Loan rangers

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: clients are unlikely to pay high management fees for that.

From owing the bank to owning it

One alternative to buying banks’ loans is to buy their holdings of the securities at the heart of the crisis—structured-credit products backed by mortgages. Blackstone is talking to “several institutions” about buying mortgages. Last month Merrill Lynch offloaded a pile of collateralised debt obligations at a knock-down price of $7 billion, or 22% of their face value, to Lone Star, a private-equity firm.

But Lone Star has a history of specialising in finance and such deals are unusual. When UBS auctioned a portfolio of securities backed by “Alt-A” mortgages in May, it received little interest from private-equity firms. This may be because these securities are highly technical. In addition, they are passive investments that do not call for the operational management where private equity thinks its skills lie.

For mainstream private-equity firms, the promising business may lie elsewhere: buying into banks themselves. Banks certainly need capital. Writedowns have reached a total of $500 billion, according to Bloomberg, but big lenders have raised only about $200 billion of tier-one capital, the Bank of England estimates. America’s Federal Deposit Insurance Corporation, which monitors sick banks, now has 117 lenders on its watch list, compared with only 90 at the end of March.

This is not for the lily-livered. Banks are highly leveraged investments. Valuing them is tricky—just ask the sovereign-wealth funds that have lost money investing in them over the past year. Or TPG, which lost money in Washington Mutual, and ran into controversy when it got cold feet about bailing out Britain’s Bradford & Bingley. Yet some specialist private-equity firms have pulled it off. Lone Star turned round two Asian lenders, Korea Exchange Bank and Toyko Star Bank. On August 21st it said it was buying IKB, a German corporate lender that had made a disastrous foray into American subprime debt. And expertise can be bought. One executive thinks it is “relatively straightforward” to assemble a team with the skills to run a bank. Big firms including Carlyle and TPG are now thought to be hiring the people they need.