HSBC has agreed to sell its general insurance businesses to French insurer AXA Group and Australia's QBE Insurance Group for $914 million (581 million pounds) in cash, as Europe's biggest bank moves ahead with its plan to divest non-core assets.
HSBC's decision to exit the business could be a precursor to similar deals as lenders globally consider selling capital-intensive businesses as reserve requirements become more strict.
We expect rising capitalisation requirements across the banking and insurance sectors to continue to drive portfolio re-balancing, with some banks in particular reflecting on the value of manufacturing and/or distributing non-life insurance going forward, said Ron Kozlowski, director of Towers Watson's general insurance consulting business in Asia Pacific.
The deal, the latest in a series of cost-cutting initiatives under new HSBC CEO Stuart Gulliver, includes 10-year bancassurance agreements with AXA and QBE.
The agreements will earn commissions and profit-related payments for HSBC on top of the cash value of the deal.
For AXA, the acquisition is a step forward in its effort to boost emerging markets presence and potentially help Europe's No. 2 insurer to achieve its 2015 targets ahead of time.
AXA's regional Chief Financial Officer François-Valéry Lecomte told a media conference that the 2015 targets were based on organic growth and this transaction accelerates that.
AXA Asia Chief Executive Mike Bishop later downplayed any chance the acquisition could help the insurer meet the targets earlier. Speaking in a conference call with reporters, Bishop called the gains it brought to the entire company incremental.
AXA is hoping to double its gross revenues and triple its underlying earnings by 2015 for its general insurance business, under a plan launched last year to boost profits.
HSBC shares fell 1.05 percent to HKD$67.75 in Hong Kong trade on Wednesday, more than the 0.86 percent drop in the benchmark Hong Kong share index. HSBC shares in London were up 0.75 percent at 1110 GMT, outperforming a 0.2 percent rise in the FTSE 100 index.
QBE shares rose 0.76 percent to A$11.91, bucking a 1.45 percent fall in the benchmark Australian share index. AXA shares were up 0.6 percent at 11.79 euros, in line with a 0.56 percent gain in the European sector.
AXA is paying $494 million for the assets in Hong Kong, Singapore and Mexico, which had a net asset value of $48 million at the end of 2011, HSBC said in a stock exchange filing.
AXA will also become the sole provider of general insurance products distributed by HSBC in Hong Kong, mainland China, Singapore, India and Indonesia, and of property and casualty products distributed by HSBC in Mexico.
The distribution agreement does not apply to Hong Kong or mainland China customers of Hang Seng Bank, a unit of HSBC, or HSBC's Chinese rural banks, or to customers of PT Bank Ekonomi Raharja Tbk in Indonesia.
QBE will pay $420 million for the business in Argentina, which had an net asset value of $189 million. QBE, Australia's No. 1 insurer by premiums, has completed more than 75 deals in 10 years, expanding its reach to 50 countries.
QBE's agreement with HSBC gives it the right to be the exclusive provider of general insurance products distributed by HSBC to customers in Argentina and by Hang Seng Bank to customers in Hong Kong and mainland China.
In May, HSBC announced plans to sell non-core businesses, which included shrinking its network of 475 U.S. branches to focus on the international business of U.S. clients and the sale of several European retail banking businesses including those in Poland and Russia.
HSBC has cut 11,000 jobs and sold 19 businesses as part of Gulliver's plan to cut annual costs by $3.5 billion. Deals already struck will cut $50 billion in risk-weighted assets.
The deals announced on Wednesday are subject to regulatory approvals and are expected to close in the second half of 2012, while the deal in Argentina may close earlier, HSBC said.
The gross asset value of the businesses being sold was $1.23 billion at the end of 2011, it added.
AXA will rise to No. 1 ranking in Hong Kong and Mexico and to No. 2 ranking in Singapore following the deal, the company said. QBE said it expects its part of the acquisition to add to its earnings in the first full year.
HSBC was advised by HSBC Global Banking and Markets and co-advised on the sale of its Latin American assets by Goldman Sachs. Citigroup was the sole financial advisor to AXA, a source familiar with the matter said.
(Additional reporting by Donny Kwok and Christian Plumb; Writing by Denny Thomas; Editing by Richard Pullin, Michael Perry and Hans-Juergen Peters)