Online Finance Consolidation Continues, Maybe (ING, GE, COF, ETFC, SCHW, AMTD, C, BCS, RF)

ING Groep NV (NYSE: ING) is all over the news this morning after reports that its online U.S. bank assets may fetch as much as $9 billion.  Bloomberg has reported that General Electric Co. (NYSE: GE) and Capital One Financial Corporation (NYSE: COF) have both submitted bids for ING Direct USA and that the sale could be announced as soon as this month.  Before you get too wrapped up thinking about ING, G.E. and Capital One, there are many things to consider with broader ramifications in the world of online finance for the consumer.

Bloomberg reported that GE was all-cash and that Capital One was a cash and stock bid, but this would effectively give control of the largest U.S. online bank.  GE had been trying to gear down its financial portfolio, so this could mark an end to Jeff Immelt’s contraction of the conglomerates financial portfolio.  Capital One already has substantial credit card business outside of its brick and mortar bank, and this would be one more step toward keeping its activities in higher margin operations.

It is ING’s more than $80 billion in deposits that is attractive.  This would effectively be cheaper access to capital.  Unfortunately, there is also about $40 billion in mortgage loans and nearly $20 billion in mortgage-backed securities that would have to be dealt with.

We have another take to consider if this comes to fruition.  If ING Direct does get acquired, then investors will have little choice but to focus attention back on E*TRADE Financial Corporation (NASDAQ: ETFC).  Charles Schwab Corp. (NYSE: SCHW) and TD AMERITRADE Holding Corporation (NASDAQ: AMTD) have both been named as likely suitors in the past for E*TRADE and now that E*TRADE is profitable again we think that a suitor could justify taking on the remaining red-line items that E*TRADE has been trying to pare down.

E*TRADE currently has a market capitalization of about $3.2 billion.  A $9 billion price tag for ING Direct might make E*TRADE come back in focus.

One caveat to consider…. Citigroup, Inc. (NYSE: C) was heavily reported on selling its online bank called Egg in the United Kingdom and earlier this year it sold its entire Egg credit card portfolio to Barclays Bank of Barclays PLC (NYSE: BCS) with over $3 billion in gross assets in the Egg portfolio representing about 1.15 million customer accounts.  We just saw a $1 billion in credit card assets acquired by Regions Financial Corp. (NYSE: RF) last night as well.

Maybe all of the reports and concerns about the future of bank profitability are overblown, or at least certain aspects of those bank operations.

JON C. OGG