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The Goldman Sachs Group Inc. ( GS - Analyst Report ) is working seriously on its acquisition and global expansion strategies. Last week, the company announced that it is planning to purchase Ariel Reinsurance’s Bermuda-based insurance and reinsurance operations from Ariel Holdings Ltd. The terms of this deal were undisclosed; however, it is expected to close on April 1, 2012.
In January, Goldman reported 67% fall in 2011 earnings compared to the prior year, and has targeted approximately $1.4 billion in run-rate compensation and non-compensation expense reductions through a combination of declines in total staff and planned expenditures. The firm is trying to recoup the losses it has incurred by boosting its revenues.
Founded in 2005, Ariel Holdings Ltd. provides a wide range of property and casualty insurance and reinsurance products to companies and policyholders across the globe. It focuses on achieving above average economic returns for the risks taken and maintains adequate financial availability to meet the requirements of underwriting businesses.
Goldman will combine the acquired business with its existing Lloyd’s business. The combined entity will work as part of Goldman Sachs Reinsurance Group (GSRG) with the brand name Ariel Reinsurance (Ariel Re). GSRG covers the property and casualty reinsurance business in London.
Managers at Ariel Re find the acquisition quite opportunistic. They look forward to the combined business with superior underwriting of track records at both as well as expect the strong performance to continue. However, the deal excludes Ariel’s credit and surety business operated at Zurich branch office and Atrium Underwriting Group at Lloyds ( LYG - Snapshot Report ) .
As a part of deal, GSRG’s Lloyd’s syndicate will reinsure the current business of Ariel Reinsurance. Moreover, clients are expected to receive flawless services. In the combined structure, most of Bermuda-based Ariel Re’s staff will remain employed.
The completion of the agreement will expand Goldman’s property and casualty coverage and the name of Ariel franchise will help the company to serve its clients in a better way.
In February, Goldman Capital Partners, a private equity unit of Goldman along with Advent International, a private equity firm, agreed upon to purchase credit-reporting firm TransUnion Corp in a $3 billion deal.
Further, Goldman also agreed to purchase a 4.8% stake in Mongolia’s Trade and Development Bank. Goldman is one of those foreign banks who have shown interest in the Mongolian economy. Goldman’s global expertise, experience and financial strength will help the Mongolian bank to develop further. Goldman’s stake buyout in the Mongolian bank indicates its plan to gain exposure in a Mongolian economy, whose growth is stimulated by the developing resources of the country.
Moreover, Goldman Sachs Asset Management (GSAM), a wing of Goldman also announced its plan to purchase Vermont-based Dwight Asset Management Company from Old Mutual Asset Management (OMAM).
Through acquisitions and global expansions, Goldman is trying to grab every opportunity to leverage its strong reputation in corporate trust market. The expansion mode of the company is mounting since the beginning of 2012.
The acquisition spree of Goldman indicates that the company is moving ahead on the path of improving its financial position. Like other Wall Street biggies such as Bank of America Corporation ( BAC - Analyst Report ) and JPMorgan Chase & Company ( JPM - Analyst Report ) , the company has been buckled under the weakness in the wider economy and the fundamental pressures on the banking sector. Completion of deals like this will enable the bank to enjoy a better position in the ongoing uncertain global economic scenario compared to its peers.
Goldman currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we maintain a long-term Neutral recommendation on the stock.
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