Barrack seeks $4bn for banking buy-outs
By Henny Sender in New York

Apr. 3 (FT) -- Tom Barrack, a leading figure in the US private equity industry, has decided that the growing regulation of the financial services sector is creating opportunities for entrepreneurs and wants to raise $4bn to buy distressed banking assets.

Mr Barrack's plan is an encouraging sign for Obama administration officials who have been hoping that private capital can be enlisted to break the gridlock in the banking system.

It also represents a break from many of Mr Barrack's brethren in the buy-out world, who have argued that the growing government involvement in banking would limit opportunities for private investors.

In an interview with the Financial Times, Mr Barrack, who founded Colony Capital in 1991, said his new focus reflected his belief that the traditional private equity model had been badly wounded by the difficulties firms faced in raising debt and permanent capital. Too many of his peers, he said, had responded with "a wait-for-the-tooth-fairy kind of approach" that assumed conditions would change.

By contrast, he is raising several funds to buy distressed banks and impaired assets. Mr Barrack wants to acquire banks at a fraction of their book value, borrow from the US Federal Reserve at low interest rates and lend money at a generous margin.

"Private capital needs to change its thinking. Today, the opportunity is to become a regulated institution, not to run away from regulation," he said.

Mr Barrack's opinions carry weight because of his experience. After working for Robert Bass, the Texas dealmaker, and investing alongside David Bonderman, who went on to found private equity firm TPG, Mr Barrack started Colony, which has $35bn in assets under management.

During that time, Mr Barrack demonstrated a flair for profiting from banking crises.

Backed by Mr Bass, he linked up with Mr Bonderman to buy American Savings Bank in 1988 after the collapse of the savings and loan sector. With government support, the investors made big profits through a "good bank-bad bank" structure under which Mr Bonderman kept the better parts of the group and Mr Barrack sold problem assets.

Mr Bonderman had less success last year when he invested in Washington Mutual. Without government backing, the troubled bank collapsed and TPG saw its investment wiped out.

April 3, 2009
Copyright The Financial Times Limited 2009
www.ft.com

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