Goldman Sachs’s European Insurance Business Up for Sale

Goldman Sachs Group Inc. said it probably will sell a majority stake in its European insurance business in the next 12 months as banks face more stringent capital rules.

Rothesay Life Ltd., a London-based insurer run by Goldman Sachs partner Addy Loudiadis, had $9.66 billion in assets as of June 30, Goldman Sachs said today in a regulatory filing. The New York-based bank sold about 80 percent of Global Atlantic Financial Group, a reinsurance business in Bermuda, to institutions and high-net worth clients in April.

Goldman Sachs is planning the sale of Rothesay, which it set up in 2007, in part because new rules require banks to hold more equity to absorb potential losses on their assets, according to a person briefed on the discussions. The sale of Global Atlantic boosted Goldman Sachs’s Basel III Tier 1 common ratio by 0.5 percentage point, Chief Financial Officer Harvey Schwartz said last month.

“Our reinsurance business -- good business, we like the business -- but with the new Basel rules it was clear that business was better held outside of Goldman Sachs,” Schwartz, 49, said at an investor conference in May. “If something’s better outside of Goldman Sachs, we’ll make an adjustment.”

Pension Hedging

Goldman Sachs’s Tier 1 common equity was equal to 9.3 percent of the bank’s risk-weighted assets at the end of June under new Basel III rules, according to the filing. The bank has said it wants to maintain a ratio of about 9.5 percent, or 1 percentage point higher than regulators will require.

The firm’s Tier 1 common equity was reduced by $9.87 billion because of investments in nonconsolidated financial institutions, according to the filing. That brought its Basel III figure to $55.8 billion, compared with $61.9 billion under current rules.

Rothesay insures more than 10 billion pounds ($15.5 billion) of pension liabilities for companies including IAG SA’s British Airways and General Motors Co.’s U.K. division. Firms such as Rothesay promise to pay pensions if retirees live beyond a certain age and then use derivatives to try to hedge the risk. The insurer typically receives a portion of the pension plan’s assets.

Rothesay had pretax operating profit of 266 million pounds in 2012, according to the unit’s website.

Greek Derivative

The unit’s assets included corporate bonds, non-U.S. government debt and $1 billion of over-the-counter derivatives, according to the filing. The business had $10.6 billion of liabilities as of June 30. The total asset and liability figures exclude inter-company assets and liabilities, which are expected to be included in the sale, according to Goldman Sachs.

Loudiadis, 50, who joined Goldman’s European derivatives marketing group in 1994 from JPMorgan Chase & Co. and was named partner in 2000, rose to be one of the bank’s top European sales executives.

In 2001 she helped sell Greece a derivative that masked the country’s growing debt so the country could improve its finances to meet European Union fiscal targets. The derivative later cost Greece billions of euros. Goldman Sachs wasn’t accused of wrongdoing related to the transaction.

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