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Truist (TFC) Mulls Selling Remaining Insurance Stake, Stock Up
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Truist Financial (TFC - Free Report) is contemplating divesting the remaining 80% stake in the insurance subsidiary – Truist Insurance Holdings ("TIH") – to private equity firm Stone Point Capital for $10 billion. This, first reported by the news website Semafor, is being seen as one of the ways to fortify the company’s balance sheet amid expectations of new, stringent capital regulations.
Following this revelation, TFC’s stock rallied 6.6% yesterday and was the top performer in the S&P 500 Index.
The ongoing talks hinge on Stone Point’s ability to borrow to fund the deal. It must be noted that this April, TFC divested a 20% stake in the business to Stone Point in partnership with co-investors, including Mubadala Investment Company, for $1.95 billion.
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 earlier this year, banks like TFC, Fifth Third Bancorp (FITB - Free Report) and Citizens Financial Group (CFG - Free Report) have been trying to raise their capital levels. FITB announced plans to scale back its indirect auto loans in July, opting to lower its involvement in dealer-based auto lending. On the other hand, CFG has taken 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.
Further, in July, the regulators proposed new capital requirements to improve the sector’s resilience. Under this, banks will be required to issue adequate long-term debt to absorb losses in the event of a potential seizure. Several regional banks, including Truist, FITB and CFG, will come under the ambit of this new, stringent rule.
Further, at an industry conference in May, 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.
If the deal gets finalized, the company will be left with two businesses – Commercial Banking and Consumer Banking – that face huge competition from larger peers.
Further, to counter the macroeconomic ambiguity, Truist has announced a strategic expense-saving program. At the Barclays Financial Services Conference in September, the company stated that the program will result in approximately $750 million of gross savings, which will be realized over 12 to 18 months. Driven partially by these initiatives, the company expects adjusted non-interest expenses next year to be relatively stable or rise nearly 1%.
Shares of TFC have lost 11.4% over the past three months compared with industry’s decline of 7.2%.
Image: Bigstock
Truist (TFC) Mulls Selling Remaining Insurance Stake, Stock Up
Truist Financial (TFC - Free Report) is contemplating divesting the remaining 80% stake in the insurance subsidiary – Truist Insurance Holdings ("TIH") – to private equity firm Stone Point Capital for $10 billion. This, first reported by the news website Semafor, is being seen as one of the ways to fortify the company’s balance sheet amid expectations of new, stringent capital regulations.
Following this revelation, TFC’s stock rallied 6.6% yesterday and was the top performer in the S&P 500 Index.
The ongoing talks hinge on Stone Point’s ability to borrow to fund the deal. It must be noted that this April, TFC divested a 20% stake in the business to Stone Point in partnership with co-investors, including Mubadala Investment Company, for $1.95 billion.
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 earlier this year, banks like TFC, Fifth Third Bancorp (FITB - Free Report) and Citizens Financial Group (CFG - Free Report) have been trying to raise their capital levels. FITB announced plans to scale back its indirect auto loans in July, opting to lower its involvement in dealer-based auto lending. On the other hand, CFG has taken 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.
Further, in July, the regulators proposed new capital requirements to improve the sector’s resilience. Under this, banks will be required to issue adequate long-term debt to absorb losses in the event of a potential seizure. Several regional banks, including Truist, FITB and CFG, will come under the ambit of this new, stringent rule.
Further, at an industry conference in May, 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.
If the deal gets finalized, the company will be left with two businesses – Commercial Banking and Consumer Banking – that face huge competition from larger peers.
Further, to counter the macroeconomic ambiguity, Truist has announced a strategic expense-saving program. At the Barclays Financial Services Conference in September, the company stated that the program will result in approximately $750 million of gross savings, which will be realized over 12 to 18 months. Driven partially by these initiatives, the company expects adjusted non-interest expenses next year to be relatively stable or rise nearly 1%.
Shares of TFC have lost 11.4% over the past three months compared with industry’s decline of 7.2%.
Image Source: Zacks Investment Research
Currently, Truist carries a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.