After a short time on the auction block ING Direct has been gobbled up by Scotiabank for a reported $3.1 Billion. It’s the largest transaction in Scotiabank’s 180 year history. Although many of Canada’s big banks were interested in the transaction, Scotiabank was the hungriest to acquire its $30 billion of deposits. On the heels of the announcement Scotiabank published a high profile letter reassuring ING Direct customers that it will be business as usual. They’ve also agreed to keep the ING Direct name for another 18 months.
Although, they are saying all the right things, change is inevitable. Mortgage rates, for one, will be restructured. Scotiabank and the rest of the big banks offer a high sticker price mortgage rate leaving the borrower to negotiate a better deal. ING Direct however was built on the principal of offering their best deal up front. For example, ING Direct’s published 5 year fixed mortgage rate is currently 0.80% lower than Scotiabank. In the mortgage world a 0.80% difference in mortgage rate is huge.
Existing Scotiabank customers won’t be happy that another division of their bank is offering lower mortgage rates and will demand action or they’ll switch. Whether they switch or not, the consequence will be a lower mortgage rate for Scotiabank and a drop in revenue. Possible solutions are to cut costs by closing branches and adopting a more ING Direct model or increasing ING Direct mortgage rates to compensate for higher operating costs. Although anything can happen over the next couple of years, one thing is certain; Scotiabank will not be closing down any branches.