Private equity money moves into banks decimated by subprime disasters.
Investors are also hopeful that the smart money is ready at last to brave the financial sector, which has been in decline for the past nine months. Some investors are betting that the WaMu investment will pave the way for similar deals at other financial firms with hefty mortgage exposure, particularly in so-called speculator states such as California, Florida, Arizona and Nevada.
Roger Ehrenberg, a former Wall Street executive who writes the Information Arbitrage blog, expects to see much of the new money for hard-hit firms like National City coming from buyout shops, which have raised billions of dollars but have had little opportunity in recent months to deploy big chunks of money. "You will see more of this kind of deal because of the liquidity in private equity," he says.
That trend [to underestimate or understate foreseeable losses], along with continued housing slump nationwide, means that, for all of its expertise, TPG is buying into a highly uncertain environment. Further deterioration in housing industry fundamentals could leave the WaMu investment under water.