Investor Letter: TPG Humbled by WaMu Loss

NEW YORK (Reuters) – Texas-based private equity firm TPG’S $1.35 billion investment in Washington Mutual Inc (WM.N: Quote, Profile, Research, Stock Buzz) was spread across three of its private equity funds, according to a letter it sent to its investors.

Thursday’s drastic move by the government to close and sell the banking assets of savings and loan company Washington Mutual Inc to JP Morgan (JPM.N: Quote, Profile, Research, Stock Buzz) basically wiped out the $1.35 billion investment that TPG made five months ago.

In the letter, dated Thursday and obtained by Reuters on Friday, TPG said: “While we are humbled by the losses, we believe each of the funds continues to hold the promise of delivering the excellent and diversified returns which have been enjoyed historically in TPG funds.”

The letter was addressed to the investors in TPG’s funds, known as “Limited Partners”.

TPG declined to comment on the letter.

Of the investment, $475 million was in a fund called TPG V, $475 million was in TPG VI, and $400 million was in TPG Financial Partners, a co-investment vehicle targeted at financial services opportunities, the letter said.

TPG said in the letter it had split the investment in different funds to diversify the risk.

The total size of those three funds is respectively about $15 billion, $20 billion and $6 billion, a source familiar with the matter estimated.

TPG invested in Washington Mutual in April. At the same time, TPG’s founding partner David Bonderman was appointed to the board.

In the letter, TPG said: “We have been successfully investing in regulated industries since 1986. Over this time we have seen moments of turmoil in industries as far flung as airlines, health insurance and Asian banks.

“However, in all this experience, we have never run across a situation where the combination of regulatory uncertainty and market disruption have combined to swiftly and decisively overtake the fundamental aspects of an investment,” the letter said.

TPG said in the letter that over the past several weeks, it had worked with Wamu’s management, counsel and investment bankers in “seeking to present to the regulators other solutions that we believed were viable.”

“The regulators saw things differently and those efforts have been unsuccessful,” it continued.

Washington Mutual, the largest U.S. savings and loan, was closed by the U.S. government in by far the largest failure of a U.S. bank, and its banking assets were sold to JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) for $1.9 billion.

By Megan Davies
(Editing by Bernard Orr)