September 26, 2008 / 2:31 AM / 9 years ago

TPG stake wiped out, buyout firm says loss disappointing

NEW YORK, Sept 25 (Reuters) - The drastic move by the government to close and sell the banking assets of savings and loan company Washington Mutual Inc (WM.N) to JP Morgan (JPM.N) will wipe out a $1.35 billion investment from Texas-based private equity firm TPG, made five months ago.

TPG invested, along with others, when Washington Mutual Inc raised $7 billion in April. At the same time, TPG’s founding partner David Bonderman was appointed to the board.

In a statement on Thursday, a TPG spokesman said: “Obviously, we are dissatisfied with the loss to our partners from our investment in Washington Mutual.”

He continued: “While this loss is extremely disappointing, we are well diversified across platforms, geographies and sectors, and this investment represented a very small portion of our assets.”

Private equity firms don’t typically favor taking minority stakes -- but face difficulties taking control positions in financial companies because of regulatory restrictions.

One disadvantage is that the stakeholder has little control over the company’s strategy, which may be more about pleasing shareholders from quarter-to-quarter than in building value over the long run.

Despite this, a number of minority stake deals were struck as the credit crunch meant buyout firms were unable to do the large leveraged deals of the past.

When Washington Mutual started to be hit by turbulent financial markets, TPG helped ease a critical hurdle for any possible merger by allowing the thrift to raise further capital, even if TPG’s holdings were diluted.

Reporting by Megan Davies; Editing by Bernard Orr

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