GRANT ROBERTSON, JACQUELINE NELSON and BOYD ERMAN
The Globe and Mail
Bank of Nova Scotia agreed to buy ING Bank of
Canada for <QL>$3.1-billion in a deal that marries one of the country’s
largest financial institutions with an aggressive upstart that built its name
on being different than the big banks.
The deal, the largest sale of Canadian
banking assets in more than a decade, will see Scotiabank acquire the Canadian
operations of Dutch bank ING Groep and operate them as a standalone business.
It is the largest deal by dollar amount
Scotiabank has done in its 180-year history and adds <QL>$30-billion of
deposits to its operations.
With a total of $175-billion of Canadian
deposits when the deal closes by the end of this year, Scotiabank will be the
country’s third-biggest bank by deposits. It is already Canada’s third-biggest
bank by assets.
The deal will require Scotiabank to sell
roughly $1.51-billion worth of shares in a bought deal to help fund the
acquisition. The bank is selling 29-million new shares at $52 each.
ING’s assets come with considerable cash on
the books, which Scotiabank will absorb. This excess capital means Scotiabank’s
net investment will amount to $1.9-billion.
A primary concern for Scotiabank, however,
will be retaining ING’s customers, including many who opened an account with
the upstart bank because it offered an alternative to the major banks.
ING Direct Canada launched in 1997, eschewing
branches and offering no-fee Internet banking accounts with higher interest
rates than the Big Six, branding itself with the slogan “Save your money.” Over
the years, ING built up a base of 1.8-million customers.
Aiming to retain those customers, the bank
said it will preserve the business model and not cross sell Scotiabank products
to ING customers.
“We recognize that success and are committed
to keeping this unique platform,” said Rick Waugh, president and chief
executive officer of Scotiabank, in a statement.
The ING Direct brand will remain for 18
months before Scotiabank renames the operations.
ING, the country’s eighth-largest bank, came
up for sale when Netherlands-based parent company ING Groep NV announced it
needed to raise capital to endure the European debt crisis. It’s not a
distressed entity – in fact its assets amount to $40-billion – but it needed to
be sold to repay aid from the Dutch government, and to help ING Groep meet new
Bank of Nova Scotia has always been strong in
international banking, with operations in more than 50 countries. But the
perceived weakness of the bank in recent years has been in increasing its
Canadian deposits, which this transaction addresses.
The assets are believed to have drawn the
interest of several of Canada’s Big Six banks in the early stages of the sale
process, since such assets rarely go on the block in Canada.
“Bottom line, the ability to add $30-billion
of core deposits in a single transaction is clearly quite rare in the Canadian
banking arena,” Macquarie analyst Sumit Malhotra said in a recent research note
when ING went on the block.
Royal Bank of Canada holds the most Canadian
deposits at $227-billion as of the end of the second quarter, followed by
Toronto-Dominion Bank at $209-billion.
CIBC is now fourth at $147-billion, followed
by BMO at $105-billion at fifth, and National at $38-billion and sixth.
ING Direct CEO Peter Aceto said in an
interview that Scotiabank’s strategy to operate the bank separately gave him
comfort in the deal. “All the reasons why our customers came to us in the first
place are going to be maintained and continue,” Mr. Aceto said.“It’s because of
that view that gives me a lot of optimism about customer retention.”
One of the plans is to introduce a credit
card, an offering ING set its sights on prior to the news of a sale. Scotiabank
will work to bring a card to market in the near future.