French insurer AXA swoops on Winterthur

AXA bags Winterthur, which is 131 years old Keystone

The Credit Suisse Group on Wednesday announced the sale of its Winterthur insurance arm to AXA, France's largest insurer, for SFr12.3 billion ($9.96 billion) in cash.

Switzerland’s second-largest bank, which had been seeking a buyer for two years, said proceeds from the sale could be reinvested in acquisitions, joint ventures in investment and private banking, and asset management.

Under the terms of the deal, which is subject to regulatory clearance and expected to close at the end of the year, AXA will redeem SFr1.1 billion in debts outstanding between Credit Suisse and Winterthur.

CS, which has lagged behind its major Swiss rival UBS in recent years, said it would now be free to focus all its energies on global expansion of its core business.

“All of our resources can be concentrated on developing our core banking business,” chief executive Oswald Grübel said in a conference call with journalists.

Earlier he stressed that the group would not sit on any excess cash made by the transaction.

“Any excess capital that cannot be used to grow our business will be returned to our shareholders,” he said in statement.

As to whether the takeover would result in any job cuts at Winterthur, the insurer was unable to say and reluctant to rule out.

“As the deal has not yet been approved by the relevant regulatory bodies, no concrete figures can be given. However, it is possible that, for example, the administration might suffer,” Winterthur spokesman, Markus Seitz told swissinfo.

Boost business

AXA’s chief executive Henri de Castries said that the takeover would boost the French giant’s businesses.

“This… will reinforce our leading position in our core European market and… increase our presence in emerging markets, particularly eastern Europe and Asia,” de Castries said.

AXA is currently the number two insurer by premiums in Switzerland after Zurich Financial Services.

Analyst Christian Stark told Reuters news agency that the sale would give Credit Suisse approximately SFr8 billion to invest and return to shareholders.

“It makes a lot of sense to sell Winterthur. The challenge will be to be sure that you can reinvest to replace the full Winterthur earnings that you will lose,” he commented.

Flotation

A flotation of the business had been widely expected by analysts, who had estimated Winterthur was worth between SFr10 and SFr12 billion.

Grübel argued that the bank could not have raised as much money by floating Winterthur after the recent downturn in global equities markets.

“I do not believe that we could have done an IPO [initial public offering] for over SFr12 billion and certainly not in the current market environment,” he said.

In 2004 Credit Suisse decided to focus on its global banking business, two years after it suffered a record loss of SFr4.5 billion caused by write-downs at the insurance division.

It initially acquired the business in 1997 to boost profit by selling insurance and banking products to the same clients.

The strategy backfired and when stock markets experienced a slump shortly afterwards, Credit Suisse had to pump SFr3.7 billion into the insurer’s reserves.

The latest transaction will leave Switzerland’s second largest bank’s share buyback programme unaffected, which is expected to raise SFr6 billion by the first half of 2007.

swissinfo with agencies

In brief

Winterthur was founded in 1875 in the town of the same name as an accident insurance company.

During the year of its birth, it expanded abroad to Germany, Belgium, the Netherlands, Denmark and Austria-Hungary, amongst others.

In 1923 its life insurance business began.

In 1936 it opened its first office in New York in the United States; a year later it had a presence in 29 other states.

Towards the end of the 20th century, the company grew large enough to become a global insurance heavyweight and number two in Switzerland.

In the 1990s the firm’s fortunes took a downturn, after a failed cooperation with UBS.

Credit Suisse acquired it in 1997.