ING Direct USA will be sold to Capital One

ING (7,99 EUR, 0,24%) will sell ING Direct USA for a total consideration of USD 9.0bn (€ 6.3bn at currentexchange rates) to Capital One Financial Corporation, a leading US-based financial holding company. Under the terms of the agreement, ING will receive USD 6.2bn in cash and USD 2.8bn in the form of 55.9 million shares in Capital One. The transaction prices ING Direct USA at a FY10 PER of 17.3 and book multiple 1.0 under IFRS GAAP and at a FY10 PER of 33.7 and a book multiple of 1.0 under US GAAP.
The sale of ING Direct USA is expected to result in a net positive result of USD 0.7bn and a capital release at closing of USD 4.1bn or € 2.9bn at current exchange rates. The transaction is expected to have a substantial positive impact on ING Bank's core Tier 1 ratio of 99 basis points at closing, based on the core Tier 1 ratio of 10.01% per 31 March 2011.

In connection with the sale of ING Direct USA, ING has reached an agreement with the Dutch State to adjust the structure of the Illiquid Assets Back-up Facility (IABF). Under the terms of the agreement announced today, the government receivable (€ 15.4bn) will be transferred from ING Direct USA to ING Bank. In return, ING Direct USA will receive on its balance sheet an amount in cash from ING Bank. Also, after the sale of ING Direct USA, ING Bank will receive the funding fee and management fee from the Dutch State and pay the guarantee fee.

The 20% (€ 3.1bn) of the Alt-A portfolio not covered by the IABF will remain on the balance sheet of ING Direct USA and will move to Capital One as part of the sale of ING Direct USA. In order to ensure continued alignment between the interests of ING and the Dutch State with regard to the Alt-A portfolio, ING will provide a counter guarantee to the Dutch State covering 25% (€ 3.1bn) of the 80% (€ 15.4bn) part of the Dutch State. This guarantee will cover realised cash losses if they would exceed the 35% that is implied by the current market value of the portfolio. This adjustment will therefore lower the risk exposure for the Dutch State. The potential capital and P&L impact of the alignment for ING Bank is expected to be limited.

Our View:
Pricing of INGDirect USA (USD 9bn) and names of candidates were already circulating for a while. We consider pricing correct. Pre-tax earnings contribution for FY11E was EUR 520.4m and for FY12E EUR 492.8m. Forecasts will be adjusted accordingly. First simulation shows a reduction of FY11E adjusted EPS of 2 cent (1 quarter of earnings) and for FY12E a reduction of 8 cent.

Conclusion:
We remain Accumulating with an unchanged target of € 9.0.