(Updates share price in 10th paragraph.)
June 16 (Bloomberg) -- Capital One Financial Corp., this year’s top performer in the KBW Bank Index, is nearing a deal to buy ING Groep NV’s U.S. online bank for about $9 billion in cash and stock, said people with knowledge of the matter.
The companies may reach an agreement for ING Direct USA as soon as today, said the people, who spoke on condition of anonymity because the negotiations are private. The talks may still fall apart, said the people, adding that General Electric Co. also made a bid. Capital One may raise $2 billion to complete the deal, one person said.
ING, the biggest Dutch financial-services firm, is under order from the European Union to sell the U.S. unit as a condition for a government bailout during the financial crisis. Amsterdam-based ING spoke with firms including CIT Group Inc., Ally Financial Inc. and Citigroup Inc.’s private-label credit- card business, people familiar with the matter have said.
“We believe that ING Direct USA is a valuable asset,” Duncan Russell and Marine Collas, London-based analysts at JPMorgan Chase & Co., said in a June 7 report. “It has shown a very strong ability to build deposits and these deposits have proven to be sticky despite the financial crisis, implying that the model works.”
Raymond Vermeulen, an Amsterdam-based spokesman for ING, declined to comment.
Capital One, currently the seventh-biggest U.S. commercial lender with $125.4 billion in deposits at the end of the first quarter, would become 6th-biggest if it wins control of the largest U.S. online bank and its $81.6 billion of deposits, supplanting PNC Financial Services Group Inc. The combined deposits of about $207 billion would be shy of U.S. Bancorp’s $208.3 billion, according to data compiled by Bloomberg.
The deposit boost may help Capital One, which derives more than half its revenue from credit cards, diversify its funding base and allow it to increase mortgage lending after closing a home-loan-origination unit in 2007.
The lender also would have to contend with ING Direct USA’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.
Capital One, led by Chairman and Chief Executive Officer Richard D. Fairbank, 60, boosted first-quarter profit 60 percent as fewer credit-card borrowers defaulted and the firm released money from an account to cover soured loans.
Capital One climbed $1.13, or 2.4 percent, to $49 at 4 p.m. in New York Stock Exchange composite trading. The shares have gained 15 percent this year, compared with a 10 percent decline for the 24-member KBW Bank Index.
The company may pay $6.2 billion in cash and $2.8 billion in stock, giving ING an ownership stake of about 10 percent, Dow Jones Newswires reported, citing an unidentified person with direct knowledge of the matter.
ING received 10 billion euros ($14 billion) of state aid in 2008 and transferred the risk on 21.6 billion euros of U.S. mortgage assets to the Dutch government in 2009. The company has repaid 7 billion euros to date and plans to repay the remainder by May.
ING Direct USA’s $40 billion in net loans and leases gave it a Tier 1 capital ratio, a measure of financial strength, of 26.8 percent at the end of 2010, compared with an average of 12.7 percent for all U.S. banks, according to FDIC figures. The return on assets was 0.3 percent in 2010, less than half the industry average of almost 0.7 percent, according to the FDIC.
European Union regulators approved the taxpayer-funded bailout in November 2009, after the company agreed to sell its insurance and U.S. online-banking divisions and make additional payments to the state. The firm also has to dispose of Dutch lender WestlandUtrecht Bank.
ING is considering divesting its insurance operations by two initial public offerings, one for the U.S. and one for the European and Asian business. CEO Jan Hommen has said the IPOs are likely to take place in 2012 depending on market conditions.
Other banks based abroad plan to sell U.S. businesses. Royal Bank of Canada is seeking a buyer for its U.S. retail branch network, people with knowledge of the matter said in April. HSBC Holdings Plc has plans to shed its upstate New York operations, people familiar with that effort said in May.
--With assistance from Maud van Gaal in Amsterdam and Michael J. Moore in New York. Editors: Dan Reichl, Peter Eichenbaum
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