When Capital One Financial Corp. announced it was acquiring Wilmington-based ING Direct USA last month, the CEO of ING’s Dutch parent said: “I am very pleased that we have found in Capital One a good home for our customers and employees.”
It’s unclear exactly what the future will hold for ING’s 1,200-plus Delaware employees or its operations here, but financial analysts and Capital One’s past acquisition history all point to possible changes at the pioneering online bank that opened its doors in the First State in 2000.
Capital One said it expects a savings of $90 million to come out of the purchase of ING and that’s got to come from somewhere.
The firm pointed to a host of targets in a statement released when the merger was announced, including “consolidating systems, platforms and corporate staff functions. In addition to these cost synergies, Capital One expects to achieve funding savings of $200 million annually from optimizing management of the combined deposit portfolio. Beyond these amounts, there are potential additional synergies from cross-selling the [ING] ShareBuilder online brokerage products to Capital One customers and select Capital One products to ING Direct customers, and from balance sheet repositioning opportunities.”
What that may mean, according to David Becher, an associate professor of finance at Drexel University’s LeBow College of Business in Philadelphia, is “employees and/or cities could be hurt if data centers, divisions, and platforms are closed or sold off. Capital One already indicated it likely will sell ING’s mortgage lending business.”
Indeed, after Capital One’s purchase of North Fork Bancorporation in 2006, it shut down the firm’s mortgage business GreenPoint Mortgage Funding Inc., resulting in nearly 2,000 layoffs the following year.
“The reductions in demand and pricing in the secondary mortgage markets make it difficult to operate our wholesale mortgage banking business profitably,” said Capital One CFO Gary Perlin at the time the job cuts were announced.
Aside from the mortgage business, ING’s online banking operations could survive but where they’ll survive is the big question.
“You could argue that as there is not a lot of direct overlap and given the size of ING Direct, there would not be a need for a large cut in workforce,” Becher continued. “The CEO stated that the company expected ‘modest’ cuts. Further, ING has a very loyal customer base so Capital One will need to be very careful not to do something that causes a lot of customer turnover.”
As for the impact on Delaware, Capital One is based in McLean, VA, “and they could move operations from Delaware to Virginia,” he said.
Capital One already has its own online banking unit that’s been a major player in its own right, said Greg McBride, senior financial analyst for Bankrate.com. “They’ve had CDs and saving accounts, and money market accounts, and have been very competitive with their offerings to online customers.”
The challenge for Capital One will be maintaining ING’s customers, which McBride described as “attractive” to any bank because they are savers and have low credit default rates. And they are also fiercely loyal to ING, and it’s unclear how they’ll react when they start getting credit card offers from Capital One, he surmised.
Indeed, there’s already been a cyber outcry by ING customers who apparently aren’t wooed by Capital One’s television mascots, battling barbarians. The day the company announced it was being bought by Capital One on its Facebook fan page, customers quickly voiced their disapproval. These two comments pretty much summed up the sentiment on the site:
Michelle Duquette wrote: “Aw crap. When is someone going to cut the head off of that ugly snake? Thank goodness I waited before changing my mortgage over to ING. This just sucks.”
And Debra Floyd wrote: “Really, I mean I am really not happy about this buy out and will need to look elsewhere. So sad for I really did enjoy banking with ING.. Have done biz with Cap 1 and it was not a great experience.”
A loss of customers won’t bode well for ING employees whether they’re in Delaware or in another state; not to mention what cost cutting efforts will mean for workers.
Capital One officials are still short on specifics.
“We just announced this [ING acquisition] a couple of weeks ago and we've only just begun thinking through how we will bring our companies together,” maintained company spokeswoman Tatiana Stead.
She would not specifically comment on the possibility of employee reductions or how long Capital One will maintain operations in Delaware, but said, “We expect to maintain a presence in Delaware and in the community.”
When the purchase was announced Capital One’s Chairman and CEO Richard Fairbank said: "The acquisition of ING Direct is a game-changing transaction that delivers attractive deal economics immediately and compelling long-term strategic value. The combination of Capital One and ING Direct creates a unique and valuable banking franchise that includes advantaged access to assets, great local scale branch banking in attractive markets, and with ING Direct, the leading direct bank customer franchise with national reach. Adding ING Direct enhances and sustains key sources of shareholder value over the long-term, including growth, returns and capital generation."
“We are committed to sustaining and enhancing the great customer relationships that have been central to the success of both banks,” he said.
But sustaining customers is not the same as sustaining employees of ING, or maintaining a presence in Delaware, said Becher. And “anecdotal evidence suggests that when a company takes over another company, in order to realize cost savings, some or all operations have to be consolidated.”
That wouldn’t be good news for Delaware, which has already seen more than 700 jobs disappear following the takeover of Wilmington Trust in late 2010 by M&T Bank. Any additional layoffs in Wilmington will hit the city hard since its unemployment rate was 12 percent as of May. Capital One has not given Mayor James Baker’s office any indication of its plans, according to Rich Neumann, assistant communication director for the mayor.
A lot of what happens to ING in the near future may have to do with what Capital One’s greater ambitions are and whether a behemoth will eventually gobble the Delaware operations up. Most analysts believe Capital One, which is now the fifth biggest bank in the United States with the ING purchase, aims to scale greater heights.
In an equity research report by Oppenheimer, analysts see ING as the beginning of many more purchases to come. “We view the ING transaction as part liquidity warehousing and part ‘Stealth’ $9 [billion] equity raise, both of which make sense only if you are contemplating an asset purchase. HSBC's credit card business has been mentioned in the press, but any asset-rich, deposit-poor business would make sense,” the report states. “In our view, the ING acquisition is the preliminary, and the main event is yet to come.”