ING Group has split its US wealth business into four distinct units in an effort to ready itself for an economic recovery. The Dutch company’s US business now has four units: retirement services, annuities, insurance, and investments. Previously, retirement services and annuities, its two largest business lines, operated within the wealth management business.
The new structure simplifies the business model by separating annuities from retirement services, the company said.
The financial services giant is also trimming expenses in a recession that has taken a heavy toll on the stock market and property values, laying off 7 percent of its 11,000-person US workforce as a result of the restructuring.
ING joins other financial services companies in the United States in making cuts as the economy deteriorates. Deep declines in the stock market shrink the value of investment portfolios and push customers into lower-risk investments.
Kathleen Murphy, who had run ING’s wealth business in the United States, stepped down in January to accept a position with Fidelity Investments. There are now four heads of the newly-established units, with Robert Leary in charge of the investment management operation.
ING announced its first net loss ever in the quarter ended 30 September 2008, and accepted an infusion of about $12 billion from the Dutch government. For the full year of 2008, the group posted a net loss of €729 million ($950 million), compared to a net profit of €9.24 billion in the previous year.
The market capitalisation of the Amsterdam-based group fell to €15 billion last year from €60 billion in 2007.
ING joins the ranks of investment companies who have revamped their wealth management lines while reducing expenses across the board in an effort to increase sales by maximising coordination between divisions in the hopes of an economic turnaround.
The reorganisation reflects convergence in the annuities and retirement operations during the past few years, as well as the recognition, however painful, that smaller, nimbler business lines will serve the firm better in a post-recessionary future.
Decoupling lines of business can allow ING to provide more resources and funding to higher-growth businesses and, as the annuity market retrenches, insurers are looking to increase investments in lower-risk lines where there are still significant opportunities.
Group retirement and benefit offerings present a strong short-term opportunity. And, as ING noted, the fourth quarter of 2008 marked the worst three months for equity and credit markets for more than half a century.
Recently, ING, which employs 130,000 globally, again turned to the Dutch government.
It is now taking on 80 percent of its €27.7 billion exposure to mortgage-backed assets and monoline insurance products and gaining the same scale of cash flows in return – mirroring similar moves taken by authorities in Switzerland to support UBS late last year.
Under the agreement, 80 percent of the risk exposure to these securities will be transferred to the Dutch government, but ING will remain the legal owner of 100 percent of the securities and will remain exposed to 20 percent of any decline in the assets.
US custodians set for overseas acquisitions
Continued economic calamity in the United States has some of the world’s largest custody players thinking more globally than ever.
As the big US custody banks – Northern Trust, Bank of New York Mellon and State Street – reel from losses in the rapidly unwinding domestic market, they are getting increasingly aggressive abroad.
Bank of New York Mellon CEO Robert P Kelly said recently there is ample room for growth in Europe, as many companies in the region are looking to divest their trust and custody businesses.
And Northern Trust executives are in an expansive mood, fresh on the heels of a 174 percent increase in net income and a fourth quarter that far surpassed analyst expectations.
The Chicago-based company has publicly discussed plans to expand organically in Asia, Europe, the Middle East, and Africa, though it never rules out acquisitions, and while the firm historically has shied away from big acquisitions, a smaller series of deals aimed at global niches would not be surprising given Northern Trust’s tremendous financial advantage over so many of its competitors.
The firm made a lone acquisition last year, when it bought Lakepoint Investment Partners, a Cleveland developer of portfolios made from large-cap growth stocks and investment-grade fixed-income securities.
More than 25 percent of its employees work outside the United States, and last year it opened its first office in Abu Dhabi and added offices in Australia, China, Bangalore, London, and Dublin. It has clients in 40 countries and offices in 15 outside of the United States.
Steven L Fradkin, an executive vice-president and CFO at Northern Trust, said during an earnings call that the “pipeline for acquisition opportunities is stronger than we typically see, and pricing has degraded a lot”.
He was also quick to add, however that “it is really status quo at Northern Trust, though the shopping list is longer”.
State Street currently generates more than 35 percent of its revenue from non-US operations, and has stated it plans to raise that to 50 percent in the short term. Its executives have said the bank is looking closely at the markets in Europe and Asia, and will consider acquiring one of the custodian banks there.