Truist agrees to sell rest of insurance subsidiary; unit valued at $15.5 billion

Truist Financial Corp. agreed on Tuesday to sell the remaining 80% of its profitable insurance subsidiary to an investor group led by private equity firms Stone Point Capital and Clayton, Dubilier & Rice.

The groups valued all of Truist Insurance Holdings Inc. at $15.5 billion.

Truist completed on April 3, 2003, selling for $1.95 billion a 20% stake in the insurance subsidiary to funds managed by Stone Point Capital. Truist's community/retail banking hub is in Winston-Salem.

The all-cash sale is expected to close in the second quarter, the groups said. Truist's board voted unanimously to approve the deal.

Truist Insurance is the fifth-largest U.S. insurance brokerage with more than 250 offices nationwide and around 10,000 employees, or about 20% of Truist's overall workforce as of Dec. 31.

To put the sale of Truist Insurance into perspective, BB&T Corp. paid $33.4 billion for all of SunTrust Banks Inc. in December 2019 to form Truist.

Insurance, as has been the case with Truist and legacy BB&T for several years, was the bank's top fee-revenue producer for fiscal 2023 at $3.35 billion. By comparison, the next largest fee-income producer was wealth management income at $1.34 billion.

Truist appears to have gotten a significantly higher sale price than had been projected.

The bank said in February 2023 that the sale price of the 20% stake valued the whole insurance subsidiary at $14.75 billion. Using that projection as a guideline, several banking industry media reports, first from Semafor.com, projected the $10 billion cost to buy the other 80%.

The sale has been expected by analysts and investors since Truist disclosed in October it was reviewing its remaining ownership of Truist Insurance.

The buying investors also include Mubadala Investment Co. They have committed to keeping the subsidiary's management and workforce of about 10,000, which is about 20% of the overall Truist workforce.

Truist projects the reinvestment in of $10.1 billion of expected cash proceeds would boost its fiscal 2024 earnings by 20 cents per share.

Truist said it intends to "evaluate a variety of capital deployment options, including a potential balance sheet repositioning with a goal of replacing (the subsidiary's) earnings. Any future actions would be subject to market conditions and other factors."

Management comments

Bill Rogers, Truist's chairman and chief executive, said the planned sale "will further strengthen our balance sheet, afford us the ability to maintain our earnings profile, and create significant ongoing flexibility to invest in our core banking franchise."

The buyers said that by adding their "deep industry and operational expertise, (the subsidiary) will be well-positioned to grow in the rapidly evolving insurance brokerage market."

The subsidiary "will also have additional resources to invest in cutting-edge technology and develop new products and services, offering even greater value to clients."

John Howard, chairman and chief executive of the insurance subsidiary, said that "scale is critical to remain competitive in our rapidly changing industry, and through this partnership, we will benefit from Stone Point's and CD&R's expertise in financial services, proven track records of transformative value creation, and the significant capital support from two leading financial sponsors."

CD&R partner David Winokur said that "as new owners of an independent TIH, we will be laser focused on clients and colleagues by enhancing the company's capabilities to better serve clients and becoming an even more attractive destination for top industry talent."

CFRA Research analyst Alexander Yokum said when Truist sold the 20% stake that "despite losing an excellent business, we see the move as a step in the right direction as Truist has struggled with an overcomplicated business model since closing its merger of equals in 2019."

"Additionally, the cash received from the sale would be highly beneficial from a capital perspective as large unrealized losses in Truist's available-for-sale securities portfolio have weighed on the stock."

Christopher Marinac, senior analyst with Janney Montgomery Scott, said that "one could argue that the failures of three regional banks in 2023 triggered the need to sell the business.

The collapses of First Republic, Signature Bank and Silicon Valley Bank during 2023 rank among the largest bank failures in U.S. history. According to the FDIC, the Silicon Valley failure would cost the fund $20 billion, First Republic $13 billion and Signature $2.5 billion.

"It was a strategic decision in February 2023 to sell 20% since the pricing was excellent," Marinac said.

Other recent deals

The potential sale of the rest of Truist Insurance comes as Rogers said on Sept. 11 that it is undergoing a "sizable reductions in force" over the next 12 to 18 months that will represent at least $300 million in annual workforce cost-cut savings.

Truist reported it eliminated 1,038 jobs during the fourth quarter, marking an overall 5.7% workforce reduction during fiscal 2023. The bank reported having 50,905 employees as of Dec. 31, down 2% from 51,943 on Sept. 30 and down 5.7% from 53,999 on Dec. 31, 2022.

The bank disclosed plans for an overall $750 million annual cost reduction before a presentation at a Barclays Global Financial Services Conference by Rogers and chief financial officer Mike Maguire.

Rogers told analysts and investors that Truist is "aggressively cutting costs ... many achieved through near-term personnel-related reductions" over the next three quarters.

Earlier in February, Truist's pruning of business units continued with the agreement to sell its Sterling Capital Management LLC business for $70 million to a Canadian investment group.

Guardian Capital LLC, based in Toronto, is the prospective buyer. The companies expect to close the sale in the second quarter, pending regulatory approvals.

Sterling, based in Charlotte and an independently operated Truist subsidiary, would be providing about $76 billion in assets under management and advisement for institutional and individual investors.

Meanwhile, Guardian Capital was managing about $41.7 billion in assets as of Sept. 30.

On Jan. 25, Truist's divesting of its student loan holdings continued with the sale of a portfolio valued at $415 million to private-equity firm Carlyle Group, multiple media outlets have reported.

Wells Fargo Securities analyst Mike Mayo has been questioning Truist's hesitancy to proceed with a cost-cutting initiative since the bank's first-quarter earnings report in April 2023.

Mayo said in response to the $750 million cost-cutting initiative that "it at least shows management is taking tougher actions."

Mayo said he still questions "why more savings don't reach the bottom line, though inflation, regulatory costs, and other normal course of business appear anything but normal in the current environment."

"Regardless, keeping expense flat for 2024 at the much more elevated level — expenses targeted up 7% in 2023, the most of any large bank — likely fall short of what is needed.

"The hope is that management may be trying to under-promise."