Truist Financial agreed to sell the remaining stake in its insurance brokerage business to an investor group on Tuesday, in a deal valued at $15.5 billion, as it looks to strengthen its core banking business to cope with potentially tougher capital rules.
The broader banking industry is bracing for tighter banking rules, including the Basel III Endgame proposal, which will likely increase their capital requirements, prompting many major lenders considering sales for secondary businesses.
The sale of Truist Insurance Holdings (TIH) accelerates our ability to meet increasing standards for capital and liquidity in the industry,” said CFO Mike Maguire in a call with investors.
The deal, an all-cash transaction, to buy TIH was led by private equity firms Stone Point and CD&R, and includes investments from Mubadala Investment Company and other co-investors.
Citigroup analysts wrote in a note that the sale removes the argument for one of the bear cases for Truist, which was its “relatively weak capital position”.
“At a 6.1% proforma capital ratio, TFC would have been playing defense for a long period of time in order to rebuild capital … which is why we believe this is the right decision in order to allow for deploying capital for organic growth and share buybacks,” the brokerage added.
Truist said the sale is expected to significantly improve its relative capital position and increase its CET1 capital ratio, a measure of a bank’s core liquid capital, by 230 basis points. It is also expected to raise its tangible book value per share by $7.12, or 33%.
“From a Truist perspective, the sale of TIH significantly improves our relative capital profile and create substantial capacity for growth at a time when our industry is constraining growth due to future capital considerations,” CEO Bill Rogers said.
Rogers added the sale also raises Truist’s ability to resume share repurchases but said the timing and size will depend on future capital planning, market conditions, clarity around final capital rules and other factors.