- Capital rules could make Abbey Life costlier for bank to own
- Unit could fetch as much as 3 billion pounds, person says
Deutsche Bank AG, Germany’s largest bank, is considering the sale of a unit that helps pension funds protect themselves against the risk of their members living longer than expected, according to people familiar with the discussions.
No decision has been taken on the potential sale of the Abbey Life unit, said the people, who spoke on condition of anonymity because the matter is private. The Bournemouth, U.K.-based business may fetch as much as 3 billion pounds ($4.6 billion), one person said.
Anke Hallmann, a spokeswoman for Frankfurt-based Deutsche Bank, declined to comment.
Deutsche Bank is waiting to hear how much capital the European Central Bank will require lenders to hold against risk from their insurance units, said one of the people. Regulators are requiring banks and insurers to build larger buffers to help them weather losses and avoid a repeat of the financial crisis of 2008, in which taxpayers had to step in to their rescue.
“It looks like it is going to be pretty capital-intensive to hold a stake like this, so it makes sense” to consider a sale, Christian Hamann, an analyst at Hamburger Sparkasse, who has a neutral recommendation on the stock, said by phone on Monday. “Theoretically, quite a few people would be interested in this.”
Hamann listed reinsurers Hannover Re and Swiss Re as well as Paris-based Scor SE and private equity firms as companies that might consider a purchase.
In a transaction involving a business similar to Abbey Life, Swiss Re agreed last month to acquire Guardian Holdings Europe Ltd. from buyout firm Cinven for 1.6 billion pounds to increase its portfolio of U.K. life-insurance policies.
Phoenix Group Holdings Plc, a London-based company that had held talks to buy Guardian, may be interested in bidding if Abbey Life is put up for sale, said a person familiar, who asked not to be identified. A spokeswoman for Phoenix declined to comment.
“We feel that there are more sellers than buyers in the market,” said Ming Zhu, an insurance analyst at Canaccord Genuity Corp. in London. Companies like “Phoenix are in quite a good position. Doing a deal is the only thing left on their agenda to do to meet all of their targets.”
Deutsche Bank has sought to grow in asset management, where Abbey Life is held, as a counterweight to counter declining profitability in investment banking, the company’s largest division. Co-Chief Executive Officer John Cryan on Oct. 29 will present details of the lender’s strategic review which will see the firm exit some countries, sell a consumer banking unit and shrink trading activities to bolster returns.
Deutsche Bank said on Oct. 7 that it will probably post a third-quarter loss of 6.2 billion euros ($7.04 billion), the largest three-month loss in at least a decade, because of writedowns and legal costs. The bank said it may eliminate the annual dividend, which it has paid at least since 1957.
A growing number of investment banks have sought to scale back insurance operations as Wall Street copes with low interest rates and increased government oversight. Goldman Sachs Group Inc. announced in May 2013 that it had sold most of Global Atlantic Financial Group, a reinsurance business, to institutions and high-net worth clients. Citigroup Inc., which has been divesting businesses and pulling back in some regions to sharpen its strategy, took steps early this year toward selling its Prime Reinsurance Co. subsidiary, people familiar with that process said in April.
Abbey Life is an insurer in run off, meaning it is closed to new retail business. Deutsche Bank acquired the company from what is now called Lloyds Banking Group Plc for 977 million pounds in 2007.
Abbey Life insured 2 billion pounds of pension liabilities for Scottish Power, a unit of Spain’s Iberdrola SA in February. That longevity swap, structured as an insurance policy, hedges against rising costs of pensioners living longer than expected, the utility said at the time.
Deutsche Bank transferred Abbey Life from its investment bank in 2012 after naming Michele Faissola head of the asset and wealth management business. That unit is the only one of the company’s four operating divisions which has not had to scrap profit forecasts made in 2012.
“Abbey Life was kind of exotic within the asset management unit and while it delivers stable earnings, I’m not sure it necessarily fits in with where the company wants to take the business,” said Hamann. “Asset management is still a work in progress and the market isn’t quite sure yet whether the couple of positive quarters we have seen are indeed sustainable.”