Hong Kong’s Bank of East Asia mulls over $1 billion insurance asset sale: report

12, Mar. 2020

HONG KONG, NNA - Bank of East Asia, Ltd. (BEA) is reportedly contemplating to sell its insurance businesses for more than $1 billion as an option for the Hong Kong lender’s strategic asset review after it suffered a huge profit drop last year.

The potential disposal would include its life and general insurance subsidiaries as well as its pension fund business in Hong Kong, according to a Bloomberg report on Tuesday which cited sources.

Apart from BEA's core business in corporate and personal finance, it also owns BEA Life Ltd. and Blue Cross (Asia-Pacific) Insurance Ltd. which offer life and general insurance, respectively.

The sale of insurance assets could attract interest from global insurers seeking to expand in the region amid increasing consolidation in the industry, the report added.

The bank has over 825,000 members with $27.8 billion Hong Kong dollars ($3.6 billion) assets in its Hong Kong pension fund scheme, known as Mandatory Provident Fund, by the end of December 2019, according to the Bloomberg report.

Photo by Arun Raj on Unsplash
Photo by Arun Raj on Unsplash

New premium income of the life insurance business jumped 50.8 percent year-on-year to a record high in 2019, according to BEA’s earnings statement. The general insurance unit posted double-digit growth in underwriting profit last year.

The disposal of its life insurance assets could include a so-called 'bancassurance' strategic alliance, in which an insurer typically pays an upfront amount for exclusive rights to sell its products at bank branches - a possibility raised in the Bloomberg report.

A BEA spokesperson declined to comment on the report but reiterated that the bank was reviewing its portfolio of assets as announced earlier on March 4, according to a Hong Kong Economic Times report.

Last year, the bank saw its group profit plunged 49.9 percent to HK$3.26 billion. Local media reported it was its weakest performance during a challenging period impacted by the global financial crisis in 2009.

It then announced in a statement that it would carry out a comprehensive review of its portfolio "to ensure alignment with its strategic priorities and in order to increase shareholder value."

The bank would identify potential strategic transactions which would enhance the value of its existing businesses and assets, as well as strategic alternatives for potentially non-core assets.

BEA engaged Goldman Sachs Group Inc. as its financial advisor to help out with the review. The bank added that it will report updates by June 30, 2020.

When announcing the review, BEA said the move was made with the support of Elliott Management Corp., a large shareholder which has been in a tussle for control with the family-run century-old bank.

In a seeming truce, both sides issued statements approving of new strategic moves.

Brothers Adrian and Brian Li, both co-chief executives for the bank said, “Assessing the strategic fit and value of constituent assets in the bank’s portfolio is an important initiative to improve our capital efficiency and drive shareholder value.”

Agreeing, Jonathan Pollock, co-CEO and chief investment officer of Elliott, said, “BEA has built a strong and valuable franchise in Hong Kong and the Mainland and we believe this step will lead to significant value creation. We look forward to continuing a dialogue with management and the Board about opportunities to increase shareholder value.”

In conjunction with its announcement, Elliott said it would apply for a court-ordered “pause” of "the unfair prejudice proceedings which it previously commenced against the bank and certain former and serving directors of the bank".