Belfast Telegraph

Paternoster for sale as investors lose patience

By Simon Read

The pensions provider Paternoster has been put up for sale as some key investors look to cut their losses in the business set up by Mark Wood, the former Prudential chief executive.

The annuity specialist's biggest stakeholder is Deutsche Bank, which owns 40 per cent, and people close to the company suggest that the bank may be interested in acquiring a bigger stake. Deutsche is believed to be interested in merging Paternoster with Abbey Life insurance, which the German bank bought from Lloyds Banking Group in 2007.

The private equity group Eton Park, which owns 25 per cent of Paternoster, is thought to be leading a investors keen to sell their stakes in the firm.

Paternoster was set up by Mr Wood, a former deputy chairman of the Association of British Insurers, with an initial £500m in 2005. He attracted investment from a variety of sources, including the asset manager Jupiter, the broker Numis and the hedge funds Polygon and CQS. He was also able to get a team of City galacticos to the board, with Ron Sandler joining as chairman some years before the Government parachuted him in as the potential saviour of Northern Rock. Sir Howard Davies, a former head of the Financial Services Authority, is also a board member, although he is due to step down later this year.

Paternoster specialises in bulk annuity buyouts, taking the risk of paying pensioners away from the companies they worked for. It quickly built up £3bn of retirement assets managed on behalf of 44,000 UK pensioners and now issues more than £14m of pension payments every month, which are funded by investments in corporate bonds.

But the bond panic which spread in late 2008 on the back of the collapse of the corporate bond specialist Lehman Brothers forced Paternoster to set aside more cash in reserve to protect pensioners' payouts. That put pressure on its cashflow and by early 2009 it decided to stop writing new business. The difficulties led the company to hire the investment banking team of the insurance broker Willis last summer to help it assess its options and put a valuation on the company.

Mr Wood stepped down as chief executive last September and handed over to Ed Jervis, but he remains as deputy chairman.

Rumours suggest that investors may have to settle for less than half of the £500m they put into the firm in 2005. However, Paternoster's 2009 results were better than expected. It increased its surplus capital by 70 per cent to £165m, while reserves for corporate bond defaults climbed by £37m.

Paternoster refused to comment on the speculation last night.

Belfast Telegraph