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Financial Reform Bill

Reform clears way for private equity to invest in banks

Janet Babin Jul 26, 2010


Bill Radke: Private equity firms are some of the world’s biggest risk-takers, so the government has been reluctant to let these massive investment companies own banks. But as Janet Babin reports, the new financial regulation law might clear the way.

Janet Babin: The new legislation gives institutional investors more latitude to invest in banks. And Apollo Global Management isn’t waiting. The Financial Times reports it plans to open a bank called Ares.
For private equity firms like Apollo, with lots of cash to invest, banks could become the next big money maker, so long as regulators allow it.

Chris Whalen is with bank rating agency Institutional Risk Analytics:

Chris Whalen: The private equity firms have been very unhappy because they haven’t been allowed into the party. So this is a new evolution that allows the fund to have a piece of the pie, and then they have investors who are separate shareholders.

Whalen says the investors will have to make representations to regulators that they’re not acting as a group…that would still be illegal. Apollo has hired bankers from Countrywide Financial to set up the new bank. That name might sound familiar. The mortgage side of Countrywide gained notoriety during the housing meltdown for its failed subprime loans.

I’m Janet Babin for Marketplace.

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