July 2, 2018 / 7:26 AM / 21 days ago

UPDATE 3-Nordea to buy insurer Gjensidige's online banking arm

* Nordea buys Gjensidige Bank for about NOK 5.5 bln

* The companies enter mutual distribution partnership

* Gjensidige Forsikring expected to record gain of NOK 1.9 bln

* Gjensidige Forsikring to pursue M&A in non-life outside Norway (Adds more from Gjensidige investor call, analyst comments)

July 2 (Reuters) - Nordea Bank has agreed to buy Gjensidige Forsikring’s online banking business for about 5.5 billion crowns ($673 million) in cash as the Nordic region’s biggest bank seeks to expand its internet-based services.

The deal adds 176,000 customers with 4.84 billion euros in customer assets to Nordea’s banking base and, in turn, allows Gjensidige to expand in its core market as the agreement will also see Nordea distribute Gjensidige’s insurance products to its own 900,000 customers in Norway.

Like other banks, Nordea has been looking at online banking services to capture new customers that are increasingly logging online to shop and carry out other banking transactions. It recently began partnering with Apple Pay in Norway.

The purchase of Gjensidige Bank, one of Norway’s leading online banks, is in line with this strategy. Nordea will take over Gjensidige’s online network for selling digital banking services, mortgages, car financing, unsecured loans and savings and investments.

“We view Nordea and Gjensidige as natural strategic partners ... We are certain that the customers we both serve will benefit from the wider and better offering that will follow when the two strong partners join forces,” Nordea Norway branch manager Snorre Storset said in a statement.

Nordea, which will move its headquarters from Sweden to Finland this year, said the deal was expected to boost its earnings per share from the first year.

The deal will also help it deliver annualised cost synergies of about 25 million euros ($29 million) by 2022 and generate a return on investment of about 16 percent.

Morgan Stanley analyst Bruce Hamilton wrote in a client note that the deal and partnership with Gjensidige looked like a “sensible use of excess capital to drive needed growth”.

GJENSIDIGE TO PURSUE GROWTH OPPORTUNITIES OUTSIDE NORWAY

Gjensidige, Norway’s biggest insurer, said separately it expected to record a gain of about 1.9 billion crowns when the transaction closed, which would provide value-enhancing growth opportunities.

“Any value creating opportunity is on the radar, but our focus is non-life expansion outside Norway and our first priority is Sweden, Denmark and Estonia,” Chief Executive Helge Leiro Baastad said in an investor call.

Norway’s property and casualty insurance market has grown more competitive in recent years, creating an opportunity for bigger players to buy smaller insurance companies.

KBW analyst Michele Ballatore said although the sale came as a surprise, Gjensidige had fetched a “good price” in the deal that gives it the firepower “to be ready if value-enhancing opportunities arise”.

Gjensidige said its dividend policy remains firm, although the deal would further support dividend capacity going forward.

“If M&A opportunities do not materialise, excess capital will be paid out over time, in line with Gjensidige’s dividend policy,” Gjensidige said, but added that the gain would be excluded when calculating the payout ratio for regular dividends.

The deal is expected to close in the first quarter of 2019.

Shares in Nordea traded down 1.8 percent at GMT 0932, while Gjensidige shares rose 0.5 percent.

($1 = 8.1717 Norwegian crowns)

$1 = 0.8584 euros Reporting by Ismail Shakil in Bengaluru, Esha Vaish in Stockholm and Camilla Knudsen in Oslo; Editing by Gopakumar Warrier and Kirsten Donovan

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