That ING Direct has a valuable brand is not under debate. That it deserves to exist is.
Yesterday, the Dutch government read ING the riot act — that government has been plying ING with financial assistance for some time now — and the upshot was ING Direct must be sold. The sale is to take place before 2013, according to the Netherlands government mandate. There is no indication how much ING Direct will go for. (It should be noted that the Dutch government has instructed ING to sell ING Direct USA; it is unclear whether the ING Direct operations in other countries are to be sold, too.)
ING Direct was launched in 1997 in Canada. ING had high hopes for its revolutionary online-only bank. By 2000, ING Direct said it planned to open in two new nations every year. It never got there.
Last year, ING Direct bled money for its parent, losing nearly EUR 1.2 billion. Revenue fell 60% compared to 2007. The unit actually made EUR 530 million in 2007.
ING Direct did something right. It had a deposit base of EUR 322.7 billion last year. That’s a massive number. It also is a big reason why ING Groep’s brand is ranked 58th in the world among financial services firms. ING says ING Direct’s “aided brand awareness” is now 73% to 95% in all markets in which it operates.
But banking is a numbers game, and the numbers are tough for ING Direct. Sure, ING Direct had more than 22 million customers at the end of 2008. But it is also forced to offer relatively high deposit rates (currently, 3.99% in the US) and spend mightily on marketing. As long as its credit quality remains strong, ING Direct’s model works. Unfortunately, credit performance has bitten ING Direct in the you-know-where.
From the company’s more recent annual report:
So what went wrong? ING Direct apparently decided to buy Alt-A Residential MBS. Not a good decision:
To lose EUR 1.2 billion smarts. A recognizable brand will only get you so far in banking. Both sides of the balance sheet need to be managed, and obviously ING fell far short on this account at ING DIrect. Does this mean an internet-only bank cannot succeed? I wouldn’t go that far. But when it comes to ING Direct, the brand certainly succumbed to poor underwriting.