ING looks at selling Canadian, UK units
August 02, 2012 Vanessa Lu Business Reporter
Canadian financial institutions as well as insurers may be keen to buy ING Direct with its nearly 2 million online customers as its Dutch parent looks to unload certain assets.
ING Group said Thursday that it is reviewing strategic options for both ING Direct Canada and ING Direct UK as part of “its stated objective of sharpening its focus.”
ING received 10 billion euros ($12.3 billion U.S.) in Dutch state aid during the 2008 financial crisis, and is looking to raise money to pay back bailout funds.
As a condition of its bailout, it agreed to reduce its balance sheet, split its bank and insurance operations, and sell assets such as its Dutch bank unit WestlandUtrecht and ING Direct in the United States.
While it didn’t disclose any details of the potential value of its Canadian bank, analysts say it would certain be attractive to some including the Big Five as well as smaller banks like National Bank or Bank of Nova Scotia, or even competitors like PC Financial or Manulife Financial.
ING Direct, which began operations in 1997, has always billed itself as the “unbank,” targeting customers who don’t want to pay high fees charged by the big banks.
It has more than 1.78 million customers in Canada with more than $38 billion in assets. It employs more than 900 people.
Cor Kluis, an analyst at Rabobank International, said a buyer could pay 2 billion euros (about $2.5 billion Canadian) for the Canadian unit, estimating the business has a value of 1.1 billion euros and holds 900 million euros in excess cash.
When asked who might be a potential buyer, Brad Smith, director of research at Toronto’s Stonecap Securities, had a quick response – everybody.
“They are a fairly substantial player in the Canadian marketplace, they represent market share and market share is dear,” Smith said, given the deceleration of growth in the Canadian market.
But he cautioned that some of the big banks may not be keen, because profitability potential may be limited.
“It’s so competitively priced on the mortgage side,” Smith said. “It charges almost zero fees for its deposit accounts. To think you’re going to pick up those customers and charge them fees would be folly.”
Still, he thinks somebody will make a strategic rationale for taking the business on.
Laurence Booth, a finance professor at the Rotman School of Management, said ING’s latest move reflects European financial institutions, caught in the 2008 financial crisis, selling off peripheral assets, in part to concentrate on domestic operations and appease regulators.
Booth thinks insurance companies might be interested as well as smaller banks or a U.S. institution.
“It’s difficult to break into the Canadian market,” Booth said. “You might get a foreign acquisition or one of the smaller banks like National Bank or Canadian Western to get broader exposure across Canada.”
Lubo Li, senior director of financial services at J.D. Power and Associates, said ING Direct is attractive because of its high satisfaction ratings from customers, especially on fees.
“It has built a very strong brand,” he said. “It is riding the wave of online banking.”
That type of banking is growing in popularity, and will only increase over time as banking expands to smartphones as well as younger customers who prefer to go online for routine transactions, Li said.
As long ING Direct keeps its strategy on fees, on customer service, Li said it would do well, regardless of whether it is owned by a Dutch company or by a Canadian company.
With files from Bloomberg News
August 02, 2012 Vanessa Lu Business Reporter
Canadian financial institutions as well as insurers may be keen to buy ING Direct with its nearly 2 million online customers as its Dutch parent looks to unload certain assets.
ING Group said Thursday that it is reviewing strategic options for both ING Direct Canada and ING Direct UK as part of “its stated objective of sharpening its focus.”
ING received 10 billion euros ($12.3 billion U.S.) in Dutch state aid during the 2008 financial crisis, and is looking to raise money to pay back bailout funds.
As a condition of its bailout, it agreed to reduce its balance sheet, split its bank and insurance operations, and sell assets such as its Dutch bank unit WestlandUtrecht and ING Direct in the United States.
While it didn’t disclose any details of the potential value of its Canadian bank, analysts say it would certain be attractive to some including the Big Five as well as smaller banks like National Bank or Bank of Nova Scotia, or even competitors like PC Financial or Manulife Financial.
ING Direct, which began operations in 1997, has always billed itself as the “unbank,” targeting customers who don’t want to pay high fees charged by the big banks.
It has more than 1.78 million customers in Canada with more than $38 billion in assets. It employs more than 900 people.
Cor Kluis, an analyst at Rabobank International, said a buyer could pay 2 billion euros (about $2.5 billion Canadian) for the Canadian unit, estimating the business has a value of 1.1 billion euros and holds 900 million euros in excess cash.
When asked who might be a potential buyer, Brad Smith, director of research at Toronto’s Stonecap Securities, had a quick response – everybody.
“They are a fairly substantial player in the Canadian marketplace, they represent market share and market share is dear,” Smith said, given the deceleration of growth in the Canadian market.
But he cautioned that some of the big banks may not be keen, because profitability potential may be limited.
“It’s so competitively priced on the mortgage side,” Smith said. “It charges almost zero fees for its deposit accounts. To think you’re going to pick up those customers and charge them fees would be folly.”
Still, he thinks somebody will make a strategic rationale for taking the business on.
Laurence Booth, a finance professor at the Rotman School of Management, said ING’s latest move reflects European financial institutions, caught in the 2008 financial crisis, selling off peripheral assets, in part to concentrate on domestic operations and appease regulators.
Booth thinks insurance companies might be interested as well as smaller banks or a U.S. institution.
“It’s difficult to break into the Canadian market,” Booth said. “You might get a foreign acquisition or one of the smaller banks like National Bank or Canadian Western to get broader exposure across Canada.”
Lubo Li, senior director of financial services at J.D. Power and Associates, said ING Direct is attractive because of its high satisfaction ratings from customers, especially on fees.
“It has built a very strong brand,” he said. “It is riding the wave of online banking.”
That type of banking is growing in popularity, and will only increase over time as banking expands to smartphones as well as younger customers who prefer to go online for routine transactions, Li said.
As long ING Direct keeps its strategy on fees, on customer service, Li said it would do well, regardless of whether it is owned by a Dutch company or by a Canadian company.
With files from Bloomberg News
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