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Money management units up for sale

Ashley Milne-Tyte Jul 23, 2008

Money management units up for sale

Ashley Milne-Tyte Jul 23, 2008


Kai Ryssdal: Hard hit banking stocks have been having a pretty good couple of days.

In some cases, it’s been the “better-than-expected” paradigm — That a $2 billion loss is better than $8 billion — or it’s been an assumption that the worst is over and things can only get better from here — Witness Wachovia yesterday.

Whatever the rationale, it’s going to take a lot of cash to shore up bank balance sheets, which means it’s time to sell, as Ashley Milne-Tyte reports.

Ashley Milne-Tyte: With billions of dollars in bank write-downs, something had to give. The Wall Street Journal reported today that some banks are considering selling off their money management units.

Bernie McGinn runs McGinn Investment Management. He says for banks desperate to raise money, those units are an obvious place to start.

Bernie McGinn: They don’t really have any choice. These are the assets that are worth the most and they’re trying to fix their balance sheets by selling the things that are the most valuable.

Money management units hold mutual funds, IRAs and other personal investments. McGinn says a big reason buyers like them is because they’re easy to value.

Jim Barth of the Milken Institute says likely buyers could include private equity funds or other better-off banks who’d like to get hold of a regular stream of cash.

Jim Barth: These particular units provide a steady source of fee income, which obviously a lot of banks would like to do — that is to rely more heavily on fee income, less heavily on volatile interest rate income.

Because money management operations are so profitable, Bernie McGinn says banks aren’t eager to lose them. He says banking stocks may have rallied recently, but struggling banks face pressure from regulators to keep certain amounts of cash on hand.

McGinn: The only asset they have left to get them over the finish line or to get them into regulatory compliance is that asset.

Banks that sell these in-house money spinners will get an infusion of much needed liquidity, but McGinn says that won’t stop some of them from failing anyway.

In New York, I’m Ashley Milne-Tyte for Marketplace.

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