Sell ING (ING)
01/05/2010 1:53 pm EST
I bought ING (ING) on this relatively straightforward story: The Dutch banking and insurance giant was redeploying assets from its mature markets in Europe into growth markets in the developing economies of the world. That, I thought, made this a good stock to buy in order to participate in the higher growth of the developing economies of Asia and Latin America.
Well, a little problem called the U.S. mortgage market crash interrupted this plan.
ING had started up a very successful effort at gathering deposits via the Internet in the United States called ING Direct. By offering higher rates than local banks, ING Direct had gathered $75 billion in deposits by the middle of 2009. The speed of that growth put ING in a bit of a bind. It was taking in deposits in the United States faster than it could deploy the capital in its own mortgage lending business. So to keep its deposits balanced with its loan assets, ING began to buy mortgage-backed securities. That portfolio grew to about $50 billion. And when the mortgage market blew up, so did that portfolio.
ING wound up needing $15 billion injection of cash from the Dutch government in October 2008 and about $33 billion in government loan guarantees. Now, in October 2009, regulators for the European Union are making ING pay the price for that government aid. They are forcing ING to break up into two pieces, banking and insurance, and to sell off its insurance unit as well as its ING Direct business in the United States. What will be left after the sale will be a predominantly European bank. That may or may not be a good business, but it’s sure not the business I bought when I added ING to the Jubak Picks 50. Gone is the whole strategy—at least for the conceivable future—of moving assets from Europe to faster growing markets and going after the growing middle class in Asia and Latin America who wanted banking and insurance products.
So as of January 5, 2010, I'm selling ING out of my long-term Jubak Picks 50 portfolio.
(Full disclosure: I will sell my personal shares of ING three days after this is posted.)
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