ING Groep NV (INGA) may sell its Canadian online bank, which has $40 billion in assets, and dispose of a smaller U.K. unit as the Dutch company seeks to repay government aid received during the financial crisis.
The biggest Dutch financial-services firm is “reviewing strategic options” for the two ING Direct banks, it said in a statement today. The review is “in the context of our strategic priorities and long-term financial objectives,” said Carolien van der Giessen, a spokeswoman for Amsterdam-based ING.
The businesses may be sold for about 2.1 billion euros ($2.6 billion), with most of that value in the Canadian bank, according to Cor Kluis, an analyst at Rabobank International. ING hired JPMorgan Chase & Co. (JPM) to advise on the Canadian unit and Credit Suisse Group AG for the U.K. business, according to a person with knowledge of the situation who declined to be identified as the process hasn’t been completed.
ING Canada “has established a valuable brand associated with high-interest savings accounts,” Gabriel Dechaine, a Toronto-based analyst at Credit Suisse Group AG, said in a note. “There would be several Canadian banks interested,” especially Bank of Nova Scotia and National Bank of Canada, he wrote.
ING, the recipient of 10 billion euros of aid from the Dutch government in 2008, is already in talks to sell its Asian life-insurance business and seeking a price of 6 billion euros.
“The sale of ING Direct U.K. is strategically positive, as we believe this is not the best market,” Rabobank’s Kluis, who is based in Utrecht, Netherlands, said by e-mail. Selling the Asian, British and Canadian operations, along with two years of retained earnings, should be enough to repay the government and satisfy European regulators by the end of next year, he said.
The review may not lead to transactions and no decisions have been made, the company said. In January, ING said it would review “non-core” banking assets after its target of repaying aid in 2012 became less certain amid Europe’s debt crisis and stiffer regulatory burdens.
It’s also selling its global insurance operations to meet European Union conditions for its bailout. ING has so far repaid 7 billion euros of aid as well as 2 billion euros in interest and premiums.
ING shares slid 5.1 percent to 5.04 euros in Amsterdam trading today, giving the company a market value of about 19.3 billion euros. Financial shares tumbled in afternoon European trading after European Central Bank President Mario Draghi’s comments at a press conference failed to reassure investors looking for measures to stem the debt crisis.
ING started the Internet bank in Canada, its first branchless venture, in 1997. It built the division to C$40 billion ($40 billion) in assets through a television advertising campaign where Dutch actor Frederik de Groot urged Canadians to “save your money” in accented English and French and criticized fees charged by the nation’s established banks.
The business represents an opportunity for the nation’s six large domestic banks to gain market share. National Bank, the smallest lender among the big six, and Toronto-based Scotiabank (BNS) would be “natural buyers” given their “relatively weaker deposit franchises in Canada,” Credit Suisse’s Dechaine wrote.
Joan Beauchamp, a spokeswoman for Montreal-based National Bank, declined to comment.
“As opportunities for growth become available we evaluate each on a case-by-case basis and as a matter of course we don’t comment on market rumor or speculation,” Ann DeRabbie, spokewsoman for Scotiabank, said in an e-mailed statement.
The biggest Canadian banks have mostly looked outside the nation for growth since 1998, when then-Finance Minister Paul Martin blocked proposed mergers between Bank of Montreal (BMO) and Royal Bank of Canada (RY) and between Canadian Imperial Bank of Commerce and Toronto-Dominion Bank. (TD)
ING Direct’s Canadian assets are more than the difference in size between the nation’s biggest lender, Royal Bank of Canada, and second-place Toronto-Dominion Bank.
ING Direct Canada is now the country’s eighth-largest bank by assets, according to data compiled by Bloomberg from the Office of the Superintendent of Financial Institutions Canada, and the second-largest foreign lender in Canada, trailing HSBC Holdings Plc. (HSBA)
The unit had 1.8 million customers at the end of March. ING’s Canadian retail bank last year reported a pretax profit, excluding divestments and one-time items, of 109 million euros. It had 21.8 billion euros in residential mortgages at the end of the first quarter and 22.9 billion euros in deposits.
Kluis said a buyer would have to pay about 2 billion euros for the Canadian unit, estimating the business has a value of 1.1 billion euros and holds 900 million euros in excess cash. The U.K. unit is worth about 100 million euros and has no excess cash, he said.
“ING will likely make a solid book profit of between 200 million euros to 400 million euros” on the Canadian unit, Hans Pluijgers, an Amsterdam-based analyst at Credit Agricole Cheuvreux, said by e-mail. He said the firm could fetch 1.6 billion euros to 1.8 billion euros from a sale, including excess cash.
In the U.K., ING has 13.4 billion euros in savings deposits and 6.3 billion euros in mortgages, with more than 1.5 million customers, the lender said. It reported a so-called pretax underlying loss of 46 million euros for 2011.
“The U.K. is a competitive, huge market,” Chief Executive Officer Jan Hommen said in June of last year.
ING was ordered by the EU to sell its insurance operations, its U.S. online bank and Dutch mortgage lender WestlandUtrecht Bank before the end of 2013. Some of those plans were derailed by the debt crisis and higher capital requirements.
The firm is in discussions with buyers for its Asian life insurance operations and may sell the business in parts to generate higher proceeds. It is seeking 6 billion euros for the operations, a person with knowledge of the process said earlier this week, and aims to sign sale agreements by the end of the month.
ING’s Hommen sold the company’s U.S. online bank to Capital One Financial Corp. (COF) for about $9 billion in February, and disposed of the Latin American insurance operations last year. The firm has also divested a real-estate investment management business and car-lease unit.
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