"Is that something they can live with, given that historically when they have done well, they have done tremendously well in a short period of time?" asks Varaiya.
Furthermore, many private equity funds are set up to have a profitable exit strategy within five years or less. If the recession drags on for several years and profitability is hindered, acquisitions that seemed like bargains may turn out to be busts.
Several recent bets that soured have made PE firms even more wary about their investments. Flowers has seen major investments plummet in Hypo Real Estate Holding AG and Japanese banks. Chrysler's potential bankruptcy poses huge risk to Cerberus. Texas Pacific Group lost $1.35 billion on its $7 billion investment in WaMu last year.
"Nobody else wants to see that happen," says Mix. "They want to have clarity before they pull the trigger."Given the headwinds facing PE players, on the regulatory end as well as the valuation end, Mix says that most are sitting on the sidelines, acquiring very small banks to register for approval as a bank holding company. Flowers did this by purchasing First National Bank last year, and Wilbur Ross, the king of distressed investments who heads WL Ross, did this by taking over First Bank and Trust Co. earlier this year. If opportunities emerge down the line, great. If not, PE firms will seek other avenues with fewer complications and less regulatory scrutiny. Says Kaplan: "Private equity is very private." Philip van Doorn contributed to this report.