The auction of ING Bank of Canada, which could be the largest sale of retail banking assets of its kind in the country in more than a decade, presents a significant problem for the financial institutions seeking to snap up the business.
As prospective buyers submit bids, much of the value depends on a key question: How many ING Direct Canada customers will stick around if the business is swallowed up by a larger player.
The issue is a critical one for the potential buyers of ING, which has built its name on being different from the major banks.
ING Direct Canada, as it is known to customers, was created in 1997 as an alternative to the major Canadian banks, offering no-fee internet banking accounts and higher interest rates than the Big Six.
The brand turned itself into a household name through television commercials peppered with the slogan "Save your money."
With the second round of bidding now under way, the issue of customer retention is believed to be a key focus.
The bank's parent company, Dutch financial giant ING Groep NV, announced two weeks ago that it is seeking strategic options for its 15-year-old Canadian business, as the European lender looks to repay roughly €10-billion ($12-billion) of government aid received during the financial crisis.
The assets are said to be generating strong interest in the Canadian banking sector, since retail properties rarely come up for sale in Canada, a factor that could lead to a hefty premium on the price. ING has $30-billion worth of deposits, which would make it the largest sale of deposit assets since Toronto-Dominion Bank bought Canada Trust in 1999.
Analysts estimate that ING's Canadian assets could sell for between $1.7-billion and $2.5-billion depending on how much buyers are willing to pay up to win the bidding, and how confident they are than they can retain the bank's 1.8 million customers.
Peter Aceto, ING Direct Canada's chief executive officer, said a key focus for his bank as the process plays out is easing concerns for its customers.
"I don't think the majority of Canadians came to ING Direct because they hated something. I think it was because we offered them something that was unique and special," Mr. Aceto said in an interview. Any prospective buyer should seek to "maintain that value proposition," Mr. Aceto said. "It would be foolish to do otherwise."
"My view is Canada needs an alternative like us. And I think our success in a relatively short period of time has proven that," he said.
Analysts say the assets are an attractive buy for banks looking to boost their share of deposits in Canada. Bank of Nova Scotia and National Bank of Canada, the Montreal-based lender that has stated aspirations to expand into a cross-country player in retail banking, are thought to be interested.
While ING Groep has said its options could include an initial public offering or a partnership with another bank, the bank is thought to favour a straight cash sale of the operations as it shores up its balance sheet.
"When you look at the environment, and the challenges our shareholder has had – just the challenges that have been felt in Europe – it's not illogical that they would review strategic options," Mr. Aceto said. "One of those options is a sale, but there's other options as well."
Analysts figure the bidding may need to include provisions that protect a potential buyer from an erosion in customers, should some of the customer base leave ING Direct after the sale.
"If I'm the buyer, I want to have some kind of clawback because the biggest question to me with this thing is how sticky are the deposits," said Sumit Malhotra, an analyst at Macquarie Capital Markets Canada Ltd.
Beyond Canada's major banks, observers have noted that other financial players, such as insurance companies interested in owning deposit operations, could bid on the assets.
Although Canadian banks salivate over the potential to buy retail banking assets, preventing cannibalization of a bank's existing customer base is also key. If a bank were to buy ING Direct's business and operate it as an online discount bank, it would have to ensure its existing premium customers didn't simply shift to that brand in search of savings, since fee revenue would take a hit.
"Ultimately, the relationship with an ING Direct is often someone who doesn't want a deeper relationship with a bank. They want a better rate," said CIBC World Markets analyst Rob Sedran. "You've got to be careful of not getting a traditional branch customer suddenly migrating onto your online channel where you're not going to make as much money off that customer any more."
However, analysts note that there aren't many discount banking alternatives that clients could jump to if ING Direct Canada was bought by a major bank. President's Choice Financial is affiliated with CIBC. For that reason, Mr. Aceto said the bank has heard from customers in recent weeks hoping the model is preserved, regardless of the results of the strategic review.
"People are saying we sure hope that the essence – reason we went to ING – remains the same," Mr. Aceto said.