Posted on 08/19/2009 11:49:56 PM PDT by bruinbirdman
A coalition of large US state pension funds has backed the private equity industry’s opposition to new rules on takeovers of troubled lenders, saying the plan would have a “chilling effect” on attempts to revive the country’s banking system.
The warning by funds from states including New York, New Jersey and Oregon, which manage billions of dollars on behalf of public workers and are big investors in private equity, will strengthen the buy-out industry’s lobbying against the proposed measures.
Under the planned rules, unveiled by regulators last month, private equity groups that buy a troubled bank would have to maintain its tier one capital ratio – a measure of financial strength referring to a bank’s equity capital and reserves – to 15 per cent of assets. This would be three times the level of other banks. Buy-out funds would also be banned from selling their lenders for three years.
Executives argue that the rules would deter private equity from investing in failing lenders just as regulators are scrambling to find buyers for regional banks hit by the crisis.
In a letter to the Federal Deposit Insurance Corporation, which is to decide on the rules in the next few weeks, the state pension funds say the measures would have “a chilling effect on private capital participation in the acquisition of failed banks”.
“The 15 per cent capital requirement is unduly restrictive and will limit the ability of these banks . . . to be recapitalised,” write the investors, which include funds from Connecticut, North Carolina, Pennsylvania, Florida and Missouri. “The combined effect of discouraged participation, low-ball bids and induced focus on high-risk activities would make this programme unsuccessful.
The FDIC has indicated it might lower the capital requirement in its final rules – partly because another banking regulator, the Office of the Comptroller of the Currency, has also raised concerns about the proposals – but has not said to what level.
Private equity bidders have not been a factor in the auctions of failing banks in recent months.
No buy-out fund is believed to have bid for Colonial, an Alabama-based bank that was sold to BB&T, another regional lender, last week.
Private equity firms are also not expected to feature among the lead bidders for Guaranty Financial, a struggling Texas bank which is being sold by the FDIC.
Private equity firms’ opposition to the new rules is heightened by the fact they have struggled to find lucrative investment opportunities since the onset of the financial crisis cut off their supply of cheap debt. Many had hoped to be able to put some of their vast funds to work on failing banks.
In its comments to the FDIC, for example, Lone Star, a large private equity firm that has spent $60bn buying distressed banks and other financial assets around the world, said the proposed rules displayed a “strong bias against, and suspicion of, ‘private’ capital”.
Oregon PERS is going belly up...
banks are first in line so funds are getting bank charters to move up in line. It’s an asset play but the rules are inhibiting trades. It’s manipulation to prevent large and/or quick profits from distressed sales....nothing more than window dressing. Private capital has been waiting for this for years and the government is in the way!
The pension funds own stock in these banks that are going bust? If so the stock is worthless.
Sounds like the pension fund managers would just like to throw good money after bad, pretending to make "wise" investments at "bargain prices" by taking the banks private.
The feds have seen this trick and raised the bar.
The pension funds lost 30%. The managers should be fired.
yitbos
The pension funds are jumping in late in game here. They are backing the private equity firms. This didn’t just start today. It’s been going on for months. I’ve read examples of private equity firms, unrelated to the pensions in question for the most part, having their buyouts approved by the fed. After the deal is completed the fed turns around and doubles the tier-1 requirements. Essentially draining the private investors and trying to force a complete government run banking system.
I agree about the fund managers being fired BTW. It’s just the larger government takeover and the way it’s going about that bothers me.
The next BIG SHOE to drop will be nationalization of union retirement funds.
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