By Stephen Taub
When Lehman Brothers filed for bankruptcy in September 2008, most hedge funds and other investors saw trouble. David Tepper sensed opportunity.
Tepper—who headed junk bond trading for Goldman Sachs until he left to start Chatham, N.J., Appaloosa Management in 1993, recalled the last banking crisis, in 1990, when he made big bucks scooping up the paper of the holding companies of troubled financial institutions such as Republic Bank and MCorp. He remembered that while failing banks were seized by the government and reopened under new owners, the bank holding companies were in great shape, with billions of dollars in cash and other nonbranch assets. And he knew the government couldn't break into the holding companies to take those assets. "Banks go down, but the government is not allowed to take the holding company," Tepper explains. "You can have value in the holding company. We knew the structure,...