Wednesday, April 22, 2009

Carlyle Group Could be on Both Sides of TARP Distressed Asset Sales

Treasury Chief Tim Geithner's public-private partnerships will buy bad assets from banks. The idea is to rid bank balance sheets of toxic junk. Private equity underwriters (PEU's) and hedge funds are expected to participate in Tim's scheme.

How could the big money boys ensure a win? What if a PEU owned a bank and had intimate knowledge of the quality of their internal assets? Would that help them decide which bits to bid on and which to avoid? For a mere 7% of initial capital, PEU's could garner 50% of the profits. Bloomberg reported:

Blackstone Group LP, Carlyle Group and billionaire Wilbur Ross are preparing a bid for BankUnited Financial Corp., a Florida bank that has been designated “critically undercapitalized” by federal regulators, according to people familiar with the offer.

Gaming the system at each step tilts the playing field in PEU's favor. Carlyle co-founder William Conaway loves an unlevel playing field. At a minimum, a captive bank could refinance Carlyle affiliate's rolling debt. Big boys may just win again!