The credit crisis still has the capacity to surprise, says Tom Freke in his blog Cash and Burn, citing a recent and “very odd” conversation with a leading investment banker which, he says, left him rather shocked.
“This market looks dead,” he told me. “Uncertainty is killing off M&A because no-one knows where to price anything. If a company can’t price up an acquisition, how can they do the deal?”“I’ve never known it so bad and I can’t see it improving,” said the source who has been in the market, almost running it at times, for more than 20 years.
“That’s given you something to think about, hasn’t it?” he said at the end of the conversation when I was, literally, stuck for words.
Indeed it has.
When markets crash, finding buyers for ‘firesale’ assets is often a problem, notes Freke. If everyone is running one way, it takes a brave soul to go the other way.
However, the situation in the leveraged loan market – a “crashed market if there ever was one” – is more complex than that.
The banks sitting on very large exposures might want to sell, but they do not want to do so at current pricing levels.
It is not a question of finding buyers, I am told, but about finding people willing to sell. There is some belief that pricing is ‘suppressed’ because of ‘technical’ supply and demand factors, and that at some point this will change, so pricing will naturally rise. All banks have to do is sit it out. And hope. This is the reason I suspect why some banks are reporting very low leveraged loan losses.