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 capital requirements.
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.