Do Asset Managers, Insurers Present Systemic Risk?

The Federal Research is rumoured to be looking at insurers and asset managers as the next generation of systemically-important financial institutions

Greggory Warren, CFA 27 January, 2014 | 9:55AM

It's kind of ironic, in our view, that the one company that had the wherewithal to support struggling banks during the 2008-09 financial crisis—BlackRock (BLK)—is now being considered for additional scrutiny by the Fed.

While we think a better case can be made for looking at wide-moat Berkshire Hathaway (BRK.B), which does have balance sheet risk (mostly through its reinsurance business), as opposed to the asset managers (which are not balance sheet driven, are not primary lenders and act mainly as agents for investors), we think regulators' focus on size and scale may be missing the broader picture.

In our view, companies like wide-moat BlackRock and Berkshire have come under greater scrutiny because they are giants in their industries. That said, they continue to be conservatively run, with a fair amount of cash and investments on their books, and in our view are already in a much better position than peers to deal with the stricter capital, leverage and liquidity requirements that would come with the systemically-important financial institution designation.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
American International Group Inc30.02 USD2.39
Berkshire Hathaway Inc B208.35 USD1.62
BlackRock Inc586.00 USD0.65

About Author

Greggory Warren, CFA  Greggory Warren, CFA, is a senior stock analyst with Morningstar.

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