Credit Opinion: ING Groep N.V.

Transcription

1 Credit Opinion: ING Groep N.V. Global Credit Research - 24 Mar 2015 Amsterdam, Netherlands Ratings Category Moody's Rating Rating(s) Under Review Senior Unsecured -Dom Curr *A3 Subordinate MTN -Dom Curr **(P)Baa3 Jr Subordinate ***Ba1 (hyb) Pref. Stock **Ba1 (hyb) ING Bank A.S. (Turkey) Negative(m) Bank Deposits NSR Bank Deposits -Dom Curr Baa3/P-3 A1.tr/TR-1 Baseline Credit Assessment ba3 Adjusted Baseline Credit Assessment baa3 ING Bank Eurasia Bank Deposits -Fgn Curr Negative Ba2/NP Bank Deposits -Dom Curr NSR Bank Deposits -Dom Curr Baa3/P-3 Aaa.ru/-- Baseline Credit Assessment ba3 Adjusted Baseline Credit Assessment baa3 ING Bank N.V., Tokyo Branch Rating(s) Under Review Bank Deposits Commercial Paper -Dom Curr ***A2/P-1 P-1 * Placed under review for possible downgrade on March 17, 2015 ** Placed under review for possible upgrade on March 17, 2015 *** Rating(s) within this class was/were placed on review on March 17, 2015 Contacts Analyst Phone Andrea Usai/London Guillaume Lucien-Baugas/Paris Carola Schuler/Frankfurt am Main Key Indicators ING Groep N.V.[1] Total Assets (EUR Mil.) 1,080,6241,168,6321,279,2281,247,1101,163,6431,331,6631,312,510 Shareholders' Equity (EUR Mil.) 52,843 57,688 50,440 46,633 39,778 28,928 39,531 Net Result Before Minority Interests (EUR Mil.) 3,439 4,003 5,853 2,916 (1,053) (766) 9,508

2 Double Leverage (ING Groep) 108% 112% 114% 114% 117% 124% 115% [1] Information based on IFRS financial statements Opinion SUMMARY RATING RATIONALE On 17 March 2015, we placed ING Groep N.V.'s (ING Groep) A3 senior unsecured long-term debt rating on review for downgrade, which we expect to downgrade by one notch to Baa1. We also placed on review for upgrade the ratings on the group's subordinated and junior debt instruments. ING Groep is the ultimate holding company of the ING group and the parent company of the main subgroups, namely ING Bank N.V. (A2 on review for upgrade/prime-1; BCA baa1), and NN Group N.V. (issuer rating Baa2 stable). As a result of the ongoing divestment of the group's insurance operations, ING Groep will become a `pure' bank holding company by the end of 2016, with interests limited to the group's banking activities. ING Groep is the largest financial group by total assets in the Netherlands (EUR993 billion at end-2014), where it holds a strong position in commercial and retail banking. It also has a solid universal banking franchise in Belgium (where it operates through its local subsidiary ING Belgium SA/NV; deposit rating A2 on review for upgrade/prime- 1; BCA baa1) and Germany (where it operates through its local subsidiary ING DiBa AG (A2/Prime-1 on review for downgrade; BCA a3 on review for upgrade)). The group has made steady progress on the divestment of its insurance operations - initially agreed with the European Commission in 2009 and amended in November 2012 and November and sold its residual stake in Voya Financial Inc. and reduced that of NN Group N.V. (a holding company which absorbed the former ING Verzekeringen in 2014) to around 55%. For further details on the credit fundamentals of ING Groep's most significant subsidiaries, namely ING Bank N.V. and NN Group N.V., please refer to their respective credit opinions. The review for downgrade on ING Groep's senior unsecured debt ratings and the review for upgrade on the subordinated and junior debt ratings was underpinned by the introduction of our new methodology, and specifically our advanced Loss Given Failure (LGF) analysis. Rating Drivers - ING Bank has a leading franchise in the Netherlands, Belgium, Germany and in some other key markets - Profitability has remained sound despite elevated credit costs in recent years - High reliance on wholesale funding mitigated by management's ongoing efforts to lengthen debt maturities and to implement a group-wide asset-liability management strategy - Capital is adequate to the bank's risk profile and provides satisfactory loss absorption capacity - Still weak operating environment in the Netherlands weighs on the ING Bank's asset quality Rating The review for downgrade on ING Groep's senior unsecured debt rating was triggered by the introduction of our new methodology, and specifically the advanced Loss Given Failure (LGF) analysis, which applies to the group, given that it is subject to an operational resolution regime under the Bank Recovery and Resolution Directive (BRRD). However, our advanced LGF analysis which is not yet conclusive led us to place these ratings on review. The review will focus on the group's liability structure, in particular the amount of senior long-term debt outstanding, and the amount of debt that is subordinated to it. We expect ING Groep's senior unsecured ratings to be downgraded by one notch, depending on the outcome of the LGF analysis. We believe the probability of government support for the senior unsecured rating of ING Groep to be low, resulting in no uplift for government support going forward, which is currently and will continue to be the case for the subordinate and junior instruments issued by ING Groep.

3 What Could Change the Rating - Up Upward pressure on ING Bank's standalone credit assessment (from which the ratings of ING Groep are ultimately derived) could develop in case of a material improvement in the operating environment in the Netherlands and indeed in the rest of Europe, to which ING Bank is mostly exposed, which were to lead to substantially improved asset quality, higher profitability and capitalization levels. A reduction in reliance on wholesale funding could also be positive for the ratings. What Could Change the Rating - Down Downward pressure on ING Groep's senior unsecured ratings could develop if the standalone credit assessments of ING Bank were to reduce, for example reflecting a deterioration in the banks' asset quality, profitability and/or capital. The long-term senior debt rating of ING Groep are on review for downgrade, driven by our review of the likely lossgiven-failure faced by these securities. If we conclude the group's liability structure is in line with our current understanding, then we would downgrade this rating by one notch. DETAILED RATING CONSIDERATIONS The financial data in the following sections are sources from ING Groep's financial statements unless otherwise stated. CAPITAL STRUCTURE AND LIQUIDITY ING Groep has historically had an integrated treasury and capital management strategy, whereby perpetual hybrid securities were raised via direct issuance at the level of the ultimate holding company (ING Groep) or via dedicated funding vehicles (such as ING Capital Funding Trust III) guaranteed by ING Groep. Conversely, lower Tier-2 capital or subordinated debt was raised directly from the main banking or insurance subsidiaries, according to their needs. However, NN Group has become increasingly autonomous from the rest of the group from a capital and funding viewpoint, as the disposal of the remaining group's insurance activities is further progressed. With the disposal of the residual stake in Voya in March 2015, the double leverage resulting from the group's net core debt of EUR1.5 billion at end-2014, was completely eliminated. In addition, the group repaid the residual stateaid of EUR1 billion on 7 November The group has yet to indicate how the net surplus of around EUR5.3 billion at end-2014 (after the full disposal of the insurance activities, repayment of debt and payment of the 2014 dividend) will be employed. In our view, this amount could be (1) returned to shareholders, (2) injected in ING Bank; or (3) used to finance growth. It is also unclear at this stage whether ING Groep will remain the holding company for ING Bank in the context of the implementation of the BRRD or will be dismantled. We note that the disposal of the remaining group's insurance operations will have to be completed by 2016 but we expect the full divestment to be achieved well ahead of this deadline. NOTCHING CONSIDERATIONS LOSS GIVEN FAILURE AND ADDITIONAL NOTCHING ING Groep is subject to the EU Bank Recovery and Resolution Directive (BRRD), which we consider to be an Operational Resolution Regime. We assume residual tangible common equity of 3% and losses post-failure of 8% of tangible banking assets, a 25% run-off in "junior deposits", a 5% run-off in preferred deposits, and assign a 25% probability to deposits being preferred to senior unsecured debt, in line with our standard assumptions. Our initial LGF analysis for ING Groep is not yet conclusive and our review will consider the likely impact on lossgiven-failure of the combination of the combination of its own volume and the amount of debt subordinate to it. Please refer to the Credit Opinion of ING Bank, for further details on ING Groep's LGF analysis. GOVERNMENT SUPPORT The implementation of BRRD has led us to reconsider the potential for government support to benefit the group's creditors. We now expect a low probability of government support for the group's senior unsecured creditors, resulting in no uplift for systemic support, as it is currently the case for the other junior securities issued by ING

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