Apollo in talks to buy BES insurance arm

Apollo Global Management, the US private equity fund manager, has entered exclusive negotiations to acquire Portuguese insurer Tranquilidade from the remnant of Banco Espirito Santo, the lender that was bailed out and broken up earlier this month.

The deal, worth about €200m in total, will involve a €140m cash injection into the insurance unit to shore up losses triggered by the demise of Portugal's second-largest bank, said a person with knowledge of the discussions. An agreement is expected to be finalised within two weeks, as long as Apollo secures the green light from the country's insurance regulator.

About €60m will be paid to Tranquilidade's legal parent Novo Banco, the so-called "good bank" and that was spun out of BES after the state rescue. The insurance unit, one of the country's largest providers of home and car insurance services, was formerly owned by Espirito Santo Financial Group, a family holding company.

Private equity and hedge funds that specialise in turning round distressed assets, such as Apollo, Cerberus Capital Management and Centerbridge Partners, are scouting Europe to buy businesses and portfolios of soured loans from banks that are requested to boost regulatory capital in the wake of the financial crisis of 2008 and the subsequent eurozone debt crisis in 2010.

New York-headquartered Apollo, which was co-founded by billionaire Leon Black, has been bidding for Tranquilidade since a competitive sale process started in January, trumping offers from other buyers.

Apollo's previous insurance investments have included the 2011 acquisition, jointly with European buyout house CVC Capital Partners, of Brit Insurance, for £888m. Brit, which operates within the Lloyds' insurance market was floated in March.

A spokesman for Novo Banco could not be reached for comment. Apollo declined to comment.

BES, which was once the most profitable part of a financial empire built up over almost 150 years by Portugal's Espirito Santo family, was bailed out and split into a good bank and a bad bank at the beginning of August after it reported a €3.58bn net loss in the first half of the year.

The record loss, which was caused mainly by BES's exposure to its main shareholder, the Espirito Santo group, wiped out the bank's regulatory capital, weakening its solvency ratios and causing its shares to sink.

BES's profitable assets were purchased by a small Portuguese bank rescue fund bolstered by loans from the European Union and the International Monetary Fund that were left over from Portugal's international bailout. The good bank, which has been rebranded "Novo Banco", is to be disposed of eventually.

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