Goldman Sachs Group, Inc. (NYSE:GS) said Wednesday that it is planning to sell about 75 percent stake in its $1.4 billion reinsurance business. Harvey Schwartz, soon-to-be chief financial officer of the bank, said during the company's earnings call, that the 75 percent stake can be valued at about $1 billion.
"Given the Basel III capital changes that we incur as an owner of our own reinsurance business, we are considering a potential sale of a majority stake in the business," said Schwartz. He said the bank will respond more precisely after gaining clarity on regulatory changes, especially capital requirements.
The Basel III capital rules require banks to sell off non-core business units to hold more capital. The Goldman Sachs Reinsurance Group, now called Goldman Atlantic, is a part of the New York-based bank's securities division. The reinsurance group's net revenue in FY2012 was $1.08 billion, up from $880 million in 2011. It was the first time Goldman Sachs Group, Inc. (NYSE:GS) disclosed the revenues of its reinsurance business.
In April 2012, Goldman Sachs Group, Inc. (NYSE:GS) purchased Bermuda-based Ariel Reinsurance, to expand its revenue stream beyond trading and investment banking to property and casualty coverage. Ariel was later merged into Goldman's casualty and property operations based in London. In total, Global Atlantic is composed of a $450 million casualty and property business and $950 million life and annuity business.
Schwartz said, considering the Basel III capital changes, the reinsurance business will be better off in others' hands, and Goldman can be a minority owner.
Today, the bank announced better than expected fourth quarter earnings. Goldman reported $2.83 billion or $5.60 in earnings on a revenue of $9.26 billion for the fourth quarter. The Q4 revenues surged 53 percent and profits rose 190 percent due to increase revenue from deal making and big gains in stock values. For the full-year 2012, revenues soared 119 percent to $34.2 billion and profits surged 68 percent to $7.48 billion.
Goldman Sachs Group, Inc. (NYSE:GS) shares were up 3.80 percent to $140.74 in New York trading.