LONDON British lender Lloyds Banking Group (LLOY.L) has sold German life insurer Heidelberger Leben to private equity group Cinven and reinsurer Hannover Re (HNRGn.DE) for around 300 million euros ($400 million), raising hopes that the state-rescued bank is moving closer to restoring its dividend.
The deal, which will boost Lloyds' core capital by 400 million pounds, and the separate sale on Wednesday for 254 million pounds of a portfolio of leveraged loans, helps strengthen the bank's balance sheet and could accelerate government plans to start selling down its 39 percent stake, analysts said.
"It's another step along the road to just focusing on the domestic retail business, and another step along the road to a fourth-quarter dividend," said Mike Trippitt, director of banks' research at London-based Numis Securities.
Funds advised by Cinven will acquire 80 percent of Heidelberger Leben shares, leaving Hannover Re, the third-largest reinsurer worldwide, with the balance.
Demand for new life insurance policies has been hit by low interest rates, while stricter capital requirements for insurers have made the policies more expensive to underwrite, leaving owners of many smaller operators looking to sell.
Cinven plans to buy up and consolidate life insurers in Germany, allowing it to invest in updating systems and improving service while achieving cost savings through scale in a similar way to what it has done in the UK following its investment in life and pension products provider Guardian Financial Services.
"Germany is a very large market, and it is very fragmented," Cinven Partner Caspar Berendsen said.
"We see dozens of acquisition opportunities in Germany, it is growth through buy and build," he said, adding that the consolidation process would take several years.
Heidelberger Leben, which employs around 300 people, has a portfolio of around 600,000 policies, mainly unit-linked, and ran 5.2 billion euros of assets as at December 31 2012.
SPECULATION SALE IMMINENT
Lloyds has been aggressively selling non-core assets this year, raising 450 million pounds from shares in wealth manager St. James Place (SJP.L), U.S. mortgage portfolio disposals and the sale of branches from its Spanish retail banking network.
The bank's share price has surged by more than 50 percent in the year to date to around 74 pence, well above the UK government's so-called break-even price of 61 pence, prompting speculation that a 5 billion-pound state share sale is imminent.
Lloyds shares were up 0.34 percent at 74 pence by 0632 ET.
The government has said it has no timetable or target price for the sale but it appointed JP Morgan in late July to advise on the possible sale of taxpayer interests in Lloyds and a much larger 81 percent stake in Royal Bank of Scotland (RBS.L).
Speaking at the bank's half-year results this month, Lloyds Chief Executive Antonio Horta-Osorio also said he expects the bank to be a "high dividend" paying stock in the future, potentially paying out at least half of its earnings.
Shareholders have not received a dividend from Lloyds since it took over crisis-stricken lender HBOS in 2008. But management are back in talks with regulators about restarting the payout, a key milestone in its long-term recovery plan.
Trippitt said the asset sales helped the bank's dividend aspirations because they left the bank with a cleaner, more streamlined portfolio and boosted it's capital, encouraging regulators to allow the bank to return cash to shareholders.
The Heidelberger sale will result in a loss of around 330 million pounds in Lloyds' group accounts but, combined with the sale of other assets, is expected to boost the bank's common equity Tier 1 capital by around 400 million pounds when it completes, Lloyds said in a statement.
This is largely because of accounting conventions, which required Lloyds to deduct the embedded value of the insurance company from its assessment of its core Tier 1 equity, a deduction that will no longer have to be made.
(Additional reporting by Laura Noonan and Kylie MacLellan; Editing by David Cowell and Greg Mahlich)