National Post (National Edition)
ING DIRECT
Three touted as possible suitors.
Bank of Nova Scotia, National Bank of Canada and Toronto-Dominion Bank are considered potential buyers for ING Direct Canada, the online Canadian arm of the Dutch financial institution ING Groep NV, analysts said Thursday.
“Material domestic acquisition opportunities are rare in Canada and have been historically accretive for the big banks with relatively low execution risk and, as a result, we would expect significant interest in this asset,” BMO Capital Markets analyst John Reucassel said.
ING announced Thursday it was “reviewing strategic options” of its online Canadian direct bank and its U.K. direct banking platform.
Credit Suisse analyst Gabriel Dechaine identified Scotiabank and National Bank as those that should be viewed as “natural buyers” to the 15year-old Canadian e-bank.
“Both have relatively weaker deposit franchises in Canada and could take advantage of ING Direct’s established deposit gathering capabilities,” Mr. Dechaine wrote in a research note.
Compared to other Canadian banks, both are more open to third-party distribution channels, he said.
The Credit Suisse analyst estimates ING Direct Canada is worth between $1.7-billion and $2.6-billion, stating that it has established itself as a valuable brand, especially in the high-interest savings account market.
ING Direct Canada, which doesn’t have retail branches, was the first Canadian bank to introduce mobile banking apps for BlackBerry and iPhone in 2010.
The analyst noted ING Direct has $30-billion of loans, of which residential mortgages constitute 98%, and $30-billion of deposits primarily from individuals, according to its filings with the Office of
Domestic acquisition opportunities are rare in Canada
the Superintendent of Financial Institutions.
Neither bank would comment on whether it was considering the purchase, but Scotiabank said “As opportunities for growth become available we evaluate each on a case-by-case basis.”
Mr. Reucassel included TD in his assessment of ING prospective buyers.
He noted that other major Canadian banks are no longer in the mortgage broker business, which could mean they would be less interested in the ING residential mortgage asset.
“We don’t comment on rumours or speculation. We have a great franchise delivering great growth, so we’re not in a hurry to make any deals,” said TD spokesperson Stephen Knight. “Having said that, if there is something that makes sense financially and strategically and fits within our risk appetite, we would consider it.”
A National Bank analyst also speculated that Canadian institutions have been scoping out the asset for a while.
“I suspect some of the banks have been looking at ING Bank Canada for some time,” said Peter Routledge, a financial services analyst at National Bank Financial.
He said the financial institutions most likely to be intrested in the online bank would be those that rely on wholesale funding for their operations.
The possibility of ING Direct Canda getting picked up by an alternative lender, as opposed to one of the big banks, is slim, according to another analyst.
Shubha Khan, an analyst at National Bank Financial who tracks alternative lenders such as Home Capital Group, said it is “highly unlikely” they would be interested in or capable of purchasing ING Direct Canada.
“I estimate that ING Canada could be sold for around book value … north of $1.7billion,” he said, adding that a purchase price “of that magnitude is quite prohibitive for the alternative lenders.”
Not only would they have to issue equity to fund the purchase, he said, but they would probably have to raise additional equity to satisfy stricter regulatory capital requirements.
Shares of ING Groep NV fell 5.1% on the Euronext exchange Thursday.