UPDATE 3-Barclays shows retail intent with ING Direct deal

* ING effectively pays Barclays to take UK online business

* Retail banking at heart of new Barclays' CEO strategy

* After 2003 launch ING Direct shook up UK savings market

* Barclays shares nudge up 0.3 pct; ING down 0.1 pct

(Adds details) By Anjuli Davies and Steve Slater

LONDON, Oct 9 (Reuters) - Barclays' new chief executive setthe course firmly towards retail banking on Tuesday with hisfirst deal since replacing Bob Diamond - the takeover of ING'sBritish savings and loan business and its 1.5 million customers.

Antony Jenkins, previously head of Barclays' retail bankingoperations, took the top job at the end of August after theLibor interest rate rigging scandal forced Diamond, aninvestment banker, to resign.

ING said in August it wanted to quit Britain, partof plans to divest assets to increase capital and repay Dutchstate aid. It will effectively pay Barclays to take itsING Direct UK business, including 750 employees, 10.9 billionpounds ($17.5 billion) of deposits and 5.6 billion of mortgages.

Jenkins had already signalled his intention of focusing moreon retail banking and less on riskier investment banking.

Barclays will buy the loans at a 3 percent discount to theirface value, leaving ING with a 320 million euro ($415million)loss on the transaction after tax.

"To the extent that this deal signals CEO Antony Jenkins'revised strategic intentions and lower dependence on theinvestment bank, we view it as positive," said Vivek Raja,analyst at Oriel Securities.

In the last week Barclays has announced a shake up at itsinvestment bank to cut costs and prepare for new regulations,and promoted two of the top consumer banking bosses.

Barclays said the acquisition was a good fit with itsexisting UK retail banking business, where it has about 15million customers.

ING Direct was launched in Britain in 2003 and was one ofthe most aggressive new banks, using its distinctive orange lionbrand and shaking up the UK savings market with high interestrates thanks to a low cost, mostly online operating model.

The deal will release around 330 million euros of capitalfor ING, which is in the process of divesting its insuranceoperations and other assets in an effort to repay Dutch stateaid received in 2008 and increase its capital level.

It sold its Canadian online bank in August, and is trying tosell its Asian investment management and insurance operations, adeal which could raise around $7 billion in total. It laterplans to separately list its European and U.S. insurance andinvestment management businesses.


Jenkins' first task is reforming culture at a bank thatregulators said was taking too many risks. The 51-year-old alsoneeds to revive profitability and try to revive his company'sshare price.

Barclays said the ING Direct deal meets Jenkins' target todeliver return on equity (RoE) above its 11.5 percent cost ofequity, and would not have a material impact on its capital.

Most banks are struggling to deliver RoE above their cost ofequity as tougher regulations have squeezed profits and forcedthem to hold more capital, limiting their ability to "leverage"their equity.

Barclays delivered an adjusted RoE of just under 7 percentin 2010 and 2011, and Jenkins has promised to take "quick anddecisive" action to get that up. He is assessing the bank in 100parts and in February will unveil what areas he wants to keepand invest in, attempt to turnaround, or get rid of.

UK retail banking, which delivered an RoE of 15 percent lastyear, is seen as core.

Returns across global banks sagged to an average of 7.6percent last year, well below the average cost of equity of10-12 percent, as new regulation, slow revenue growth and highcosts bites, according to a study by McKinsey & Co.

McKinsey said banks are still years away from developing newbusiness models that will produce sustainable profits, and needto slash costs and change employee culture.

The ING Direct deal adds to several deals struck by Barclaysin recent years to add UK retail customers, including purchasesof Standard Life Bank in 2009 and credit card Egg last year.

Barclays said the ING mortgages have a low averageloan-to-value ratio of 50 percent. About 500 of the staff arebased in Reading, with the remaining 250 in Cardiff, andBarclays said it was too early to say if there will beredundancies.

Completion is subject to regulatory approval and is expectedto finalise in the second quarter of 2013.

Barclays shares were up 0.3 percent at 222.9 pence by 1030GMT, firmer than a flat European banking index , butlanguishing at around half their book value. ING shares weredown 0.1 percent.

($1 = 0.6240 British pounds)($1 = 0.7711 euros)

(Additional reporting by Gilbert Kreijger; Editing by PeterGraff/Janet McBride)

((anjuli.davies@thomsonreuters.com)(+44 207 542 6670))