Thursday, December 15, 2016

Fed Gives Banks Extension on PEU Rule

In the year 2020 commercial banks will finally need to divest their private equity and hedge fund stakes.  Congress passed Dodd-Frank in 2010.  The 2020 extension will help Goldman Sachs and Morgan Stanley, as sponsors of captive private equity/hedge funds

Goldman Sachs’ exposure, mostly to PE, stands at around $6.9bn and Morgan Stanley owns about $2.2bn in PE funds, according to Bloomberg.
Goldman execs/alumni have three spots in the new Trump administration and Morgan Stanley's Erskine Bowles wants to make yet another fortune.

When the big money boys no longer trust one another to make good on their bets private equity can put considerable stress on a bank.  The Carlyle Group placed over $600 million in capital calls to CalPERS during the 2008 financial crisis.  As debt becomes more risky covenants can require sponsors to put up scarce cash.

Post Dodd Frank private equity underwriters loaned to corporations when banks would not.  Time will tell if President elect Trump calls the whole Dodd Frank thing off.  Until then captive PEUs got a reprieve from The Yellen Group.