The widely expected divestiture of its insurance underwriting business would be further evidence that JPMorgan Chase & Co. is willing to shed noncore operations, analysts say.
It's an issue of "capital investment here and what it would take to compete with the big boys" in insurance underwriting, said Charles W. Peabody, an analyst at Portales Partners, on Monday.
Citigroup Inc.'s sale of its insurance business, Travelers Life and Annuity, to MetLife Inc. of New York in July was driven by a realization of how costly it would be to be a big player in that sector, Mr. Peabody said.
The Wall Street Journal reported Saturday that JPMorgan Chase has put its insurance unit on the block. The company declined to confirm the story Monday but has proved its willingness to divest noncore operations in the past. In September it reached an agreement to sell BrownCo, its online discount brokerage operation, to E-Trade Financial Corp. for $1.6 billion.
Bank One Corp., which merged with JPMorgan Chase in July 2004, bought most of Zurich Life Insurance Co. of America for $500 million in September 2003. But the business was never really a big contributor to JPMorgan Chase's bottom line.
During the third quarter, JPMorgan Chase said, its insurance business had net revenue of $158 million, just 1% of the all-company total.
JPMorgan Chase's profits jumped 78%, to $2.5 billion, or 71 cents a share, primarily due to its July 2004 acquisition of Bank One.
The sale of its insurance unit "will eliminate a relatively small business in which JPMorgan was much farther from playing a dominant role than it is in several other businesses," wrote David B. Hilder, an analyst at Bear, Stearns & Co. Inc., in a note Monday.
The $1.2 trillion-asset company could use the proceeds of a sale to support other more important businesses or buy back stock. Mr. Peabody said the company could get anywhere from $600 million to $900 million for the insurance unit. Mr. Hilder's estimate was $860 million to $1.25 billion.
