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Truist (TFC) Closes TIH Sale, Repositions Balance Sheet
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Truist Financial (TFC - Free Report) has completed the divestiture of the remaining 80% stake in its insurance subsidiary – Truist Insurance Holdings ("TIH") – to Stone Point Capital and Clayton Dubilier & Rice. Mubadala Investment Company and co-investors also participated in the deal.
Following this, TFC executed a balance sheet repositioning strategy. This will help the company generate higher revenues this year than previously expected.
TIH Divestiture Results in After-Tax Gains
Truist had announced the sale of its remaining 80% stake in TIH in February 2024. This followed a 20% stake sale in April 2023.
The all-cash deal valued TIH at an implied enterprise value of $15.5 billion.
Truist received after-tax cash proceeds of roughly $10.1 billion following the completion of TIH divestiture. The transaction resulted in an approximate after-tax gain of $4.7 billion and increased the company’s CET1 capital by $9.4 billion. This will be recognized in the second quarter of 2024.
On a pro-forma basis, as of Mar 31, 2024, Truist's CET1 capital ratio grew 230 basis points (bps) to 12.4% and its tangible book value per share increased $7.16 to $28.80. The company's estimated CET1 ratio under the proposed fully phased-in Basel III capital rules increased 254 bps to 8.4%3 as of Mar 31, 2024.
Chairman and CEO of TFC, Bill Rogers said, "The sale of TIH significantly enhances Truist's financial profile and positions Truist to invest in and grow its core banking businesses."
Strategic Balance Sheet Repositioning to Aid Revenues
Truist undertook a strategic balance sheet repositioning step for part of its available-for-sale investment securities portfolio. The company sold $27.7 billion worth of lower-yielding investment securities, which had a book value of value of $34.4 billion.
Including the tax benefit, the balance sheet repositioning generated $29.3 billion available for reinvestment. Hence, this led to an after-tax loss of $5.1 billion in the ongoing quarter.
In aggregate, TFC was left with total available capital to deploy for investment worth $39.4 billion. Of this, the company invested $18.7 billion in shorter-duration investment securities. It intends to hold the remaining $20.7 billion in cash.
So, the blended reinvestment rate on the new securities purchased and cash is 5.22%, which is significantly higher than the 2.80% that offloaded investments would have offered.
These initiatives will add $160 million to Truist’s net interest income (NII) in the current quarter and $710 million (including the second quarter) to 2024 NII.
Therefore, TFC has updated total revenue guidance for the second quarter and full-year 2024. The company now anticipates total revenues in the second quarter to rise 1% sequentially against the prior guidance of a decline of 2%.
For 2024, Truist now projects total revenues to decrease 0.5-1.5%. Earlier, the company had expected revenue decline in the range of 4-5%.
Conclusion
Truist’s strategic initiatives are part of a comprehensive restructuring plan to realign and simplify operations. In February, the company announced the divestiture of its asset-management subsidiary, Sterling Capital Management LLC, to Guardian Capital Group Limited in a $70-million deal.
Also, the bank has executed various measures, including a $750-million cost-cutting program, a 4% reduction in workforce, the consolidation of business lines and the creation of an enterprise-wide payments group.
Further, TFC sold a $415 million student loan portfolio to Carlyle (CG - Free Report) this January. "There is an opportunity for private markets to fill the gap left by traditional lenders reducing their lending to families to finance their higher education goals,” said Akhil Bansal, managing director and head of credit strategic solutions at CG.
Since early last year, following the regional banking crisis, banks have been under pressure to sustain profitability and bolster capital levels. The steps being taken by TFC to create a more efficient and profitable organization are in the same direction.
Over the past year, shares of Truist have gained 36.7%, underperforming the industry’s rally of 39.7%.
Image: Bigstock
Truist (TFC) Closes TIH Sale, Repositions Balance Sheet
Truist Financial (TFC - Free Report) has completed the divestiture of the remaining 80% stake in its insurance subsidiary – Truist Insurance Holdings ("TIH") – to Stone Point Capital and Clayton Dubilier & Rice. Mubadala Investment Company and co-investors also participated in the deal.
Following this, TFC executed a balance sheet repositioning strategy. This will help the company generate higher revenues this year than previously expected.
TIH Divestiture Results in After-Tax Gains
Truist had announced the sale of its remaining 80% stake in TIH in February 2024. This followed a 20% stake sale in April 2023.
The all-cash deal valued TIH at an implied enterprise value of $15.5 billion.
Truist received after-tax cash proceeds of roughly $10.1 billion following the completion of TIH divestiture. The transaction resulted in an approximate after-tax gain of $4.7 billion and increased the company’s CET1 capital by $9.4 billion. This will be recognized in the second quarter of 2024.
On a pro-forma basis, as of Mar 31, 2024, Truist's CET1 capital ratio grew 230 basis points (bps) to 12.4% and its tangible book value per share increased $7.16 to $28.80. The company's estimated CET1 ratio under the proposed fully phased-in Basel III capital rules increased 254 bps to 8.4%3 as of Mar 31, 2024.
Chairman and CEO of TFC, Bill Rogers said, "The sale of TIH significantly enhances Truist's financial profile and positions Truist to invest in and grow its core banking businesses."
Strategic Balance Sheet Repositioning to Aid Revenues
Truist undertook a strategic balance sheet repositioning step for part of its available-for-sale investment securities portfolio. The company sold $27.7 billion worth of lower-yielding investment securities, which had a book value of value of $34.4 billion.
Including the tax benefit, the balance sheet repositioning generated $29.3 billion available for reinvestment. Hence, this led to an after-tax loss of $5.1 billion in the ongoing quarter.
In aggregate, TFC was left with total available capital to deploy for investment worth $39.4 billion. Of this, the company invested $18.7 billion in shorter-duration investment securities. It intends to hold the remaining $20.7 billion in cash.
So, the blended reinvestment rate on the new securities purchased and cash is 5.22%, which is significantly higher than the 2.80% that offloaded investments would have offered.
These initiatives will add $160 million to Truist’s net interest income (NII) in the current quarter and $710 million (including the second quarter) to 2024 NII.
Therefore, TFC has updated total revenue guidance for the second quarter and full-year 2024. The company now anticipates total revenues in the second quarter to rise 1% sequentially against the prior guidance of a decline of 2%.
For 2024, Truist now projects total revenues to decrease 0.5-1.5%. Earlier, the company had expected revenue decline in the range of 4-5%.
Conclusion
Truist’s strategic initiatives are part of a comprehensive restructuring plan to realign and simplify operations. In February, the company announced the divestiture of its asset-management subsidiary, Sterling Capital Management LLC, to Guardian Capital Group Limited in a $70-million deal.
Also, the bank has executed various measures, including a $750-million cost-cutting program, a 4% reduction in workforce, the consolidation of business lines and the creation of an enterprise-wide payments group.
Further, TFC sold a $415 million student loan portfolio to Carlyle (CG - Free Report) this January. "There is an opportunity for private markets to fill the gap left by traditional lenders reducing their lending to families to finance their higher education goals,” said Akhil Bansal, managing director and head of credit strategic solutions at CG.
Since early last year, following the regional banking crisis, banks have been under pressure to sustain profitability and bolster capital levels. The steps being taken by TFC to create a more efficient and profitable organization are in the same direction.
Over the past year, shares of Truist have gained 36.7%, underperforming the industry’s rally of 39.7%.
Image Source: Zacks Investment Research
Currently, TFC carries a Zacks Rank #3 (Hold).
A better-ranked major regional bank is Wells Fargo (WFC - Free Report) . The company, at present, sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
WFC’s earnings estimates for 2024 have been revised 5.3% upward in the past month. Shares of Wells Fargo have jumped 49.2% over the past six months.