It is not an anomaly for a bank to buy a UK pension
scheme these days, but Citigroup's decision to acquire and
continue running the Thompson plan is a new tactic. The
plan, with 2,800 retired and 800 deferred members, will be
adequately protected and Citi's balance sheet will suffer
if the assets ultimately proved incapable of meeting the
scheme's liabilities, according to the news report.
Corporations have for a while been rescuing the
private defined benefit pension plans of distressed
companies in the UK by launching insurance operations,
according to the Times. That is true of corporations such
as Goldman Sachs, UBS and Aegon, as well as some start-up
operations, which have allowed companies to offload their
plans for a fee.
In return, these companies would shut down the
plan and replace it with a series of insurance contracts
with plan members. Such activity has not caught on in the
U.S., but an investment bank's willingness to acquire an
ailing pension plan could pull out the stops that often
kill acquisitions and mergers of companies.
This puts Citi under different rules than insurance
companies. According to the newspaper, Citi will be
governed by pension regulation rather than insurance
This means that Citi will not be required to maintain
the same solvency buffer of regulatory capital that
insurance companies have to maintain. While insurance
companies that buy plans must have capital invested in
primarily long-dated gilts that offer low investment
returns, Citi does not.
Citi plans to manage the pension assets with a
liability-driven approach, trying to match movements in
assets and liabilities, according to the Times