two consecutive repayment tranches.
If ING does not repay a total of EUR 4,5 billion by 15 May 2015 as indicated in the schedule, the DutchStatecommits to re-notify the recapitalisation measure.
With respect to the repayment schedule, it should be recalled that according to the terms of the CT1 securities ING - after three years following the granting of recapitalisation measure - was free to choose between repaying the CT1 securities at 150 % or convert them into shares on a one-on-one basis (in which case the Netherlands could request a repayment in cash at 100 %). The Netherlandsrecalled that ING's right to convert its CT1 securities to shares was activated on 12 November 2011.
The Netherlandspoints at ING's repayment schedule with a total payment of EUR 4,5 billion, making very limited use of its conversion right. The repayment schedule included in this Decision leads to an IRR of 12,5 %. […]
The Netherlandsfurther informed the Commission that DNB has taken a framework decision on 22 October 2012 based on the divestment measures examined in the present Decision. In addition to its framework approval of the divestment measures, DNB also needs to give approval for each of the repayment tranches of the CT1 securities at the time of repayment in order to ensure that a repayment is prudentially acceptable. The repayment of EUR 750 million nominally and EUR 1,125 billion including the premium for 2012 has already been approved by DNB. The Netherlandsexpresses its confidence that if market circumstances do not change materially and ING delivers on its capital plan, they are confident that DNB will approve the repayment tranches envisaged in Annex I.
Full and proper implementation of all the commitments and obligations set out in Annex I will be continuously and thoroughly monitored until 31 December 2015 by a suitably qualified monitoring trustee who is independent of ING. The company currently entrusted with that task will continue monitoring the commitment regarding the Van Gogh scenario and all other commitments in Annex I, except for the monitoring of the price leadership ban. The price leadership ban will be monitored by a new trustee, the PLB Monitoring Trustee. The appointment and performance of both Trustees will be reviewed by the Commission after six months and from then onwards on a continuous basis. The costs of all trustees appointed during the restructuring process will be borne by ING.
ING and the Netherlands commit that the progress reports about the implementation of the restructuring plan will be provided to the Commission every six months until 31 December 2013 and annually thereafter until 2018 or until the full divestment of the ING Insurance business.
If ING has not satisfied a divestment commitment or any NN Bank-related commitments to be executed in 2015, the Netherlandswill re-notify the recapitalisation measure to the Commission.
According to the Netherlandsthe allegation of Mediobanca is incorrect because Banca Sistema raised its rate to 4,25 % on 30 August 2011. ING provided evidence that the interest rate offered by Banca Sistema on its SI Conto! was 4,25 % on 30 August 2011.
According to the Netherlands the market share of ING in savings in Italy decreased from [1-4] % at the end of 2008 when the State aid was received to [1-4] % at the end of 2011.
The Netherlands explained to the Commission that although ING considers that it has formally respected the price leadership ban in Italy, ING is willing to accept a revised price leadership ban in order to avoid misunderstandings and in order to meet the Commission’s concerns so that complaints such as that of MedioBanca in Italycan be avoided. In some markets, like Italy ING Direct offers products that are not offered by the mainstream banks. As a result, ING Direct was sometimes required to benchmark those products against low-volume products of smaller players. The revised price leadership ban ensures that ING Direct’s prices are benchmarked against the top-ten mainstream financial institutions (groups). The revised price leadership ban also includes (procedural) clarifications and/or amendments, e.g. regarding the timeline for adjusting prices after ING has become aware of a price leadership position combined with a limit on the validity of market offerings.
In respect of the financial performance of ING Direct, the Netherlandsprovided information according to which the EUR 608 million impairments for ING Direct are attributable to impairments of Greek government bonds for an amount of EUR 347 million. A further EUR 187 million of impairments result from the reduction of the exposure of ING Direct to over-concentrated assets in the region classified as "southern Europe" by ING. That EUR 187 million loss resulted from a sale of EUR 2,3 billion of exposure in that category. Finally, EUR 74 million in impairments related to a RMBS portfolio in ING Direct US.
According to the data provided, the level of LLPs for 2011 is divided between EUR 326 million recorded by ING Direct USA and only EUR 136 million to other locations.
The present amendment does not entail additional aid to the benefit of ING.
The Commission has established in the 2012 Restructuring Decision that ING has received State aid of more than EUR 15 billion, of which the recapitalisation measure represents EUR 10 billion. Further the Commission has established that the amendment of the repayment conditions of the CT1 securities constituted aid in favour of ING.
In contrast to the situation in 2009, the Netherlands did not enter into an ad-hoc arrangement whereby the Netherlandswould have made an investment choice by accepting a modification of an existing contract. The Netherlandswas not required, in accepting the repayment schedule of ING to which it commits, to make an investment decision. As a result, the Commission considers that the Netherlandscould not be foregoing any revenues under the repayment schedule.
The Commission also notes that the triggering of the re-notification commitment in the Rescue Decision does not give rise to the existence of additional aid. That re-notification solely concerns an issue of compatibility insofar as it raises the question of whether the Netherlandswill receive an adequate remuneration. Therefore the commitment by ING to a fixed repayment schedule should thus be examined only to determine the compatibility of the modifications to the restructuring plan.
In the absence of additional aid the Commission will not assess the viability of ING afresh. It will only examine whether the modifications to the restructuring plan call into question the conclusion as to the viability of ING reached in the 2012 Restructuring Decision. The notified amendments affect the viability of ING in two ways: through the reduction of complexity of the business model and the elimination of double leverage and through the sustainability of the pricing strategy of ING Direct.
First, the new deadlines for the divestment of Insurance Europe prolong the commitment to reduce complexity and eliminate double leverage. By divesting more that 50 % of all insurance entities by the end of 2015 and losing control of the board of the legal entities of ING Insurance, ING's strategic decision-making will only take place in the banking market and no longer in the insurance market. Moreover, the modification does not call into question the commitment of ING to fully eliminate double leverage. The full divestment of the insurance subsidiaries will lead to the elimination of double leverage at the latest in 2018.
The modified commitment in respect of the divestment of the VA business in the US […] by ING compared to the 2012 Restructuring Decision. However […] through the commitment by ING to comply with strict run-down provisions stipulated in Annex II including full hedging of the exposure and a conservative reinvestment policy. Furthermore the possibilities of a sale must be periodically explored and the retention […] should therefore be only temporary.
Second, the allegation that ING has acted as a price leader has been rebutted. ING has submitted evidence that it was not the best priced among all participants in the market and thus did not infringe the price leadership ban in the 2009 Restructuring Decision.
The Commission notes that Banca Sistema offered better rates than ING Direct in September 2011. However, Banca Sistema is not among top players in the market in terms of market share and brand recognition. While the Netherlands have demonstrated that ING Direct has not infringed the text of the commitment on price leadership, the positioning of ING Direct in Italyjust below Banca Sistema nevertheless confirms that pricing is still a key element in the commercial strategy of ING Direct.
On that basis, it should be ensured that ING Direct will not adopt a more aggressive pricing strategy than its well-established competitors.
Finally, the Commission notes positively that ING implemented in a timely fashion its divestment commitment regarding ING Direct US, which constituted a key viability measure of the restructuring plan.
Therefore, the amendments do not call into question the viability analysis of the 2012 Restructuring Decision and have allayed the Commission's doubt expressed in the Opening Decision.
The doubts that the Commission raised in the Opening Decision that ING regarding the remuneration strategy in respect of the CT1 securities, which have put into question the appropriate remuneration of the CT1 securities have been allayed by the proposed new repayment schedule and its inherent commitment to an IRR of 12,5 %.
However, the Commission cannot agree with the argument of ING indicated in Recitals (39), (40) and (41) that the Commission was not entitled to comment on its dividend policy as the Rescue Decision only refers to the IRR being at a level of at least 10 % and that there can be no doubt that such a level of return will be achieved. In particular the Commission cannot agree with the argument that it was not entitled to re-examine the dividend policy of ING as, independently of the payment of coupon, that policy would not lead to a return in excess of 8,5 % and that as a result the failure of ING to pay dividends (and so coupons) cannot be linked to the level of IRR. Contrary to what ING contends, it is not the case that the Commission has in the 2012 Restructuring Decision (as well as the now annulled 2009 Restructuring Decision) taken note of ING’s dividend policy.
Those arguments must be rejected because they rest on a partial reading of Recital 32 of the Rescue Decision. To put into context the commitment given by the Netherlands and on which the Rescue Decision is based, it is necessary to take account of the observations made by that MemberStateand by ING which are recorded in Recital 31 of that Decision. Against that background, it is clear that the Commission took a favourable view of the recapitalisation measure in light of the re-notification commitment precisely because the MemberStatehad indicated that an appropriate return would be secured in part through the payment of coupon and because ING had indicated that it would continue its previous dividend policy. Since the Commission was aware that the level of assistance to a bank through a direct recapitalisation would vary depending on the degree of remuneration provided to the Member State, the Commission was in a position to temporarily approve the recapitalisation measure in light of the commitment of the Member State to re-notify which offered the Commission a degree of reassurance that the bank would not obtain State assistance without paying a suitable return.
The Commission also underlines that when it approves a measure, it does so on the basis of any accompanying commitments which form an integral part of the measure in question. As such, the re-notification commitment was built into the measure examined and temporarily approved by the Rescue Decision. When the Commission re-examined the recapitalisation measure in the 2012 Restructuring Decision, the re-notification commitment remained an integral part of that measure and there is nothing in the latter decision to indicate that the Commission had ceased to consider the re-notification commitment as relevant to its assessment. Moreover, the very wording of the re-notification commitment indicates that the Commission understood it to be applicable for five years and that the Netherlandshad offered its commitment to cover that time period. As such, there is nothing to indicate that the Commission's treatment of the recapitalisation measure as a component of the restructuring aid approved in the 2012 Restructuring Decision affected the re-notification requirement.
Therefore the re-notification of the recapitalisation measure and the underlying facts were apt to call into question the compatibility of the remuneration of the CT1 securities. However, in line with the 2008 Rescue Decision, the measure’s compatibility can in any event be ensured if sufficient behavioral commitments have been put in place by the Netherlandsin order to ensure an adequate remuneration of the State capital.
Above all, despite the delays in the sale of the European and the United States Insurance business ING should still be able to adhere to a fixed repayment schedule by 2015. That assessment is not altered by the modification of the detailed arrangements of the divestment which, according to the modified commitment, would in the first place proceed through the sale of more than 50 % of the relevant insurance businesses. While the Commission notes that the sale of a majority of the relevant businesses will allow them to be disaggregated from ING from an accounting and regulatory perspective, it also takes positive note that the Netherlands commits in addition that ING will divest the Asian and United States Insurance business by the end of 2016 and ING Insurance Europe in full by the end of 2018.
In view of the above the Commission considers that the amendments do not call into question the conclusion of the 2012 Restructuring Decision as to the level of burden-sharing and have allayed the Commission's doubts regarding the remuneration of the CT1 securities.
The amendments notified to the Commission concern, in particular, the adequate remuneration of State aid and the divestment of a new competitive force in the Dutch retail market.
Second, by committing to divest WUB, the Netherlandsand ING undertook to bring a viable and competitive new force to the Dutch retail market. The Netherlandsand ING failed to implement that initial commitment. They have proposed the Van Gogh scenario as an alternative, on which the Commission raised doubts in the Opening Decision. Those shortcomings have in the meantime been rectified through three key commitments, which together re-align the incentives of ING to create a sustainable new actor on the Dutch market.
In the current macroeconomic environment, where the future evolution of the size of the market can only be predicted with relatively high uncertainty, it is appropriate to fix a production cap relative to the performance of NN Bank rather than at an absolute level. The linkage in the ban will ensure that if the market grows or declines more than expected ING will have the necessary incentives to keep the market share of NN Bank in line with the projected level.
That linked ban commitment is further strengthened through the self-funding commitment described in Recitals (87) to (96). In fact, the new production of NN Bank should be self-funded to ensure real independence from ING in the medium-term. The linked ban could lead ING to encourage NN Bank to fund its new production in an unsustainable way in order to avoid a production constraint for ING in the short-term. ING committed that the funding will to a large extent consist of customer liabilities, insofar as total deposits and wholesale funding will constitute at least 75 % in the first year, 80 % in the second year and 85 % in the third year of the funding in the base case projections, whereas wholesale funding must be limited to EUR [1-4] billion.
In addition, in order to achieve a critical mass of a market share of [2-9] % it is acceptable that ING funds NN Bank up to the maximum amount of EUR 2,7 billion in line with the NN Bank business plan until the moment of the divestment. However in order to achieve independence of NN Bank as a new actor on the Dutch retail banking market, that funding beyond the divestment can only take the form of securities issued by NN Bank and purchased by ING in transactions in line with market conditions. The Commission positively notes that under that commitment ING cannot influence the business strategy of NN Bank by threatening to suddenly withdraw the latter's funding, as the securities will have a minimum maturity of five to ten years.
The business case of NN Bank projects to fund up to EUR [2-8] billion in a sustainable way. If that level is reached NN Bank would have achieved a sufficient size to establish itself as a new entrant. Therefore, it is acceptable that ING is not constrained in its own production beyond that level.
The credibility of the self-funding strategy of NN Bank is ensured through the corrective actions envisaged in the commitments made by the Netherlandsbeing monitored and implemented on a continuous basis. Those corrective actions are targeted to address possibly self-funding deficits and create additional incentives for ING to ensure that the NN Bank funding objectives are achieved. The continuous monitoring will allow shortcomings to be detected in a timely way and before the final divestment deadline.
Once again, the credibility of those commitments is ensured by the fact that ING will take corrective action if NN Bank undershoots its targets. The Commission observes that ING has committed to transfer individual client relationships through a transfer of mortgages to NN Bank where switching costs would be fully and solely borne by ING. Such a mechanism avoids risks of low-quality implementation by, for example securitisation of an old portfolio which would offer few business opportunities for NN Bank to increase its market share.
With respect to the scope of NN Bank's product assortment, the Commission takes note of the fact that NN Bank will have activities in five product domains that is to say mortgages, consumer finance, savings, bank annuities and retail securities. The fact that NN Bank has enlarged its product scope compared to that envisaged for the WUB commitment in the 2012 Restructuring Decision by developing a payments facility in the form of a credit card further contributes to the diversification of the business model and thereby addresses one of the shortcomings of the WUB business model, namely its status as a mortgage monoliner.
A number of the viability-related concerns which made the divestment of WUB difficult (in particular the large funding gap) have been addressed by the Van Gogh scenario. The current financial projections of NN Bank indicate that it could be a viable entity. With respect to capital adequacy, the Commission notes the solvency of the bank will be in the medium-term ensured by the commitment of ING to provide NN Bank with a minimum Tier 1 ratio of 12 %. At the same time, NN Bank's credit card offer should also help to improve the stickiness of savings accounts. Finally, the Commission notes that NN Bank will benefit from the financial strength of its parent, ING Insurance Europe. Altogether, the measures proposed by the Netherlandsprovide a plausible scenario for a viable and competitive force in the Dutch retail market. The commitments and in particular the clearly defined corrective actions and triggers should provide sufficient certainty of successful implementation. That assessment is also underlined by the third party observations, which reiterate the credibility of the business model of NN Bank.
The Commission notes that the prolongation of the price leadership ban in markets where ING's market share is at 5 % or above constitutes an additional measure to address distortions of competition. That prolongation is not applicable in the Netherlandswhere the preservation of the current market share of ING in the mortgages is conditional on the success of NN Bank, through the linked ban. Notwithstanding the fact that the comments by Vereniging Eigen Huis are not of relevance in relation to the doubts brought forward by the Commission in the Opening Decision and do not reveal a direct causal relationship between the price leadership ban on ING and the behaviour of the Dutch market in mortgages, they would have been in any case addressed by the reduced scope of the price leadership ban.
Therefore the Commission considers that the amendment of the WUB commitment combined with the prolongation of the price leadership ban and the acquisition ban does not call into question its conclusion in the 2012 Restructuring Decision that there are sufficient measures to limit distortion of competition.
Taking into account the balance of measures, the Commission concludes that the new commitments are sufficient to allay the doubts of the Commission expressed in the Opening Decision as regards undue distortions of competition and to ensure the compatibility of the restructuring aid.
In conclusion, the amended commitments together with the repayment of EUR 4,5 billion based on a fixed repayment schedule bring the compatibility assessment in line with the 2012 Restructuring Decision in so far as they are apt to ensure the restoration of viability, burden-sharing and address distortions of competition. The proposed amendment of the 2012 Restructuring Decision, on the basis of the new commitments continues to ensure compatibility of the recapitalisation measure and of the restructuring aid granted by the Netherlandsto ING. On that basis the doubts that the Commission has raised in the Opening Decision have been allayed,
HAS ADOPTED THIS DECISION:
Article 1
The capital injection of EUR 10 billion subscribed by the Netherlnads on 22 October 2008 continues to be compatible with internal market, in the light of the commitments set out in Annex I.
Article 2
The State aid referred to in Commission Decision of 11 May 2012 in case SA.28855 (N 373/2009) (ex C 10/2009 and ex N528/2008) continues to be compatible with the internal market, in the light of the commitments set out in Annex I.
The commitments in the Annex to Commission Decision of 11 May 2012 in case SA.28855 (N 373/2009) (ex C 10/2009 and ex N528/2008) are replaced by the commitments in Annex I.
Article 3
This Decision is addressed to the Kingdom of the Netherlands.
Done at Brussels, 16 November 2012.
For the Commission
Joaquín Almunia
Vice-President
ANNEX ICATALOGUE OF COMMITMENTS
a)
Repayment of the remaining Core Tier 1 Securities;
ING will repay the remaining 300 000 000 Core Tier 1 Securities to the Netherlandsaccording to the following schedule: (i) EUR 1 125 million by 26 November 2012, (ii) EUR 1 125 million by 6 November 2013, (iii) EUR 1 125 million by 31 March 2014, and (iv) EUR 1 125 million by 15 May 2015 as further detailed in the schedule below.
To bring the total payment exactly to EUR 4,5 billion, for a very small part ING will need to exercise the conversion option of the Core Tier-1 securities, because repurchase at 150 % will trigger accrued interest if not done on 13 May of each year. In case of (such) conversion (also as described under this commitment below), the DutchStatewill opt for redemption at par in cash.
Those repayments will predominantly be done by repurchasing the Securities from the DutchStateand by paying the related 50 % premium. The above-mentioned schedule leads to a total repayment of EUR 4,5 billion translating into an overall internal rate of return (IRR) of exactly 12,5 %, which is above the overall return of at least 10 % mentioned in the Commission’s Decision of 12 November 2008. ING will only use its conversion option to the extent that coupon payments are triggered and/or accrued interest is payable, such that the proceeds will be equal to a total of EUR 4,5 billion. In such a case, the coupon and/or accrued interest payments leading to proceeds over the total of EUR 4,5 billion will be effectively deducted from casu quo credited against the 50 % premium payment. Bringing the total repayment to EUR 4,5 billion EUR can be achieved by a - pro rata - conversion of part of the remaining securities instead of repurchasing them. All remaining payments (notional, premium, coupons and/or accrued interest) sum up to a total of EUR 4,5 billion.
The actual repayments of the tranches within the above-mentioned schedule are conditional upon approval of the Dutch Central Bank (DNB).
It is ING’s ambition to repay the DutchStateas quickly as possible, and ING will accelerate payments if it is prudent under prevailing financial circumstances. If ING accelerates the payments, it would consequently lead to an IRR above 12,5 %.
If a repayment tranche cannot be made in full or in part, ING will make it up by a corresponding increase of the subsequent tranche. The DutchStatecommits to re-notify the Core Tier 1 recapitalisation measure in the event that ING does not repay in full two consecutive repayment tranches.
If ING does not repay a total of EUR 4,5 billion by 15 May 2015 as indicated in above schedule the DutchStatecommits to re-notify the Core Tier 1 recapitalisation measure.
b)
Commitments regarding ING’s balance sheet reduction;
- ING continues to reduce its balance sheet by approximately 45 % compared to Q3 2008 via divestments74 or other measures aimed at reducing the size of the balance sheet (such as run down of portfolios)75 until 31 December 2015. The committed balance sheet reduction is based on ‘Q3 2008 data and does not take into account the possible impact of organic growth, FX changes, interest rate changes or additional increases due to potential new regulatory requirements, such as for example if banks are required to hold significantly larger liquidity buffers due to new EU-wide regulations.
- ING will not have a restriction on organic (that is to say not related to acquisitions) growth of the balance sheet of its businesses. ING continues to have a general policy to use its growth in funds entrusted by customers mainly to increase lending to the real economy (corporates and consumers) and continues to decrease its exposure to higher risk asset classes within CMBS and RMBS. It will not start new initiatives that increase its direct real estate exposure76, in line with ING’s general de-risking policy.
- ING commits to divest more than 50 % of ING Insurance/Investment Management (IM) Asia operations before 31 December 2013, more than 50 % of ING Insurance/IM US operations before 31 December 2014 and more than 50 % of ING Insurance/IM Europe operations before 31 December 201577, in addition to the entities/business activities which ING already has divested/placed in run-off/completed as listed in Recital 77 of the 2012 Commission Decision and the latest bi-annual progress report78. In addition, for the US Insurance/IM business, ING commits to divest at least 25 % of the business before 31 December 201379.
Divesting control of more than 50 % of ING’s interest (i.e. measured in shares) in a business qualifies as meeting the divestment requirement. In such a case, ING will lose the majority in the board and will deconsolidate the business (in line with IFRS accounting rules). ING will divest its remaining interests in (i) ING Insurance/IM Europe before 31 December 2018, (ii) ING Insurance/IM US before 31 December 2016, and (iii) ING Insurance/IM Asia before 31 December 2016.
c)
The Netherlandsfurthermore commits that ING will adhere to an acquisition ban:
- ING will refrain from acquisitions of financial institutions for an additional period. Moreover, ING will refrain, for the same period, from acquiring any (other) businesses that would slow down the repayment of the Core Tier 1 Securities to the Netherlands. The acquisition ban will apply until 18 November 2015 or until the date on which more than 50 % of the Insurance/IM operations in Asia, 50 % of Insurance/IM US and 50 % of Insurance/IM Europe have been divested, whichever date comes earlier80.
Notwithstanding that prohibition, ING may, after obtaining the Commission’s approval, acquire businesses, in particular if it is essential in order to safeguard financial stability or competition in the relevant markets.
d)
The Netherlandsfurthermore commits that ING Bank will adhere to a price leadership ban:
ING EU (non-ING Direct) > 5 % market share
No price leadership ban will apply for the Netherlands(mortgages, savings, SME deposits, private banking etc). For other non-ING Direct businesses in the EU with a market share of more than 5 %, the following applies.
Without prior authorization of the Commission, ING will not offer more favourable prices on standardized ING products (on markets as defined below) than its three best-priced direct competitors with respect to EU-markets in which ING has a market share of more than 5 %. This means that ING can at best offer a price while there are at least three products on the market with a better price.
That commitment is limited to ING's standardized products on the following product markets: (i) retail savings market, (ii) retail mortgage market, (iii) private banking insofar it involves mortgage products or saving products or (iv) deposits for SMEs (where SME is defined according to the definition of SME customarily/currently used by ING in its business in the relevant country). As soon as ING becomes aware of the fact that it offers more favourable prices for its products than its three best-priced competitors, ING will as soon as possible adjust, without any undue delay - within [0-20] working days if allowed on basis of (local) legal and regulatory rules -, its price to a level which is in accordance with this commitment. At the moment ING sets its prices, it will assess whether they comply with the price leadership restrictions. In order to minimise conflicts between the price leadership ban and legal and regulatory restrictions on adjusting prices, ING will limit the validity of its market offerings to a maximum of three months.
ING Direct EU
- Moreover, to support ING's long-term viability, ING Direct will refrain, without prior authorisation of the Commission, from offering a more favourable price than its best priced direct competitor (among the ten financial institutions having the largest market share in the relevant product market)81 with respect to standardised ING products on the retail mortgage and retail savings markets within the EU. This means that ING can at best offer a price while there is at least one product on the market with a better price. A financial institution will be defined as all companies within a group (e.g. second brands, subsidiaries are included). All prices offered by such a financial institution (including prices of second brands and subsidiaries) can be used for benchmarking.
As soon as ING Direct becomes aware of the fact that it has become the price leader on a retail mortgage or retail savings markets within the EU, ING Direct will adjust its price to a level which is in accordance with this commitment as soon as possible without any undue delay - within [0-20] working days if allowed on basis of (local) legal and regulatory rules. At the moment ING Direct sets its prices, it will assess whether they comply with the restrictions. In order to minimise conflicts between the price leadership ban and legal and regulatory restrictions to adjust prices, ING Direct will limit the validity of its market offerings to a maximum of three months.
In case the number of prices in the benchmark based on the best rate from each of the top ten Financial Institutions is less than ten, the 11th, 12th 13 etc largest Financial Institution will be used until ten prices from different Financial Institutions have been found.
For each country and product group, a pre-set top ten Financial Institutions list has been agreed (which is included in a separate document which has been agreed with the Commission as the basis for the monitoring) and will be used until 30 June 2013 and updated periodically. In the second quarter of 2013 the PLB Monitoring Trustee will review the list and propose changes if needed.
For Spain, France and Italyspecific benchmarking agreements have been made. In the specific case of Italy (core rate), ING commits to price lower than the number 1 core rate in Italy compared to the full savings market (excluding three niche players: […]). New market entrants will be assessed by the PLB Monitoring Trustee. The benchmark for Italian variable savings promotional rates is constructed based on the top ten Financial Institutions. For each Institution, the highest variable savings promotional rate will be taken into account. If the Financial Institution does not offer a variable savings promotional rate, the highest [1-12] month fixed-term deposit offer will be taken instead. However, if more than [2-6] out of the top ten Financial Institutions offer a variable savings promotional rate, the ability to include [1-12]-month fixed term deposits is no longer valid. ING commits to price lower than the best offer in that benchmark list. Details to the exceptions and other clarifications are included in a separate document which has been agreed with the Commission for the monitoring.
General
Moreover, ING will not offer acquisition incentives (e.g. cash bonuses) paid to open a savings account that are, in combination with the interest rate offered, more favourable than the highest combination of interest rate and acquisition incentive on the savings market. In addition, when offering a bundle of products (including a savings account), any combination of interest rates and acquisition incentives for such bundle will not be higher than the highest combination of interest rates and acquisition incentives on the savings market or for a similar bundle. A bundle includes the pricing of the product itself. In order to calculate the combined value of the offer, the acquisition incentive is discounted with ING's average first deposit for the campaign on a 12-month basis, resulting in an effective combined interest rate. For ING EU ((non-ING Direct) > 5 % market share), the bundles will be compared to the three best priced direct competitors. For ING Direct, the bundles will be compared to the ten financial institutions having the largest market share in the relevant product market.
In case of market changes leading to a lack of significant competition within a certain benchmark category, even after having included all Financial Institutions, or in case of competitors (i) providing incorrect and/or incomplete information to customers with regard to ING’s price leadership ban or (ii) trying to expose ING to the risk of breaching the price leadership ban, the PLB Monitoring Trustee will, after hearing the Commission, make a proposal and seek the agreement of Commission and ING in order to find a solution in the spirit of the solutions as included in a separate document which has been agreed with the Commission for the monitoring.
- The price leadership ban restrictions committed by ING in 2009, which are included in the Annex to the Commission’s Decision of 11 May 2012, will remain in force for a transition period up to three months after the Commission’s Decision on this amended Annex. The amended restrictions set out in this Annex will enter into force three months after the Commission’s Decision on this amended Annex. The price leadership ban will apply until 18 November 2015 or until the date on which more than 50 % of the Insurance/IM operations in Asia, 50 % of the Insurance/IM operations in the US82 and 50 % of the Insurance/IM operations in Europe have been divested, whichever date comes earlier. A monitoring trustee preselected and proposed by ING, will be appointed by the Netherlandsto monitor this commitment ("the PLB Monitoring Trustee"). The appointment of the PLB Monitoring Trustee is subject to the Commission’s approval
e)
The Netherlandscommits to a number of detailed provisions as regards the carve-out and divestment of WUH/Interadvies:
Reference is made to the review request/business case proposal (Van Gogh) of the Netherlandsof 4 November 2011 and later updates submitted to the Commission, in particular the business case update of 11 July 2012. The Van Gogh commitments are listed below.
- ING will create a new company for divestment in the Netherlands, which will be carved out from its current Dutch retail banking business. The key financial projections of that business will be as follows83:Client balances & funding projections NN-bank
(millions)
Start
2013
2014
2015
2016
2017
Client balances
Mortgages
EUR 2 600
[…]
[…]
[…]
[…]
[…]
Consumer Finance
EUR 188
[…]
[…]
[…]
[…]
[…]
Customer Deposits
EUR 2 940
[…]
[…]
[…]
[…]
[…]
Wholesale Funding
ING Bank funding
[…]
[…]
[…]
[…]
[…]
[…]
Capital Markets
[…]
[…]
[…]
[…]
[…]
[…]
The result has to be that the new company is a viable and competitive business, which stands alone and is separate from the businesses retained by ING. That new company will comprise parts of the business of the already carved out and stand alone Westland Utrecht/Interadvies banking division (“Westland Utrecht Bank”) and the current (limited) activities of the recently established banking Division of Nationale Nederlanden (NN Bank).
The Divestment Business will be placed under ING Insurance/IM Europe which has a long-term strategic commitment to the Dutch retail market and will operate under the "Nationale Nederlanden" brand (as “NN Bank”), with its own funding capabilities and a broad distribution network. As a result, NN Bank will be divested as part of ING Insurance/IM Europe no later than 31 December 2015. That divestment will most likely take place through an initial public offering (IPO).
- NN Bank will offer a broad and coherent product line, with mortgages, savings, bank annuities, investments and consumer credit products, combined with core retail insurance products of NN Life and P&C insurance companies84. NN Bank will reach customers through an integrated multi-channel distribution model, employing independent financial advisors and tied agents with nationwide coverage for advice on complex financial situations and products, and increasingly internet and call centers for sales and service. All these distribution channels together provide access to over 2,5 million NN customers.
NN Bank will be largely self-funded through retail savings and excess funding from insurance business, complemented by external funding as needed. NN has access to funding and capital to enable growth and production of mortgages, which is a competitive advantage in current market conditions.
By executing the business case proposal, part of the existing mortgages portfolio of Westland Utrecht Bank will be retained by ING. The balance sheet of NN Bank will be modest at the start, to provide adequate matching of assets and liabilities and grow quickly to a mid-sized player. The capitalisation will be sufficient to execute its long-term growth plan: ING will transfer economic benefits of the ING-retained portfolio (EUR 350 million based on the net present value of the (economic) profits of that portfolio) as an upfront capital injection, and will provide additional capital (up to EUR 120 million) if and when needed but ultimately just before divestment (if Basel III leverage ratio becomes mandatory, and when NN Bank needs capital to execute the business plan). This will ensure growth to about 2016, after which NN Bank will be able to fund its growth by itself. Hence, ING will bear all expenses and risks of the retained mortgages portfolio (until maturity) and will transfer the profits to NN Bank.
NN Bank will have the following targets with respect to mortgages and consumer lending:
Mortgages
In mortgages, NN Bank will have an average annual new production, including renewals from the ING Bank-owned (NN branded) portfolio, of at least EUR [1,5-6] billion annually and [2-9] % of the total mortgage production on the Dutch market with a maximum of EUR [2-8]billion annually over the years 2013 (measured from go-live date NN Bank85) to 2015. If those criteria are not met, ING will commit cumulatively to:transfer of ownership of those mortgages at no additional charge for the client or charge for NN Bank;
allow NN Bank to use the ING Bank distribution channels to offer NN Bank mortgages to ING Bank clients to achieve the targets.
Consumer Lending
In consumer lending, NN Bank will have an annual new production of at least EUR [10-100] million and at least [0,5-4] % of the total consumer lending production on the Dutch market by 31 December 201388. NN Bank will have an annual new production of at least EUR [40-140] million annually and at least [0,5-5] % to be measured as of 31 December 2015 with a maximum of EUR [100-200] million. If those criteria are not met, ING commits to:transfer individual client relationships through a transfer of a consumer lending client portfolio of ING Bank Netherlands (being an ING Bank-owned portfolio) to NN Bank (size depending on need to come to abovementioned market share; selection of ING’s portfolio with PD’s and LGD’s in line with the business case);
transfer of ownership of those consumer loans at no additional charge for the client or charge for NN Bank.
ING commits that by 31 December 2015 or upon divestment of more than 50 % of ING Insurance/IM Europe casu quo. NN Bank the minimum targeted Tier-one level of NN Bank will be 12 %, which is well above the regulatory minimum requirement.
ING commits to include a payments facility to NN Bank in the form of a NN-branded credit-card at a cost to the consumer not higher than that of a debit card. With regard to the NN-branded credit-card holders, ING will provide access free of charge to its ATMs for three years after the launch of the product and ultimately until 31 December 2015.
ING will send a marketing mailing with regard to NN Bank to 350 000 of its clients in accordance with Dutch privacy law. ING will be allowed to explain to its clients that the mailing is being made in order for ING to comply with the State aid rules.
ING Bank will cap its new mortgage production. ING commits that ING Bank’s yearly mortgage production (excluding renewals) is not higher than [2-4] times of the new production of NN Bank. On a quarterly basis ING’s new production cannot exceed [2,5-5] times NN Bank’s new production in the same quarter and [2,25-4,5] times NN Bank’s new production on a half-year basis. If NN Bank’s new production on yearly basis exceeds EUR [2-8] billion there are no restrictions on new production for ING Bank, meaning that if over one semester (half year) the new production of NN Bank exceeds EUR [1-4] billion, ING will not be constrained in the volume of its new production in the consecutive semester.
NN-Bank needs to provide new production data (new proposals, accepted proposals) and forecasts on a monthly basis to ING without any undue delay. Compliance with the cap will be measured on the basis of the production numbers published by the Kadaster.
That above-mentioned restriction applies from 1 January 2013 until 31 December 2015. In the transitional period up to the launch of van Gogh, ING commits to a maximum new production (excluding renewals) of [2-4] times EUR [1,5-6] billion (EUR [3-24] billion) on a yearly basis. Progress reporting will be on a quarterly basis.
NN Bank needs to self‐fund its balance sheet. NN Bank’s funding profile will be in line with the projections of the balance sheet as proposed in the business case. This means that ING will not increase its funding of NN Bank in absolute amounts beyond the amounts in the business plan for each year and the maximum funding provided by ING in 2015 will be EUR 2,7 billion.
Funding provided by ING at the end of 2015 with a maximum amount of EUR 2,7 billion has to take form of marketable securities, where ING can buy at market prices unsecured or secured notes like covered bonds or RMBS. The notes can be bought also by investors other than ING. 100 % of the notes should have a tenor at issuance of five years or more, 66 % a tenor equal or longer than seven years and 33 % a tenor equal or longer than ten years. The determination of an ‘arm's length’ pricing will be either decided by the pricing of the security itself or if ING is the only buyer of the security by secondary market prices of comparable peers proposed by the Monitoring Trustee.
The funding amount of NN Bank (total deposits and wholesale funding)89 will amount to at least 75 % in the first year, 80 % in the second year and 85 % in the third year (with a maximum wholesale funding of EUR [1-4] billion) versus the base case projections.If, due to material changes to the regulatory environment and/or market circumstances, the actual funding is below those ranges, as a result of which the balance sheet projections need to be updated, ING will report that fact to the Monitoring Trustee and the Commission. The Monitoring Trustee in consultation with the Commission will propose which measures should be taken in order to safeguard the viability of NN Bank to be approved by Commission.
ING’s level of funding will be reviewed on an annual basis starting from the launch of NN Bank (Van Gogh) until 31 December 2015.
If the funding projections of the business case are not met by the end of each year, ING will take the following corrective measures:
After the first year, ING will send a marketing mailing with regard to NN Bank to an additional 50 000 ING clients if actual funding is under 80 % and an additional 100 000 ING clients if actual funding is under 75 % of the base case projection of the first year. After the second year, ING will send a marketing mailing with regard to NN Bank to an additional 100 000 ING clients if actual funding is under 85 % and 150 000 additional ING clients if actual funding is under 80 % of the base case projection of the second year. Mailings will be done in accordance with Dutch privacy law. ING will be allowed to explain to its clients that the mailing is required in order for ING to comply with the State aid rules.
After the first year, ING will provide an additional marketing budget to NN Bank of EUR 1 million if actual funding is under 80 % and EUR 2 million if actual funding is under 75 % of the base case projection of the first year. After the second year, ING will provide an additional marketing budget to NN Bank of EUR 2 million if actual funding is under 85 % and EUR 4 million if actual funding is under 80 % of the base case projection of the second year. After the third year, ING will provide an additional marketing budget to NN Bank of EUR 5 million if actual funding is under 85 % and EUR 6 million if actual funding is under 80 % of the base case projection of the third year. NN Bank will use those marketing budgets for new direct sales marketing (mainly promotional […] and […] incentives, and to a lesser extent other marketing methods etc. If the measures do not consist mainly of promotional […] or […] incentives, they need to be approved by the Monitoring Trustee and can be rejected by the Commission)
If the actual funding of 2015 is under 85 % of the base case projection of 2015, ING will take in addition to the above the following corrective measure:
Provide a two-year extension of free access to the ING ATMs for NN-branded credit-card holders (i.e. until 31 December 2017).
The Commission will assess the above-mentioned commitments upon the divestment of more than 50 % of ING Insurance/IM Europe casu quo NN Bank or by 31 December 2015, whichever date comes earlier. The commitments will end on the date of the divestment of more than 50 % of ING Insurance/IM Europe casu quo NN Bank, unless specified otherwise.
The creation of NN Bank will be carried out under the supervision of the currently appointed Monitoring Trustee. ING will ringfence NN Bank up to the divestment of more than 50 % of ING Insurance/IM Europe, to be monitored by the Monitoring Trustee. For the implementation of the ringfencing, a leading design principle will be that it will allow NN Bank and NN Insurance to adequately execute an integrated commercial strategy between retail insurance and retail banking products & services.
ING will refrain for an interim period up to and until 12 months after the divestment of NN Bank (i.e. divestment of more than 50 % of ING Insurance/IM Europe and NN Bank) from actively soliciting customers of NN Bank for products that NN Bank is supplying to those customers on the date of the adoption of the Commission’s Decision.
f)
The costs of all trustees appointed during the restructuring process will be borne by ING.
g)
For restoring viability, the Netherlandscommits that ING will adhere to the following:
ING will continue to orientate its non-deposit funding towards longer-term funding by issuing more debt instruments with a maturity more than one year. This will imply that the relative share of outstanding long-term funding (with maturity of more than one year) in the non-deposit part of its balance sheet will continue to increase. The success of this does depend on markets reverting to less stressed conditions
ING commits to eliminate double leverage. To that end, as insurance divestments take place, divestment proceeds will be used to reduce double leverage - to the extent that proceeds are not needed to keep the leverage of the remaining insurance business at an acceptable level - ultimately leading to the full elimination of double leverage. Separately, to the extent that surplus capital is being generated in excess of what is needed to satisfy Basel III or Solvency 2 needs, dividends to the group holding company can form an additional source to help accelerate the elimination of double leverage.
h)
Regarding the deferral of coupons and calling of Tier 1 and Tier 2 securities the Netherlandscommits that ING will adhere to the following:
ING will not be obliged to defer coupon payments on hybrids.
Notwithstanding the above-mentioned restriction, ING will be allowed to call the EUR 1,25 billion ING Verzekeringen NV hybrid (ISIN XS0130855108) that has a Change of Control trigger, upon which ING Verzekeringen NV would be in default. The calling of that instrument is a pre-requisite for the required restructuring to allow for a standalone insurance business. The Change of Control clause will be triggered upon the divestment of Insurance Asia.
i)
The Netherlandscommits that ING will refrain from mass marketing invoking the recapitalisation measure as an advantage in competitive terms.
j)
The Netherlands commits that ING will maintain the restrictions on its remunerations policies and marketing activities as previously committed to under the agreements concerning the Core Tier 1 Securities and illiquid assets back-up facility.
k)
ING and the Netherlands commit that the progress report about the implementation of the restructuring plan will be provided to the Commission every six months until 31 December 2013 and annually until 2018 or until the full divestment of the ING Insurance business.
l)
If ING has not satisfied a divestment commitment or any 2015 NN Bank-related commitments the DutchStatewill re-notify the recapitalisation measure to the Commission.
m)
Full and proper implementation of all the commitments and obligations set out in this Annex will be continuously and thoroughly monitored by a suitably qualified monitoring trustee who is independent of ING until 31 December 2015. The company currently entrusted with that task will continue with monitoring the commitment regarding the Van Gogh scenario and all other commitments in this annex, except for the monitoring of the price leadership ban. The price leadership ban will be monitored by a new trustee, the PLB Monitoring Trustee. Both Trustees will be reviewed with the Commission after six months and from then onwards on a continuous basis. The arrangements for the appointment of the PLB Monitoring Trustee and its duties are set out in a separate agreement.
n)
The Netherlands commits that the full execution of ING's restructuring will be completed before 31 December 2015, unless otherwise specified e.g. the divestment of the remaining interest (i.e. interest below 50 %) in the ING Insurance/IM business.
ANNEX IITHE PRINCIPLES APPLIED TO INTERNAL WIND DOWN UNITS IN THE INSURANCE SECTOR
Applicable while ING Group has full control of a business.
Competition concerns
- (i)
no new production, no underwriting of new policies with existing or new clients (absent contractual commitments or ALM purposes).
- (ii)
exploring possibilities to terminate in force policies with the consent of clients
- (iii)
no improvement of commercial conditions on in force policy
- (iv)
where commercial conditions can be adjusted by the insurer the commercial conditions need to be set at the least advantageous possible level
Viability concerns
- (i)
periodically explore possibility of a sale as a whole or in parts of remaining assets and liabilities (yearly market sounding calls to be reported to Trustee; full documented market sounding every two years)
- (ii)
ring fence the possible impact on the viable business through separation of accounts and clear cost allocation between good bank and run down business
- (iii)
estimate future capital needs of the run down business in a conservative manner and allocate the necessary capital, in the form of provisions or other
- (iv)
conservative management of assets relative to liabilities (reinvestment guidelines to be documented).
- (v)
conservative hedging policy with a target hedge efficiency in the range of 80-120 % of the overall hedge objective, subject to materiality
- (vi)
possibilities of partial or full reinsurance to be examined periodically (to be documented)
- (vii)
above to be consistent with applicable local regulatory requirements and objectives