Banks are being advised by their lawyers that it would be cheaper to walk away from big buy-out deals than incur further losses on their funding commitments, increasing the chances that more high-profile private equity transactions will collapse.The advice contrasts with conventional wisdom that banks would risk serious damage to their reputations if they were to drop out of deals. Legal advisers argue that the break-up fees banks would owe when pulling out of deals would be far lower than the write-downs they face on their loans, given conditions in the capital markets.
