The federal government isn’t the only organization in the bank bailout business. Since banks started failing left and right, private equity firms and other investment banks have stepped up to the plate to do their part in the ensuing credit crunch. They also have taken part in the new infusion of capital the federal government is pumping into infrastructure and clean energy projects.
Private equity firm KKR is one of those firms, and they are no strangers to propping up struggling banks. During the last banking meltdown in 1991, KKR and Fleet Financial acquired the troubled Bank of New England. KKR ponied up $283 million of equity. It was a good move – KKR made eight times their initial investment.
But in the Great 2008 Bank Bust, KKR considered but eventually steered clear of the Washington Mutual collapse. TPG and other investors jumped in, investing a total of $7.5 billion into WaMu. Unfortuantely, TPG and their partners lost money.
KKR co-founder Henry Kravis sounds a cautionary note about private equity-led bailouts. “We couldn’t see what was in the banks; you couldn’t see where is the bottom for this thing,” said Henry Kravis. “And then once the government came in, we couldn’t compete with them. They provided the capital at a much cheaper rate.” In fact, KKR has looked at many bank bailout style investments, but have declined because of the risk. KKR has chosen not to follow the lead of The Blackstone Group and JC Flowers, who showed up at the auctioning off of failed banks IndyMac and BankUnited.
KKR’s other co-founder, George Roberts, echoes his partner’s caution. “Simply buying a pool of assets [through] a highly levered vehicle because a government is willing to give you more leverage than the markets and just sitting there and running off the assets and giving the money back to your partners is not what we do,” Mr Roberts said.
KKR is more bullish about government infrastructure programs. “I think there may be some programs where it will be appropriate for us to partner with the government,” Henry Kravis said. “I think one area in particular that I think is a very big need and where we will have opportunities to participate is in infrastructure.”
Henry Kravis referred to the Obama administration’s multi-billion dollar commitment to road and bridge construction, broadband development, and renewable energy initiatives.
Article Source: KKR sets out stall for role in stimulus package (Financial Times)
More information on Henry Kravis and George Roberts of KKR
- Henry Kravis talks about KKR’s early years, and how it became a private equity powerhouse.
- The Chronicle of Philanthropy’s profile of George Roberts and the Roberts Fund, an experiment in Venture Philanthropy.