Truist Financial Corp. announced Thursday it is selling a 20% stake in its insurance subsidiary to a private-equity group for $1.9 billion.
Funds managed by Stone Point Capital, which is focused on the global financial services industry, are the primary acquirer of the 20% stake, along with Mubadala Investment Co. and other investors. The investment is expected to close in the third quarter.
Truist Insurance Holdings Inc. is the sixth-largest U.S. insurance brokerage with more than 250 offices nationwide and more than 9,000 employees, or about 17% of Truist’s overall workforce of 53,999 as of Dec. 31.
The transaction excludes an ownership stake in Truist Insurance Holdings’ premium finance business.
The bank said the sale price of the 20% stake values the whole insurance subsidiary at $14.75 billion.
Bill Rogers, Truist’s chairman and chief executive, said in a statement that selling the 20% stake to the investment coalition “demonstrates the significant value of Truist Insurance Holdings and strategically positions it, and Truist, for long-term success.”
Janney Montgomery Scott analyst Chris Marinac said there will be no earnings per share benefit from the proceeds. The bank said $1.54 billion will be reinvested into U.S. Treasury notes.
“Selling a great business at a possible peak multiple may not be effective to improving Truist’s enterprise-wide valuation despite the positive sum-of-the-parts disclosure,” Marinac said. “Investors care more about rising earnings, and less about the capital benefit.”
Marinac said Truist may have wanted the additional capital “to cover loss absorption” under the Federal Reserve’s Stress Test submission in April. Results are expected in June.
“Management’s comments that it seeks a future insurance acquisition must be reinforced with a transaction that boosts earnings,” Marinac said.
The bank said John Howard would remain as the insurance subsidiary’s chief executive, but it “will shift some of his enterprise-wide responsibilities in order to support focus on maximizing the success of” the subsidiary.
On Wednesday, the Compensation and Human Capital committee of Truist’s board of directors approved a $1 million base salary for Howard, effectively immediately. His potential incentive pay for 2023 could be as high as 230% of his base salary for 2023.
Howard is eligible to receive a one-time equity award from the subsidiary in the form of both time-vesting and event-vesting profits interests worth up to $17.5 million.
Insurance, as has been the case with Truist and legacy BB&T Corp. for several years, was the bank’s top fee-revenue producer for fiscal 2022 at $3.04 billion, up 15.8% over fiscal 2021.