Wall Street major
Goldman Sachs Group, Inc.
) has declared the sale of its majority stake in London-based
insurer, Rothesay Life Ltd. to private equity giant
The Blackstone Group L.P.
) and Singapore-based wealth fund, GIC Pte.
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 comparatively less regulated private
equity firms like Blackstone.
While Blackstone and GIC will each take over 28.5% of Goldman's
stake, Massachusetts Mutual Life Insurance Co. will acquire 7%.
This will leave Goldman with only 36% stake in Rothesay.
Overall, Goldman is striving to enhance its balance sheet. In
April, the bank 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 its majority equity stake in
REDI - a financial technology company - to a consortium of
investors including 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 undertaking these measures to
reduce its non-core business exposure. Regulatory pressure to
strengthen its capital ratios is likely to have driven the
company to take such steps.
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. However, these rules
will expectedly benefit the financial system in the long run by
preventing bank failures and involving less of taxpayers' money
for the bailout of troubled financial institutions.
Goldman currently carries a Zacks Rank #3 (Hold).
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