On Wednesday, The Bank Of Nova Scotia (BNS), popularly known as Scotiabank, announced a deal to purchase ING Direct Canada - the Internet banking division of ING Bank of Canada, a unit of ING Groep NV (ING) - for C$3.13 billion ($3.16 billion) in cash. This is the largest agreement made in the history of Scotiabank as well as biggest bank-deal in Canada in about a decade.
The deal will bring on board 1.8 million customers, C$40 billion ($40.38 billion) assets and C$30 billion ($30.29 billion) deposits. It is anticipated to be completed in December this year, subject to certain regulatory conditions.
Scotiabank declared that after deducting the surplus capital levels currently at ING Direct, the cost of the deal will be C$1.9 billion ($1.92 billion). The bank announced that the 29 million shares, to be issued at $52 per share, are expected to generate $1.5 billion of income, which would fund the takeover. The bank will operate ING Direct as a separate body.
Scotiabank also estimates its Basel III common equity tier 1 ratio to stay within the expected range of 7% - 7.5% through the first quarter of 2013, thereby meeting the latest regulatory requirements that are expected to be implemented from the next year.
Management at Scotiabank believes that the ING deal will help the company garner market share in the highly competitive Canadian market. Also, taking advantage of the current slowdown and debt crisis in the European markets, North American banks are cashing in on opportunities to purchase assets and operations from cash-strapped peers.
Based in Amsterdam, ING Groep NV is one of the largest financial organizations in Europe. The sale of its Canadian division is a part of a sequence of asset sales to pay back the bailout fund that it took from the Dutch government during the 2008 financial crisis. Earlier, ING's U.S. online banking unit was sold to Capital One Financial Corp. (COF) for roughly $9 billion. The company sold off its Latin American insurance operations, a real estate investment-management business and car-lease division as well.
Presently, ING Direct is one of the leading banks in Canada. Management believes that the deal would help enhance the company's reputation as one of the frontrunners in the industry. Also the agreement will help ING Direct to pay more attention to its core businesses and reinforce its balance sheet.
We believe that the aforementioned deal will help Scotiabank improve its market share in Canada.
Among other major acquisitions this year, PNC Financial Services Group Inc. (PNC) acquired the U.S. unit of Royal Bank of Canada (RY) for roughly $3.5 billion in March and in August M&T Bank Corporation (MTB) announced a deal to purchase Hudson City Bancorp, Inc. (HCBK) for approximately $3.7 billion.
The Bank Of Nova Scotia currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. ING Groep NV currently has a Zacks #4 Rank, which translates into a short-term Sell rating.