Highlights
Wholesale Banking plays an integral role in ING, attracting new business and generating profitable growth through a number of channels, including general lending, leasing and structured finance. Wholesale Banking also offers the Group key skills in balance sheet management, including funding and liquidity management. In 2007, Wholesale Banking deepened its client relationships, closed a number of landmark deals, reduced costs and improved returns through more efficient use of capital.
ING offers wholesale banking services to mid-corporates, corporates and financial institutions in more than 40 countries. In the Netherlands and Belgium, ING is a full-service bank with a wide range of products, from cash management to corporate finance. ING also offers an extensive range of services in Poland and Romania and other Central and Eastern European markets. In other countries Wholesale Banking has a product and client range that is more selective. In all areas, ING is trying to boost growth by offering a range of leading banking services and products.
Wholesale Banking has six units: General Lending & Payments and Cash Management (PCM); Structured Finance; Leasing & Factoring; Financial Markets; Other Wholesale Products, and ING Real Estate, the world’s largest real estate investment manager. Structured Finance and Financial Markets are competitive internationally and are well-positioned for further growth. In Europe, ING is also a leader in PCM and Leasing.
General Lending & PCM volumes growth
Volumes increased in both General Lending and Payments & Cash Management over the year due to concerted efforts in the Benelux and growth initiatives in Central and Eastern Europe. The volume increases were largely offset by continued pricing pressure due to strong competition, with some of the pressure subsiding in the second half of the year.
General Lending is used as an entry product across all regions to attract customers and to cross-sell high-value products. It continues to focus on capital optimisation activities to increase value creation, including an ‘originate-to-distribute’ strategy, where originated loans are sold before reaching maturity.
Volumes in PCM rose due to bigger transactions and the renewal of key contracts. European companies have been directing increasing amounts of cash management business to just a few financial institutions, including ING, as scale becomes more important. Wholesale Banking is focusing on certain client segments such as large pension funds, health insurance companies, financial institutions and mid-corporates. ING won a number of sizeable cash services mandates in 2007 from large institutional clients. Preparations were made for the creation of the Single Euro Payments Area (SEPA), which has taken effect from 28 January 2008, and ING has signed agreements with various clients to provide SEPA services for sizeable volumes. Consequently, the high level of investment in Payments & Cash Management will continue over the coming years.
Robust demand for Structured Finance
Structured Finance generally had a good year due to robust demand and solid revenue growth in most product areas. The one exception was Leveraged Finance where the markets came largely to a halt in the second half due to concerns about credit quality in the global credit markets.
The recent disruption in the markets increased funding costs and decreased institutional demand. Over the longer term, the disruption is expected to increase loan pricing in a way that will benefit structured finance. International trade and export finance volumes increased with our main multinational commodity clients. ING saw an especially strong performance across a number of other products, including asset-based finance, natural resources finance and telecommunications finance, which contributed significant transaction fees.
In leveraged finance, ING tightened its limits early in the year in anticipation of a slowdown. When credit markets became disrupted in August, ING had an underwriting pipeline of EUR 2.3 billion spread over 14 transactions. Since then, some of the deals have been syndicated out. The loan syndication market was also slow with a bigger tendency towards club deals that spread the risk, and the income, over a larger group of partners. There was also downward pressure on underwriting fees.
Structured Finance has ambitious plans to strengthen its market position. Staff numbers were boosted in 2007 to support several large initiatives and will be increased further in 2008 to support more growth. The new jobs include a project advisory team in natural resources in London, an increase in headcount at the syndicated loan team in the Netherlands and Central and Eastern Europe, an expansion of the aviation team and staffing a start-up office in Dubai.
Solid growth in Leasing & Factoring
Leasing & Factoring saw a large increase in volumes and income due to solid growth in general leasing despite pressure on margins, as well as efforts to cross-sell services to corporate clients. ING Lease maintained its number five position among European international leasing companies.
The General Leasing portfolio increased 18.3% to EUR 15.3 billion, thanks to expansion in the Netherlands, Italy, the UK and Central Europe. ING Car Lease’s fleet grew, supported by growth in the Benelux and Central & Eastern Europe where efforts to target corporate clients are paying off. ING Lease is the market leader in the Netherlands and has intensified its cooperation with ING Bank’s Dutch network. In the second quarter, Wholesale Banking sold its 50% stake in International Factors Belgium to KBC and transferred its clients to ING Commercial Finance Benelux NV, a newly formed company wholly owned by ING. Volumes in Factoring grew due to growth in the Netherlands and Belgium as ING focused on strengthening its position in its home markets.
In 2007, ING further integrated acquired companies Autoplan in France and Appleyard in the UK into ING Car Lease. Leasing launched commercial activities in Italy through General Lease and Car Lease.
In Central Europe, ING is active in leasing and factoring in six countries and achieved double-digit volume growth. The strongest growth was in Romania and Poland. ING Lease Ukraine was launched in early December and is fully operational from 1 January 2008. ING Lease reached an agreement to buy Citileasing in Hungary, adding EUR 150 million to the portfolio and making ING a top-10 player in that country.
Boosting Financial Markets strengths
Clients and products business held up well, in line with our aim to diversify away from proprietary risk businesses, including proprietary trading. Financial Markets continues to seek cross-selling opportunities across product areas and clients groups, including a new strategy to target emerging markets.
Financial Markets saw a drop in income due to much lower trading income in difficult trading conditions. Trading losses occurred in proprietary trading and in credit market activities due to concerns about sub-prime mortgages.
These losses were partially offset by a strong performance in the client-related businesses. ING offered hedging solutions to clients, due to interest rate and foreign exchange movements, and also booked strong results in developed markets in government bonds and in the treasury business. Financial Markets is also actively improving its mid-corporate coverage.
The emerging markets franchise is doing well, especially in money markets and foreign exchange. ING’s strong position in the sovereign debt market was underscored by its appointment as joint book runner on Greece’s benchmark 23-year inflation-linked bond. Financial Markets also helped issue a USD bond for the Trade and Development Bank of Mongolia, the first foreign currency issuance from that country.
During the fourth quarter, Financial Markets announced an ambitious three-year strategy to build on its successes in the clients and products function.
Fast-growing emerging markets are a key opportunity and we expect a large percentage of our top-line growth to be driven by expansion in these areas. Our aim is to be a top-5 player in our selected markets or products by taking advantage of our geographic footprint, strong brand recognition and commercial expertise and reputation.
At the same time, in developed markets, particularly in our home markets where we remain uniquely positioned, we will continue to provide core products and explore selective growth initiatives.
ING Real Estate the global leader
ING Real Estate had another year of solid growth, with assets under management increasing by 10% over the year, its loan portfolio growing by 42% and a development portfolio growing to EUR 3 billion. At the year-end, ING Real Estate’s total portfolio was EUR 107.2 billion, up 18.2 % on 2006, and profit before tax increased by 5.2% to EUR 664 million.
With a diversified business model, ING Real Estate weathered the turmoil in the finance and real estate markets well. ING Real Estate Investment Management broadened its product offer, providing investors with new investment strategies and funds, Real Estate Finance diversified further internationally and Real Estate Development maintained its focus on Europe while growing its development pipeline. See the Asset Management chapter, for further details.
Winning a number of landmark deals
Wholesale Banking completed a number of important deals in 2007 that illustrate its array of services and capabilities. Corporate Finance advised the Van Gansewinkel Groep in an auction process in January resulting in the sale of the company to the private equity firms CVC and KKR. In April, ING landed a mandate to advise Akzo Nobel with its EUR 1.6 billion share buy-back.
ING advised KPN on its acquisition of Getronics in July. Corporate Finance successfully advised KPN on four public offers for the Dutch IT company to an enterprise value of EUR 1.2 billion. Two months later, ING was one of three banks providing KPN with a EUR 1.25 billion loan for standby and general corporate purposes. The long-standing relationship with KPN was again confirmed when ING’s Debt Capital Markets was chosen to be a joint bookrunner for a EUR 1.25 billion five-year bond.
In September, ING participated as one of four joint bookrunners in a EUR 2 billion deal for General Electric Capital Corp., the biggest euro-denominated transaction ever issued by GECC. ING also won several other large transactions, including a financing for an Indonesian integrated energy provider and a Ukrainian real estate company. ING rounded off the year with an important advisory mandate in December when it advised Vedior on the intended public offer by Randstad. Corporate Finance acted as joint adviser to Vedior in this important EUR 3.5 billion transaction, which would create the second largest human resources services company in the world.
Containing operating expenses
Wholesale Banking sought to contain expenses without impairing growth opportunities. Expenses rose in 2007 due to growth at ING Real Estate, higher compliance costs and investments in Structured Finance, Financial Markets, Leasing, as well as in PCM to prepare for SEPA. ING implemented a number of cost containment initiatives in 2007 to reduce operating expenses and to stimulate growth. Wholesale Banking has also been working on re-engineering the lending process, reducing the number of full-time equivalents and cutting support services.
In 2007, ING initiated GLOBE (Global Lending Operating and Business Environment), a major business transformation strategy aimed at improving business lending and streamlining the number of products offered to clients, reducing the cost of production and administration, enhancing control and compliance and improving the overall client experience.
Investing capital for growth
ING has been reallocating capital and making funds available selectively to protect and increase its revenue base. Wholesale banking has continued to invest in both existing and new products to improve returns and deliver profitable growth.
Growth initiatives – especially in Structured Finance, Financial Markets and Real Estate – will focus on areas where ING can make the best returns. These initiatives are expected to accelerate earnings and revenue growth, reduce the cost-income ratio and increases the risk-adjusted return on capital.
ING decided to transfer mid-corporate clients in its home markets from Wholesale Banking to Retail Banking with effect from 1 January 2008. The transfer will allow ING’s domestic banking organisations in The Netherlands, Belgium, Poland and Romania to operate under a single management and a single brand. Wholesale Banking initiated a new corporate client coverage model to improve the quality of account management and to prioritise high value-adding products.
The rolling out of a single ING brand globally is an important differentiator for Wholesale Banking which will help to build and maintain strong client relations. New opportunities have been created in the home market after the takeover of ABN AMRO by a consortium of Fortis, Royal Bank of Scotland and Banco Santander. Our creation of a full-service bank in the Netherlands, operating under one brand, gives ING a strong position to gain market share.
Prioritising regulation and compliance
Wholesale Banking continued to invest in compliance to ensure we remain competitive and demonstrate to our clients that we have the highest possible compliance standards. We have focused on preparation for Basel II (the Revised International Capital Framework) and MiFID (the Markets in Financial Instruments Directive), and continue to ensure we apply the highest standards across all of our businesses and that we maintain an excellent reputation.
