General Electric Co. and Capital One Financial Corp. submitted bids for ING Groep NV’s U.S. online bank last week in a sale that may raise about $9 billion, said people with direct knowledge of the matter.
The Dutch lender may reach an agreement to sell the ING Direct USA unit as soon as this month, said the people, who spoke on condition of anonymity because the talks are private. GE made an all-cash bid, while the offer from McLean, Virginia-based Capital One includes some stock, the people said.
A buyer would gain control of the largest U.S. online bank and its $81.6 billion of deposits, which give lenders a funding base that is cheaper than offering debt. The purchaser would also have to contend with the bank’s $40.5 billion of mortgage loans and $19.9 billion of mortgage-backed securities, based on the latest figures from the Federal Deposit Insurance Corp.
“I’m hard-pressed to understand what the strategic rationale is” for Capital One to bid, because a non-bank lender that needs to expand deposits would be a more logical acquirer, said Michael Taiano, a Sandler O’Neill & Partners LP analyst in New York. “GE makes more sense.”
ING gained 80 cents to 8.14 euros in Amsterdam. GE rose 2 cents to $18.48 at 4 p.m. in New York Stock Exchange composite trading and Capital One fell 57 cents, or 1.1 percent, to $50.16. Taiano rates Capital One as hold and doesn’t cover GE.
Capital One and Fairfield, Connecticut-based GE may not be the only companies currently in negotiations with ING, the people said. Some potential buyers or merger partners that have held discussions with ING, including Ally Financial Inc., CIT Group Inc. and SJB National Bank, have either ended talks or put them on hold, the people said.
“The process to prepare a divestment of ING Direct USA is continuing,” Raymond Vermeulen, a spokesman for Amsterdam-based ING, said by telephone. He declined to comment on any potential bidders or the value.
Spokesmen for Ally, CIT, SJB, GE and Capital One declined to comment.
GE is seeking to avoid acquiring most of ING Direct’s mortgage assets and is in talks with partners that would buy them as part of a deal, the people said. Buyers could include investment banks that trade mortgages, or pension or hedge funds that invest in them, they said.
The GE Capital unit, which issues bonds to fund services such as credit-card lending and leasing, could reduce its reliance on debt markets with the acquisition. Deposits tied to GE Capital’s two bank subsidiaries grew to $39.4 billion as of March 31 from $9.8 billion in 2006. The Federal Reserve plans to begin regulating GE Capital later this year.
Capital One’s bid, if successful, would leave ING as one of the credit-card company’s biggest shareholders, the people said. While Capital One’s status as a bank might make it easier to win approval from U.S. authorities, it isn’t clear whether ING and its regulators would be as supportive of a stock-funded bid compared with an all-cash offer, the people said.
ING is one of at least three big foreign banks that are looking to exit parts of their U.S. business this year. Royal Bank of Canada is seeking a buyer for its U.S. retail branch network, people with knowledge of the matter said in April, while HSBC Holdings Plc seeks to shed its upstate New York operations, people familiar with that effort said last month.
The European Union is requiring ING to sell the U.S. unit by 2013 as a condition of a 10 billion euro ($14.7 billion) government bailout. ING is also divesting its insurance units to comply with the terms.
“Getting the ING Direct USA sale off their plate will free up management time for the other tasks at hand,” said Robin van den Broek, an ABN Amro analyst in Amsterdam. ABN Amro, which has a “buy” rating on ING’s stock, estimates the unit may fetch as much as $10.2 billion.
A sale of ING Direct USA may also require ING to shift a pool of Alt-A mortgage assets. Those assets, mostly held in ING Direct USA, were part of ING’s bailout, when the Dutch government agreed to assume 80 percent of the risk of the portfolio.
ING may move the Alt-A assets to the parent company as part of a sale of the U.S. online bank, Chief Risk Officer Koos Timmermans said on a conference call last month.