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Quietly Raking It In From Failed Banks

NEW YORK ( TheStreet) -- There was lots of public hand wringing after IndyMac failed and was bought from the Federal Deposit Insurance Corp. in January by a group of super-savvy investors, including hedge fund giants George Soros and John Paulson, and soon-to-be-beaten-up private equity whiz Chris Flowers.

The hand wringing was not immediate, however, because most people had no clue what was going on. The Wall Street Journal's Peter Eavis took notice.

And, speaking at an industry conference a few days after the deal closed, Flowers bragged about the IndyMac deal, saying that "the government has all the downside and we have all the upside." But those comments were not widely known until they surfaced in a front page article in The New York Times in May.

Soon after, the FDIC began rejecting private equity bids for failed banks, creating the impression the much-anticipated bank buyout boom might never come.

But buried in Friday's latest raft of bank failure announcements from the FDIC was an interesting nugget. First Federal Bank of Californiain Santa Monica, Calif. would be bought by OneWest Bank. What is OneWest Bank? Why none other than IndyMac II.

It will be some time before we know exactly how much Soros, Paulson, Flowers & Co. will make on this deal, but recent price pops in shares of regional banks that have bought failed institutions from the FDIC suggest the private guys will do pretty well for themselves.

The poster child for the publicly-held winners is East West Bancorp (EWBC - Get Report). The California bank saw a 55% gain on Nov. 9 following its Nov. 6 acquisition of UCBH Holdings. Interestingly, East West had help from a private equity firm, Corsair Capital, which quietly took a 9.9% stake in East West to help it shore up its balance sheet so it could complete the deal.

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