Exclusive: Genworth to sell wealth management biz - sources
Genworth Financial Inc plans to sell two of its businesses, including its wealth management business, in an effort to raise capital, according to three sources familiar with the situation.
The Richmond, Virginia-based company wants to sell its Pleasant Hill , California-based wealth asset management business, which has over $20 billion in assets under management and sells its portfolios through about 6,000 third-party advisers around the country.
The sources also said Genworth is looking for a buyer for Altegris, its San Francisco-based alternative investments provider with $3.36 billion in client assets. The sources wished to remain anonymous because they were told about the deal in confidence. Genworth bought Altegris in 2010 for $35 million, plus additional performance-based payments.
Genworth is working with Goldman Sachs & Co as the banker for the deal, said one of the sources, who estimated that if the two businesses were sold together they could be valued at about $400 million.
A Genworth spokesman declined to comment. A Goldman spokeswoman also declined to comment.
A number of private equity investors and potential strategic buyers are looking at the books of the businesses, two of the sources said. It is unclear if both units will be sold to the same buyer, they said.
Genworth, once a part of industrial conglomerate General Electric, is shopping the businesses as it faces increased scrutiny from ratings agencies, largely due to losses in its mortgage business.
On Thursday, Standard & Poor's lowered Genworth's credit rating to BBB- from BBB, putting it just a notch away from junk territory.
Moody's Investors Service Inc has said it is conducting a review for a potential downgrade of the company's senior unsecured debt rating.
Most of Genworth's troubles stem from its U.S. mortgage-guaranty unit, which has accrued about $2 billion in operating losses since 2008, but recently, things have started to look better.
Genworth reported net income of $76 million, or 15 cents per share, in the second quarter, compared with a net loss of $136 million, or 28 cents a share, a year earlier. Net operating losses from the firm's mortgage insurance unit narrowed to $25 million, from $255 million in the comparable period last year.
S&P said it was lowering its rating "to reflect the low earnings level for the organization ... and the difficulty it will face expanding margins globally in the weak economy."
In a statement responding to the S&P downgrade, Genworth said it is "pursuing a number of strategic and financial actions designed to improve returns on capital, simplify our mix of businesses, strengthen capital generation, and increase financial strength and capital flexibility."
The company said it would provide further details about this effort in its third-quarter earnings call on October 31.
In April, the insurer sold its tax and accounting financial adviser unit to California-based Cetera Financial Group.
At the time, the company said the sale would allow it to focus more on "its core turnkey asset management businesses."
Genworth is a Fortune 500 company that sells insurance as well as wealth management services. It bought its turnkey asset management platform, which was called AssetMark Investment Services, in 2006 and merged it with Genworth Financial Asset Management to form Genworth Financial Wealth Management.
Given Genworth's financial situation, it might make sense to offload the wealth management unit because providing turnkey asset management - which involves putting together customized portfolios and handling the back-office functions for financial institutions and advisories - has become increasingly competitive, said Alois Pirker, a research director at Boston-based Aite Group, which studies wealth management trends.
More companies are asking providers to allow them to keep the management of the investments in-house, while having the providers oversee the performance reporting, he said.
This results in less revenue for the providers because they don't collect fees for managing the money, Pirker said.
"It's a tough business to succeed in unless you have the investment dollars," he said.
(Reporting by Jessica Toonkel; editing by John Wallace, Carol Bishopric, Gary Hill)