BUSINESS

Canadian banks may snatch up ING Direct Canada if it goes on sale: analysts

08/02/2012 05:15 EDT | Updated 10/02/2012 05:12 EDT
TORONTO - Several Canadian banks may be interested in scooping up ING’s Canadian banking arm, analysts said Thursday after its troubled parent company announced it's reviewing Canada's largest Internet bank as prelude to a possible sale.

ING Groep NV, which is struggling to keep its balance sheet healthy amid bad loans and declining margins, could sell Canada's ING Direct, with 1.8 million customers, for as much as $2.6 billion, analysts said.

National Bank analyst Peter Routledge said ING Direct's stable deposit base may be a draw for Canadian institutions, and estimates the Canadian bank has a book value of about $1.6 billion, but could go for more depending on how much potential buyers want it.

"I wouldn't necessarily say that (Canadian banks) are sitting there with bated breath waiting to pounce, but it's an interesting franchise," said Routledge.

The Canadian ING business was established in 1997, attracting customers with its promise of no-fee banking. They can manage high interest savings and chequing accounts online as well as take out mortgages, or invest in mutual funds — but withdrawals and deposits are done at various ATM locations.

Despite the fact that ING's parent company has been in the news for getting bailed out by the state — it still owes three billion euros in remaining bailout money from the Dutch state from the 2008 financial crisis — Routledge noted that deposits from customers at the Canadian arm are "remarkably constant."

"Long-term deposits are very useful and very valuable under new liquidity rules that are going to be rolled in over the next two or three years," he said.

Those rules were brought in as part of a new global oversight system, Basel III, agreed upon after the 2008 financial crisis, which will determine how much cash banks are required to have on hand in order to meet obligations when they come due.

"It could get interesting for those banks that feel they need a more stable deposit base."

Credit Suisse analyst Gabriel Dechaine says Bank of Nova Scotia (TSX:BNS) and National Bank (TSX:NA) could be potential buyers and estimates the asset may be worth $1.7 billion to $2.6 billion.

"Both have relatively weaker deposit franchises in Canada and could take advantage of ING Direct’s established deposit gathering capabilities," Dechaine said in a written statement.

"Both banks have strongly embraced third party distribution channels, relative to peers."

Citing filings to the Office of the Superintendent of Financial Institutions, he said ING has $30 billion in loans, 98 per cent of which are residential mortgages, as well as $30 billion in deposits.

Like many of Europe's banks, ING has had to divest assets and lean on emergency funds as anxiety over the Greek debt crisis took a toll on confidence in the continent's financial institutions, which had already been battered by the recession.

In February, ING sold ING Direct in the U.S. to Capital One for 489 million euros (US$600 million).

In 2010, ING Group unloaded 400 Canadian industrial properties at a $1.3-billion discount to Alberta Investment Management Corp. and KingSett Capital after the European financial giant saw the portfolio's value crash since it was acquired four years ago.