JPMorgan Sells Health Savings Account Unit To Webster Financial

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Earlier this week, JPMorgan (NYSE:JPM) inked an agreement with Webster Financial (NYSE:WBS) to sell its health saving account (HSA) business to the latter’s HSA Bank division. [1] The deal will see 700,000 accounts changing hands and includes $1.3 billion in deposits and $175 million in investments currently held by JPMorgan Chase Bank. JPMorgan’s decision to exit the HSA business despite the steady growth in this market is because the unit was not aligned with the banking giant’s long-term growth strategy.

Deutsche Bank (NYSE:DB) and JPMorgan’s M&A advisory unit played key roles in brokering the deal. JPMorgan does not expect any material change in its revenues or profits due to the all-cash deal, the value of which remains undisclosed. However, the acquisition will substantially consolidate HSA Bank’s presence in the industry by giving it a market share of around 17%. Other prominent players in the HSA business are Optum Bank (part of UnitedHealth Group), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB).

The deal does not impact our $65 price estimate for JPMorgan’s shares, which is roughly 10% ahead of its current market price.

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Health savings accounts (HSAs) provide individuals a tax-advantaged way to pay and save for current and future medical expenses. [1] Since they were established as part of the Medicare Prescription Drug, Improvement, and Modernization Act in December 2003 to replace the Medical Savings Account system, HSAs have grown steadily to nearly $22.8 billion in size at the end of June 2014. [2] There are currently 11.8 billion HSA accounts held by individuals across the country.

HSA Bank is one of the biggest players in the industry with $2.4 billion in assets under administration held in 700,000 accounts – representing a 10.5% share of the market. While JPMorgan has a similar number of HSAs, its total HSA assets is much lower at $1.5 billion. The recently announced deal will boost HSA Bank’s asset base to almost $4 billion while doubling its number of accounts to 1.4 billion – giving it a 17.5% share of the fast-growing industry. At the same time, the move will help JPMorgan cut down on costs associated with the non-core unit. The bank had announced a possible sale of the unit, which is a part of its corporate and public prepaid card business in January. [3]

As you can see by making changes to the chart below, the $1.5 billion reduction in deposits has no visible impact on the share value of the banking giant, which has $489 billion in retail banking deposits and $1.3 trillion in total deposits (as of the end of Q2 2014).

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Notes:
  1. Webster Financial Agrees to Acquire Health Savings Account Business from JPMorgan Chase, Webster Bank Press Releases, Sept 23 2014 [] []
  2. 2014 Midyear Devenir HSA Research Report, Denver Research Website, Aug 5 2014 []
  3. J.P. Morgan to Explore a Sale of its Corporate and Public Prepaid Card Business, JPMorgan Press Releases, Jan 9 2014 []