For some time Bank One Corp. has been high on the list of banking companies that Wall Street expects to become acquisitive - but Zurich Life was hardly the target most envisioned.
Instead of broadening its banking operations, Bank One said Friday that it plans to buy "key business components" of the Schaumburg, Ill., insurance operation. And instead of zeroing in on distribution, Bank One opted to buy a company that also expands its product manufacturing capabilities, adding insurance underwriting - a business many other banking companies have avoided.
James Dimon, Bank One's chairman and chief executive officer, said in a telephone interview Friday that it had "bought a company that is absolutely a fabulous platform in terms of systems and products, and a very efficient system - that is important."
Bank One agreed to pay $500 million cash for Zurich Life, the U.S. life and annuity operations of the Swiss company Zurich Financial Services Group. Zurich Life has 40,000 insurance agents, in all 50 states, and a direct marketing platform. Bank One already has 3,000 licensed agents who sell insurance through its 1,800 branches; it said it plans to rebrand the Zurich business as Bank One.
Zurich Life has $7.2 billion of assets and specializes in term life and universal life underwriting, fixed and variable annuities, and business-owned life insurance.
The platform will give Bank One the opportunity to do other "very attractive" things, Mr. Dimon said, including expanding through acquisition. "But right now the focus will be on cross selling," he said.
Most observers were expecting a deal for a bank with a large branch network, not an insurer. "It's a shock that they went in that direction," said Richard X. Bove, an analyst with Hoefer & Arnett Inc. of San Francisco, in a telephone interview.
Bank One is changing in other ways too. It is exploring the sale of its corporate trust business, and last week it agreed to sell its wholesale mortgage operations to Royal Bank of Canada's RBC Mortgage Co. for an undisclosed price. It is also moving to pull processing for its credit card operations in-house.
Analysts said Bank One appears to be concentrating on businesses in which it can control the price.
"If you own the business, you can set the price," Mr. Bove said. Owning underwriting capability makes sense for a company that wants to sell insurance policies, he said.
Mr. Dimon said the Zurich deal "fits in" with Bank One's recent strategic moves but would not influence whether it makes further acquisitions in other lines of business.
Zurich is expected to add $50 million to Bank One profits next year before any revenue synergies, Bank One said.
Mr. Dimon said underwriting and distribution were equally interesting to Bank One. But other banks have been reluctant to move into underwriting, even in countries where the universal banking model is common. Deutsche Bank AG has said it sees no reason to add manufacturing; it continues to focus on distribution. Credit Suisse Group has struggled with its life insurance operation, Winterthur.
U.S. banks have been more attracted to insurance agencies, which bolster their product lists without adding the risks that come with insurance underwriting. Mr. Dimon, however, said he was not leery of the business.
"Life insurance is like an investment product," he said. "There is no more risk to life insurance underwriting than to loan underwriting."
To be sure, he acknowledged, it is a business with which he is familiar. Citigroup Inc., his former employer, and Travelers before that, have been underwriting and distributing life products for years.
Many on Wall Street have joked that Mr. Dimon is building Bank One into a "Citigroup West," an assertion that tends to ruffle his feathers. On Friday he denied that he is using Citi as his template. "We are doing what makes sense for us," he said. "We are in a different place and a different time."
Bank One has an existing insurance distribution arm, and Mr. Dimon said it will continue to sell insurance products underwritten by third parties.
Analysts said Bank One may have really been after Zurich's distribution, and may have considered underwriting just part of the package. Another possibility, said Jennifer Thompson of National Bank of Canada's Putnam Lovell NFB Securities Inc., is that "the pricing was so attractive that they thought the additional risk was worth it."
Bank One left some scraps on the table, including the Kemper Investor Life Insurance Co. However, it will assume the reinsurance for certain lines of Kemper's business.
Kenneth F. Puglisi, a co-director of research at Sandler O'Neill & Partners LP, said the deal "does not look … expensive." Bank One "is looking for ways to generate revenues, which is exactly what they have to do," he said.
Indeed, most agree that there are synergies and opportunities to generate revenues. The business-owned life insurance "can be marketed to the bank's large list of commercial customers," Mr. Bove said in the interview. In a note on the deal he wrote that Zurich's need to invest premiums may mean business for Bank One's corporate lenders and investment bankers.
