News
Keeping private equity out of US banks
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SEIU President Andy Stern has given US lawmakers and regulators a very public warning against letting private equity into the country’s banks. In an opinion piece in the Wall Street Journal he opposes the use of private equity money and the “risky behaviour” of PE to strengthen the damaged finances of US financial institutions. |
“Short term capital infusions from private equity funds will only make the banking crisis worse, by encouraging risky behaviour and abusive banking practices,” he writes. “Private equity funds have no place in the country’s retail banking system - and lifting regulation and oversight is the last thing policy makers should be considering.”
PE groups are risk takers - looking for rates of return on their often highly leveraged investments of 20%-30% over relatively short periods.
It could mean more of the very practices that US banks have been most criticised for in recent years - unfair lending, higher fees and exorbitant interest rates.
“Are America’s working families prepared to absorb that kind of risk?” he asks.
Andy urges banks looking to re-build their capital base to turn to existing shareholders or by merging with a stronger bank – rather than turning to PE groups.
Nor does he favour the big investments in US financial institutions that sovereign wealth funds have made in the UK and elsewhere. “Offering pieces of our financial infrastructure to foreign governments poses a threat to national security.”
The SEIU is urging Congress to hold hearings into a $7bn PE investment in Washington Mutual - led by Texas Pacific Group (TPG) that has already put $50m in transaction fees into the pockets of TPG and its partners while shareholders have seen a massive slump in share value, and a $7bn PE-led investment in National City Corp.
Visit the Wall St Journal website:
http://online.wsj.com/article/SB121538911268431155.html