Investor Update

Nov 25, 2014

Press Release

Good morning, ladies and gentlemen. Thank you for waiting, and welcome to the ING Media Call. At this time, all of the participants are in a listen only mode. After the presentation, there will be an opportunity to ask your questions. I would now like to hand the conference over to Mr. Ralph Hamlet. Go ahead please, sir. Thank you. Welcome. Thank you for joining us on this call this morning. First, I'd like to take you through the highlights of the announcements that we made this morning. And thereafter, I will open the floor for questions and answers. And for that, with me here are Patrick Flynn, our Chief Financial Officer and Rune Lauf, our Chief Operating Officer. So basically, you can ask questions to them as well. This morning, we announced that ING is taking the next step in digital banking to improve customer service and enhance operational excellence. Basically, in today's digital world, change has become a constant factor and is happening faster and faster. Customers are using a range of channels for their banking needs, whether it is mobile, Internet, the branch or the call center. And we see customers moving quickly to the digital channels at a pace that is not so much evolutionary anymore, but Evolutionary. In the Netherlands, the number of interactions via mobile is now higher than via Internet. Now currently, IT Netherlands uses different IT systems for mobile, for the websites, for the call centers and for the branches. And as a consequence, not all customer information is available consistently and not available real time in each channel. And by moving to what we call an omnichannel approach, customers will be able to do all their banking digitally and experience a consistent service regardless of the channel they choose. And the benefits that customers will experience are threefold. The first one being that if you are able to switch seamlessly without loss of data or information, you basically can open the process on the website and answer process in a branch, for example. Or, for example, the question that the customer addresses to the call center will also be visible in the branch systems. Or as I said, if a customer fills out an online mortgage calculator and then calls a mortgage adviser, the advisor will know exactly what the inflation is that the client has already filled in and therefore can take the client directly to the next step. Now that's the first benefit. The second benefit is that almost all banking transactions are digitally handled anytime, anywhere, any device. An example of this will then also be that clients will no longer need to go to the branch to pick up their PIN code. And in addition, as a third benefit here, we continue to invest in our local advisory capabilities by bringing the expertise in our branches closer to our clients. Basically, we recognize that there is certainly still a need for human contact, certainly on the advice side to consumers and to the SMEs. And therefore, they do need to have a conversation either at the office or over the phone or via the Internet or Skype. And so basically this way as a result customers can be offered a more relevant, more timely and more proactive service and advice. That's what's behind this program. Now to support this omnichannel approach and to increase the security, the efficiency and the agility of our IT systems and operations, we will be making an additional IT investment of €200,000,000 And these investments are aimed at delivering a more simplified IT landscape with standardized systems and highly automated processes. Now that's kind of why we do it, how we improve service for our clients and how do we make sure that a client moving from one channel to the other that that is seamless. Unfortunately, as a result of further digitization of the IG banking services and the reduction of IT systems that this will deliver, The automation of the processes that is necessary. Unfortunately, this means that in the end we need fewer people. So we will work with fewer jobs to deliver the same work. And therefore, our workforce in the Netherlands, the direct workforce in the Netherlands is expected to be reduced by around 1700 full time employees, FTEs as we call it. It's a very technical term. And we will reduce that over the next 3 years. In addition, ING will reduce the number of positions employed by external suppliers by around 1075. Then as to the question as to where are these jobs currently that are being reduced, the impact of this change program will mainly be felt at the headquarters of ING Retail Banking in the Netherlands, the back offices, basically the operations environment, the call centers as well as the IT departments. And the workforce reduction is primarily a result of the further digitization of our services, the operations, the acquisition of our processes, resolving customer requests or complaints directly without transfers between departments, which is which will lead to a much higher satisfaction. Working with one system across all channels adds a more efficient and effective way of working at the headquarters of our Dutch retail organization by working in small multidisciplinary teams rather than large teams focused on a specific channel. So we're combining these teams and making them more multidisciplinary. The workforce in the reduction in IT is primarily the result of the reduction in the IT systems. And that is and the automation the increased number of automated processes. Now is custom and as how as we have always worked with the unions, we will support the involved employees in finding suitable solutions for them either by helping them to find new job opportunities inside or outside of ING by helping them to start their own businesses and by offering education and training in preparation for another career. This is part of our social plan as we call that and we will continue to help our employees to have a good future as well. Now in the past, we already built a good track record in this regard. And as I said, given the fact that we have a good track record on that, we continue our current social plan for today's announcement. Then the financial side, we will take a we will book a pretax redundancy provision of €320,000,000 and that's what we will book in the Q4 of 2014. And the total gross cost savings in addition to the existing running programs will amount to approximately €270,000,000 And that will kick in as of 2018. These are the headlines and I can understand that you may have some questions. So with that, I would open the floor for questions. Thank you, Chairman. Ladies and gentlemen, we are now starting a question and answer session. The first question is from Ms. Maude Van Gaal from Bloomberg. Go ahead please madam. Hi, good morning. I have two questions. I was wondering, it seems in a way this is gotten out some legacy from the systems, what has been built up over the years. Is that true? And then I'm sort of wondering why is this announcement made only now and not I mean, it seems like something you could have seen coming in a way. And is it fair to say that this is cutting out legacy more than it is like investing in the latest app for instance? And also I'm wondering, can you remind me what were your targets for that retail bank in terms of ROE? I seem to recall that, that was already higher than the targeted range. Okay, Wams. Now I think it's a very good question that you raised the first one. The second one I will give to Patrick. So the first one, if you see how a bank has been built in the past, clearly, we had the branches and we had branch IT infrastructure and applications support, you work in the branches. Then we developed call centers and we had specific technology supporting the call center staff. Then we developed Internet and we built specific IT around Internet. And then in the end, we have mobile now as well. So basically, we have indeed been building layer on layer from an IT perspective in order to ensure that we could rapidly service our clients in these new developments in these new channels. Now clearly what we see now is that clients expect the same service and the same level of information and the same knowledge whether they interact with us through mobile, Internet, branch or call centers. And therefore, it is imminent to do it now and to basically take the next step and move away from the more layered IT environment to a one IT environment for all channels. And that will certainly enhance the customer experience. So with that, I will give the second question to Patrick. Patrick? Good morning, Ward. The ROE guidance we've given as respect to the whole bank, it's almost 10% to 13% range. The year to date, we were at about 11% at the end of Q3. We're going to book this one in operating expenses in Q4. And this on its own, we can do the math yourself, but it will have a negative impact of about 70 bps, just under 70 bps on the ROE for the full year. So with this, we're still hoping to be in our target range of 20% to 13% for the full year. The next question is from Mr. Jaco De Swart from Telegraf. Yes. Good morning. I was wondering if you could have maybe in a different presentation separately by e mail the numbers behind the moving from branches and Internet to digital banking. The number of branches that you that are going away, I suppose that you won't keep open all the branches that you have right now. That's the first question. And the second is what facilities will you build in for more non mobile consumers and people who might not be able to communicate through mobile devices or maybe even in Dutch? [SPEAKER JACQUES VAN DEN BROEK:] Yes. So, well, JARCO, all of our services are available in Dutch. So let there be no mistake. No, but I mean the people that don't speak Dutch. You have traditionally a large, let's say, all of tone population, client population from the Postbank. And I don't know if all these people are so familiar with their mobile device and all your services. I see a lot of those people standing in line before in front of the ING offices. Yes. So coming back to your first question on traffic, basically, I don't know whether I have the numbers here readily available. But what we have seen over the last, it took about 8 years for Internet in terms of traffic, transaction traffic to take over from the branches. And it took about 2 to 3 years for mobile to take over in terms of number of interactions between clients in the bank to take over from Internet. So you see that the change is happening more rapidly than ever before. And that's why we talk about a revolution here. Now if it comes to the number of branches, honestly, we have 261 full fledged branches. And as a consequence of this, we're not necessarily closing branches. This is not the purpose here. The purpose here is actually the other way around. The transactions can still also in the future be performed in a branch through the digital channels available in that branch. But the branch role will become even more a role of value added services. So to give advice to our consumers on mortgages, to give advice to the SME clients on financing and investments. So basically the brands role will further change and this will not necessarily lead to a lower number of branches. Can you give me maybe separately by e mail somebody the numbers that I'd like to see going on? Yes. Look, I'd like to see what we have and to see whether we can support you on that. Yes. Thank you. Next question is from Mr. Ivo Bockering from Financially Dackla. Go ahead please, sir. Yes, good morning. Thank you. I have a follow-up question about the ROE. What is the ROE of retail banking and lettings right now? And what will be the impact of the cost savings when they're coming in fully in a couple of years? And the second is about the additional investment of $200,000,000 What is it in addition to? So basically, what is the normal investments that you do in IT? Okay. Well, I understand these questions. I will give Patrick to answer them. But the purpose of the program is to enhance the customer experience. And as a consequence, we may we will save some costs, but it's truly to enhance customer experience because this is what customers ask from us. But Patrick, on the ROE? Yes. Well, we give in the quarterly results a breakdown of ROEs by segment. In the Q3 results, we also show the ROE for Retail Banking for the Netherlands, Belgium, Germany separately. However, the target is for the full bank overall, and that's the 10% to 13% range, and that's the relevant number. Why? Because you got to remember, we also have a corporate line, which is negative. So you can't look at any one segment in isolation. You need to look at the total. And you have to bear in mind that significant amount of cost goes into the corporate line. So it can be misleading to look at the ROE of the segment on its own without taking into account our corporate line. The ROE that matters is the total ROE for ING Bank. In aggregate, that was just about 11%. And like I said, this charge will bring it down by 70 basis points. So overall, we're traveling at around 10% 10% to 11% at the moment. Okay. Next question? The next question is from Ms. Maude Van Gaal from Bloomberg. Go ahead please. Yes. Hi. I had a follow-up question. I was looking at, I think, a presentation you gave in London last year and it was also said at the Investor Day. There was this chart on how reduction of IT complexity Yes. I Yes. I think about it well spotted during the Strategy Day, we had a chart where we basically indicated 2 axis, T efficiency and T effectiveness, where we saw that our activities outside of the Netherlands, where we are a direct bank that we're basically best in class from that perspective, that in the commercial bank, given the program that we're currently running, the program that we call CD Tom that we're moving into the direction of best in class. But then in the Benelux, the current programs that we had in the Benelux called Case for Change and Belgian Transformation Program that we would only be moving to the middle of the pack. We already announced in March that we needed to develop additional plans once we had finalized the plans currently in implementation in the Netherlands and in Belgium to move further. So this will indeed bring us closer to the best in class. But you should also realize that best in class is a moving target in itself. So for the moment, we feel that we're certainly making improvements in heading there, but you never know where competition is going from that perspective. Now, the real underlying point still is that moving from a multilayer IT approach with different channels using different IT environments that does not lead to a seamless experience for our clients and that moving to one IT environment actually will. So the starting point is still how do we ensure that the clients have the best experience with the bank. And that and the solution is 1 moving to a much simpler IT environment and more automated processes. So that will get us much closer to better class. The next question is from Mr. Ivo Bockering from Financially Dautla. Go ahead, sir. Yes. I guess you forgot my question about the €200,000,000 I would like to know what it is in addition to. So what are the basic investments in IT? What have they been in the last years to get a feel of how much you are investing ex capital? I think it's a change over the bank, approximately. So the total change budget that we have over the total bank is 9 approximately €900,000,000 and that's IT, that's process change incorporated in there. But since it's a mingle because we're doing things jointly, that's approximately mine you can use. But that's for the total bank. So that's not just the Netherlands, not just retail. The ING Bank as a whole, it's Retail Commercial Banking, it's Total Bank. You don't have a number for the Netherlands in detail? Well, you see that some of these processes we use for more countries as well, some of these changes. So to make it specifically for the Netherlands, well, it's €200,000,000 and this is this investment goes specifically to the Netherlands to €200,000,000 Right. Okay. The following question is from Mr. Chris Van Aelm from the press team. Go ahead, sir. Good morning. I was wondering how many of your 8,100,000 clients don't use digital bank services and what services they can rely on in the future as they use all the paperwork like they used in the old days? So at this moment in time from the €8,000,000 around €5,500,000 use either digital and or telephone banking. We that's increasing very rapidly, and we see the channel moving much more towards indeed digital and mobile. We as Ralf already alluded to, we are continuing to keep our branches in the same sort of number as we have them today to really make sure that we can serve all of our customers to the choose at any moment in time. And will they charge more for using still the old paperwork? No. We have no intention to change it with this program at this moment in time. Thank you. The next question is from Mr. Marine Walling from ANT. Go ahead please sir. Good morning. My question has already been answered. So no need. Thanks. Thank you. We have a question from Ms. Ellen Proper from Dow Jones. Go ahead please. Yes, thank you. Good morning all. It doesn't seem like there will be a reduction of jobs at the front office. So I'm wondering what is the ratio of the number of employees who are in direct contact with the customer in comparison to the number of employees at entire bank and Netherlands? Thank you. Could you repeat your question, the last part of the question? Yes. I was wondering what the proportion of people sort of front offices, the people who are in direct contact with the customer, what proportion of that is in comparison to the entire bank in the Netherlands? The exact number there, I don't know. However, the fact that you said, well, this doesn't affect people in the front office, that's true if it comes to the advisory services and the branches. But for example, we do think that people in the call center are front office people. They provide excellent customer service. They work day in, day out for to service our clients. So we do regard call center people as our front office. Regretfully, given the fact that more and more people get the same information through Internet and mobile, they do call our call center less often than in the past. And as a consequence of that, basically we use less and less call center officers. Okay. And can you give the exact number of the people at the call centers who will have to leave IMG? Well, we don't have them here readily available. But is it the big portion of the 1700 jobs or? Well, we'll look into that to see whether we can give you that detail because I'm not sure we have we don't have it here. But if you call later with the PR department, then they will pick it up for you. Okay. Thank you. We have no questions further at this time, Chairman. Okay. Well, thank you very much again. Well, just to wrap up the call, in order to improve the customer experience across the different channels that they're going to use and improve their racial excellence, we today announced that we will take measures to expand digital banking, but also strengthening local advisory capabilities in the branch network. I think it's important to take both messages here. In order to improve the IT environment, we'll invest €200,000,000 extra to increase the liability, the efficiency and the agility of our IT systems in the Netherlands. The step that we announced today will lead to significant cost savings, because unfortunately working in a more efficient way with automated processes and with simple IT systems will lead to working with less people. So regretfully, this will lead to a fewer number of jobs going forward. We will do our utmost to build on our track record of helping our employees that are affected to find new job opportunities either within ING or outside. So with that, again, I would like to thank you for being available so quickly and on short notice. And I wish you a pleasant day. Thank you very much. Ladies and gentlemen, this concludes the ING Media Call. Thank you for your attention and for attending. You may now disconnect your line. On behalf of ING, thank you.