Citi Buys DB Plan of UK Newspaper Publisher

August 17, 2007 ( - Citigroup has acquired the pension fund of the UK's Thompson Regional Newspapers, taking the investment and longevity risk on to its own balance sheet, the Financial Times reported.

class=”textbodyblack”> 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.

class=”textbodyblack”> 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.

class=”textbodyblack”> 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.

class=”textbodyblack”> This puts Citi under different rules than insurance companies. According to the newspaper, Citi will be governed by pension regulation rather than insurance rules.

class=”textbodyblack”> 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.

class=”textbodyblack”> Citi plans to manage the pension assets with a liability-driven approach, trying to match movements in assets and liabilities, according to the Times report.