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Bonderman Blames Bank Failures on FDIC Rules

(Reuters) – David Bonderman, co-founder of giant private equity firm TPG [TPG.UL], said on Thursday that regulators are accelerating bank failures by limiting private equity firms’ ability to buy into and reorganize struggling banks.

The Federal Deposit Insurance Corp, concerned about equity funds exploiting the depressed assets of troubled banks by quickly selling them off, has limited the percentage of ownership and control by outside investors.

But Bonderman said firms that specialize in turning around failing enterprises are precisely the medicine such banks need.

Bonderman, speaking at a University of North Carolina conference here, pointed particularly to FDIC polices as aggravating the problem.

“The FDIC has taken the view that they are terrified of private equity guys — or anybody else for that matter — getting control of a financial institution,” he said.

“Well, if you can’t do that, you can’t fix it. So the reason you are seeing so many announced bank failures and no equity coming in is because of misguided policies by the U.S. government.”

Bonderman predicted those limits on investment will be lifted.

“Sooner or later the Feds will get the idea that the way you get capital into the system is to attract it, not to repel it, and make rules that reward capital and not the other way around,” he said.

In August the FDIC imposed new rules on private equity investment in troubled banks. They were softened from an original proposal that investors said would scare the industry away from failed bank assets.

The rules, which include high capital requirements and long-term investments, are designed to ensure that private equity groups nurse the banks back to health and not just take advantage of their desirable assets.

The FDIC has been having ongoing discussions with private equity groups since putting the rules in place and has said it is considering whether any further actions are appropriate.

An FDIC spokesman did not immediately respond to a request for comment.

CHINA ‘REAL ESTATE BUBBLE’

A private figure who rarely grants interviews, Bonderman said the best prospects for investment are in Asia and parts of Latin America, particularly Brazil and Colombia. He’s attracted to investment in China banks because the government’s tight control of lending is fueling growth and braking major downturns.

“They can react with more alacrity than we can,” he said. “It’s the same underlying notion. They need to have growth, need to create jobs, and they will do what it takes.”

But Bonderman cautioned against investing in Chinese real estate.

“China right now is absolutely in a real estate bubble,” he said. “They’ve been through three or four of them during the period of time that we’ve been investing in China, and I have to tell you we’ve never invested in real estate in China at all.”

Bonderman was pessimistic about growth in Europe and he expects the U.S. economy to continue a slow but steady recovery.

“Things are sort of fairly valued at the moment,” he said of potential U.S. investments. “Some deals are possible, but bargains are relatively rare.”

TPG and its affiliates have more than $45 billion of capital under management. Bonderman said those investments are about half in the U.S., with 40 percent in Asia and 10 percent in the rest of the world.

Raising new funds for investment continues to be a challenge and Bonderman does not expect it to improve soon.

“For the traditional buyout firms, money has been tough to come by at the moment,” he said. “It’s not impossible; a few funds are being raised. But it’s slow and difficult and it won’t get better for a while.” (Additional reporting by Karey Wutkowski in Washington)