Truist (TFC) Enters Deal to Sell Remaining Stake in Insurance Arm
Truist Financial Corporation TFC has entered an agreement to sell the remaining 80% stake in its insurance subsidiary — Truist Insurance Holdings (“TIH”) — to Stone Point Capital and Clayton Dubilier & Rice. Mubadala Investment Company and co-investors are also participating in the investment.
The closing of the transaction (subject to certain regulatory reviews and approvals, and the satisfaction of other customary closing conditions) is expected in the second quarter of 2024.
It must be noted that in April 2023, TFC divested a 20% stake in the insurance business to Stone Point in partnership with co-investors, including Mubadala Investment, for $1.95 billion.
In October 2023, news website Semafor reported that TFC was mulling selling the remaining 80% stake in TIH to Stone Point for $10 billion to fortify its balance sheet amid expectations of new, stringent capital regulations.
A couple of days ago, Bloomberg reported that a deal valued at $15 billion could be announced.
The final deal (all cash) that has been entered into is for $15.5 billion or 18x TIH’s 2023 core EBITDA.
Following the deal closure, TFC’s CET1 capital ratio is expected to increase by 230 basis points and its tangible book value per share is anticipated to increase by $7.12 or 33%.
The transaction is projected to be dilutive to TFC’s 2024 earnings per share by 20 cents, assuming that the proceeds from the sale were reinvested in cash yielding 4.5%.
Notably, the initial after-tax proceeds from the sale of TIH are assumed to be invested in cash.
Post the deal closure, Truist intends to evaluate a variety of capital deployment options, including a potential balance sheet repositioning with the goal of replacing TIH’s earnings.
Bill Rogers, the chairman and CEO of TFC, said, “We are pleased to have reached an agreement to sell TIH as it will further strengthen our balance sheet, afford us the ability to maintain our earnings profile, and create significant ongoing flexibility to invest in our core banking franchise. We are incredibly proud of the success we've achieved together with TIH over the years and are excited to see how Stone Point and CD&R continue to build the business in its next chapter of growth.”
TIH’s chairman and CEO, John Howard, stated, “Today's announcement is a testament to our strategy, the value of our insurance business, and the strength and dedication of our teammates. Scale is critical to remain competitive in our rapidly changing industry, and through this partnership, we will benefit from Stone Point's and CD&R's expertise in financial services, proven track records of transformative value creation, and the significant capital support from two leading financial sponsors.”
Notably, when the initial 20% stake sale was announced in February, Truist’s management was keen to keep the remaining stake in this profitable business. In 2022, TIH (excluding premium finance business) constituted 35% of Truist’s total fee income and 8% of adjusted net income available to common shareholders.
But since the regional banking crisis engulfed the sector last year, banks like TFC, Fifth Third Bancorp FITB and Citizens Financial Group CFG have been trying to raise capital levels. FITB announced plans to scale back its indirect auto loans in July 2023, opting to lower its involvement in dealer-based auto lending.
Then again, CFG took a more drastic step, choosing to exit the indirect auto lending segment altogether, effective Jul 1, 2023. The decision was taken as part of the strategy to optimize its balance sheet and concentrate on relationship-based lending.
At an industry conference in May 2023, Truist CEO Bill Rogers said, “We’re in a build-capital mode. We’re going to be in build mode until we have more information, more certainty” about regulatory capital requirements.
Our Take
Truist remains focused on growth of non-interest revenue sources. The company is open to strategic business restructuring initiatives. To bolster its insurance business, the bank acquired BankDirect Capital Finance, BenefitMall, Kensington Vanguard National Land Services and Constellation Affiliated Partners in the past few years.
As part of its broader strategy to realign and simplify operations, TFC announced the divestiture of its asset-management subsidiary, Sterling Capital Management LLC, to Guardian Capital Group Limited in a $70-million deal earlier this month.
Truist’s decision to sell Sterling Capital is part of a comprehensive restructuring initiative to create a more efficient and profitable organization. The bank has been implementing various measures, including a $750-million cost-cutting program, a 4% reduction in workforce, the consolidation of business lines and the creation of an enterprise-wide payments group.
Over the past six months, TFC shares have gained 26.8% compared with the industry’s 22.5% growth.
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Currently, Truist carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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