One point of clarification: US private equity groups own banks around the world, but not in the US--the US is actually behind other countries in the OECD in terms of the 'financial big bang reforms'. The US government backed US private equities push into Asia in order to buy up (be given) 'failed' banks in Japan and S. Korea. Two of the biggest they took over, Aozora and Shinsei, however, are in big trouble because of all the turmoil and bad management from the people the private equity groups put in charge of the banks. So if the 'bank reform' says private equity can't own and control banks, then you have to wonder what is going to happen worldwide to all those private-equity-owned banks. Earlier Obama came out for the 'private re-capitalization' of the 'banking sector', which means he came out in favor of the private equity interests buying up banks as distressed assets. Whether he knows it or not. Either the man is a genius who is quite nasty, or he is a naive fool. I hate to think the worst of him.
http://www.nytimes.com/2009/05/06/business/06equity.html But Mr. Flowers, whose investments in banks overseas have made him one of the richest men in America, has run into a major obstacle in the United States: the Federal Reserve, and its very notion of what a bank should be. The Fed does not mind if private equity firms have a minority interest in banks — the Obama administration even wants them to invest. But the Fed will not let them take control, a stance the firms are lobbying regulators mightily to change, especially given that stress test results to be released Thursday are expected to show a glaring need for capital in the banking system. It’s not personal, Fed officials say. It’s just that as the nation recovers from one of the worst banking crises in history, the Federal Reserve wants to make sure that it does not set the stage for the next financial implosion by turning banks over to private equity firms, some of the riskiest players in the business world. So while Mr. Flowers was able to buy the bank here with his own money, he cannot tap into the billions his firm, J. C. Flowers & Company, has raised. How this battle — and others being fought in the aftermath of the economic crisis — plays out will help determine the future shape of the financial industry. For all the talk of the banking crisis, Mr. Flowers and other giant private equity players are circling distressed banks around the country, competing to buy into the industry. Bidding wars are now breaking out among private equity firms, including the Carlyle Group, which is going up against Mr. Flowers’s firm for a stake in BankUnited of Florida. They and other investors see banks as the recession’s biggest prize: potential money machines that could one day generate fabulous returns, particularly after the federal government eats the losses of failed banks, then heavily subsidizes their sale. But like Mr. Flowers, some of them would prefer to take over the banks completely, replace their managements and take all the profit. “I don’t think the Republic is going to be brought to its knees if private equity owns banks, personally,” Mr. Flowers said from his Midtown Manhattan office with its expansive views of Central Park. “We invest around the world — Japan, Germany, England, no problem.” http://www.advfn.com/news_Private-Equity-Cos-Awaiting-Specifics-On-Obamas-Bank-Proposal_41212665.html One guidepost might be similar proposals on Securities and Exchange Commission registration. When the administration originally proposed SEC registration in early 2009, it was intended to apply to all private equity, venture capital and hedge funds, but after heavy lobbying by the National Venture Capital Association, the version of legislation that eventually made it through the House of Representatives omitted venture funds from registration. And the version still pending in the Senate omits both venture and private equity funds. Whatever happens, those affected in the private equity industry are hoping for more clarity soon, as they say the uncertainty this proposal has created--like others from this administration on topics like health-care reform--makes it difficult to go about their daily lives. "These are prognostications that aren't actionable," said one executive at a private equity firm that used to be part of a bank. (Dow Jones LBO Wire covers news about buyouts.) http://www.nuwireinvestor.com/blogs/investorcentric/2009/06/should-private-equity-groups-be-allowed.html Up Steps Private Equity And while private equity firms without a doubt appreciate the openings they’ve been given, none of the shops want to become bank holding companies. The reason: A firm that’s labeled as a “bank holding company” is also deemed to be a “source of strength” to the banks it owns or controls. That means the holding company has to make available its resources to support its banks. Private equity companies don’t want to expose their vast pools of capital to any one investment. Just as Cerberus Capital Management LP refused to put any more money into its failed Chrysler LLC investment – leaving taxpayers to bail it out – firms are loathe to be put into a position to support a bank holding with anything more than what was deemed as a suitable capital investment at the outset. Just last spring, for instance, The Blackstone Group LP (NYSE: BX) was sued by one of its prospective investment targets when it backed out of buying credit-card processor Alliance Data Systems Corp. (NYSE: ADS). Blackstone’s concern was over conditions imposed by the Office of the Comptroller of the Currency, which required Blackstone to provide at least a $400 million backstop to support Alliance Data’s credit-card bank, which is regulated by the OCC. "No private equity firm wants to [be labeled as a “source of strength” to companies it controls] since it is an unlimited call on capital," Hal Scott, a Harvard Law School professor who also serves as director of the Committee on Capital Markets Regulation, recently told CNNMoney.com. The Committee on Capital Markets Regulation recently published a series of regulatory recommendations, including one that would have regulators remove restrictions on private equity firms owning banks. This article has been reposted from Money Morning. You can view the article on Money Morning's investment news website here. _______________________________________________ Marxism-Thaxis mailing list Marxism-Thaxis@lists.econ.utah.edu To change your options or unsubscribe go to: http://lists.econ.utah.edu/mailman/listinfo/marxism-thaxis
