United States - Financial Services Regulatory
The wounding of US financial institutions by subprime mortgage investments has made regulatory issues a foremost concern. Investment banks like Citibank and Merrill Lynch recorded losses in the billions as unsound assets depreciated and sent them searching for fresh capital. Similar circumstances led to a Federal Reserve bailout of Bear Stearns and that investment bank's subsequent acquisition by JP Morgan. "The need for capital is just rife," says a partner. But these capital infusions bring new entrants, and new concerns, into the banking sector.
Sidelined in other markets, private-equity made significant purchases in US financial institutions this year. Particularly active were sovereign wealth funds like Abu Dhabi Investment Authority and Singapore's Temasek. Oversight concerns and issues of investor access to capital meant new transaction structures had to be created.
Lawyers describe an increased demand for innovative solutions in response to this market. "I have seen a marked difference in the quality of associates that we need," says one partner. Strong private-equity relationships have also become coveted for their crossover work in the banking market. Many see this as concentrating the pool of relevant firms even further as plain-vanilla deals become scarce. Firms also reported a backlog of deals due to their constant renegotiation. "Believe it or not, we are still spending time defending bids that were made before July [2007]," says a partner.
Any government response to transparency concerns, however, has been stymied by the indecision of an election year. Regulatory lawyers see no response until late in 2009 when the new administration begins appointing its agency directors. "Everyone is assuming there will be some new line-up of either new regulators or existing regulators taking on new responsibilities," says a partner. For now, there is only speculation about how heavy an imprint any new regulation will have on the marketplace.
After nearly a year of conservative lending practices, signs of broader return to the market can be seen by some banks. "I think pricing has stabilised to levels of predictability," says one partner. "There are institutions out there again affirmatively calling on customers, which none of the banks were doing for the longest time." Albeit at a higher cost, the settled pricing environment has led to larger transactions and LBOs again being proposed.
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