Clear Channel (CCU) And Moral Relativism

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