Letter to stakeholders
Steering the business through turbulent times
Dear stakeholder,
2008 has been a much more challenging year for ING than was anticipated in February, when we announced a sharpened strategy and were still planning for growth. The magnitude of the crisis has left few companies untouched, and for ING 2008 has been marked by government support and disappointing financial results.
For several years ample liquidity and low interest rates fuelled an economic upturn. The burst of the bubble in real estate markets, especially in the United States, triggered a rapid decline in asset prices. As a result, financial institutions that had been heavily financed with debt had to sell assets to support their liquidity position. The result was a vicious circle of deleveraging, which created a strong, further downward pressure on equities, corporate bonds, real estate and private equity. This culminated in a wave of bank failures, solvency problems, government bailouts and (partial) nationalisation of a number of financial institutions, with significant implications for everyone, including fundamentally healthy companies.
For ING, the immediate consequence was a need to increase our capital position and ratios. International market expectations of capital levels had changed practically overnight, also against the backdrop of capital injections into financial institutions by the US and UK governments. The Dutch government responded to the market turmoil by establishing a facility for healthy financial institutions that needed extra capital. Given the exceptional circumstances, and our desire to find a quick, sizeable and proactive solution, we decided to use this facility for a EUR 10 billion capital strengthening agreement. We are grateful that the Dutch government appreciates the importance of a strong financial sector, and the role of ING in it, and has taken measures to boost the confidence in the sector and the stability of the financial system. The government’s involvement brings with it an increased need for ING to be responsive to the interests of Dutch society.
The sharp market deterioration resulted in significant impairments and negative revaluations across most asset classes, eroding our profit in 2008, resulting in our first ever annual loss. Our commercial performance remained satisfactory. That said, our results in 2008 are clearly disappointing for our customers, shareholders, employees and management alike.
We are fortunate and thankful for the continued loyalty of our customers, but the crisis has understandably damaged trust in our industry. For the entire sector, including ING, our clients’ confidence is our licence to operate. Our customers entrust us with their deposits and savings, expecting ING to carefully manage their money and invest it in a sensible way. Our business principles, the backbone of our approach to corporate responsibility, give us guidance on our responsibilities towards our customers as well as on such matters as the environment and human rights. These principles are the basis upon which customer confidence, and consequently, investor confidence in ING is built.
In January 2009, Michel Tilmant stepped down from his position as CEO of ING. We want to use this opportunity to thank Michel for his hard work over the last five years. Michel has given a lot to ING as CEO, transforming ING into a more focused organisation.
Jan Hommen will succeed Michel Tilmant as chairman of the Executive Board upon approval of his appointment to the Executive Board by the annual General Meeting on 27 April 2009. Peter Elverding has been appointed as Jan Hommen’s successor as chairman of the Supervisory Board. Wim Kok and Eric Bourdais de Charbonnière will retire from the Supervisory Board on that same day. Patrick Flynn will be nominated for appointment to the Executive Board to succeed John Hele as CFO. John Hele will leave the company on 31 March 2009. On behalf of our colleagues in the Executive Board and Supervisory Board we wish to express our gratitude and appreciation for the contribution Wim Kok, Eric Bourdais de Charbonnière and John Hele have made to ING.
On behalf of both the Executive Board and Supervisory Board, we also want to express our sincere thanks to our employees. Their efforts to demonstrate to customers every day that we take our responsibility to them very seriously are at the heart of this company.
2009 has started off as a challenging year, with the global economy in recession and a further deterioration of financial markets. In January, we announced an Illiquid Assets Back-up Facility by the Dutch State, which strongly reduces the risks in our portfolio. Furthermore, we are confronting the crisis head-on by preserving our capital base, reducing risk and bringing costs in line with the operating environment. In concurrence with the Illiquid Assets Back-up Facility, we announced measures to reduce costs including a 6% reduction of our workforce.
With regard to the future of the financial industry, we expect more modesty in scope and risk profile, greater impact of supervision and regulation, as well as higher capital requirements.
In this first phase of recovery, stabilising the company and restoring credibility are key. ING will concentrate on the basics, reducing the complexity of products and services. For the longer term, improving the fundamentals of our business and the commercial processes are high on the agenda. We will look at our business with fresh eyes to apply further focus and build a coherent set of strong businesses, and seek new ways of doing business so we can come through this crisis stronger and smarter.
Good things can come from challenging situations. We are steering the business through these turbulent times, focusing on today’s priorities with the discipline that these exceptional times require.
