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True confessions
Journalists are suckers for a confessional story.
There’s belief among journalists that confessional stories carry more resonance with readers because they often are narrative tales about insiders fessing-up to the truth.
And so today we have Andrew Ross Sorkin in The New York Times telling us the great confession of British private equity chieftain Guy Hands. What’s Hands’s great admission? That private equity firms charge excessive fees to investors and that highly-leveraged takeover artists aren’t always the great managers they purport to be.
Shocking, right? Critics of private equity have been saying those same things for years.
So why does it matter that Hands wants to spill his guts to Sorkin over tea at the Jumeriah Essex House, a fancy hotel overlooking New York’s Central Park? To be blunt, it doesn’t.
Take the L out of LBO
In a perfect world, we would simply ban leveraged buyouts. The vast majority of these debt-laden corporate takeovers are no less predatory and value-destroying to a company than a loan shark who charges usurious rates of interest.
Realistically, a prohibition on private equity deals will never happen, given the big dollars involved in these transactions and the sizeable campaign contributions that private equity chieftains shower on politicians from both parties.
Delaying the moment of truth
Procrastination is not a virtue, except when it involves billions of dollars of debt.
A mantra has taken hold of lenders sitting on loan piles: amend and extend. Or as lawyers involved in negotiations between borrowers and lenders say: delay and pray.
CIT doomed by PE
The most compelling argument for saving CIT Group from collapse is the impact it would have on small- and mid-sized business that depend on the New York-based lender for financing. But it’s increasingly looking like that argument is more hype than anything else.
First of all, CIT pretty much hasn’t been doing any new lending for the past six months, when its financial troubles really began to mount. Most of the lines of credit the firm has out to hundreds of thousands of small companies were arranged long before the collapse of Lehman Brothers.
Bair on PE bank deals: “We will get this right.”
The idea of the strip-and-flip crowd a/k/a private equity firms buying distressed banks out of government receivership raises a lot of dicey issues. But with federal regulators approving three such transactions this year and more bank failures on the way, get used to the idea of PE banking.
Last month Rhode Island Sen. Jack Reed, a member of the Senate Banking Committee, sent a letter to regulators in which he raised some concerns about these deals. Now at least one regulator, FDICÂ Chairman Sheila Bair has responded.
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The Wall
