When the reason you bought a stock no longer applies, you sell.
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.)
I’m keeping mine. One caveat: I bought when the market looked really sour for an average of about $6.50/shr, so I’m sitting on a good profit, plus the recent offer got me more at about the same price.
I think that the reasons you sold are the genesis of why I want to hold; being broken apart is forcing them to get into the fundementals, which I believe is where banks will need to be to survive. ING will have a leg up on those that are hesitating now.
I don’t know what the ultimate destination is going to be for the Sharebuilder business but I think it will either be sold–in which case not an issue for you unless the new owner isn’t someone you want to do business with. Or ING will hold onto it. Sharebuilder was, to the best of my memory, an independent business before ING bought it. I would give them a call and ask about mechanisms for transferring any shares you buy through them to another broker and that way you’ll know if there’s an issue down the road. I would emphasize that ING isn’t going under. The company is now stable and will continue to be so once it repays its credit lines. It’s just being required to reorganize its business as a price for the rescue it received.
Hi, Jim
Thanks for your column.
I was looking at the sharebuilder ad where it says buy stocks at 4.00 a trade, but below that it says ing the company that you sold, is it safe to join sharebuilder or do you have any other suggestions.
Thanks
Phil