TORONTO Canada's No. 3 lender Bank of Nova Scotia (BNS.TO) agreed to buy ING Groep's ING.AS Canadian online bank for C$3.1 billion ($3.14 billion), taking advantage of a rare opportunity to grab market share in the country's crowded retail banking space.
The online bank, branded as ING Direct Canada, will bring 1.8 million customers, C$40 billion in assets and C$30 billion in deposits under the wing of the bank commonly known as Scotiabank.
Amsterdam-based ING put the unit up for sale earlier this month as part of a series of planned asset divestments to raise funds to repay a Dutch government bailout from the 2008 financial crisis.
Scotiabank will pay cash for the Canadian unit and said it will issue 29 million shares at C$52 each for total proceeds of C$1.5 billion to help fund the deal.
After deducting excess capital levels currently at ING Direct, Scotiabank's actual net cost will be C$1.9 billion, it said, adding that the takeover will be accretive to Scotiabank's earnings in the first year after closing, which is expected by the end of the year.
It also said its Basel III common equity tier 1 ratio will remain within its targeted range of 7 to 7.5 percent through the first quarter of 2013, meeting new standards that begin to take effect next year.
"SAVE YOUR MONEY"
Earlier this month, the Dutch bank said it expected a quick sale of parts of its $7 billion Asian insurance business, and it is also preparing to list its European and U.S. insurance units on stock markets as part of its restructuring.
Started in 1997, ING Direct Canada is an online bank which offers cheap loans and high-interest savings accounts.
Touted by familiar ads where Dutch actor Frederik De Groot encourages Canadians to "save your money", it currently holds about 3 percent of the Canadian market and commands strong brand loyalty among customers who prefer to avoid the traditional larger banks.
In a nod to these customers and the need to retain them, Scotiabank said it will maintain the unit's current product offering and keep the ING name for 18 months after the deal closes before rebranding it.
"We intend to keep this model following the acquisition and preserve ING Direct as a standalone business and a standalone brand," Scotiabank Chief Executive Rick Waught said on a conference call.
Current management, including ING Direct CEO Peter Aceto, will also maintain their positions, the bank said.
Scotiabank said it would eventually expand ING Direct's product suite, which currently includes chequing accounts, mortgages, and basic mutual funds, to include higher-yielding products such as credit cards.
Canada's banking industry is dominated by six domestic lenders, who are not permitted to merge with each other, which makes domestic growth opportunities few and far between, and has forced them to look to international markets for growth.
While the domestic bank industry has been hurt by slowing loan growth and narrow interest margins, it still churns out steady profits for the banks, underpinned by Canada's relatively strong economy and a housing market that continues to chug along, despite fears of a pullback.
Edward Jones analyst Tom Lewandowski said picking up deposits that can then be lent out at higher rates was key, particularly in the current low interest rate environment.
"I would look at it as a positive for Bank of Nova Scotia for that fact alone," he said.
A source close to the deal said Canada's six biggest banks were all in discussions to buy the ING unit.
The deal was announced after markets closed, but Scotiabank's U.S.-listed shares fell 2.7 percent to C$52.72 in after-markets U.S. trading.
J.P. Morgan advised ING on the sale.
($1 = 0.9885 Canadian dollars)
(Reporting By Cameron French; editing by Andrew Hay)