Thursday, 27 March 2008

Another Dose of Comeuppance for US Banks

Another well deserved comeuppance for US Banks came today when a court ruled that the banks involved in providing financing for the Clear Channel Deal have to stump up the cash. From

Judge orders banks to fund Clear Channel buyout

A Texas judge ordered banks to fund the proposed $19 billion buyout of Clear Channel Communications by two private-equity firms, the San Antonio radio broadcaster said in a statement on Thursday.

District Court Judge John D. Gabriel of Bexar County, Texas, granted a temporary restraining order against the banks, Clear Channel (CCU) said.

"He found in favor of Clear Channel's claim that irreparable harm would result if the banks were not immediately enjoined from tortiously interfering with the merger agreement," the company said.

"Accordingly, Judge Gabriel ordered that the banks, among other things, must not 'interfere with or thwart consummation of the merger agreement' by refusing to fund the merger transaction, insisting on terms that are inconsistent with the commitment letter, or refusing to act in good faith in the drafting of definitive loan documents," the company added.

Clear Channel has agreed to be purchased by Thomas H. Lee Partners and Bain Capital. But lenders including Citigroup (C), Morgan Stanley (MS), Deutsche Bank (DB), Credit Suisse (CS), Royal Bank of Scotland (RBS) and Wachovia (WB) have declined to provide the financing that they once said they would issue.

"It seems clear that lenders' remorse set in when credit markets worsened," Bain and Thomas H. Lee said in a statement Wednesday. "Now they are trying to walk away from their commitment letter which clearly states that they bear all the risk that conditions in the debt markets might change."

A spokesman for the consortium of banks wasn't immediately available to comment.
Shares of Clear Channel Communications dropped 17% to $26.92 on Wednesday on concerns the deal wouldn't go through. The offer for Clear Channel is valued at $39.20 a share.

The last thing banks like Citigroup and Wachovia need is to finance deals that no longer make economic sense with capital they don't have. The deal probably never did made any economic sense, as most of them rarely do at the height of LBO mania.

A combination of greed and stupidity made it inevitable that someone was going to be holding the bag when the music stopped. Maybe they should all call the Fed, declare insolvency and get the Fed to pony up the cash, as is the new trend in the United Socialists of America.