Last week, Bloomberg reported that the Fed is discussing potential changes in regulation that would allow PE firms to invest more easily in beat-up lenders. Blackstone and Carlyle apparently talked with Paulson about it this month.
It’s been pretty quiet on that front since that story, with news hogs like KKR and Mervyns taking up our attention. But I wanted to briefly share the feedback of a couple of PE pros on the topic.
But first, let’s revisit the three main options the Fed is discussing, according to the report:
Option A: Buyout firms make bank investments separate from their other investments, to avoid applying extra federal oversight to a firm’s entire portfolio.
Option B: Give the PE firms more control over their banking investments.
Option C: Encourage clubs or teams of PE firms for bank investments.
Based on a couple of conversations, I got the sense that PE firms are happy—some ravenous even—to put money behind struggling banks. Any kind of encouragement from the Fed in the form of more control and less regulation is not only welcomed but required. Said one PE pro: “If the regulations make it easier to properly influence the investment, it would favorably include our decisions to invest.”
Others suggested that the need for money is driving the change in regulation. Banks need money. Private equity firms have it. Since banks didn’t need the money before, the stringent rules about investing in them weren’t ever much of an issue.
Before, the banks only received capital from the public markets. As that supply and demand shifts toward private equity, the regulation needs to make the appropriate shift as well.