ING Faces Tough Going As It Separates Banking, Insurance Operations
April 26, 2013 by Fran Lysiak
As Netherlands-based ING Group NV separates its insurance and banking operations, an equity analyst cautioned the company faces roadblocks as the Dutch economy is in recession.
ING is restructuring following a US $13 billion bailout from the Dutch government in 2008 during the global financial crisis. The restructuring plan between ING and the European Commission as of 2010 required ING to divest its global insurance, ING Direct (U.S. only) and asset-management operations by 2013 through sale, an initial public offering, or a combination of those.
With the Dutch recession, real estate deterioration and disappointing investment yields, “we think ING faces a tougher backdrop” for its earnings on both bank and insurance, and for the timing and value of its asset disposals, David T. Andrich, an equity analyst with Morgan Stanley Research —Europe wrote in a note. On the banking side, “we reduce the bank’s earnings by an average 15% largely as a result of tougher asset quality trends,” Andrich wrote. Morgan Stanley is concerned about the deterioration in small and medium-size enterprises and real estate sectors, especially commercial real estate.
Under a November 2012 agreement, ING’s dates for divesting the insurance and investment management businesses were extended, Victorina de Boer, a spokeswoman for ING Group, told BestWeek.
Andrich said the more protracted schedule for disposal agreed with the EC “is a positive in our view, as ING will not be a forced seller on a tight timeline,” Andrich wrote. “However, this also means that the group’s restructuring and breakup will likely be a longer process and that uncertainty on the valuation that ING can attain will weigh on the group for longer.”
De Boer told BestWeek ING Bank “intends to be a strong, predominantly European bank,” with leading domestic full-service banking positions in attractive, stable home markets, and a leading commercial bank in the Benelux with a strong position in Central and Eastern Europe .ING’s priorities include strengthening its financial position, streamlining the portfolio and repaying state aid, she said.
ING insurance/investment management is preparing its businesses for “stand-alone futures,” de Boer said, noting the sale of ING Insurance/IM Asia is in progress. ING has separated its banking and insurance operations; sold its Latin American insurance and investment management operations in 2011 and sold several of its Asian insurance and investment management operations, she said.
ING U.S. Inc. recently filed documents with the U.S. Securities and Exchange Commission for its proposed initial public offering, which is expected to range between $1.4 billion to $1.5 billion (Best’s News Service, April 17, 2013).
ING is working on the IPOs “as the base case for divestment of both our U.S.-based insurance/IM operations, and our European Insurance/IM operations.”
ING recently announced the sale of part of its 36.5% majority participation of Sul America SA, effectively transferring full control to the founding Larragoiti family, Carlos Wong-Fupuy, senior director, analytics for A.M. BestEurope – Rating Services Ltd.. The price tag hasn’t been disclosed but is estimated to be more than$170 million. “This still leaves ING with a minority stake of just under 30%.”
The deal follows a number of disposals on insurance and investment management assets byING imposed by EU regulations after receiving the 2008 government bailout, Wong-Fupuy, said. This transaction “is relatively small” compared to the disposal of the bulk of Latin American life insurance and pensions operations in 2011 to Grupo de Inversiones Suramericana, based in Colombia, valued at2.7 billion euro ($3.5 billion), he said.
Several European and U.S.-based insurers have expressed interest in expanding their presence in high-growth regions such asLatin America, said Wong-Fupuy.
Zurich acquired 51% of Santander’s distribution network in 2011 in a 25-year agreement for$1.67 billion. Axa in 2008 bought ING’s non-life insurance operations in Mexico and has declared its intention to increase its focus in Latin America, where its participation is restricted to assistance business, said Wong-Fupuy. Generali also has made public its interest in the region, while Mapfre, despite its prominent presence in Latin America, remains mainly focused on non-life insurance activities, he said.
Both U.S.-based MetLife and Principal Financial Group are in the process of acquiring or recently acquired substantial majority stakes in Chilean pension fund managers, “a sector which is heavily regulated and where an increased participation of shareholders already present in the market is likely to be constrained by anti-monopoly laws,” said Wong-Fupuy.
ING no longer has commercial banking or brokerage activities in Mexico so its licenses there have been revoked.
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
