19 Sep, 2008
Wall Street Crisis affect on Main Street
Posted by: dbarnitt In: Financial| Financial Crisis| Mezzanine Funds
The events unfolding in the financial markets are truly unbelievable as venerable firms fall by the wayside. Lehman, Bear, Merrill, AIG are iconic names, pillars of modern finance. Like most industries, this consolidation will lead to more fragmentation with smaller specialist firms filling the gaps. This upheaval is likely to lead to massive risk avoidance on the part of banks for a long time to come. Bank credit officers are huddling with their loan officers devising responses to weather the credit storm. We think that the recent seizing up of the bank lending market will continue as credit will dry up for most business.
Banks will take an extremely cautious approach as to how they allocate their precious tier one capital. As a result, we think that bank lending activity is likely to fall off a cliff. Much like economic activity pulled back significantly after 9/11, the same process is underway. Bank senior management’s are clearly rattled and fighting for their survival so they will be very reluctant to take on new risk. This is bad news for the general economy as good companies that need capital will have to be more innovative and work harder to find it. There are still plenty of sources of capital out there but they are non traditional sources such as mezzanine funds, non-bank finance companies and hedge funds.
Hopefully, they can do their part and help fill the inevitable bank lending void.