Barclays Bank is to further improve its capital funding through the sale of its life assurance business to Swiss Re, the Swiss reinsurance group.
Barclays, which has already raised £4.5bn from investors to strengthen its capital base, said yesterday that it had agreed a price of £753m for its life unit. Swiss Re expects to be able to complete the purchase, which is subject to regulatory approval, by the end of October.
The deal will provide Barclays with around £330m in additional capital, once the headline sale figure has been adjusted for tax payments and in line with accounting regulations.
Analysts at Cazenove, the investment bank, said the sale of the business would improve Barclays' equity tier one ratio by a further eight basis points, with recent fundraisings already having lifted it to around 6.3 per cent.
"[This is] a sensible transaction that will benefit the group's regulatory capital without material earnings dilution," Cazenove said.
Barclays Life has around £6.8bn in assets, managed on behalf of 760,000 customers of the bank, who will now transfer to Swiss Re. The majority of policies are unit-linked life and pensions plans sold by both Barclays itself and Woolwich, the mortgage lender it owns. The business generated around £350m in premium income last year, but has been closed to new customers since 2001 and will therefore provide less in the way of cashflow as more policies reach maturity.
Chris Lucas, Barclays' finance director, said the life assurance business was no longer core to the bank, which will continue to sell a range of similar products from a range of third-party suppliers.
"We are confident that Swiss Re, with its expertise in this area, will offer policyholders continuity of service and support," Mr Lucas added.
The Swiss insurance giant is one of several companies currently targeting closed life assurance businesses in the UK, but has also faced its own funding pressures. Yesterday, it said further writedowns of investments linked to the credit crisis had hit its profits in the second quarter, which fell to SFr564m (£264m), some 53 per cent down on the SFr1.2bn it made in the same period last year.
Barclays itself is due to report its first-half results tomorrow, and is expected to unveil its own substantial fall in profits as the effects of the credit crunch and the continuing economic slowdown continue to be felt.Reuse content