A trust company that sells the last part of the insurance business. So?

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Scott McIntyre/Bloomberg

Trust Financial sells majority stake in regional bank's insurance brokerage division After a year of speculation About its intentions in areas of business that were once priorities.

The Charlotte, North Carolina, company announced Tuesday that it has agreed to sell the remaining 80% of Trust Insurance Holdings to two private equity firms and other investors. CEO Bill Rogers said of the deal on a conference call with analysts: The total value of the unit is $15.5 billion — and in a recent agreement, Selling asset management subsidiary Part of the strategy to become a Truist Become more efficient and capitalize.

“You've heard me talk a lot lately about the work we're doing at Trust to simplify our organization and better manage our core business expenses to drive future performance improvements. “Yes,” Rogers said. “By selling [Truist Insurance Holdings], giving you the capital ability to play more offensively. …Furthermore, our significantly strengthened balance sheet will enable us to weather a broader economic environment. ”

Stone Point Capital of Greenwich, Conn., which acquired 20% of the insurance division in February 2023, and Clayton Dubilier & Rice of New York led the all-cash acquisition of Trust Insurance Holdings. Other investors, including Abu Dhabi sovereign wealth fund Mubadala Investments, are also participating in the deal, which is expected to close in the second quarter, pending regulatory approval.

The agreement is A modern example of a financial institution selling insurance units, because they choose to pay more to grow their capital rather than the steady income offered by companies. Eastern Bancshares, Cadence Bank, Evans Bancorp and CB Financial all priced their insurance subsidiary sales at a premium last year.

Trust expects the latest transaction to result in after-tax cash proceeds of $10.5 billion, capitalization of $9.5 billion and common equity Tier 1 capital of 230 basis points. The company previously estimated that selling its remaining 80% stake in the insurance division would raise more than 200 basis points of capital.

“While exiting the insurance brokerage business comes at a cost, the significant capital gains from this transaction are positive,” Saul Martinez, head of U.S. financial research at HSBC Global Research, said in a note.

The latest deal comes as no surprise to Wall Street, but Because there are rumors about an insurance contract Since Trust sold part of its business last year, Piper Sandler analyst Scott Schieffers wrote in a research note Tuesday. The “wild card” is what Trulast does with the proceeds, he added.

“We now have a better-capitalized company with sufficient flexibility to address the lingering issues for investors (significant unrealized losses),” Schiefers said in the note. Ta. “But to get there, you're probably giving up the most valuable part of your revenue stream.”

Chief Financial Officer Mike Maguire said on a conference call with analysts that the sale will allow the Trust to evaluate a variety of capital deployment alternatives, including: Shift your balance sheet away from low-yield securities And it is expanding its core banking franchise, including loans.

“While we recognize that there are trade-offs with any decision, we believe it is timely to strengthen the Trust's financial strength,” Mr Maguire said. “Trust's stronger relative capital base allows us to create growth capacity and maintain profitability, while also providing an opportunity to improve our interest rate risk profile by reducing the length of our balance sheet. Of course, we will leverage the assets of our historically high insurance brokers.'' Ratings. ”

Maguire added that the company could replace the insurance division's revenue through a $23 billion balance sheet repositioning. In that case, it would reinvest securities into a combination of cash, short-term securities and off-balance sheet hedges, while maintaining “substantial capital.” To play aggressively. '' He added that the transaction also increases Trust's ability to resume share buybacks.

Rogers also said on a conference call with analysts that Trust's growth is being affected by economic uncertainty and a desire to conserve capital due to potential regulation. Basel III end game proposal etc.. Banks have been working on: $750 million cost reduction plan The company announced in September that this will involve streamlining its business units, reducing the number of employees and reducing its branch network. The bank reported a net loss of $5.2 billion in the fourth quarter of 2023, primarily due to higher expenses.

The CEO has indicated numerous times over the last year that the remaining stake in the insurance business provides the Trust with flexibility in capital generation. He said on a conference call with analysts Tuesday that he chose to sell now rather than while the value of the insurance business remains high due to insurance industry consolidation.

Mr. Rogers said, “We have been able to support them in the past, but business consolidation is proceeding at an accelerating pace and additional capital will be required.We are not in a position to support them over the long term.'' On the phone.