Deutsche gets lift from $1.2 billion sale of Abbey Life to UK’s Phoenix Group

By: | Published: September 28, 2016 4:43 PM

Deutsche Bank AG has sold its British insurance business Abbey Life to Phoenix Group Holdings 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 pounds for Abbey Life, which manages assets worth 10 billion pounds and has 735,000 policyholders, the companies said. (AP)Phoenix, Britain’s largest owner of life insurance funds closed to new customers, is paying 935 million pounds for Abbey Life, which manages assets worth 10 billion pounds and has 735,000 policyholders, the companies said. (AP)

Deutsche Bank AG has sold its British insurance business Abbey Life to Phoenix Group Holdings 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 pounds ($1.2 billion) for Abbey Life, which manages assets worth 10 billion pounds and has 735,000 policyholders, the companies said.

Although the deal announced on Wednesday will result in a pre-tax loss of 800 million euros ($895 mln) 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 1.2 percent by 0928 GMT, recovering from a record low on Tuesday on persistent worries about the lender’s health.

Chief Executive John Cryan told German daily Bild that he had not asked for state aid following a report that Deutsche had asked Berlin for help to deal with a $14 billion demand from the US Department of Justice.

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.

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.

Deutsche Bank has been working since last year on the sale of Abbey Life, which it bought for 977 million pounds in 2007, sources had told Reuters.

Run-off specialist Phoenix said it would raise 735 million pounds via a rights issue and use 250 million pounds from a new bank facility to fund the purchase.

Phoenix’s shares were up 3.16 percent at 864 pence at 0931 GMT on the London Stock Exchange.

The company had told Reuters in August that it was scouting for acquisitions to help gain scale in a challenging, low interest rate environment.

“We are a UK closed life consolidator… and as such we are going to stick to the UK where we believe there is in excess of 300 billion pounds’ worth of potential closed life business…” Phoenix Group’s CEO Clive Bannister told Reuters by phone on Wednesday.

The Abbey Life deal follows Phoenix’s acquisition of AXA’s UK investment and pensions business earlier this year for 375 million pounds, as the French insurer completed a well-flagged exit from a mature life assurance market to focus on faster-growing emerging economies.

Abbey Life, which operates on an outsourced model, has 45 employees, Bannister said, adding that Phoenix would place its management in senior positions in the acquired firm.

In March, Britain’s Financial Conduct Authority launched an investigation into Abbey Life’s treatment of long-time life insurance customers which could result in compensation payments to policyholders or fines for the British insurer.

Bannister said Phoenix had taken out an indemnification to ensure that its shareholders are protected against any financial downsides of the investigation.

HSBC and Morgan Stanley advised Phoenix on the deal.

($1 = 0.7678 pounds)

($1 = 0.8937 euros)

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