TPG considers WaMu bail-out

The buyout firm looks set to lead the latest private equity rescue of a beleaguered financial giant.

TPG is in discussions to purchase a stake in struggling banking giant Washington Mutual, a source close to the Fort Worth-based private equity firm has confirmed.

The Wall Street Journal reported today that TPG is close to investing $5 billion (€3.18 billion) in the US’ largest savings and loan company, which like many other banks has been hit hard by the subprime mortgage and credit crises.

PEO’s source declined to confirm any other details in the Journal report, including the size of the equity infusion or whether TPG co-founder David Bonderman will join WaMu’s board of directors.

Bonderman previously served on WaMu’s board between 1996 and 2002.

TPG’s interest in WaMu is the latest example of private equity firms extending rescue capital to troubled banks and financial companies – a long-standing industry trend.

Since December, Warburg Pincus has twice bailed out bond insurer MBIA Insurance to the tune of $800 million. In March, WL Ross invested $250 million in Assured Guaranty, another bond giant looking to avoid ratings downgrades, and committed to purchase an additional $750 million in Assured shares.

Last November, Boston-based buyout firm JC Flowers bought a 32.6 percent stake in Japanese bank Shinsei, the largest ever such deal in the Japanese banking industry. That was the second time the private equity firm rescued Shinsei, the first being post-Asian financial crisis when it teamed in 2000 with Ripplewood Holdings to acquire the bank for $1.2 billion.

Shinsei’s subsequent restructuring resulted in a 2004 public float and is generally viewed as one of the most lucrative private equity deals ever – Ripplewood and Flowers raked in some ¥2.2 billion in advisory fees immediately after the transaction, made $2.1 billion in profits from the bank’s IPO, and later earned $2.8 billion when they sold a one third stake in the bank.

WaMu’s shares rose nearly 17 percent this morning on news of the bailout, raising its total market capitalisation to $10.45 billion. The current share price of $11.84 is down 73 percent from the bank’s 52-week high of $44.66.

TPG’s current fund, TPG Partners VI, closed on $15 billion; its seventh fund is targeting $18 billion.