Deutsche Bank AG has sold its British insurance business Abbey Life Assurance Co to Phoenix Group Holdings PLC as it sheds non-core assets and reduces its balance sheet in an effort to reassure anxious investors and meet regulators’ demands.
Phoenix, Britain’s largest owner of life insurance funds closed to new customers, is paying ￡935 million (US$1.22 billion) for the unit which manages assets worth ￡10 billion and has 735,000 policyholders, the companies said.
Although the deal announced yesterday will result in a pre-tax loss of about 800 million euros (US$896.26 million) in the first quarter, mainly from writedowns for Deutsche Bank, it will lift the German lender’s capital ratio by 10 basis points.
The sale was a rare piece of good news for Deutsche Bank investors and the bank’s shares had risen 3.1 percent by 7:42am in London, recovering from a record low on Tuesday when the stock was hit by continuing concerns about the health of the financial industry in Europe’s largest economy.
Deutsche Bank AG chief executive officer John Cryan told Germany’s Bild that he had not asked for state aid following a report that Deutsche had asked Berlin for help to deal with a US$14 billion demand from the US Department of Justice.
Regulatory changes and rock-bottom interest rates have ramped up pressure on banks to deal with their legacy books, leading many to consider putting them up for sale.
The interest rate cut that followed Britain’s vote to leave the EU has squeezed returns on investments for companies that manage closed life insurers.
Germany’s largest bank, which is in the midst of a deep overhaul, is trying to cut its balance sheet dramatically as it seeks to comply with stricter rules demanding lenders hold more capital against any assets.
Run off specialist Phoenix said it would raise ￡735 million via a rights issue and use ￡250 million from a new bank facility to fund the purchase.
Phoenix Group chief executive officer Clive Bannister last month said that the company was scouting for acquisitions to help gain scale in a challenging, low interest rate environment.
Phoenix was particularly interested in buying profit-making UK businesses as acquisitions would help realize savings by managing a larger number of policies more efficiently.
Earlier, French insurer AXA SA sold its UK investment and pensions business to Phoenix for ￡375 million, completing a well-flagged exit from a mature life assurance market to focus on faster growing emerging economies.
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