News

Truist Financial Corporation TFC, which has been contemplating whether to sell its remaining 80% stake in its insurance subsidiary — Truist Insurance Holdings (“TIH”), is now almost close to finalizing a deal to sell the majority stake in the business to Stone Point Capital and Clayton Dubilier & Rice. The news was reported by Bloomberg, citing people familiar with the matter.

According to the people who asked not to be identified because the news is not public yet, the sale could be announced as soon as this week in a deal valued at $15 billion.

Last October, news website Semafor reported that TFC was mulling selling its remaining 80% stake in TIH to Stone Point for $10 billion to fortify its balance sheet amid expectations of new, stringent capital regulations.

While the latest discussions about a deal are in the advanced stage, they may be delayed, per people with knowledge of the matter.

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 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 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.

Moreover, 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 26.2% compared with the industry’s 19.7% growth.

Image Source: Zacks Investment Research

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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