Regions Bank’s divestiture of insurance business will not impact wealth clients, bank says
Regions Bank’s recent decision to sell its insurance business to BB&T wasn’t easy given the time and resources that went into building it, Grayson Hall, the bank’s chairman and CEO said during its first-quarter earnings call.
“We’ve been in that business for a long time and have a great team of people running it,” he told analysts of the agonizing decision.
Like many banks and wealth management firms taking a hard look at individual business lines, Hall came to the conclusion that it was best to sell it off, even though it was a valuable asset. He and his CFO, David Turner, talked about the need to build scale and improve risk-adjusted returns in the business, investments it felt it could use elsewhere.
“We had reached a point in our analysis where we had to make a decision on how best to deploy our capital,” Hall said, explaining that the sale would help efforts to “focus on businesses where it can add the most value.”
The sale, which is slated to close in the third quarter, is expected to generate additional capital of approximately $300 million, Turner said during the call.
Regions Bank’s painful decision is not unusual as companies evaluate the profitability of their businesses, according to Alois Pirker, research director at consulting firm Aite Group. “These kinds of moves are becoming more common as the requirements for scale are increasing,” he says.
Pirker points to Capital One’s sale of its investment management and brokerage division to Woodbury Financial Services, one the four broker-dealers belonging to the IBD firm Advisor Group. It also sold its online brokerage business to E-Trade as part of a move away from some financial service businesses.
The sale of a business is certainly not new to Regions. In a highly publicized deal in 2012, it sold its brokerage unit, Morgan Keegan, to Raymond James and hired Cetera as its third-party broker dealer to rebuild the unit nearly from scratch.
“Regions for a number of years has been in the mode of evaluating business lines they’re in and determining whether they need to be in them,” Pirker said.
The impending sale of the insurance business will not impact the bank’s ability to provide insurance services to retail clients in the same way the sale of Morgan Keegan did. Personal life insurance will continue to be offered by financial advisors in the bank’s brokerage unit, private wealth advisors and consumer licensed bankers through the many insurance carriers it works with, Regions said.
Banks that provide wealth and advisory services need to provide life insurance and long-term care products as part of their service offerings, said Tim Kehrer, director of research at consulting firm Kehrer Bielan Research & Consulting.
“A financial plan without life insurance is really just an investment plan,” he said.
While the sale may not impact clients directly, it is likely to affect the bank’s wealth management revenue. Regions’ wealth businesses generated $145 million in revenue from insurance commissions and fees in 2017, according to the bank’s year-end earnings release. Insurance was the second-leading revenue generator, representing 33% of the total $435 million the wealth businesses posted for the year.
For BB&T, the acquisition of Regions Insurance will strengthen its presence in many of its Southeast markets and expand its footprint into new markets in Texas, Louisiana and Indiana.
“This was a great addition from both a cultural and a market perspective,” Kelly King, BB&T’s chairman and CEO, said during the bank’s first-quarter earnings call last week.
The bank, King explained, spent the past five to six years acquiring several wholesale insurance businesses, including Aon’s Swett & Crawford in 2015, and as such was fully “scaled up” on the wholesale side.
With the Regions acquisition, BB&T will now be able to bolster the insurance business on the retail side, he said. “We can begin to do some of the same scale that we did in wholesale,” King added.
BB&T has made no secret of its desire to build out its already dominant insurance brokerage business. Even though the bank derives an astoundingly high 15% of its revenues from insurance, it has set a long-term target of getting that to 20%, King told analysts at a Morgan Stanley conference last summer.
“It’s a very good business all around,” he said. “It’s very stable. We like it a lot.”