In order for the Bank of America to recover from the global credit crisis…
It decided to divest to the QBE Insurance of Australia its Balboa Insurance, totaling to at least $700 million. This is the company’s most recent asset that was sold off, after selling the stakes BlackRock and China Construction Bank last year. These previous sales were done in an effort to repay the government bailout aids – adding them to the list of banks that made good on their debt.
QBE is the largest insurance company in Australia, and after this deal with the Bank of America, their sales went up to 7.7% in just one day. It must be noted that QBE is one of the biggest businesses worldwide as it had acquired over 75 companies in the last ten years, with expansions made to over 50 countries.
Frank OHalloran, Chief Financial Officer at QBE stated, “We will continue with our current strategy of growth by acquisition.”
The new company will take over the liabilities of Balboa Insurance that is estimated to be worth around $1.2 billion. That will be done provided that there is a cash exchange along with other assets through a reinsurance transaction. This is in contrast to what was initially feared, that QBE will need big capital rising.
The Bank of America and QBE made a 10-year mutual deal of distribution for all the products under Balboa such as lender placed insurance, programs for real estate and other similar programs. These steps are viewed to raise the gains of Balboa; to exceed Balboa’s net. An expected amount to be gained annually from this distribution agreement is seen to be around $1.3 to $1.5 billion, as claimed by QBE.
This particular deal will be funded by QBE Australia through an arrangement under a dividend underwriting and introducing new bank facilities in short-term methods. It is expected that through this acquisition, Balboa will continue to increase its profits.