Investment bank plots entry into bond ‘credit wrapping’

Investment bank Goldman Sachs is considering writing financial guarantee insurance through one of its New York insurance subsidiaries, according to the Financial Times.

Financial guarantee insurance, also known as monoline insurance because the insurers offering it typically specialise in just that one line of business, guarantees pay-outs from bonds. This type of insurance is typically offered by highly rated insurers so it can boost the credit rating of a bond issue – a process known as credit wrapping.

Goldman revealed its intention to enter the financial guarantee market in a job advert on its website, the FT said.

Financial guarantee is a risky business, and several monoline insurers failed in the financial crisis after insuring subprime mortgage-backed bonds.

At the beginning of March, Goldman revealed it was buying Bermuda-based reinsurer Ariel Re.