direct banking model and whose mission statement is to be ‘the
world’s most preferred consumer bank’, suffered a sharp fall in
overall profits in 2007, with a significant decrease in the UK
dragging down earnings. ING Direct recorded an annual profit of
€530 million ($806 million), a drop of 23.6 percent from 2006’s
€694 million; fourth-quarter profits fell 57.6 percent to €73
million. The unit’s cost-income ratio also shot up: from 65.4
percent to 80.9 percent.
While it registered relatively static growth in many of its
markets, in particular North America, ING Direct had a very poor
year in the UK, registering a €100 million loss for 2007, €76
million alone in the fourth quarter. The fall is all the more
difficult as ING Direct made a UK profit only in 2006, the first
since launching in the country in 2003. In a statement, ING said:
“Further losses are expected in 2008, trending down significantly
from a peak in the fourth quarter of 2007.”
Asked by RBI whether it would consider exiting the UK
market altogether, an ING Direct spokesperson said: “The UK is an
important market for ING. We are confident that management, pricing
and marketing initiatives will be successful but [they will]
require significant investments and time. Remedial action has been
taken to reposition the UK business strategically, including
management changes, increasing the savings rate and undertaking
significant marketing spending to target less rate sensitive
customers. In turn, outflows have already slowed in Q4 2007 and
fallen back in line with what you would normally expect in an
instant access savings business, from €5.1 billion in Q3 to €0.6
billion in Q4 (with net new clients of 6,700 in Q4 too).”
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What is hurting ING Direct is the huge number of competitors
entering the saturated UK direct banking market. Iceland’s
Kaupthing banking group has just launched in the country (see
Kaupthing edges across Europe) and, in terms of the
savings rates paid, ING Direct now ranks as only 32nd highest in
the UK, according to figures from comparison website
Money¬supermarket.com. Worse still is that average balances per UK
savings clients have also declined sharply, down to €20,000 in the
fourth quarter of 2007 from €38,000 in the fourth quarter of
2006.
The spokesperson told RBI: “We experienced large outflows
in 2007 from high balance customers that typically chase the best
rates in the market.”
ING, the parent company, pushed its retail banking franchise into
emerging economies such as Turkey (see RBI 586), Thailand
(see RBI 582) and Romania in 2007. In its domestic Dutch
market, the group started a sweeping, five-year €890 million revamp
of its retail business, dropping the famous Postbank brand as it
looked for cost synergies and earnings opportunities (see RBI
572). In 2007, ING Direct itself made two acquisitions in the
US – it picked up $1.4 billion in deposits from the failed NetBank
and bought the retail brokerage ShareBuilder for $220 million –
though the biggest move remains its delayed entry into the Japanese
market (see RBI 578).
ING Direct, the smallest of ING Group’s six business lines,
contributed 6 percent of the group’s €11.1 billion 2007 pre-tax
profit. The spokesperson said: “ING Direct is considered one of our
growth engines. While other business lines are focusing a lot on
the growth in emerging markets, ING Direct’s strategy is focused on
large, mature markets with developed infrastructures for direct
banking and a mass market target group – typically the top 50
percent income class… At different times some countries will be
delivering profit while others require investment. The ING Direct
model allows for this.”
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