There have been 10 bancassurance-related deals between banks and insurance companies in Spain so far this year, with banks keen to sell stakes in insurance subsidiaries. The latest deal, between Zurich Financial Services and mid-tier player Banco Sabadell, is also the biggest at €750 million. Rodrigo Amaral reports.
Looking for new sources of liquidity, Spanish banks are selling stakes in their bancassurance businesses to big insurance companies. Many of the deals follow a similar theme: the management of the bank’s insurance operation is delegated to the new partner while insurance products are distributed through the bank’s branches.
The latest completed deal has also been the biggest so far: Swiss insurer Zurich Financial Services acquiring a 50 percent stake in Banco Sabadell’s bancassurance division for €750 million ($1.19 billion), plus an earn-out component of up to a further €150 million.
However, this deal could be eclipsed by news Santander is in talks to sell its insurance business for up to €4 billion. According to reports, Santander has approached insurance firms such as France’s Axa, Germany’s Allianz, and the UK’s Aviva.
For Banco Sabadell, the cash payment represents capital gains net of tax of €512 million, to be booked as equity. Investment bank Keefe, Bruyettte and Woods, largely positive on the deal, said this was a “great price” for Banco Sabadell’s bancassurance business.
Sabadell, which has 1,200 branches, presented the deal as a “strategic partnership” that will enable both companies to achieve a leading position in the Spanish market. The agreement sees Zurich take on the management of Sabadell’s three insurance companies: BanSabadell Vida (life insurance), BanSabadell Pensiones (pension plans) and BanSabadell Seguros Generales (other insurance and reinsurance areas).
At the end of 2007, these three managed a total of €6.64 billion and reported net profit of €41 million, up 21 percent year-on-year. In individual life insurance, BanSabadell Vida currently ranks 4th in the Spanish market by premium income. BanSabadell Pensiones ranks 6th in both individual and corporate pension schemes.
In a statement, the two parties stated that Spain is “one of the most attractive insurance markets in Europe, with strong growth in past years and sound future growth expectations. Moreover, both Banco Sabadell and Zurich consider that bancassurance is the most important distribution channel for life insurance in the market, and that it is of growing importance for general insurance”.
Banco Sabadell chairman José Oliu said the transaction “is fully in keeping with our aim to achieve a leading position in bancassurance in Spain… [and I am] particularly pleased to verify the level of market credibility and recognition afforded to Banco Sabadell.”
But other commentators say the deals are motivated also by a rush for liquidity by Spanish commercial and saving banks, and a realisation that new capital requirements and legal rules have turned the insurance sector into a more difficult proposition for the banking industry.
María José Sánz, a partner at Accenture in Madrid and an expert in the bancassurance market in Spain, says the search for partnerships is a result of the rapid development of the insurance market combined with liquidity issues, which has convinced banks that alternative business models are worth examining. “Banks and saving banks have realised that bancassurance is a very attractive segment and the search for partners answers to a strategy to boost their businesses,” she told RBI.
Seven other banks have signed agreements with insurance companies on similar grounds over the past few months. Earlier in 2008, Zurich bought half the insurance business of Caixa Sabadell (which is unrelated to Banco Sabadell) for €323 million and agreed to pay €87 million for Caja Navarra’s insurance firm.
Spanish insurance giant Mapfre acquired half-ownership of the insurance business of Caja Duero (€260 million), Bankinter (€395 million) and Caja Castilla-La Mancha (€308 million); Dutch group Aegon signed an agreement with Caja Cantabria last year, following similar deals with Caja de Badajoz, CAN and Caja Mediterráneo in previous years; and the UK’s Aviva, which has signed a number of bancassurance deals over the past couple of years, purchased 50 percent of Caja Murcia’s insurance business for €225 million in 2007.
Several other banking groups have send they intend to find partners for their insurance businesses, including Banco Pastor, Cajasur and Caixa Catalunya, all of which have reportedly hired advisers to look for suitable opportunities. A spokesperson for Santander refused to comment on its rumoured disposal.
The insurance market remains undeveloped
Carlos Vargas, a banking expert at the University of Almería, said that the insurance market in Spain remains underdeveloped.
“Bancassurance as a sales channel looks set to have a promising future in Spain,” he stressed.
“The economic crisis affecting the country and the conspicuous decrease in the demand for banking products are boosting the involvement of banks and saving banks in the insurance market as they look for new lines of business. “In addition to that, new products that are very close to insurance have emerged, like individual saving plans and guaranteed insurance plans. There has also been an increase in the sales of financial vehicles like forward contracts, options and other derivatives.”
But while there is still potential for growth, he added that banks are now adapting businesses due to the global credit crunch and also because of legal changes in Spain. For instance, a new legal entity, called ‘bancassurance operator’ has been created which lays out in detail what insurance products banks can distribute via their own networks.
“The new legal framework has helped facilitate substantial change as it forces [banks] to evolve from a model of pure distribution of products to another of professional and specialised services to clients,” Vargas said.
In order to do that, he continued, the law regulates areas such as transparency regarding publicity and sales, the training of brokers and, importantly, the protection of clients.
Sánz at Accenture added: “[On top of this] the lack of liquidity and the capital requirements dictated by Basel II [has] moved financial groups to sell partially or totally their insurance businesses.”
RBI DealWatch tracks global financial mergers and acquisitions, privatisations and demutualisations, flotations, divestments, share stakes, strategic alliances and joint ventures
|EUROPE, MIDDLE EAST, AFRICA|
|Germany||Citi, Credit Mutuel||Acquisition, €4.9bn||Citi has agreed to sell its German retail banking operations to France’s Crédit Mutuel for at least €4.9 billion ($7.7 billion) after the French bank outbid Deutsche Bank. The disposal of Citi’s German retail unit will mean an after-tax gain of about $4 billion for the US financial services group – and after giving effect to the proposed sale, Citi’s Tier-1 capital ratio will have increased by approximately 60 basis points as of 31 March 2008. Citi says its German unit, Citibank Privatkunden, is one of Germany’s most efficient retail banks, and generated post-tax earnings in 2007 of €365 million and at year-end 2007 had a net asset value of €944 million. The sale comes a year after Citi said it would invest in Germany as a high-growth area. The deal is also a sign of a new, international focus for Crédit Mutuel, which has so far been one of the more conservative French banking groups.|
|Russia||Erste Bank, Bank Center-Invest||Stake acquisition||Erste Bank has acquired 9.8 percent of the outstanding share capital of Bank Center-Invest, a leading regional bank in the Southern Federal District of Russia. The cost of the transaction was not disclosed. Founded in 1992, Bank Center-Invest is headquartered in Rostov, employs 2,000 staff and has the second-largest branch network (110 branches) in the Southern Federal District, home to 23 million people and major cities such as Rostov, Krasnodar, Volgograd and Sochi. Bank Center-Invest’s market share in the region by total assets is about 6 percent. At year-end 2007, total assets amounted to €1.1 billion and shareholders’ equity to €145 million. ROE stood at 15 percent and the cost-income ratio was 55 percent.|
|Greece||Alpha Bank, Paramount Services||Stake sale, €296m||Alpha Bank has sold treasury shares, amounting to 4 percent of its share capital, for €296 million to Paramount Services Holding Limited. PSHL is a company representing the business interests of a prominent family in Qatar.|
|The Netherlands||Deutsche Bank, Fortis, ABN AMRO||Acquisition, €709m||Fortis, ABN AMRO and Deutsche Bank have signed an agreement by which Deutsche Bank will acquire from ABN AMRO parts of its commercial banking activities in the Netherlands for €709 million in cash. The businesses to be acquired serve over 35,000 commercial business clients as well as 8,000 private clients and employ 1,400 people.|
|Italy||Banca Monte dei Paschi di Siena, Finsoe||Stake sale, €234m||Banca Monte dei Paschi di Siena has sold its equity stake in Finsoe, the company that owns the majority of Unipol Gruppo Finanziario’s ordinary shares. The stake, 13 percent of Finsoe’s share capital, was purchased partially by Finsoe itself. The transaction settlement price totalled €234.4 million. The Siena-based bank said the deal will result in a Tier-1 benefit of around 10 basis points.|
|Denmark||Roskilde Bank||Bid process||Stricken Danish bank Roskilde has reported that preliminary discussions to find a buyer for the bank have not yet resulted in a bid, though it added that a number of banks have expressed interest in taking part in consolidation. According to Reuters, on 11 July Roskilde requested and received DKK750 million ($158 million) in liquidity guarantees from Denmark’s central bank, sending its shares down more than 50 percent. Roskilde said it had realised it would have to take significantly bigger writedowns than expected in real estate loans and had put itself up for sale.|
|UK||Royal Bank of Scotland, Zurich Financial Services||Bid withdrawal||Zurich Financial Services has pulled out of the £7 billion ($13.9 billion) auction for Royal Bank of Scotland’s insurance business. In a brief statement it said it had carried out “a detailed review of opportunities” for RBS Insurance but did not say why it withdrew.|
|Spain||Banco Sabadell, Zurich Financial Services||Bancassurance stake sale, €900m||Zurich Financial Services is buying the insurance business of Spain’s Banco Sabadell for up to €900 million ($1.42 billion). The Swiss insurer will take 50 percent stakes and have management control of the jointly owned life insurance, pension and general insurance operations of Sabadell, which will continue to hold the other 50 percent (see Premium income for Spain’s banks).|
|Russia||Bank Hapoalim, SDM Bank||Stake acquisition, $111m||Bank Hapoalim has signed an agreement to purchase approximately 78 percent of Moscow-based SDM Bank based on a total company valuation of $142.5 million, becoming the first Israeli bank to acquire a Russian bank. SDM Bank, which was established in 1991, is one of the most profitable private sector banks in Russia in terms of its return on equity (ROE), says Hapoalim. As of the end of 2007, its assets totalled $632 million and its credit portfolio $310 million, with an annual average growth rate exceeding 30 percent (in dollar terms) for the years 2004-2007. SDM’s net profit for 2007 was $15 million, reflecting a return on average equity of 31 percent. The bank operates 12 branches and 30 service centres, and also has 10 branches in major cities outside Moscow, including Saint Petersburg. It operates 450 ATMs and serves 120,000 retail customers.|
|UK||HBOS||Fundraising, sale rumours||Only 8 percent of shareholders in HBOS, the UK’s fourth-largest banking group and largest mortgage player, took up new shares in the group’s capital-raising initiative, leaving underwriters Morgan Stanley and Dresdner Kleinwort with most of the equity still on their books. HBOS’ share price has fallen by around 75 percent over the past 12 months, leaving many analysts to suggest the group – with a market capitalisation of around £15 billion – represents a good buying opportunity for a foreign bank to enter the UK market. Media speculation has linked BBVA to a bid; it would not comment.|
|UK||Santander, Alliance & Leicester||Acquisition, £1.3bn||Santander, Spain’s largest banking group, is to buy the UK’s seventh-largest bank, Alliance & Leicester. Santander, which already owns the UK’s Abbey, the country’s sixth-largest player, valued Alliance & Leicester at £1.3 billion, a premium of 36.4 percent on the share price at which A&L closed at on 11 July. The deal will add 254 branches to Abbey’s 703. Alliance & Leicester, focused on savings, loans and mortgages, has been under pressure in the wake of the global credit crunch and pessimistic sentiment regarding the health of the UK economy. But it was valued at around £5 billion in July last year, leading many analysts to state that Santander has picked up the group for a very fair price.|
|UK||Barclays||Fundraising||Barclays’ shareholders took up just 19 percent of new shares in the UK bank’s fundraising. But Barclays said it had raised £4.5 billion ($9 billion) from major investors in Qatar, Japan, China and Singapore.|
|Canada||Scotiabank, E*Trade||Acquisition, $442m||Bank of Nova Scotia (Scotiabank) is expanding its wealth-management business by buying the Canadian operations of US online brokerage E*Trade Financial for $442 million in cash. Scotiabank, Canada’s third-largest bank, said the deal for E*Trade Canada adds 125,000 active accounts to its books, and doubles its footprint in the Canadian online investment market.|
|China||United Overseas Bank, Evergrowing Bank||Stake acquisition, CNY780m||Singapore’s United Overseas Bank has bought a 15.38 percent stake in China’s Evergrowing Bank for CNY780 million ($114 million), becoming its second largest shareholder.|
|China||Royal Bank of Scotland, Bank of China||Strategy update||Royal Bank of Scotland has ruled out any sale of its stake in Bank of China, and intends to press ahead with a two-pronged Chinese expansion strategy, Gordon Pell, chairman of regional markets at RBS, told the Financial Times. The value of RBS’s 5 percent stake in BoC has trebled to $4.7 billion since it made the investment in 2005. But Pell said the bank remained committed to its relationship with the mainland’s second-largest lender, which includes formal co-operation agreements in credit cards and wealth management.|
|Japan||Shinsei Bank, GE Money||Acquisition, ¥580bn||Shinsei Bank has signed an agreement with GE Japan Holdings, the consumer financial services unit of General Electric, to acquire GE’s Japanese consumer finance business, GE Consumer Finance, and its subsidiaries for an all cash consideration of ¥580 billion ($5.34 billion). Shinsei will acquire the total assets of the personal loan portfolio that operate under the well-established Lake brand, as well as the credit card and mortgage businesses. Shinsei said the deal was a “unique strategic opportunity” to add an experienced, highly-regarded management team and a robust brand representing 2.2 million new accounts from 1,138 branches and total loans outstanding of ¥884 billion to its established retail bank and existing consumer finance platform.|
|Vietnam||Société Générale, Southeast Asia Bank||Stake acquisition||Vietnam’s SeABank, a top 15 banking group, has secured approval to sell a 15 percent stake to France’s Société Générale. The purchase would make the French bank a strategic shareholder in the Hanoi-based partly private unlisted SeABank, or Southeast Asia Bank, the statement said. SeABank has total assets of $1.2 billion and a capital base of VND3 trillion ($182 million).|