http://www.ft.com/cms/s/0/faaa53b6-06f5-11df-b058-00144feabdc0.html
excerpt: They noted that the private equity industry could benefit from the proposed regulatory changes. Private equity firms have long regarded banks, and Goldman in particular, as a competitor in their core businesses. There is some justification for this, since Goldman used its unparalleled relationships with corporate America to source deals for its clients and itself. Indeed, at the peak of their power a few years ago, the private equity firms used their clout to get lenders, including Credit Suisse and JPMorgan, to cut back their private equity businesses considerably. Under the most radical interpretation of the current proposals, which must be approved by Congress and implemented by regulators, banks would have to spin off large parts of asset management and internal hedge fund operations. Administration officials said the proposals would prohibit banks from "owning, investing in or sponsoring" hedge funds and private equity groups, and ban them from taking bets with their own money in proprietary trading. Banks declined to comment yesterday but executives said forcing a break-up of banks' asset management and private equity units would be both complicated and risky. In their view, banks would be forced to divest of their private equity funds but allowed to keep managing their hedge funds. However, they would have to pull their own money out. "We have tens of billions of dollars committed to our funds and we are fiduciaries of those funds," said one executive at Goldman. "But the capital we commit is not material relative to our book value and in no way poses a systemic risk." The ban on investing and owning hedge funds and private equity groups is particularly thorny for Goldman, which derives a chunk of its revenues from those operations and does co-invest alongside clients in the funds. Goldman's hedge funds have about $20bn (£12bn, €14bn) in assets under management. In addition, its merchant banking unit has about $90bn of commitments to funds including private equity, real estate, infrastructure and debt. The significance of Goldman's funds goes beyond their earnings. Goldman and others have used their private equity and hedge funds resources as an add-on to their balance sheets, committing resour-ces to win advisory work on takeover deals and capital markets transactions. Analysts said the new rules could prompt Goldman to sell its Utah-based banks that collect retail deposits. Morgan Stanley, which also converted to a bank holding company, would also be affected by the proposed measures, especially because it has a large fund that invests in real estate. It also owns the hedge fund FrontPoint and has stakes in Avenue Capital and Lansdowne. JPMorgan faces similar issues to Morgan Stanley - the arm it spun off after the Depression when the Glass-Steagall act banned commercial banks from underwriting securities. JPMorgan owns Highbridge Capital, with $21bn under management including about $500m of JPMorgan's own money, and has a total of some $36bn in its hedge fund operations. Selling Highbridge would be a blow to JPMorgan, although insiders and administration officials yesterday said the company might be allowed to keep the fund if it only invested clients' money. The ban on proprietary trading would be an easier pill to swallow for financial groups. Banks such as JPMorgan, Citigroup and Morgan Stanley have shrunk those operations in recent years and even at Goldman it is estimated to account for just 10 per cent of total revenues. _______________________________________________ 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
