U.S. Banks Set to Exit Private Equity to Satisfy Volcker Rule


January 13, 2014

The Wall Street Journal is reporting that several U.S. banks are considering selling their stakes in private equity (PE) groups in order to comply with the Volcker Rule. A report on the newspaper’s website specifically names Citigroup as one of the banks looking to take this step. The Volcker Rule states that banks cannot invest in PE funds that they are not responsible for managing.


The deadline for banks to shed any assets that they are forbid from holding, including PE assets, is July 31, 2015. While this gives banks plenty of time to get their operations in order, there is already talk that some banks are going to struggle to meet this deadline and that they are planning to ask regulators for an extension to enable them to comply.


The newspaper states that Citigroup are likely to sell an existing stake to the Rohatyn Group, who they have dealt with previously, although the latter failed to comment with a Citigroup spokeswoman only telling the newspaper, “As we have said previously, Citigroup has been considering several options for our private-equity funds to comply with Dodd Frank.” The Dodd-Frank Law is the wider reform of the United States financial system of which the Volcker Rule is a key pillar.


It is not known exactly how many PE assets and interests are held by Citigroup, but this current deal is said to be in the region of $1billion, with the company already having offloaded assets in the region of $8billion in 2013. If Citigroup make such a move it will be interesting to see how the other large global banks react, and how big the PE opportunity is likely to be for investors who are involved with the funds that might pick up some of these assets. That said, the biggest opportunity after July 2015 is likely to be for PE funds who can work without having to encounter the competitive might of the banks.

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