How Will Vulture Capital Ply the Financial Crisis?

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Ross, who is chairman and chief executive of WL Ross & Co., predicts that roughly 1,000 U.S. banks will fail as a result of the current crisis. The fact that his company currently has 70% of its assets in cash puts it in "a very liquid position to deal with these issues," he said.

For his part, Manning agrees that 1,000 banks folding is a reasonable estimate, given that he's heard 8,000 banks haven't undergone regulatory reviews since the credit markets tightened. However, because buying banks—as opposed to commercial enterprises—entails thorny regulatory issues, he thinks vulture investors are likely to have limited interest in them.

Targeting "soft asset companies"

Manning sees a much richer field of opportunity in what he estimates to be 800 to 1,000 private equity deals done over the past five years in various industries; they are starting to mature and won't be able to be refinanced at the old leverage ratios. "As those loans mature, either private equity [firms]—if you did a deal at six times senior debt leverage and the market will only let you do four times leverage—will have to write a check for the difference, or find mezzanine financing, or go to court to file for Chapter 11 to ask for restructuring," he says.

The prime targets for bankruptcy, he says, will be "soft asset companies," such as software makers, information technology service providers, and medical device companies, which are all driven by intellectual property. The key assets, he says, are the employees who "go home every night."

RHR's Astorino says stable balance sheet and flush cash position give Barclays (BCS) a much better stance to buy Lehman's North American investment banking and capital markets businesses than any private equity firms have. Barclays' proposed $1.75 billion acquisition includes the majority of Lehman's staff, franchise, brand name, and clients—but not the risky trades and liabilities that forced the investment bank into a Chapter 11 bankruptcy filing on Sept. 15.

Private equity might pass

"I don't think you could have taken those businesses and put them into a typical private equity fund," he says. "Private equity funds have different requirements for what they can invest in."

Nor does Astorino think that private equity investors, who "have a very specific sweet spot they look for in investments," are going to change their criteria to take advantage of the current crisis.

Whether vulture investors will choose to buy entire companies—as opposed to select businesses or assets—will depend on where they see the best opportunities to make money, says Manning. As far as the financial industry is concerned, he thinks investors will prefer to buy the mortgage-backed securities, not the corporate structures that offered them. "I don't have to buy the people. Give me the financial instrument," is likely to be their attitude, he says.

Chi-Chu Tschang contributed to this story.