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Wednesday, June 23, 2010

Fidelity, State Street Could Benefit from Brown's Election

News summary by MFWire's editors

Fidelity, State Street and MassMutual are among the Massachusetts-based fund firms that are in line to benefit from the Senate's most junior member. Scott Brown (R-Massachusetts) holds what could be the deciding vote in the Senate as that body deliberates on what the final financial reform package will look like. For fund firms, that leverage may translate into being exempt from new rules applying to banks. For State Street, a possible compromise will enable it to use more capital to start-up new mutual funds.

Brown was only one of four Republicans to support the bill and his goodwill is seen be Democrats as important to getting legislation through the Senate.

The Washington Post reports that the issue for State Street comes down to whether the new rules would enable the bank to use its own capital to seed mutual fund and ETF launches. The rules as currently written would allow a bank to only use up to two percent of its capital in its own funds. Brown is reportedly negotiating to enter an amendment that would raise the cap to 5 percent.

Those limits are part of what has become known as the "Volcker Rule."

Brown's concerns are reportedly being addressed by Rep. Barney Frank (D-Massachusetts) and Senator Chris Dodd (D-Connecticut) who are leading the Democrats efforts on the bill. However, Senator Carl Levin (D-Michigan) is reported to be opposed to easing the rules in the worry that larger banks such as J.P. Morgan Chase and Goldman Sachs would take advantage of of the lower limits.

In a statement to the Washington Post, State Street officials said that:

"We don't disagree with the premise of the Volcker Rule proposal--that banks should be prohibited from speculative activity using the banks' balance sheet. We do, however, believe that banks should be able to continue to offer traditional asset management and banking services under conditions that are consistent with the goal of the rule."

The Boston Globe reports that Frank is coming under pressure from the White House and lobbyists to not give into demands from Wall Street.

Indeed, he told the Hill that “it was a mistake to have financial industry-related fund-raisers while this bill was being considered.’’ Frank received roughly $582,000 in contributions from the financial industry over the past 18 months while Brown has taken $968,000, according to the Center for Responsive Politics.

Meanwhile, fund advisors in Massachusetts are worried about whether asset managers and insurers would also be flagged by the Volcker Rule. Fidelity and MassMutual are both reported to be lobbying for an exemption, but Brown's constituents include scores of large and small asset managers, including: Putnam, MFS, Pioneer and others.

A Brown spokesperson told the WaPo that the Senator is not creating special language to address the issue nor is he looking for exemptions, but reports are that he is seeking changes to clarify the rule.  

Edited by: Sean Hanna, Editor in Chief

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