WSJ – President Barack Obama’s proposal to rein in banks contains a number of provisions that could have a serious impact on the private equity arms of banks, as well as the private equity industry overall, depending on how the vague outlines unveiled Thursday are filled in.
Obama said in his remarks on the proposal that “banks will no longer be allowed to own, invest in or sponsor hedge funds, private-equity funds or proprietary trading operations for their own profit, unrelated to serving their customers.”
Some say the clause at the end of that statement about serving customers may provide a loophole, as most banks would argue that their PE investments do just that. But the proposal nonetheless could mean any private equity or venture capital firm run by a bank would need to spin out on its own or wind down.
The number of such firms has decreased in recent years, as many banks have spun out their merchant banking operations, but there are still a number of financial institutions with significant private equity operations.
