Mounting losses have forced financial institutions to shed pieces of themselves in order to remain afloat. Dealmakers, meanwhile, smell blood in the water.

Despite mounting data demonstrating financial woes are far from over, private equity firms are beginning to nibble at pieces of troubled banks.

National City (NCC), who yesterday announced that it sold $7 billion in equity to shore up its balance sheet, is the latest in a string of banks to raise capital in this manner. Two weeks ago, Washington Mutual (WM) received $7 billion from private equity firm TPG and others. Last Monday, Wachovia (WB) also took in $7 billion to shield it from future writedowns.

The Wall Street Journal reports private equity firm Corsair Capital LLC bought $985 million of National City's equity offering. Although the stock plunged 28% yesterday to $6.03, Corsair was able to book a paper gain since it bought in at just $5 per share.

These firms are hoping the fire sale prices allow them to ride out near-term trouble so sizeable returns on investment can be realized down the line.

Minyan Peter, however, doubts the wisdom of their bets. He thinks recent investments in private equity is "panic buying," saying:

With most of their current portfolio deals going south, and the prospect of any new leveraged buyout deals more than remote, firms are having to transform themselves quickly into vulture mode. And with many private equity firms now public, suddenly quarter earnings pressure means something to these guys. If you get paid "transaction fees" for doing a deal -- whether it turns out to be good or bad -- you do it because it at least shows you are out there and it buys you time to figure out what your business model is going to be in the future.

Equity markets seem determined to call a bottom in financial stocks. Although the outlook is cloudy at best, investors are counting on recent government intervention to spur economic activity in the second half of the year. With a little luck, bold investments may pay off in the future.

But those intrepid enough to wade into the market would be wise to remember billionaire investor Joe Lewis who last year tried to call a bottom in Bear Stearns (BSC). He lost nearly his entire investment - a mere billion dollars.