Posted by: Matthew Goldstein on January 30
It wasn’t too long ago, that all of Wall Street was angling to get involved with life settlements—the business of selling unwanted life insurance policies to speculators.
Deutsche Bank was one of the early movers in the life settlements market. But towards the end of last year, the German-based financial institution scaled-back its life settlements operation in New York and London to all but a skeletal staff. The firm, which wouldn’t comment, gave the boot to several senior bankers and traders who had been mining the life settlement business.
The staff reductions at Deutsche is just one more indication of how Wall Street firms are increasingly loathe to put money into new and esoteric investment strategies.
Before the subprime mortgage meltdown spawned the worst financial crisis since the Great Depression, Wall Street banks were eyeing life settlements as one of the next new-new things to generate fat fees. The thought was that many baby boomers would look to cash-in early on their life insurance policies by selling them to speculators hoping to collect on the death benefit. Speculators buy policies at a sustantial discount to their death benefit and keep paying the premiums—betting the seller will die before the policy terminates.
Wall Street banks not only wanted to invest in these unwanted policies, but had high hopes of bundling them into a new class of asset-backed securities called “death bonds.” We at BusinessWeek called it one of Wall Street’s most macabre investment ideas ever.
Interest in life settlements remains high, especially with seniors looking to maintain their standard of living following last year’s stock market rout. But there’s just not a lot of money being spent on speculative investment these days
As a concept, death bonds aren’t dead. It just seems the Grim Reaper may have to wait a bit longer for his moment in the sun.
BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.