Capital One Financial Corp., this year's top performer in the KBW Bank Index, agreed to buy ING Groep NV's U.S. online bank for $9 billion.
Capital One will pay $6.2 billion in cash and $2.8 billion in stock, giving ING a 9.9 percent ownership stake, the companies said in statements. McLean, Virginia-based Capital One will become the 5th-largest U.S. bank by deposits if it wins control of the biggest U.S. online bank, according to its statement.
The deposit boost may help Capital One, which derives more than half its revenue from credit cards, diversify its funding base and let it increase mortgage lending after closing a home loan-origination unit in 2007. The firm 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 data from the Federal Deposit Insurance Corp.
"The acquisition of ING Direct is a game-changing transaction that delivers attractive deal economics immediately and compelling long-term strategic value," Capital One Chairman and Chief Executive Officer Richard D. Fairbank, 60, said in the statement.
Capital One intends to finance the cash portion of the deal by selling about $2 billion in stock and debt before the deal closes in late 2011 or early 2012, according to the statement. The acquisition will boost tangible book value at closing, add to earnings per share in 2012 and "result in mid-single digit accretion in 2013," the company said.
Government Bailout
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. ING spoke with firms including General Electric Co., 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."
The agreement, which requires approval from the Federal Reserve and Dutch Central Bank, gives ING a seat on Capital One's board, the Virginia bank said today in an investor presentation.
"The diversified asset base of Capital One combined with the large deposit base and marketing strengths of ING Direct USA make an ideal combination for a strong future," ING CEO Jan Hommen said in his company's statement.
Credit Cards
First-quarter profit at Capital One climbed 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, following news reports that it was close to announcing a deal. The shares have gained 15 percent this year, compared with a 10 percent decline for the 24-member KBW Bank Index.
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 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.
Insurance Operations
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. 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.
Morgan Stanley, Barclays Capital, and Centerview Partners LLC are advising Capital One. Deutsche Bank AG is advising ING.
