People's United Financial (NASDAQ:PBCT), the roughly $61 billion asset bank based in Connecticut, announced that it will sell its full-service insurance brokerage to the insurance agency AssuredPartners.
AssuredPartners will pay $120 million in cash for People's United Insurance Agency (PUIA), representing 3.7 times the last 12 months' (LTM) revenue of the brokerage. The deal is slated to close before the end of the year.
"This transaction allows People's United to monetize its long-term investment in PUIA and simplify its operating model," Jack Barnes, chairman and CEO of People's United, said in a statement. "It also allows us to focus additional resources on delivering core banking products and services, and to further enhance digital offerings across our commercial, retail and wealth management businesses."
The acquisition gets rid of all commercial insurance products at the bank, although the bank still sells life insurance in another one of its subsidiaries.
People's United had about $20 million in insurance revenue through the first six months of the year, which makes up more than 9% of the bank's non-interest revenue .
The decision to sell what could be a big chunk of a somewhat decent non-interest revenue source strikes me as an odd choice in the low-rate environment, where most banks are going to see profits on loans shrink.
But the cash infusion will increase People's United's common equity tier 1 (CET1) capital ratio, a measure of a bank's core capital expressed as a percentage of its risk-weighted assets. The bank's CET1 ratio was already at 9.7% at the end of the second quarter of the year, a good level for a bank of its size.
That could give People's United the power to further "enhance digital offerings" as Barnes said, or potentially allow it to think more opportunistically down the line about acquisitions. The bank was on a bit of a buying spree before coronavirus hit.