Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

The Deal: A Sale of Hannover Re Will Help Bolster Bank's Tier 1 Capital Ratio

Tickers in this article: WBK

NEW YORK (The Deal) -- Britain's Lloyds Banking Group is considering a sale of its German insurance business Heidelberger Leben to German reinsurance group Hannover Ruck SE, or Hannover Re, for up to €400 million ($533 million), according to a person familiar with the partly government-owned lender's long-term strategy.

The price is well below the valuations the bank first sought when it put the life insurance unit on the block two years ago, according to the Sunday Telegraph newspaper, which first reported Sunday, Aug 18, that an agreement on the sale could be reached as early as this week. Nevertheless, it is still expected to be capital accretive and will help bolster the bank's Tier 1 capital ratio.

The bank has said on several occasions that it wants to rationalize its non-U.K. and non-core businesses, and Heidelberger Leben has been identified as one of the units in that category.

Heidelberger Leben had previously attracted interest from several insurers, as well as private equity firms such as U.S. buy-out groups JC Flowers and Wilbur Ross' WL Ross & Co. However it is not clear if any of those are still in the running or whether Hannover Re is now the only serious contender. A spokesman for Lloyds declined to comment.

The sale comes as the government is preparing to start selling down its stake of about 40% of Lloyds. The bank's shares recently have been trading significantly above the state's breakeven price of about 61 pence a share, closing at 75 pence on Monday, down 1.83% from Friday's close.

The government's rescue followed Lloyds' disastrous acquisition of HBOS at the start of the financial crisis in 2008, and Heidelberger Leben was one of the units that came with the HBOS portfolio. Lloyds will continue to sell insurance in Germany through its Clerical Medical brand.

Lloyds is also reportedly closer to a sale of its Australian asset finance and commercial lending units. The Wall Street Journal reported on Monday that Westpac Banking Corp. and ANZ Banking Group are among the shortlisted bidders in an auction that could fetch the bank as much as 1 billion Australian dollars (US$921 million). Final bids are due towards the end of September, the Journal added.

Written by Claire Poole