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.<\/p>\n
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.”<\/p>\n
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.<\/p>\n
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.<\/p>\n