IMF Conference, Washington, 1 June 2005

Financial Conglomerates

Koos TimmermansGeneral Manager, Market Risk Management

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1. Introduction on ING Group

2. Being a financial conglomerate

3. Risk and capital initiatives

4. Concluding remarks

Table of contents

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1. Introduction on ING Group

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• Created from a merger in 1991

• Financial Conglomerate: Banking, insurance and asset mgt

• Over 50 countries, around 115,000 employees

• Strong presence in emerging markets

• Market capitalization around EUR 50 billion

• Broad international share ownership

• Modern corporate governance

• Top 100 global brand

ING in a nutshell

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# Name Market value in EUR billion as of 25 April 2005

1 CITIGROUP INC 185.42 BANK OF AMERICA CORP 138.83 HSBC HOLDINGS 134.94 AIG 101.05 JPM CHASE 95.36 BERKSHIRE HATHAWAY INC 80.27 WELLS FARGO 76.38 ROYAL BANK SCOTLAND 74.99 UBS 70.4

10 WACHOVIA CORP 61.411 BANCO SANTANDER 57.412 BARCLAYS 52.713 ING 48.814 AMERICAN EXPRESS 47.915 BNP PARIBAS 46.616 HALIFAX BANK OF SCOTLAND 45.317 MITSUBISHI TOKYO FINANCIAL 43.318 MORGAN STANLEY DEAN WITTER 42.119 MIZUHO FINANCIAL GROUP 42.120 BBVA 41.2

Source : Bloomberg

Top 20 global financial institutions

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Insurance Americas

Insurance Europe

Insurance Asia/Pacific

Wholesale Banking

Retail Banking

ING Direct

ING Group

Benefits of structure:• Simple, clear and transparent

• Client focus and business logic leads

• Personal accountability and empowerment

• Short and direct reporting lines

• Appropriate attention and place for growth engines

• Capture the benefits of the Group

Group organized along six business lines

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25.9

5.9

3.2

35.0 20.1

0.5

0.1

20.7

14.9

1.0

2.5

18.4

Net equity

Hybrid capital

Debt

Total capitalisation/equity

Minorities

Hybrid capital

Other (incl. ING shares)

Capital base

Group Insurance Bank

Composition of Group capital base(31 March 2005, EUR bn)

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2. Being a financial conglomerate

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• A financial conglomerate is a company that combines different types of financial institutions under one roof:• Banking• Insurance• Asset management

• The legal structure of the conglomerate is relevant

What is a financial conglomerate?

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ING believes in the benefit of being a financial conglomerate…

• Diversification between bank, insurer and asset manager (regions, activities, clients)• Reduced economic capital• Better ratings, also at holding-level

• Cross-balance-sheet utilization• The whole is worth more than the sum of its parts,

provided that operations are integrated• Risk and capital management• Back office / systems• Distribution channels, branding and marketing• HR&MD• Culture

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…however, managing a financial conglomerate also poses challenges

• Financial conglomerates are a relatively new phenomenon and not allowed in some countries

• Large, complex organization• Different systems, accounting, risk management• Different cultures to combine

• Myriad of regulation – often local and specific to banking, insurance or asset management• Basel II for Banks, EU Solvency II Directive for Insurance,

IFRS / US GAAP, Corporate Governance (SOX, etc.)…

• Lack of external understanding and transparency• Most analysts specialized in either banks or insurers - not both• Not straightforward to quantify and justify diversification benefit

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3. Risk and capital initiatives

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To reap the benefit of being a financial conglomerate ING is integrating risk and capital management

• Risk and capital tend to be managed in ‘silos’• Risk silos (credit, market, operational, insurance etc.)• Business silos (bank, insurance and asset

management)• Regional / country silos

• ING has recently launched two initiatives to gain an integrated view• Group-level risk appetite framework with Board

involvement• Integrated Capital Management function

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The Risk Dashboard is a quarterly report providing Senior Management with a holistic risk view

2. Evolution of risk metrics

4. Threat scenarios

5. Key risk trends6. Concentrations

Risk Dashboard

8. Action tracking

7. Limit breaches

3. Stress analysis

1. Current risk profile

• Presents current and projected risk profile of ING Group• Aggregate level

• By risk type

• By Line of Business

• Board-level discussion takes place at least quarterly

• Risk issues with Group-level impact are addressed and agreed actions are tracked

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ING has set up an integrated Capital Management Function

• Internally, ING Group uses economic capital as a core management metric

• Externally, ING is evaluated on accounting measures:

• Integrated Capital Management centralizes the mismatch between internal requirements and external reporting/regulation

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Future: The role of risk management at ING is expanding

Compliance

Loss minimization

Risk measurement

Risk management

Return optimization

Strategic planning

integration

Risk controller

Balance sheet protection

Risk/return optimization

Value creation

Link to strategy

Low

Medium

High

Industry standard(last five years)

Industry best practice(next five years)

#1

#2

#3

#4

#5

#6

• Most financial institutions have developed effective mechanisms to control downside risk

• Shareholders care about absolute levels of risk and about the relativity between risk and return

• Risk management can provide value-adding input to risk/return optimization and strategic planning (threats and opportunities)

Evolution of risk management philosophy

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4. Concluding remarks

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Several themes have triggered a move towards integrating financial management

• Benefit of financial conglomerate visible through risk dashboard

• First step to risk measurement per risk category

• Economic capital = priority in bank & insurance

• Integrated capital management deals with regulatory vs economic capital differences