ING Groep NV (INGA)’s $3.16 billion sale of its Canadian online bank to Bank of Nova Scotia may put the largest Dutch financial-services company closer to repaying state aid from its 2008 bailout.
The transaction, announced late yesterday, is expected to lead to a 1.1 billion-euro ($1.4 billion) gain after tax, Amsterdam-based ING said in a statement. Selling the Canada unit will also free up about 1.4 billion euros in capital.
Following its bailout, ING was ordered by the European Union to sell its insurance operations, its U.S. online bank and Dutch mortgage lender WestlandUtrecht Bank before the end of 2013. It’s in discussions with buyers for its Asian life insurance operations and may sell the business in parts to generate higher proceeds, Chief Executive Officer Jan Hommen said earlier this month.
“They may now be able to repay at least 2 billion euros from excess capital in the bank, so they need to raise less from the insurance IPOs to repay the Dutch state,” said Benoit Petrarque, an Amsterdam-based analyst at Kepler Capital Markets.
ING rose as much as 4.5 percent, and was up 3.7 percent to 5.98 euros by 2:25 p.m. in Amsterdam trading. The stock was the biggest gainer among the 32 companies in the Stoxx Europe 600 Insurance Index. (SXIP)
“We expect to repay another part of aid this year, as we’ve indicated before,” said Raymond Vermeulen, a spokesman for ING.
ING said in January it would review “non-core banking assets in addition to sales imposed on it by European regulators after a target of repaying its government bailout in 2012 became less certain amid Europe’s debt crisis and stiffer regulatory burdens. The firm, which received 10 billion euros in aid from the Netherlands in 2008, has so far returned 7 billion euros, plus 2 billion euros in interest and premiums.
The Canada sale should boost ING’s core Tier 1 capital ratio by 47 basis points to about 11.6 percent, if applied to the ratio as of June 30. A basis point is a hundredth of a percentage point. Scotiabank will pay C$3.13 billion ($3.16 billion) including excess capital in the unit.
“For this price if someone comes to you, you should be able to decide quickly,” said Petrarque.
Hommen sold the company’s U.S. online bank to Capital One Financial Corp. (COF:US) for about $9 billion in February, and disposed of the Latin American insurance operations last year. The firm has also sold a real estate investment-management business and car-lease unit.
“We believe the deal will lead to at least 5 percent outperformance today, as the deal comes faster and at a better price than expected,” said Jan Willem Weidema, an Amsterdam- based analyst at ABN Amro Bank. “The shares could even move up more, as the deal changes the momentum in the stock.”
As the firm continues with its divestments, it remains engaged in talks with the European Union on a revised restructuring plan. The European Commission, the 27-nation EU’s executive arm, said in May it would re-examine conditions attached to ING’s rescue after a court overturned some of the terms agreed on earlier.
The Brussels-based regulator today invited interested parties to comment on alternative restructuring measures proposed by ING and on whether the firm has breached previous commitments. The regulator said it will seek comment until Sept. 30.
Scotiabank, Canada’s third-largest lender, will spend C$1.9 billion after deducting excess capital at ING Direct in the cash deal, the Toronto-based bank said yesterday in a statement. Scotiabank will sell 29 million shares at C$52 each for proceeds of C$1.51 billion to fund the takeover.
“It looks like a good deal,” said Anil Tahiliani, head of North American equities at Calgary-based McLean & Partners Wealth Management Ltd., which manages about C$1 billion including Scotiabank shares. “They’re buying ING to strengthen their retail operations in Canada,” he said by phone.
North American banks including Scotiabank are taking advantage of Europe’s turmoil to buy operations and assets from competitors on the continent that need to raise cash.
Scotiabank said the transaction will add C$30 billion in retail deposits to its balance sheet and 1.8 million customers. ING Direct has assets of about C$40 billion in Canada and employs 1,100 people. Scotiabank, which has expanded mostly in Asia and Latin America over the past decade, had C$670 billion in assets at the end of July. It will keep the ING Direct brand.
The deal, expected to close in December, would be the biggest bank takeover in North America this year after PNC Financial Services Group Inc. bought Royal Bank of Canada’s U.S. unit for $3.5 billion in March, according to data compiled by Bloomberg. M&T Bank Corp. (MTB:US) agreed to buy Hudson City Bancorp for about $3.7 billion in a transaction expected to close in the second quarter of 2013.
The takeover is the biggest bank deal in Canada since Toronto-Dominion Bank (TD) bought Canada Trust for C$8 billion in 1999, Bloomberg data show. Bank of Nova Scotia (BNS) 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.
ING Bank of Canada is the largest foreign-based lender in Canada after HSBC Holdings Plc (HSBA), according to data from the country’s banking regulator. ING is Canada’s eighth-biggest bank by assets in the country.
ING started its 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 to the nation’s established banks.
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