Writing in September 2009, I argued that investors should consider ING cumulative preferred shares. I did not at the time recommend ING’s common shares, then trading in the $14-$16 range. Now that they are trading around $8 ($8.46 at U.S. market close on June 16), depressed by the European sovereign debt crisis, I think it’s a good time to consider the common shares, particularly for U.S. investors and others whose holdings are concentrated in dollar-based assets. My rational is as follows:
- Now is generally a good time for U.S. investors and others with portfolios heavy on U.S. equities to consider diversifying by adding holdings in European shares while the Euro is still near multi-year lows, though this should be done carefully to avoid companies heavily impacted if there is a protracted European recession.
- The bulk of what ING needs to do to make amends for the state aid received from the Dutch government during the peak of the financial crisis has likely already been revealed, including splitting its banking and insurance business and selling the ING Direct U.S. operation.1
- It’s fair to expect that the European Commission will be reasonably flexible in dealing with ING going forward because the current European debt crisis is largely a struggle for the wealthier Northern European nations to save more debt-laden Southern members, making the players reluctant to overly burden the economies of Northern states like the Netherlands.
- When divestments and special items are subtracted, ING made € 0.27 per share in the first quarter of 2010,2, which using an exchange rate of 1.24 (approximately the rate at this writing) rounds to $ 0.33 per share. Just sustaining those earnings over a year would produce a P/E ratio of 6.32 at current share levels, supporting a higher share price even if the Euro stays in the same place against the dollar.
- Intangibles also weigh in ING’s favor. The company has been very successful in marketing its highly regarded ING Direct savings account,3 and even if it the company does eventually sell ING Direct by 2013 as currently expected to meet the Commission’s requirements,4 it should command a good price.
Finding exactly the optimal time to buy is always a challenge—there may still be dips below $8 given the volatility of the current European situation but waiting for a perfect situation for too long may result in a good one being be missed. I also think that those who can hold out for the long haul with ING will do best, as many of the key events that will add value, like reviving dividends and selling ING Direct, may not happen for a few years.
- See “ING to separate banking and insurance operations,” October 26, 2009, at http://www.ing.com/group/showdoc.jsp?docid=417610_EN&menopt=prm|pre|apr|010. [↩]
- See ING Group Quarterly Report, published May 12, 2010, available at http://www.ing.com/group/showdoc.jsp?htmlid=419558_EN&menopt=ivr|qtr|qtr. [↩]
- For an assessment of ING Direct, see “ING Direct Review,” Bargaineering.com, at http://www.bargaineering.com/articles/ing-direct-review.html. [↩]
- “EU Forces ING To Sell Off ING Direct US By 2013,” October 27, 2009, at http://www.mybanktracker.com/bank-news/2009/10/27/eu-forces-ing-to-sell-off-ing-direct-us-by-2013/. [↩]