Financial hangover could last three to five years, Lipton says
It probably wasn’t what a packed room of students wanted to hear, but legendary M&A lawyer Martin Lipton pulled no punches – a return to a healthy economy is a long way off.
Lipton, talking to a packed room at New York University’s School of Law in Manhattan, said until the mortgage and housing situation is stabilized and until the value of banks’ assets stops declining, “we will not be out of this problem.”
“I don’t think that’s a matter than can be dealt with in a short period of time,” Lipton said. “I’m afraid it will take three to five years before we can achieve that.”
Job prospects for graduating students was obviously a burning issue for the audience, evidenced by the first question which asked the panel how the crisis would affect their career.
Other members of the panel offered a more optimistic view.
“The buyout business is not going away,” said private equity firm Clayton Dubilier & Rice’s founder and chairman Joseph Rice III, when asked about the prospects for M&A
He said while clearly there’s no debt available in the U.S., small deals would start to be struck from next year and over time those would grow.
Stephen Friedman, retired chairman of Goldman Sachs, who runs private equity firm Stone Point Capital, said while this was a “brutal period”, leverage would come back into the system.
Lipton predicts that the crisis will bring about substantial changes in corporate governance, driven by lawsuits attacking directors.
For example, because of rules regarding independent directors, not to mention pressure from corporate governance advocates, too many directors have too little experience in the industry of the companies they are overseeing, Lipton said.
“The corporate governance world argues against boards capable of doing their job,” he said.