Groups eyeing Philamlife have own banks
By Judith Balea, abs-cbnNEWS.com | 10/10/2008 4:35 PM
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As more local companies turn the auction of insurance giant Philippine American Life and General Co (Philamlife) into a seemingly mad scramble, the interested parties have something in common: They all own banks.
Three of those that publicly admitted or have been rumored to be eyeing a stake in Philamlife also control three of the country's biggest banks.
Recent days saw family conglomerates--the Yuchengcos and Zobel de Ayalas--at the forefront. Now the Sys are trying to get in line too, according to ABS-CBN News sources.
The Yuchengcos own Rizal Commercial Banking Corp (RCBC) and insurance firms Great Pacific Life Assurance Corp. and Malayan Insurance Co. while the Ayalas have Bank of the Philippine Islands (BPI) and Ayala Life.
The Sys hold Banco de Oro Universal Inc (BDO) and part of insurance firm Generali Pilipinas.
As if having separate banking and insurance operations was not enough, these wealthy families also made a foray into bancassurance, where they combine the selling of insurance and banking products via the same distribution channel, usually through bank branches.
Complementary
Come to think of it, insurance and banking are two sides of the same coin.
RCBC president Lorenzo Tan, in an earlier interview with Asiamoney, described them as the push and pull industries.
He said banking is a "pull" because one has to advertise to lure customers to walk in. Insurance agents, on the other hand, go out and "push" people to buy their policies.
But in recent years, bankers and insurers have been successful in rethinking how best to sell their products together, one being through tie-ups.
Most of the country's family-run corporations, whose interests span a number of industries, are already into bancassurance or have both bank and insurance firms under their umbrella.
"We've gone into stages of family-owned companies going into bancassurance. It's a good thing if you fold insurance into banks because they have the distribution capabilities," said Edgar Bancod, an analyst at ATR KimEng Securities.
While it is no child's play, he said, bancassurance, if best implemented, holds out a promise of more stable earnings, especially since customers feel secure buying insurance from the same institution where they keep their savings.
It is no wonder why the Yuchengcos, Ayalas, and Sys are after Philamlife and its vast network of clients.
Buying market share
While the sale of Philamlife is the first direct impact of the crisis that first gripped the US financial markets now reverberating globally and into the real economy, it is turning out to be a major opportunity for local businessmen.
Industry experts said they were not surprised at all that the three prominent names would want to grab the whole or even a piece of Philamlife, one of the crown jewels being sold by troubled parent American International Group (AIG) to pay off debts.
Not only does the local insurer boast of a whopping P170 billion in consolidated assets, it has also kept its dominant share of the market in the last six decades.
According to Bancod, Philamlife presently accounts for 30 percent of the life insurance sector's total assets.
"Whoever ends up with Philamlife will be the leading player in the industry because it will instantly grow its market reach," he told abs-cbnNEWS.com.
Acquiring Philamlife also forms part of a broader strategy to diversify risks by beefing up non-interest profit, the analyst noted. Not to mention that it can also boost banks' interest income because they can extend their own products to Philamlife's existing policyholders.
Deep pockets
However, bagging Philamlife will not be an easy feat. It is too big, let alone, expensive.
Philamlife's valuation is floated at around $2 billion, about twice its current value, one insurance executive said. Its sale, along with other affiliates in the auction block, is crucial to fund the $85-billion credit line the US government granted AIG to prevent its collapse last month.
Bancod said the group which has the "strongest balance sheet and the capability to raise funds quickly" definitely has the winning edge. AIG is looking to sell its Philippine subsidiary within six to nine months.
"Naturally, the banks have the advantage in the acquisition. They have the money," he remarked.
Earlier analysts said that with more potential buyers swarming around Philamlife's assets, they may need to add more premium to their bid price to stand out.
"This means (AIG) can get an even better deal than earlier expected," noted Astro del Castillo, First Grade Holdings managing director.
Other big names
There are close to 10 international and local groups vying for the Philamlife stake, according to its chief executive Jose Cuisia.
Apart from the Yuchengcos, Ayalas and the Sys, other big names have cropped up in latest reports.
Food and beverage giant San Miguel Corp, who is soon to have a majority stake in Bank of Commerce, was said to be interested as well.
Then there are the Ty-owned, top lender Metropolitan Bank and Trust Co, the Gokongwei's JG Summit and the First Pacific group, which has been in a shopping mode for assets recently.
Other groups include, of course, Philamlife's foreign rivals--Sun Life of Canada, Manufacturers Life Insurance Co and Prudential--who all have local operations.
But not one of these companies have the sure capability to afford and digest a huge firm like Philamlife, anlaysts noted.
This is particularly true nowadays, when tapping the debt markets will likely be difficult because of tightening global credit and rising borrowing costs.
Analysts believe these companies may need to scout for foreign partners after all, since the attempt to seize Philamlife is too big an opportunity to make more handsome profits, and one that they just cannot resist.
