Pay the break-up fee. Don't make that next LBO loan. That is what many legal advisers are telling the largest banks. Better to pay out the fee than take on loans which could lose a significant portion of their value and could lead to more big write-offs.
A partner at a large private equity firm told the FT, "The banks have so many issues with their balance sheets that they are considering a new policy."
The idea may sound good, but it isn't.. If banks walk, they could face shareholder suits from owners of the companies which have been stiffed in the LBO process. But, more importantly, the action would drive a wedge between banks and their large corporate clients that could last for years. Corporate banking profits go well beyond providing buyout loans.
Acting in bad faith with one of the biggest customer bases at big banks may save money now, but is the alienation of corporate customers worth it?
Douglas A. McIntyre is an editor a 247wallst.com.
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