Private equity giant
The Blackstone Group L.P.
) is reportedly in negotiation with
The Goldman Sachs Group, Inc.
) to buy a marginal stake in the latter's European pension
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Blackstone's Tactical Opportunities is expected to acquire
Rothesay Life Ltd., Goldman's London-based pension
insurance business in Europe. Tactical Opportunities invests
across Blackstone's four chief strategies: private equity, real
estate, credit and hedge funds.
Goldman intends to shed its majority stake over the span of one
year in Rothesay, under pressure from new regulative guidelines.
Under Basel rules, banks are required to maintain a capital
cushion to absorb probable losses on assets. The Basel III
regulations have made pension businesses less attractive for
banks. The tough regulations have forced banks such as Goldman to
vend their businesses to lesser regulated private equity firms
Goldman's Tier 1 common equity as of Jun 30, 2013, was 9.3% of
the bank's risk-weighted assets under Basel III rules. However,
the N.Y.-based banking giant has set a goal of about 9.5% or 100
basis points higher than the regulatory limit.
Overall, Goldman is striving to enhance its balance sheet. In
April this year, Goldman sold around 80% stake in Global Atlantic
Financial Group, the reinsurance business in Bermuda to
institutions and high net worth clients. This move boosted
Goldman's Basel III Tier 1 common ratio by 0.5%.
Further, in May, Goldman reduced its exposure to the Chinese
economy by selling off its final stake in Beijing-based
Industrial & Commercial Bank of China Ltd. (ICBC).
Moreover, in July, Goldman vended the majority equity stake in
REDI - a financial technology company - to a consortium of
investors, which included BofA Merrill Lynch, the corporate and
investment banking division of
Bank of America Corporation
), BNP Paribas SA (BNPQY), Citadel and Lightyear Capital.
It appears that Goldman has been taking such action to reduce its
non-core business exposure. Moreover, regulatory pressure to
strengthen its capital ratios is another compelling factor that
caused the company to take such measures.
Weak capital levels are always risky for the global economy.
Additionally, conforming to new capital rules will likely act as
deterrents to the present unstable economy. The capital rules
will benefit the financial system in the long run. They will
prevent bank failures and involve less of taxpayers' money for
the bailout of troubled financial institutions.
Goldman currently carries a Zacks Rank #2 (Buy).