Hedge Funds Bank Capital

Hedge Funds Bank Capital

Banks Raise 40% of Capital From Hedge Funds This Year

Banks have been looking to anyone for capital to overcome the credit crisis and apparently hedge funds have been one of the largest rescuers.  A recent report estimates that hedge funds account for 40% of the capital raised by American and European banks this year, allowing the struggling banks to meet government capital requirements and avoid bankruptcy.  This could be a reason for minimizing the regulation expected to fall on the hedge fund industry, as regulators realize the helpful role of hedge funds in rebuilding the financial system.
“We believe some policy makers realize the supportive role providers of risk capital can play,” [a London based analyst] said in the report.

JPMorgan Chase & Co. and Goldman Sachs Group Inc. led 10 of the largest U.S. banks that repaid $68 billion to the U.S. Treasury in June, aided by funds raised in share sales. Paulson & Co., the hedge-fund firm run by billionaire John Paulson, bought a stake this year in Bank of America Corp. and told investors this month that he expects the stock to almost double in the next two years as writedowns ease.

The government’s stress tests, which examined 19 of the largest U.S. financial companies, showed in May that 10 needed to raise capital to survive a longer, more-severe recession. Lenders announced plans over the next month to raise at least $100 billion to fill capital gaps and clear the way for repaying the Treasury’s bailout fund.

Hedge-fund assets may rise to $1.75 trillion by the end of 2010, van Steenis said. The industry now manages $1.53 trillion, according to data from Hedge Fund Research in Chicago.  Source

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