The Westpac Banking Corp (ASX: WBC) share price is down after revealing a large asset sale for $725 million.
What did Westpac announce?
The big four ASX bank revealed today that it’s going to sell Westpac General Insurance and Westpac General Insurance Services to Allianz and enter into an exclusive 20-year agreement for the distribution of general insurance products to Westpac’s customers.
Westpac is selling the general insurance business for $725 million, which is a multiple of 1.3 times the FY20 gross written premium (GWP) and is expected to result in a “small” after-tax gain on the sale in the FY21 result.
The sale will add around 12 basis points (0.12%) to Westpac’s common equity tier 1 (CET1) capital ratio. The transaction includes contingent payments which are subject to integration milestones and business performance over the next five years, as well as ongoing payments (these are not included in the sale price or estimated gains).
Westpac and Allianz already have a working relationship, which has seen Westpac distribution Allianz’s products to customers including auto, travel, boat and business insurance since 2015.
The CEO of Westpac, Peter King, said: “This transaction is another step in simplifying our business while continuing to help customers with their general insurance needs. General insurance products are important for many Australians and we are pleased to be entering a long term partnership with a global insurance expert to continue to help customers protect the things they value.”
Westpac expects this transaction to occur in the second half of 2021. Westpac will retain responsibility for certain pre-completion matters and provide protection to Allianz through a combination of provisions, warranties and indemnities.
What to make of this
It’s good to see that Westpac is increasing its balance sheet, and is timely considering what happened yesterday with APRA. Business simplification is normally a good idea. But I am a little concerned that Westpac is largely being reduced to just making money from loans, which isn’t exactly a high-growth industry at the moment.
Westpac has risen a lot since May. With interest rates so low, I don’t think there’s much growth to come. There are other ASX dividend shares I’m attracted to more such as Brickworks Limited (ASX: BKW) or APA Group (ASX: APA).
