history repeats itself; PE helps distressed banking sector

In 1988, two young deal makers helped Texas billionaire Robert Bass buy American Savings Bank, one of the country's largest failed savings-and-loan associations. As part of the transaction, David Bonderman and Jim Coulter took seats on the board and helped turn around the thrift. Eight years later, they sold the business to Washington Mutual Inc. for a roughly $750 million profit. Now, Washington Mutual, the country's largest S&L, is struggling because of stinging losses from subprime mortgages. And Messrs. Bonderman and Coulter -- older, grayer and richer -- run TPG, the former Texas Pacific Group, which is one of the world's largest private-equity firms. Their lead role in a capital injection into WaMu would be a bold bet that they can again profit from a banking crisis. But since the credit crunch took hold last summer, banks and other financial institutions have seen their valuations plummet and their capital bases dry up. And it has become difficult for financial-services firms to raise money in the public markets. So cash-rich private-equity shops are now swooping in, injecting fresh capital into these sputtering companies. History is now repeating itself in the buyout business, and it isn't just TPG that is giving Wall Street a sense of déjà vu. Though the private-equity industry has mushroomed, many of the same players who rose to prominence two decades ago -- Mr. Bonderman, Henry Kravis of Kohlberg Kravis Roberts & Co. and Leon Black of Apollo Management LP -- still dominate the scene. And now, with banks having troubles reminiscent of the savings-and-loan crisis -- and private-equity firms unable to do traditional buyouts -- the investments are beginning to look the same, too. Consider KKR, the New York private-equity firm that recently closed on a $17.6 billion buyout fund. After being the most active buyout player last year, KKR has yet to do a U.S. leveraged buyout in 2008. Instead, it has made a $1.25 billion investment in Legg Mason Inc., a healthy asset manager, and has explored an investment in National City Corp., the struggling Cleveland bank. But a major difference between the American Savings acquisition and a potential WaMu stake is the degree of control. During the S&L crisis, federal regulators had waived the rule that required entities controlling financial institutions to register as bank-holding companies. Today, without a government waiver, buyout firms are loath to register and be subjected to federal regulation. Instead, they are passive investors, a less comfortable position for deal makers used to having total control.