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Friday, August 03, 2007

Buy-out deals may be on hold for months

Buy-out deals may be on hold for months
By Peter Thal Larsen in London
Copyright The Financial Times Limited 2007
Published: August 2 2007 22:08 | Last updated: August 2 2007 22:08

Leading bankers on Thursday moved to calm the global markets even as they admitted that the shockwaves from of the US subprime collapse could put private equity deals on hold for the next few months.

Shares in European and US banks have slumped in the past week as investors have fretted about their exposure to subprime-related losses as well as leveraged loans stuck on their balance sheets. Analysts estimate large banks have underwritten loans worth $300bn to finance deals not yet been completed.

Bob Diamond, Barclays president, on Thursday predicted the consequences of the subprime collapse could take more than a year to be resolved. However, he said the leveraged loan market should recover more quickly: “We would expect at some point over the next two to three months to see that market at more normal volume levels.”

Brady Dougan, chief executive of Credit Suisse, said: “There has been a back-up in pricing and probably in August it will be a bit quieter . . . our hope is that the market will begin to operate more normally in the short term.”

However, institutions with direct exposure to the subprime market continue to suffer. Shares in IKB plunged by 40 per cent on Thursday following a government-led bail-out of the German lender, which warned this week of heavy losses in a fund it managed. IKB faces further questions after it emerged that Germany’s financial regulator first learnt about the problems from Josef Ackermann, chief executive of Deutsche Bank, rather than from the lender itself.

AXA Investment Managers, the investment arm of the French insurer, also fell victim to the subprime fallout when it took the almost unprecedented step of bailing out investors in two of its US funds after they suffered losses on subprime mortgages.

However, credit markets in the US and Europe rebounded slightly after banks took a loss to complete the sale of $8bn in loans for the financing arm of Chrysler, the carmaker. The loans were sold at a discounted 95 cents on the dollar, meaning the banks were forced to take some losses relating to the deal. However, after the sale, the loans traded as high as 98 cents in the secondary market.

Additional reporting by Ivar Simensen in Frankfurt, Jane Croft, Kate Burgess and Lucy Warwick-Ching in London and Saskia Scholtes in New York


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