The Westpac Banking Corp (ASX: WBC) share price has started the new financial year in a disappointing fashion despite the release of an asset sale update.
The banking giant's shares ended the day with a 0.6% decline to $25.65.
What did Westpac announce?
This morning Australia's oldest bank announced the completion of the sale of the Westpac General Insurance Limited and Westpac General Insurance Services Limited businesses to insurance giant Allianz.
According to the release, the company has received $725 million for the businesses and the two parties have also entered into an exclusive 20-year agreement for the distribution of general insurance products to Westpac's customers.
The release advises that a further payment of $25 million is expected to be received by Westpac this calendar year, subject to integration milestones. Further contingent payments over the next five years are expected, in addition to ongoing payments under the distribution agreement.
What now?
Westpac revealed that it expects to report a gain on sale of approximately $61 million, subject to the finalisation of completion adjustments and separation costs. This gain on sale will be included in Westpac's FY 2021 results and classified as a notable item.
In the meantime, the sale has added approximately 12 basis points to Westpac's common equity Tier 1 capital ratio.
Why did Westpac sell the businesses?
When the deal was first announced in December, Westpac advised that it was part of its strategy to build a simpler, stronger bank.
Westpac Chief Executive Officer, Peter King, explained: "This transaction is another step in simplifying our business while continuing to help customers with their general insurance needs. General Insurance products are important for many Australians and we are pleased to be entering a long-term partnership with a global insurance expert to continue to help customers protect the things they value."
Despite today's weakness, the Westpac share price is up over 30% since the start of the year.
