Unlike theology and philosophy, there are no great truths in business, only petit verities. One of these is that breaking contracts to keep from losing money is OK.
The banks which were to fund the $22 billion Bain and Thomas H Lee takeover of Clear Channel (CCU) walked out on the deal. Overnight a Texas court said it would force them to close. But it is a district court in Bexar County and the likes of Citigroup (C) and Morgan Stanley (MS) will move the argument to a higher legal authority.
The financial reasons for leaving the deal at the altar are excellent. The advertising market which supports a media company like Clear Channel will take a big hit in a recession. LBO debt is being held on bank balance sheets now. They cannot syndicate it out to other institutions. As the paper loses its values, the banks have to take more write-offs.
Citi, Morgan Stanley, and their friends already have balance sheet problems. They cannot take on much more.
As The Wall Street Journal writes "the willingness of two of the world’s biggest private-equity firms to sue some of their biggest backers highlights just how much the financial crisis has undone Wall Street’s traditional alliances." The companies did all make money together for years. A partnership like that should be hard to break, by apparently isn’t.
Much has been made of the legal ramifications of the deals which fall apart and of the damage it will do to the reputations of banks and buy-out houses. More than any of these, it points to the situational ethics of Wall St. Every action can be justified by a well-crafted excuse.
When morals lose all meaning, it is hell in a hand basket.
Douglas A. McIntyre
The Average American Has No Idea How Much Money You Can Make Today (Sponsor)
The last few years made people forget how much banks and CD’s can pay. Meanwhile, interest rates have spiked and many can afford to pay you much more, but most are keeping yields low and hoping you won’t notice.
But there is good news. To win qualified customers, some accounts are paying almost 10x the national average! That’s an incredible way to keep your money safe and earn more at the same time. Our top pick for high yield savings accounts includes other benefits as well. You can earn up to 3.80% with a Checking & Savings Account today Sign up and get up to $300 with direct deposit. No account fees. FDIC Insured.
Click here to see how much more you could be earning on your savings today. It takes just a few minutes to open an account to make your money work for you.
Our top pick for high yield savings accounts includes other benefits as well. You can earn up to 4.00% with a Checking & Savings Account from Sofi. Sign up and get up to $300 with direct deposit. No account fees. FDIC Insured.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
Our expert who first called NVIDIA in 2009 is predicting 2025 will see a historic AI breakthrough.
You can follow him investing $500,000 of his own money on our top AI stocks for free.