The Wall Street Journal is reporting that Bank of America Corp. (BAC) is in the process of selling on the secondary market $1.2 billion in commitments made to funds managed by Warburg Pincus LLC, according to several people familiar with the transaction.
The sale is part of an ongoing effort by the bank to reduce its exposure to private equity, these people said.
The announcement comes one day after President Obama signed the Dodd-Frank financial reform bill into law. The new law restricts banks from allocating money to alternative investments such as private equity and hedge fund investments.
Joshua Steiner, a managing director who covers the financial sector for Hedgeye Risk Management, said he was still examining the legislation but said the new regulations could potentially weigh on earnings.
“One of the issues is really going to be going forward trying to understand how this is actually going to affect earnings, because the banks have been very cagey on how much of their earnings generally come from proprietary trading and private equity and hedge fund investing,” he said.
In one of the larger secondary market transactions to date, Bank of America earlier this year sold a $1.9 billion portfolio of private-equity fund interests to the secondary arm of French firm AXA Private Equity. That deal included around $200 million of the bank’s commitments to Warburg Pincus funds, made by Merrill Lynch before Bank of America bought it, one person said. AXA Private Equity declined to comment.
But a number of other commitments Bank of America has made, including ones to New York-based Warburg Pincus, are quietly going to a handful of other investors. Among them are New York-based Lexington Partners Inc. and sovereign wealth fund China Investment Corp., or CIC, two people said. Together, the two groups are poised to pick up around $600 million of the bank’s $1.2 billion in Warburg Pincus commitments.
Bank of America, Lexington and Warburg Pincus spokespeople declined to comment, while CIC could not be reached for comment.
In contrast to Bank of America, David A. Viniar, the chief financial officer of Goldman Sachs (GS), said Tuesday that the firm had no plans to spin off its private equity business after Congressional passage of new financial regulations that would restrict the bank holding company in allocating money to alternative investments.
But Mr. Viniar declined to discuss in detail the impact that the new regulations would have on Goldman, saying that it was too early to give any guidance on the subject.
“We believe it is too early at this stage to quantify with any degree of certainty the financial impact of the bill,” Mr. Viniar said in a conference call with analysts to review the firm’s second-quarter earnings. “Any analysis of the current situation relies heavily on a series of broad-based assumptions and in many cases tends to omit the potential offsets like capital release and redeployment, changes to our cost structure, and our ability to react to the new regulations.”
“But this is a tough law that will also have profound effects on the operations and cost structure of most financial services companies and financial markets,” Mr. Ryan added.
