P.E. Reaction to the Geithner Plan

We know the stock market hated what Treasury Secretary Tim Geithner had to say about the new bank bailout plan yesterday. The Dow started tanking as soon as he opened his mouth at his 11 am press conference, and it continued its freefall as Geithner talked about the plan for the remainder of the afternoon.

But what did the private equity industry think about it? One piece of the plan is to spend $100 billion on a so-called "bad bank" fund, whereby the government would invest alongside private asset managers in the banking industry's most toxic assets. The private-public partnership would use leverage to buy up to $1 trillion of the troubled assets, which would theoretically help clean up the banks' balance sheets. The government would set a floor to the asset prices in order to entice private investment.

Any asset manager might want to participate in this partnership but the private equity industry, which has a storied past in vulture investing, is considered the most likely partner. Geithner, of all people, should know what it would take to get PE investors interested, considering his close ties to Wall Street (as Gary Weiss documented in the June issue of Condé Nast Portfolio).

Nonetheless, reaction is less than enthusiastic.

Not surprisingly, they want more details. "They are still talking in concept, not in substance," a partner at a financial services-focused private equity firm told Dow Jones LBO Wire. "I wouldn't touch a bank stock after that speech."

Some of them want more control than it appears the partnership would have over their investments. "If I want to be a passive investor, I can buy shares in Citi," Mani Sadeghi, managing partner of Equifin Capital Partners, told LBO Wire.

Dan Primack over at PE Hub found some private equity pros who are interested in the opportunity, depending on the details. But limited partners in some private equity firms--the very investors who make the funds possible-- are positively horrified by the idea.

One limited partner, when asked by PE Hub for his reaction to his fund's partners investing in the government plan, wrote back: "I would murder them."

But what's perhaps most surprising is this, from Primack:

Speaking of a plan, I still can't find a big buyout firm that was consulted by Treasury prior to yesterday's speech. Maybe Geithner believes he can get all the required insight from Matt Kabaker, the ex-Blackstone pro who recently joined his team. Or maybe he thought his plan would suffer crib death if it got a PE seal of pre-approval.

No wonder Geithner didn't have any details to share.

by Megan Barnett