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Cap And Trade Will Be Huge For Investment Banking

hypocritexposer

Well-known member
* August 27, 2009, 4:46 PM ET

Carbon Cap-and-Trade: A Government M&A Stimulus Plan?

Kyle Stock, who writes about careers for Dow Jones’ financial-careers site, FINS.com, reports:

Health-care overhaul may be on life support, and while the chances of carbon cap-and-trade legislation may not be appreciably stronger, the bill still is sparking some M&A chatter.

A functioning carbon market in the U.S. would cook up deals in almost any sector with a big emissions footprint, including utilities, oil refiners and metal-makers, according to Michael Hill, global co-head of natural resources at Deutsche Bank.
wyomingplant_D_20090827160046.jpgBloomberg News
A coal-fired power plant near Casper, Wyo.

Markets hate uncertainty and the expense of polluting has been anyone’s guess. “The cost of carbon will no longer be a question mark,” Hill said. “It will be a fact and in a short period of time the market can model that. …Obviously, it’s hard to do deals when people are unclear about value.”

In particular, U.S. industrial companies will begin to look more attractive to companies in Europe, which has had a carbon market since 2005. While the U.S. power market has long looked good to foreigners, because Americans buy a relatively large amount of electricity per-capita and the regulatory structure here lends itself to rate increases, European companies have shied away from acquisitions because of the carbon question mark. They would likely be bolder if carbon had a price and a fixed supply.

Relatively “clean” utilities such as Xcel Energy, of Minneapolis, would command a premium, as would those that are buying or building wind turbines and solar panels, like New Jersey’s NRG Energy.

Meantime, Hill said a cap-and-trade system would also heat up underwriting activity, as power companies would need to raise cash to bankroll new infrastructure for cutting emissions and to buy companies that create renewable energy.

Michael Wong, an analyst who covers financiers and stock exchanges for mutual-fund tracker Morningstar Inc., said investment banks already have started maneuvering for the would-be windfall. Those, like Deutsche Bank, that deal in European carbon markets, will have a head-start.

At the end of June, a cadre of former bulge-bracket bankers led by Jeff McDermott, once the joint global head of investment banking at UBS, launched Greentech Capital Advisors, a New York boutique aimed at cultivating “green” deals.

Goldman Sachs Group and private-equity shops such as First Reserve have been buying into the renewable-energy industry. Both companies own stakes in Blue Source, a Utah company that captures and stores carbon. Goldman Sachs also has agreed to buy the majority of the carbon offsets from E+Co., which builds renewable energy plants world-wide.

For now, burning carbon is still free. The House of Representatives passed a 1,300 page cap-and-trade measure in early July that the Senate will start chewing on when it comes back from August recess.

Whether the bill still stimulate Wall Street’s specialty, trading, is another question. “Speculators” is a dirty word in D.C. these days, and there is a move to block finance firms from what would be a massive new commodity market.

Sen. Maria Cantwell, a democrat from Washington, has filed a stripped down 22-page cap-and-trade bill that would largely box out finance firms. Sen. Byron Dorgan, a democrat from North Dakota, has opposed carbon-trading altogether, arguing that it would be “a field day for speculation.”

“It won’t be very long before we have derivatives,” Dorgan said late last month. “We’ll have swaps; we’ll have synthetic swaps. You name it; we’ll have all of them.”

http://www.fins.com/Finance/Articles/SB125121630380357327/Carbon-Legislation-Would-Heat-up-Finance-Hiring?Type=0&idx=1
 
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