(Repeats ANALYSIS initially transmitted on Friday)

By Megan Davies and Svea Herbst-Bayliss

NEW YORK/BOSTON (Reuters) - Speculation continues
to grow as to which Wall Street bank will be looking to get
out of proprietary trading or the private equity business in
order to comply with new financial regulatory reform
legislation.

But despite recent moves by Bank of America,
Morgan Stanley and Goldman Sachs on that front,
most banks will be able to pare back investments in risky
ventures without making dramatic changes to their structure.

The new Volcker rule, named for former Federal Reserve
Chairman Paul Volcker, restricts banks from proprietary
trading and sets new limits on the size of private equity or
hedge fund investments.

It means they cannot hold more than 3 percent of their
Tier 1 capital in private equity or hedge fund investments.

Tier 1 capital is a core measure of a banking company's
financial strength.

Some, like Bank of America, hover near their 3
percent cap, and will need to make only minor adjustments to
comply. Others, like Goldman Sachs, will need to be
more aggressive.

Still, banks have several years to reduce their holdings
-- meaning that even institutions with significant private
equity holdings are likely to be able to keep units.

"They (financial institutions) have time to adjust," said
Mark Nuccio, partner at Ropes & Gray in Boston. "I don't think
there's any intention on behalf of the regulators to create
economic dislocation at financial institutions."

Goldman Sachs is considering two options for its main
proprietary trading group as it tries to comply with the rule,
sources familiar with the process said.

Meanwhile, Citigroup Inc agreed to sell its private
equity business in July. In 2009, the bank had moved that unit
into its Citi Holdings repository for assets it considers
unrelated to its main businesses.

Citigroup still has a capital advisors hedge fund
business, which manages about $14 billion overall, including
about 5 percent -- or $5 billion -- of its Tier 1 capital.

WELCOME EXCUSE?

While the new rules might be forcing some banks to rethink
their business, for others, it comes as a welcome excuse to
move ahead with plans to divorce themselves from unwanted
hedge or private equity funds, experts said.

"If you were leaning toward a strategic change anyway,
then now is a good time to reevaluate the business because you
have a regulator saying you shouldn't be in this business
anyway," said Thomas Whelan, chief executive of Greenwich
Alternative Investments.

That is especially true at some banks that raced to
acquire hedge fund operations at the height of the industry
boom when having a hedge fund was a necessary part of the
strategic mix.

But after 2008, when hedge funds posted their worst-ever
returns and clients raced to redeem assets, that calculus
changed for many banks, industry experts said.

Case in point may be Morgan Stanley's expected decision to
spin off hedge fund FrontPoint Partners. While the discussions
might be seen to have been driven by the Volcker rule, Morgan
Stanley has been disenchanted with its 2006 acquisition of the
hedge fund for quite some time, industry experts said. A
Morgan Stanley spokeswoman declined to comment on the matter.

Similarly, Bank of America's decision to shed its private
equity group had been in the works before President Obama
signed the financial regulatory reform measure into law even
though the move to spin off the group will help the Charlotte,
North Carolina-based bank come into compliance with the new
law's regulatory capital requirements.

In another example, Wachovia Capital Partners split from
Wells Fargo in March and renamed itself Pamlico Capital before
the government raised its voice.

"The biggest impact is certainly strategic," Nuccio said.

"If financial institutions in general are being told --
don't make big private equity bets, big hedge fund bets -- it
is more (a decision) about whether it is a business they want
to be in.

MAY BE MOOT POINT FOR SOME

Under the rules, up to 3 percent of a bank's Tier 1
capital can be invested in private equity and hedge funds.
Banks have four years to reduce their positions.

Goldman Sachs, for example, is likely to reduce its bank's
own position in private equity over time rather than spinning
out its Goldman Sachs Capital Partners and other units, said a
source familiar with the situation.

The long run-up to having to exit also means that firms'
private equity funds could likely be invested and closed by
the time they have to exit.

For example, Goldman Sachs' $20.3 billion global buyout
fund it is currently investing was raised in 2007, so by the
time the rules and exceptions kick in, it may not have to sell
anything.

On the hedge fund side, investors are debating whether
Goldman will actually spin anything off and whether it will
make much of a difference to them.

Considering the firm's long history in growing talented
traders who then left, ranging from Daniel Och to Eric Mindich
to Dinakar Singh to Mark Carhart, a move to push its internal
hedge funds out the door might not have a big impact.

"So many of those former Goldman Sachs partners now have
their own hedge funds anyway that it really wouldn't make a
difference from the investing side," said Chris Tobe, a senior
consultant at Breidenbach Capital Consulting.

Complying with the so-called Volcker rule, Tobe said, will
make a difference for the banks and their investors, but not
the clients who seek out hedge fund investments.

"Whether they are under Goldman's umbrella or outside of
it does not matter at all at a time there is so much more
supply than demand anyway," he said.

Some banks are likely to be little impacted.

Credit Suisse has European hedge funds and owns DLJ
Merchant Banking, a fund of funds business and its secondary
private equity business Credit Suisse Strategic Partners.

A spokesperson for Credit Suisse said the bank is not
planning on selling any of its hedge fund or private equity
businesses as a result of the Volcker rule.

Similarly, JPMorgan will not have to part with its private
equity arm One Equity Partners, a source familiar with the
situation said.

UBS said it has no need to spin off or make an exit from
any of its fund of hedge funds because those investment
vehicles operate solely with outside money. A spokeswoman said
the same is true of the private equity funds offered by UBS.
(Reporting by Megan Davies and Matthew Goldstein in New York
and Svea Herbst-Bayliss in Boston; Additional reporting by
Maria Aspan in New York; Editing by Bernard Orr and Jan
Paschal)