Truist completes sale of Truist Insurance Holdings and executes strategic balance sheet repositioning

Rhea-AI Summary

Truist Financial (NYSE: TFC) completed the sale of Truist Insurance Holdings to private equity firms, resulting in after-tax cash proceeds of $10.1 billion and an after-tax gain of $4.7 billion. The sale boosted Truist's financial profile, increasing CET1 capital by $9.4 billion and raising the CET1 capital ratio to 12.4%. Subsequently, Truist repositioned its balance sheet by selling $27.7 billion in lower-yielding investment securities, generating $29.3 billion for reinvestment. The repositioning slightly decreased the pro-forma CET1 ratio to 11.4%. Truist estimates a $160 million increase in net interest income for the second quarter of 2024 and $710 million for the whole year, affecting revenue projections positively.

Positive

• Completion of the sale of Truist Insurance Holdings produced after-tax cash proceeds of $10.1 billion and an after-tax gain of $4.7 billion.

• The sale resulted in an increase in Truist's CET1 capital by $9.4 billion, raising the CET1 capital ratio to 12.4%.

• Repositioning of the balance sheet generated $29.3 billion for reinvestment, with a slight decrease in the pro-forma CET1 ratio to 11.4%.

• Truist anticipates a $160 million rise in net interest income for the second quarter of 2024 and $710 million for the entire year, positively impacting revenue forecasts.

Negative

• The balance sheet repositioning led to an after-tax loss of $5.1 billion in the second quarter of 2024.

• The repositioning slightly reduced the pro-forma CET1 ratio to 11.4%.

• Truist adjusted its revenue outlook for the second quarter and full year of 2024, reflecting changes due to the interest income expected from the sale of Truist Insurance Holdings and the balance sheet repositioning.

Insights

Financial Analyst

Truist Financial Corporation's completion of the sale of Truist Insurance Holdings and the subsequent balance sheet repositioning signals a significant strategic adjustment with substantial financial implications. The infusion of $10.1 billion in after-tax cash proceeds boosts liquidity and offers Truist the flexibility to invest in high-yield opportunities. The reinvestment of proceeds at a blended rate of 5.22% is a sharp increase from the sold securities' yield of 2.80%, implying a savvy capital allocation that could improve net interest income. The 1% projected increase in Q2 revenue over the previous quarter underscores an immediate positive impact, while the full-year outlook suggests a moderation of earlier anticipated declines. The boost to the CET1 capital ratio enhances Truist's regulatory capital position, possibly increasing investor confidence in its financial health. However, the $5.1 billion loss from selling lower-yielding securities might raise concerns about near-term profitability, although this is arguably offset by the long-term reinvestment strategy. Investors should monitor how these moves affect the bank's interest margins and overall performance amidst the evolving economic conditions.

Market Analyst

The strategic move by Truist to divest from its insurance brokerage and reposition its balance sheet reflects deeper trends within the financial sector, where banks are seeking to optimize capital amid shifting market conditions. Truist's action to recalibrate its investment portfolio towards shorter duration securities may be seen as a response to the expectation of a rising interest rate environment, as indicated by the Federal Funds futures curve. This reallocation favors liquidity and interest income in a potentially volatile market. The projected increase in net interest income suggests a strengthening of the bank's core revenue stream, which is a key metric for investors. Furthermore, maintaining the pro-forma tangible book value per share after such a large transaction and repositioning is a positive indicator of value preservation for shareholders. The focus should be on how effectively Truist can deploy the new capital and whether it can sustainably generate higher yields without incurring excessive risks.

Sale of TIH creates a capital advantage and capacity for growth

CHARLOTTE, N.C., May 7, 2024 /PRNewswire/ -- Truist Financial Corporation (NYSE: TFC) today announced the completion of the previously announced sale of its remaining stake in Truist Insurance Holdings, the fifth largest insurance brokerage in the United States, to an investor group led by private equity firms Stone Point Capital, Clayton, Dubilier & Rice, Mubadala Investment Company and other co-investors.

"We are pleased to have completed the sale of TIH, and we look forward to maintaining a strong partnership with TIH into the future," said Truist Chairman and Chief Executive Officer Bill Rogers. "The sale of TIH significantly enhances Truist's financial profile and positions Truist to invest in and grow its core banking businesses."

At closing, Truist received after-tax cash proceeds of approximately $10.1 billion. The transaction resulted in an approximate after-tax gain of $4.7 billion and increased CET1 capital by $9.4 billion^1,2. On a pro-forma basis, Truist's March 31, 2024, CET1 capital ratio increased by 230 basis points to 12.4% and its tangible book value per share increased by $7.16 or 33% to $28.80.  Truist's estimated CET1 ratio under proposed fully phased-in Basel III capital rules increased by 254 basis points to 8.4%³ at March 31, 2024.

Following the completion of the sale, Truist executed a strategic balance sheet repositioning of a portion of its available-for-sale investment securities portfolio by selling $27.7 billion of lower-yielding investment securities, resulting in an after-tax loss of $5.1 billion in the second quarter of 2024.  The investment securities that were sold had a book value of $34.4 billion and a weighted average book yield of 2.80% for the remainder of 2024 including the impact of hedges and based on the Federal Funds futures curve⁴. Including the tax benefit, the repositioning generated $29.3 billion available for reinvestment.

Truist invested approximately $18.7 billion of the $39.4 billion available in shorter duration investment securities yielding 5.27%.  The remaining $20.7 billion will be held in cash.  The blended reinvestment rate on the new investment securities purchased and cash is 5.22% for the remainder of 2024 including the impact of hedges and based on the Federal Funds futures curve⁴.

The balance sheet repositioning reduced Truist's pro-forma CET1 capital ratio at March 31, 2024, by 107 basis points to 11.4%². Truist's estimated pro-forma CET1 ratio at March 31, 2024, under proposed fully phased-in Basel III capital rules increased from 8.4% to 8.9%⁵. There is no impact to pro-forma tangible book value per share of $28.80.

Truist estimates that the proceeds from the sale of TIH and the balance sheet repositioning will add $160 million to net interest income in the second quarter of 2024 and $710 million (inclusive of the second quarter impact) to net interest income in 2024 based on the Federal Funds futures curve⁴.

Truist previously provided an outlook for 2024 second-quarter and full-year revenue, which excluded any benefit of interest income earned on the proceeds from the sale of TIH or from a balance sheet repositioning. Truist is adjusting its previous outlook to reflect the interest income expected on the proceeds from the sale of TIH and from the balance sheet repositioning. Truist now expects second quarter 2024 revenue to increase by approximately 1% over first quarter 2024 revenue of $4.9 billion compared to its previous outlook for revenue to decline by approximately 2%. In addition, Truist now expects full year 2024 revenue to decline by 0.5% to 1.5% over 2023 annual revenue of $20.2 billion compared to its previous outlook for revenue to decline by 4% to 5%.

1. $9.4 billion of capital comprised of a $4.7 billion after-tax gain and a $4.6 billion benefit from the deconsolidation of TIH's intangibles net of deferred tax liabilities.
2. Numbers may not add due to rounding.
3. CET1 impact greater under fully phased-in Basel III rules primarily due to a reduction in threshold deductions.
4. Federal Funds futures curve as of May 6, 2024.
5. CET1 under fully phased-in proposed Basel III rules increases following the balance sheet repositioning due to a reduction in threshold deductions and a lower risk-weighting on the securities purchased than the securities sold.

About Truist
Truist Financial Corporation is a purpose-driven financial services company committed to inspiring and building better lives and communities. As a leading U.S. commercial bank, Truist has leading market share in many of the high-growth markets across the country. Truist offers a wide range of products and services through our wholesale and consumer businesses, including consumer and small business banking, commercial banking, corporate and investment banking, wealth management, payments, and specialized lending businesses. Headquartered in Charlotte, North Carolina, Truist is a top-10 commercial bank with total assets of $535 billion as of March 31, 2024. Truist Bank, Member FDIC. Learn more at Truist.com.

Forward-Looking Statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as "believe," "expect," "anticipate," "intend," "pursue," "seek," "continue," "estimate," "project," "outlook," "forecast," "potential," "target," "objective," "trend," "plan," "goal," "initiative," "priorities," or other words of comparable meaning or future-tense or conditional verbs such as "may," "will," "should," "would," or "could." In particular, forward-looking statements by Truist include statements Truist makes about (i) the financial impact of the TIH sale and the balance sheet repositioning on Truist, including to its CET1 ratio (as currently calculated and as calculated under proposed fully phased-in Basel III capital rules), tangible book value per share, net interest income, and revenue, and (ii) the yield to be realized on the newly purchased investment securities and cash balances arising from the balance sheet repositioning. Forward-looking statements convey Truist's expectations, intentions, or forecasts about future events, circumstances, or results. All forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, which may change over time and many of which are beyond Truist's control. You should not rely on any forward-looking statement as a prediction or guarantee about the future. Actual future objectives, strategies, plans, prospects, performance, conditions, and results may differ materially from those set forth in any forward-looking statement. While no list of assumptions, risks, and uncertainties could be complete, some of the factors that may cause actual results or other future events or circumstances to differ from those in Truist's forward-looking statements include the risks and uncertainties more fully discussed in Part I, Item 1A (Risk Factors) in Truist's most recently filed Annual Report on Form 10-K and in Truist's subsequent filings with the Securities and Exchange Commission. Any forward-looking statement made by Truist or on its behalf speaks only as of the date that it was made. Truist does not undertake to update any forward-looking statement to reflect the impact of events, circumstances, or results that arise after the date that the statement was made, except as required by applicable securities laws. You, however, should consult further disclosures (including disclosures of a forward-looking nature) that Truist may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K.

 

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SOURCE Truist Financial Corporation

FAQ

How much did Truist receive in after-tax cash proceeds from the sale of Truist Insurance Holdings?

Truist received approximately $10.1 billion in after-tax cash proceeds from the sale of Truist Insurance Holdings.

What was the after-tax gain from the sale of Truist Insurance Holdings?

The after-tax gain from the sale of Truist Insurance Holdings was approximately $4.7 billion.

What was the impact on Truist's CET1 capital ratio after the sale of Truist Insurance Holdings?

The CET1 capital ratio of Truist increased to 12.4% following the sale of Truist Insurance Holdings.

How much did the balance sheet repositioning generate for reinvestment?

The balance sheet repositioning generated $29.3 billion for reinvestment.

What was the estimated increase in net interest income for Truist in 2024?

Truist estimated a $710 million increase in net interest income for 2024, including the second quarter impact.