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Alt-A problem will hinder ING Direct USA sale

ING chief executive Jan Hommen may have hoped that by agreeing to sell off the insurance business he could keep the EU at bay, but this was not to be the case.

The European Commission is determined not only to restructure the banks that have been propped up by the state, but also to make sure that they can never get themselves into that position again. It is also determined the create a level playing field among those banks that have received state aid, and also between those that have and those that have not.

That means more divestitures – in ING’s case the sale of ING Direct USA. Simon Adamson at CreditSights describes this as "probably as distressing to management as the divestment of its insurance business". ING prides itself on its direct banking franchise. "We are the world’s leading direct bank," declares Hommen. "Internet banking is the future of banking and we are the leading internet bank." ING Direct’s US operations account for a full quarter of ING Direct business – so it is a substantial blow to this franchise.

And it is not as though ING Direct USA is an easy sell. In the US this business was regulated as a thrift, so it was required to hold assets as either mortgages or mortgage securities. It did the latter in large quantities and in sub-prime form – with the inevitable consequences.