ING Direct Canada Sale Likely to Lure Big Banks
The possible sale of ING Groep NV’s (INGA) Canadian bank, the biggest in the country in 13 years, may spark a bidding contest among the world’s soundest banks including Toronto-Dominion Bank and Bank of Nova Scotia.
ING, the biggest Dutch financial-services firm, said Aug. 2 it’s “reviewing strategic options” for ING Direct units in the U.K. and Canada as it seeks to repay government aid received during the financial crisis. The Canadian online bank, which has assets of C$40 billion ($40 billion), may sell for about 2 billion euros ($2.48 billion), said Cor Kluis, an Utrecht, Netherlands-based financial services analyst at Rabobank International.
“It’s going to be a very competitive process,” said Anil Tahiliani, head of North American equities at Calgary-based McLean & Partners Wealth Management, which owns Bank of Nova Scotia (BNS) and Canadian Imperial Bank of Commerce shares among the C$900 million the firm manages. ING Canada’s assets are “considered safe money because it’s mostly deposits, savings accounts, the odd checking account and mortgages.”
The bank, the eighth biggest in Canada, could fetch 1.1 billion euros and has 900 million euros in excess cash, Kluis said by telephone on Aug. 2. Hans Pluijgers, an Amsterdam-based analyst at Credit Agricole Cheuvreux, said the bank might sell for 600 million euros to 800 million euros, a price-to-book multiple of 1.5 to 2. Including excess cash of about 1 billion euros, a buyer would have to pay as much as 1.8 billion euros, according to his estimates, he said by e-mail on Aug. 2.
Carolien van der Giessen, an ING spokeswoman, declined to comment on a possible sale.
Canada’s six largest banks hold about 94 percent of the nation’s C$3.79 trillion in assets, according to statistics from the Office of the Superintendent of Financial Institutions, Canada’s bank regulator. The S&P/TSX Banks Index was little changed at 19,45.81 at 9:40 am, and has gained 1.46 percent this year.
Domestic bank sales are rare in Canada, John Reucassel, a bank analyst at BMO Capital Markets, said in a note on Aug. 2. Reucassel identified Toronto-Dominion (TD) and Scotiabank, respectively the country’s second- and third-largest banks by assets, as finding the unit of “greatest strategic interest”, as well as No. 6 National Bank of Canada.
Scotiabank, which has expanded mostly in Asia and Latin America over the past decade, had C$659.7 billion in assets at the end of April. Montreal-based National Bank, which does most of its business in Quebec, had C$176.5 billion in assets.
A sale of ING Direct would be the biggest in Canada since Toronto-Dominion Bank bought Canada Trust for C$8.0 billion in 1999, according to data compiled by Bloomberg. Bank of Nova Scotia acquired National Trustco Inc. in 1997 for C$1.21 billion, and Toronto-Dominion bought 57 branches from Laurentian Bank of Canada (LB) in 2003 for C$112.5 million.
“I think you would have to go back to TD buying Canada Trust in 1999 for the last time a deposit base of this size was available in the Canadian banking space,” said Sumit Malhotra, analyst at Macquarie Capital Markets in Toronto by phone.
“While I think all banks will kick the tires, the ING business should mean more to those that have a larger retail- funding gap,” said Malhotra. “In my view this puts Scotia and National at the top of the list, with Scotia in particular having demonstrated through its recent wealth management strategy that it is willing to undertake acquisitions to address areas of weakness in their domestic franchise.”
Joan Beauchamp, a spokeswoman for National Bank, declined to comment. Stephen Knight, a spokesman for Toronto-Dominion 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,” said Ann DeRabbie, spokeswoman for Scotiabank.
ING Bank of Canada is the largest foreign-based lender in Canada after HSBC Holdings Plc. (HSBA), according to data from OSFI.
ING started the Internet bank in Canada, its first branchless venture, in 1997. It built the division through a television advertising campaign in which 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 purchase “poses some problems for a bank” because it doesn’t conform to a branch banking system, said David Cockfield, managing director at Northland Wealth Management in Toronto, which manages about C$200 million.
“I’m not sure how ING fits into that system without competing with your normal deposit-taking,” Cockfield said. “It is a bit of a square peg in the banking world of rounder holes.”
Manulife Financial Corp. (MFC), the Canadian insurer that owns a domestic bank operating without a branch network, may also be a suitor, said McLean & Partners’s Tahiliani. Manulife spokeswoman Laurie Lupton said the company has a policy on not commenting on rumor and speculation.
Canadian banks have invested in online lenders before. CIBC worked with grocer Loblaw Cos. in 1998 when it established President’s Choice Financial, a branchless bank that offers interest rates of 1.35 percent on customer balances of more than C$1,000, according to its Website. That’s the same rate as the investment savings account offered by ING Direct Canada.
“Some of these non-bank entities that are looking to grow in banking do have a similar framework, where they don’t have the bricks and mortar and they are looking for more of an online presence,” Juliette John, who helps manage C$13.6 billion at Bissett Investment Management, including Scotiabank and Toronto Dominion shares. “This type of business could be absorbed relatively easily and fit within the non-traditional type of delivery of banking services.”
ING exited the Canadian insurance business in 2009, when it sold its stake in the Toronto-based insurer now known as Intact Financial Corp. (IFC)
ING’s focus on the mortgage-broker market may make the company less appealing to Royal Bank, Bank of Montreal (BMO) and CIBC, since those Canadian lenders have exited or don’t use brokers, Reucassel said.
Canada’s banking system was in September ranked the world’s soundest for the fourth straight year by the World Economic Forum.