A potential "sweet spot" for private equity buyers are banks with $5 billion to $20 billion in assets, said Chip MacDonald, an attorney at Jones Day in Atlanta. Falling within that range was BankUnited, a Florida thrift with $12.8 billion in assets that closed in May. BankUnited was sold for $900 million to a group of private equity investors that included billionaire Wilbur Ross' firm, without the new FDIC policy being in effect.
Private equity firms mostly buy distressed companies, slash costs and then resell them a few years later. They invest their own capital to buy a company and pump it up with money from other investors.
Such "leveraging" to buy companies amounts to, on average, three-to-one for private equity firms: They invest $3 in outside capital for each $1 they put up themselves. The roughly 2,000 private equity firms in the U.S. have around $450 billion in capital to invest, according to the Private Equity Council, the industry's 2-year-old advocacy group.
Investors in private equity funds include pension funds, university endowments and charitable foundations.
Organized labor still denounces private equity as vultures and job-killers. Unions got a sympathetic ear from many Democrats in Congress in 2007, when several key lawmakers pushed to raise taxes for managers of private equity firms as well as hedge funds. That tax campaign stalled.
The private equity industry is exploiting the economic crisis to enrich itself, said Stephen Lerner, director of the private equity project at the Service Employees International Union. "They are trying to use their political and financial sway to get into what they see as bargain basement prices for very little risk."