Banks Hurt As $60 Billion In LBOs Disappear

Wall Street Journal:

For Citigroup, Morgan Stanley and other Wall Street banks, the bill has arrived for the excesses of the LBO boom: $60 billion.

The problem for the banks, however, isn't the actual size of the bill, but the fact that it is only the first installment of what could end up being a much larger invoice. The tally comes from this article today in The Wall Street Journal, which reports that 46 leverage-buyout financing packages have been pulled from the market in the past six weeks. When that happens, of course, the banks get stuck holding the bag.

The $60 billion total may sound like a big one, but let's put it in perspective. Split between a dozen global banks, it comes to only $5 billion each on average. Even if the big guys like Citi and J.P. Morgan Chase are stuck with twice that, losses on the paper by the time they get around to selling it could very well be inside 10 cents on the dollar. For $10 billion of exposure, that would equate to no more than $1 billion. A big number to be sure, but a fraction of the fees the banks have reaped in the past five years.

Read the whole story: Wall Street Journal