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Friday, April 19th, 2024

ING Sold to Scotia – current customers with low mortgage rates should remain unaffected.


ING Sold toScotia

Adil Virani low mortgage ratesThis shouldn’t come as a shock to spectators of the mortgage market, but ING Direct now has a buyer. If everything falls into place, Scotia Bank will buy ING Direct to the tune of $3.1 billion. Note that current customers with low mortgage rates should remain unaffected.

Obviously, the deal must first be approved by regulatory bodies. Assuming this happens, the deal should be closed by December.

Sources tell us thatScotiahas been looking at ING for some time now. The other potential buyer was National Bank.

If everything goes according to plan, Scotia will come out of this deal, the second biggest mortgage lender inCanadaper mortgage assets on its balance sheet. RBC will still be ahead of the combined Scotia/ING entity by $11 billion, according to McVay and Associates.

Regarding ING: Currently, ING Direct is the 8th largest bank in Canada. It has approximately 1.8 million clients, which on average have the highest net worth out of all the banks in Canada. ING’s balance sheet has residential mortgages valued at approximately $29 billion (this excludes commercial loans brokered by any commercial mortgage broker). According toScotia, ING will continue to be operated as a separate business. But within 18 months,Scotia says it will rebrand the company and drop the “ING” name.

On several occasions, Scotiahas alluded to the fact that it will be reallocating some of the capital from ING’s mortgages as they mature. This capital will be shifted to other uses with higher returns. But expect some capital to be maintained to continue providing low mortgage rates when the situation is right.

Potentially, the broker channel in ING will be pulled back.

According to the CFO of Scotia, Sean McGuckin, the distribution channel that is already existing and well developed withinScotiacan be used to benefit the ING business by sourcing mortgage assets.

And despite the talk about, “business as usual”, all this commotion probably isn’t great news for any Vancouver mortgage brokers employed by ING. The intention is likely to de-emphasis originations by brokers in ING.Scotia favors a higher-margin model which uses a direct to consumer strategy.

According to ING’s official statement on the matter, everything will continue “business as usual” for the time being. ING will continue operating as a separate entity, though now as a “wholly-owned subsidiary

If Scotia bank does cut back ING’s broker business, it would benefit mortgage franchises at the Big 6 Banks. If such a situation occurs, one of the results will be improved mortgage pricing power and margins in the retail broker channel ofScotia. This is great reason the deal makes sense to shareholders.

Unfortunately, for many a consumer and mortgage broker, this may not be ideal. For consumers, price competition driven by brokers is pretty much guaranteed to fall. And for any honest mortgage broker currently financing through ING, “business as usual” likely doesn’t mean business as usual indefinitely.


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