Leaving no stone unturned to make up for the loss of face from its involvement in the LIBOR manipulation scandal, Barclays (NYSE:BCS) inked a deal with the ING Groep (NYSE:ING) to acquire the ING Direct U.K. business this week.  This move to expand its core retail banking operations in the U.K. comes within days of the bank’s decision to revamp its investment banking business. The proposed acquisition serves Barclays’ interest in more than one way. It adds to the bank’s deposit base and mortgage portfolio, and it is in line with the British government’s directive for U.K.-based banks to focus on operations in their home country.
We are in the process of reviewing our $15 price estimate for Barclays stock, in light of this acquisition as well as the proposed investment bank shakeup announced by the company.
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The ING Groep has been in the process of divesting its online banking operations in international locations over recent months. The Dutch group sold its ING Direct business in the U.S. roughly a year ago to Capital One (NYSE:COF). And it found a suitable acquirer for its U.K. business in Barclays.
The acquisition is expected to complete in Q2 2013, subject to regulatory approval and will add £10.9 billion ($17.5 billion) in deposits and about £5.6 billion ($9 billion) in mortgages to Barclays’ U.K. retail banking business. While the actual terms of the acquisition have not been made public, Barclays most likely paid something close to the £11 billion ($17.6 billion) valuation for ING Direct U.K.
The impact of the addition of $9 billion in mortgages outstanding on Barclays’ share value can be understood by making that change in the chart below. The increase in the deposit base by about $17.5 billion should also grant the U.K. retail banking business access to cheap funds – slightly benefiting the yields on outstanding loans next year onward.Notes: