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FDIC Policy Proposes Private Equity Pound Salt
Back in early July, the FDIC submitted a policy statement proposal to establish guidelines for private equity investment in failed financial institutions. At the time we wondered if the proposal wasn't designed to exclude private equity entirely, as the ownership structure and capital requirements (in addition to She Bear's attitude) seemed to rule out the participation of any sane entity that could reasonably consider itself engaged in "private equity." Not to worry, fabric softeners were going to be added. Now that the final statement is out, that appears to be true, but the problems remain. Our skin is starting to itch and burn, and, we suspect, just when bank failures are at all time highs, an important resource for financial recovery (we mean buyout firms) are unlikely to participate.
Of course, in the last 10 years, many private equity funds chose off-shore domiciles (the Cayman Islands are quite popular) to service (entirely legally) non-U.S. investors, or otherwise feed foreign capital not subject to rabid, frothing-at-the-mouth revenue collection hysteria into their fund structures. The present paranoid obsession with "secrecy jurisdictions" (read, any government with the temerity to suggest that it might not be its job- or that it might not be legal at all- to conduct extraterritorial discovery for Tim Geithner) also blocks a large swath of entities from participating. Oh well. I'm sure they will find somewhere else to funnel their capital. And, given the propensity of retail investors of late to pour funds into financial feces, this move could actually make the FDIC look intelligent. (Sort of. For awhile. Maybe. So long as retail investors remain solvent, I mean).
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Double standard everywhere. Got wait till FDIC itself broke.
Marla,
Capital requirements imposed on banks bought by funds is not the biggest issue. The biggest issue is if they pressure banks to make bad loans to finance LBOs or or other transactions by the funds or their portfolio companies.
Japanese regulators are investigating some different funds for putting that kind of pressure on banks. Here are reuters story re Aozora Bank, which may have been pressured to make bad loans.
http://www.reuters.com/article/bankingFinancial/idUST3274720080331
http://www.reuters.com/article/companyNews/idUST34913720080331
Exactly. Private equity firms should NOT be allowed to purchase banks. Period. Did we learn nothing from the S&L crisis, where principals looted banks backed by FSLIC deposits?
Wow ...
You can't even dream stuff like this up!
Cerberus Capital loads itself up with sizzling talent like Treasury Secretary John Snow and a guy named Dan Quayle to oversee overseas investments... how can this end badly?
Cerberus buys a Japanese bank loads up it's management with it's own team and ends up losing money to hedge funds, Bernie Madoff and a cornucopia of Cerberus' own awful investments apparently. And now there's an ongoing investigation into stock price manipulation...
Hmmmm... I love you Marla... (I really do!)... but I too am having doubts about turning over banks to PE as well.
yeah. Marla may trust guys like Warren L, Flowers, and Feinberg not to use bank deposits -- the cheapest leverage in existence -- to finance risky LBOs, distributions of cash, prop trades, etc. But I'm not sure everyone has as much faith as she does. Unless Sheila B is exercising parental supervision to prevent mischief. With someone like Timmy G supervising, no telling what might happen. It could be like teenagers, alcohol, and a convertible.
I doubt Marla/Tyler thought through his/her ideas before posting. Seems less skeptical than the usual Tyler stuff.
Great post Kiddo!
Did you get your daily dose of Obium?
So we think that private equity owners can act like (yawn) real bank owners because???
I have to agree that private equity firms should not have a controlling interest in a bank. However, they should be able to invest capital as stock ownership into any bank and provide additional paid in capital. At least someone responsible will know something about securities.
But wait, there's more!
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http://www.gametrailers.com/user-movie/super-bass-o-matic-wit-dan/171351
Planting the seeds for the next financial disaster. This is the biginning of hedge funds entry into banks and getting access to their coffers. Using the people's money in LBO after being denied access to large amount of capital through the regular market. And I believe this was the reaon for Tim's profanities in a recent meeting mentioned by the news. Sheila was opposed t that,but I guess they probably denied her money and she had to relent to some pressure. So watch in 5 years from now,companies bought with banks deposits,being bailed out by whoever still has a printing press,after their balance sheets become pregnant with debt just like the banks now.Of course that is after they clean up some of that current debt by continously issuing equities in the current improving market condition.
Planting seeds indeed... however Timmay's testosterone induced tirade was basically stagecraft to pry more regulatory power away from the lawmakers.
Tail wagging the dog anyone?
The PE quagmire continues, which is why they desperately want a piece of the U.S. banking industry. This way, if they lose money, Uncle Scam will bail them out just like they did with AIG. By the way, AIG's stock quadrupled in a month, talk about the federal PUMP & DUMP!