Market Overview

HSBC Receives $914 Million for General Insurance Business

HSBC Receives $914 Million for General Insurance Business

It was revealed on Wednesday that HSBC (NYSE: HBC) will sell its general insurance business to the French insurer AXA Group and Australia's QBE Insurance Group for a total of $914 million, as the European bank looks to offload its non-core assets.

According to Reuters, this deal could just be the beginning, with similar deals apparently on the table, both within and outside of HSBC.

Ron Kozlowski, director of Towers Watson's general insurance business, told Reuters that, “We expect rising capitalization 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.”

This latest deal is only the latest in a series of cash-saving endeavors from new HSBC CEO Stuart Gulliver, and it includes 10-year bancassurance agreements with AXA and QBE.

For its part, AXA will see the deal of a continuation of its ongoing efforts to boost emerging markets presence, while hopefully helping Europe's second biggest insurer achieve its 2015 targets early.

Financially, it should do well, with AXA hoping to double its gross revenues and triple the underlying earnings by 2015.

Following the announcement, HSBC saw its shares fall 1.05% to HKD$67.75 in Hong Kong trade on Wednesday morning, which is a more than 0.86% drop in the benchmark Hong Kong share index. In London, HSBC shares were up 0.75%.

Meanwhile, QBE shares moved up 0.76% to A$11.91. AXA shares were up 0.6% at 11.79 euros.

AXA is paying $494 million for the assets in Hong Kong, Singapore and Mexico. Consider that they had a net asset value of $48 million at the end of 2011, and that represents quote a good deal.

Following the news, Philip Securities of Hong Kong released a research report saying that HSBC's current market price nearly 1X P/B, close to the five-year average minus one standard deviation, the Group has the concept of the emerging market, should enjoy a higher valuation. However, the Group's cost-efficiency ratio slightly higher than the Peers, as well as its core capital adequacy ratio fell in FY 2011,investors have concerns the result of restructuring. According to the operating performance of FY 11, we estimate that the Group is scheduled to reach the target thus, we give to " Accumulate" rating and 12 Month target price of HKD $75.

“HSBC payout ratio in FY 11 was 45%,With the Basel III will be implement in 2013, and ongoing investment to China, we believe that the dividend per share will be maintained within the Group's target (40-60%) in the next 2 FY . FY 2012 earnings per share is expected to reach HKD $7.7, the dividend per share will be HKD $3.45, dividend payout ratio can be maintained for 45%.”

Posted-In: Earnings News Contracts M&A Analyst Ratings Best of Benzinga

 

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