Bank Of America: Another Opportunity For Private Equity

Bank of America's announcement that it plans to explore "strategic alternatives" for its brokerage business could be another opportunity for private equity funds to step into the insurance business, a consultant said.

Yesterday, Charlotte, N.C.-based Bank of America said it has retained Banc of America Securities to explore alternatives for its commercial insurance brokerage business, Banc of America Corporate Insurance Agency LLC, based in Cranford, N.J.

A spokeswoman for the bank said the company would make no additional comments on the move. She noted that the move did not involve its personal lines insurance business.

Robert J. Lieblein, president and chief executive officer of WFG Capital Advisors in Harrisburg, Pa., said the move marked a strategic initiative by the bank to divest itself of the commercial property-casualty operations that are not a core strategy of the bank.

Bank of America got into the insurance brokerage business through acquisitions of other banks that had insurance operations, Mr. Lieblein noted.

Patrick Linnert, executive vice president with Marsh, Berry & Company Inc., said that compared to Bank of America's overall size, the revenue coming from the insurance business was miniscule.

According to the company's Securities and Exchange Commission filing for 2006, the bank's revenue stood at $73 billion, with net income of $21 billion. The two consultants estimated revenues from the insurance portion of the business stood at $80 million or less.

"When the bank's executives looked at this to determine what it will take to make this business grow, they saw a sizable capital investment was needed and decided it was best if that was done somewhere else," said Mr. Lieblein.

As for a buyer, Mr. Linnert would not venture to speculate who that would be, or what the price might be, but Mr. Lieblein did suggest that a private equity firm would be the most likely buyer, or possibly a brokerage entity with the help of private equity money.

Mr. Linnert suggested that a sale might involve retaining some strategic alignment with Bank of America, allowing insurance to continue to be sold to Bank of America customers.

Another bank would probably be the least likely buyer, they suggested, due to competitive concerns.

For the sale price, Mr. Lieblein suggested that the Banc of America Corporate Insurance Agency could sell for somewhere around $150 million, but Mr. Linnert said that knowing what the price could be is difficult without knowing the true nature of the agency's pro forma EBITDA (earnings before interest, taxes, depreciation and amortization).

According to company press releases, Banc of America Corporate Insurance Agency handles $1 billion in premiums with more than 300 associates. The division handles more than 10,000 commercial clients in the Unites States and worldwide.