Goldman Looks To Monoline Insurance
US investment bank Goldman Sachs’ recent acquisition of Bermuda’s Ariel Holdings comes as the firm considers offering so-called “monoline” insurance, the “Financial Times” reports today [Mar.19]
The leading British business newspaper says Goldman Sachs is exploring new business areas including “monoline” insurance ahead of incoming financial regulation expected to hit its lucrative trading operations.
Goldman is expected to be among the hardest-hit by new rules preventing banks from trading for their own accounts and demanding they hold more regulatory capital against their assets.
It is known to be examining ways to tweak its business model, and has bulked up its insurance business by buying Ariel Holdings, a Bermuda-based reinsurer.
“But entering the world of monoline insurance is likely to be a controversial move for Goldman, which is still grappling with the fallout from last week’s damning ‘New York Times’ opinion piece written by departing middle-ranking banker, Greg Smith,” says the “Financial Times”.
“Almost all of the speciality bond insurers, including Ambac and FGIC, went out of business after guaranteeing billions of dollars worth of subprime debt that soured during the recent financial crisis.
“The business relies on the insurers, usually highly rated, guaranteeing payouts from assets such as municipal bonds or mortgage-backed securities, in a process known as ‘credit wrapping’.”
A move by Goldman into monoline insurance would come as regulators and governments are cracking down on credit default swaps, another type of insurance-like instrument.
