Business

Winnipeg Free Press - PRINT EDITION

ING's credit rating rises in takeover scenario

By: Staff Writer

Posted: 08/31/2012 1:00 AM | Comments: 0

TORONTO -- While Scotiabank shares were down Thursday after the bank announced a takeover of ING Direct, at least one credit rating agency viewed the deal as a positive -- for ING.

Scotiabank (TSX:BNS) stock was down $1.30, or almost 2.5 per cent, to close at $52.30 on the Toronto Stock Exchange.

Meanwhile, Moody's Investors Service placed ING Bank of Canada's long- and short-term deposit ratings on review for upgrade as a result of the acquisition from the struggling Dutch Parent company, whose credit rating is lower than Scotia's.

Scotiabank announced Wednesday it is buying ING Bank of Canada in a $3.13-billion deal that includes putting more of its shares on the market, diluting the value for current investors.

ING Canada's long-term rating is currently Baa1, while its short-term ratings sit at Prime-2. The rating of its subordinated bonds was also placed on review for upgrade.

"If the transaction closes as outlined, ING Bank of Canada's supported ratings would be upgraded given BNS's stronger credit profile and its capacity to provide support to ING Bank of Canada if required," said Moody's analyst William Burn.

However, Moody's said it is maintaining ING's stand-alone rating of C-/baa1 with a negative outlook given the "transition risk associated with its narrow business model in the context of an increasingly competitive operating environment."

Moody's said the bank has a higher interest rate risk, relative to its peers, because of its reliance on interest revenues from products such as savings accounts and mortgages.

"Notwithstanding these challenges, ING Bank of Canada's ratings are supported by its franchise strengths, including healthy efficiency metrics, strong capital and excellent asset quality," it added.

The deal gives Scotiabank, the country's most international bank, a stronger foothold in domestic consumer banking.

ING Direct would continue to operate separately and maintain its 1,000 employees under the deal announced Wednesday, and keep its branding for at least 14 months.

But the name will change within a year-and-a-half.

Scotiabank also announced a public offering of 29 million common shares at $52 -- for gross proceeds of $1.5 billion -- to fund the deal.

Rating agency DBRS confirmed its ratings for Scotiabank, including the bank's deposits and senior debt, at AA following the announcement.

"The transaction is consistent with BNS's strategy to grow its personal-deposit market share," the agency said in a release. "DBRS views this transaction as improving BNS's funding profile.

"Integration risks are somewhat diminished as Scotiabank intends to run ING as a stand-alone bank under a separate brand," it added.

DBRS also confirmed its ratings on the bank's short-term instruments at R-1 (high).

-- The Canadian Press

Republished from the Winnipeg Free Press print edition August 31, 2012 B10

Factual inaccuracy? Something missing? Help improve our journalism.

Know about news? Share your story suggestions, photos and video.

Spelling error? Punctuation problem? Send us an email if you’ve found a typo.

More Business

Undock

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is register and/or login and you can join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.