Even for the tier-1 private equity operators, a $1.3 billion loss is a big deal – especially when in comes in about five months. This is what happened today with TPG, which was a major investor in Washington Mutual (NYSE: WM). Of course, the bank's shares were virtually wiped out today because of a federal intervention that resulted in JP Morgan Chase & Co. (NYSE: JPM) owning the assets.Interestingly enough, TPG has a long history with distressed investing. In fact, the company's founder, David Bonderman, made a fortune from the S&L crisis during the early 1990s.
But no doubt, today's environment is without any precedent. No one seems to have any clue about what's happening – which can make investing a dicey game.
True, distressed investing can result in hefty returns. It's important to keep in mind that the risks are substantial. Although, it sill looks like a variety of private equity firms still have an appetite for these plays, such as Fortress Investment Group LLC (NYSE: FIG).
However, the big beneficiaries may not necessarily be private equity firms. Even the recent loosening of regulations, private equity firms are likely only to make minority investments in banks.
Instead, it may be the major banks – such as JP Morgan – that will clean-up on the mess on Wall Street. They have strong balance sheets and tremendous asset bases to make such deals payoff.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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