Private Equity and Banks
Private Equity and Banks
Private Equity Firms Want Details Before Aiding Banks
Private equity is a likely source of capital for struggling banks, but private equity firms seem less than inspired by the new Treasury Secretary Timothy Geithner’s latest comments. If the government is interested in reaching out to private equity groups then Mr. Geithner did not convey this well, according to reactions from several members of the private equity industry.
The main criticism toward Geithner was that he failed to provide any specific details on how private equity will work with the government.
PE firms are clearly interested in partnering with the government to invest in banks. But after having been burned last year in the sector, they want certain assurances from the government on what it will and won’t do to encourage private investment. But beyond Geithner’s statement that the government needs to “mobilize and leverage private capital, not supplant or discourage it,” there were no specifics in his speech. Nor is there much information yet available at a new Web site, financialStability.gov, that Geithner unveiled during his speech.
A telling response came from a partner from a financial services-focused private equity firm, “They are still talking in concept, not in substance. I wouldn’t touch a bank stock after that speech.” Private equity firms specifically wanted details on what assets would be bought and at what price, who will bare the risk and who will reap the rewards (the government or PE investors), and an idea of how the deals would be structured. Without information like this, it is doubtful that private equity firms will be very willing to help in rebuilding the banking system.
“We don’t have every detail yet,” said Mani Sadeghi, managing partner of Equifin Capital Partners, which focuses on financial services deals. “Clearly we’re interested. But the question is whether partnering with the government allows us to be value-adding…You have to understand what you are buying, at what prices, and how they are serviced.”
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