It's already a long time ago that I wrote about ING. In my article of January 19, I wrote What Happened At Its Investor Day And What's The Rumor?
ING (ING) is a Dutch-based global financial institution offering banking, insurance and asset management. Going forward, ING will concentrate on its position in international retail and direct and commercial banking. Its insurance operations, including investment management, will become independent.
The Dutch bank is going through a transformation process and has to challenge several issues, but has a very appealing valuation.
Following the dramatic events in 2008, ING had to request support from the Dutch State (a capital injection of EUR 10 billion and the transfer of risk on its US Alt-A mortgage portfolio to the Dutch State).
In December 2009, ING placed a EUR 7.5 billion rights issue and repaid EUR 5bln of this support. Furthermore, the company was forced to increase focus and reduce risks. This resulted in a plan that will drastically change the company's structure, implying amongst others the divestment of the insurance and investment management activities, which will eliminate the double leverage of the group.
In the third quarter of 2010 ING took the first steps to divest these activities by cleaning up its balance sheet, splitting the businesses and preparing for two separate IPOs: one holding for the European and Asian insurance and investment management activities and one for the US.
At the beginning of 2012 ING changed the plan and announced it will put its Asian insurance and investment business up for sale. Meanwhile, a large number of assets have already been sold, such as the real estate investment management business, ING Direct USA, ING Latin America insurance and ING car lease. In the meantime ING is also in a judicial battle with the European Commission over the terms of the recapitalization after it received state support.
All these developments (divestments, repaying EUR 3 billion state aid plus penalty, the legal combat with the EC, strengthening its capital ratios to apply to Basel III) take place in a weak economic climate with volatile markets. The restructuring plan of ING offers serious reward potential given the current attractive valuation.
The latest news in this transformation process came yesterday. ING agreed to sell ING Direct Canada for EUR 2.5 billion in cash to Scotiabank, which is around twice its book value. The expected transaction gain after taxes will approximately be EUR 1.1 billion and strengthen ING's capital ratios. The bank's core ratio tier 1 ratio will increase around 47 basis points to 11.6%.
The company got a good price and the benefits will make it easier to repay state aid and further strengthen ING capital ratios. ING's ambition 2015 program should lead to an return-on-equity (ROE) of 10-13% under Basel III regulation and a cost-income ratio of 50-53% by 2015.
With a P/E below 6 for this year you are buying a company which could double in value in a very short time frame (< 2 years). The stock trades at a huge discount with their peer group which trades at a P/E around 10.