ING Groep NV (INGA), preparing for a sale of its U.S. online bank, is looking to merge the unit with a lending operation and has talked in recent months with Citigroup Inc. (C), CIT Group Inc. (CIT) and Chrysler Financial Corp., said people with knowledge of the matter.
ING, the biggest Dutch financial-services company, is considering combining the ING Direct USA bank with New York- based Citigroup’s private-label credit-card unit or with CIT, the commercial lender, said the people, who spoke on condition of anonymity because the talks are private. ING in December lost a bidding contest for Cerberus Capital Management LP’s Chrysler Financial auto lender, the people said.
The European Union is requiring ING to sell the U.S. unit by 2013 as a condition of a 10 billion-euro ($13.9 billion) state bailout. ING executives recently signaled they are open to a transaction involving ING Direct USA, such as a partnership, sale or initial public offering, after previously seeking to avoid or delay such a move, JPMorgan Chase & Co. (JPM) analysts led by Duncan Russell said in a Feb. 17 note.
Spokesmen for ING, Citigroup and New York-based CIT declined to comment. In a regulatory filing today, CIT said it needs to build or buy a retail bank branch network or Internet- banking operation to gain deposits. Regulators have capped the amount of deposits it can obtain from brokers, it said.
‘CIT Would Make Sense’
ING has excess deposits compared with its loans and other assets, and would benefit from combining with a company with a loan portfolio, said Jan Willem Weidema, an Amsterdam-based analyst at ABN Amro Bank NV.
“A sale to a party with the profile of CIT would make sense,” he said.
ING’s U.S. banking unit had $77.7 billion in deposits at the end of 2010, of which $69.9 billion was held in money market deposit accounts, which tend to be interest-rate sensitive, according to Federal Deposit Insurance Corp. data.
The bank held $40 billion in net loans and leases, which gave it a Tier 1 capital ratio, a measure of financial strength, of 26.8 percent at the end of 2010, compared with an average of 12.7 percent for all banks, according to the FDIC figures. The bank’s return on assets was 0.3 percent in 2010, less than half the industry average of almost 0.7 percent, according to the FDIC.
CIT, led by Chief Executive Officer John Thain, has sought to bulk up on lower-cost bank deposits to finance loans to small and medium-sized businesses. CIT has $20.5 billion of second- lien borrowings. It pays 7 percent interest, with maturities from 2013 to 2017, according to Bloomberg data. By contrast, banks pay depositors about 1 percent for savings accounts.
In January 2009, Citigroup CEO Vikram Pandit moved the private-label card business into Citi Holdings, the division holding $359 billion of the bank’s troubled and unwanted assets. The private-label business listed $49 billion in assets, or about 14 percent of Citi Holdings, at the end of last year.
The unit made a pretax profit of $445 million in 2010 as credit quality improved and analysts have since questioned whether the bank may keep the business and remove it from Citi Holdings. Citigroup doesn’t anticipate doing so, Chief Financial Officer John Gerspach said on a conference call with analysts in January.
Cerberus agreed in December to sell Chrysler Financial, the Auburn Hills, Michigan-based former lending arm of the Chrysler automaker, to Toronto-Dominion Bank (TD) for $6.3 billion. ING also submitted a bid for the unit, the people said.