Filed under: Forecasts, Bad news, Market matters, Citigroup Inc. (C), JPMorgan Chase (JPM), Money and Finance Today, First Data (FDC)

You may think the subprime mortgage mess is huge. Well just around the corner a larger elephant is looming and its impact may be even more devastating than the current credit crisis.

While it sounded like good news when banks sold $30 billion of loans for leveraged buyouts last week — $26.4 billion of that was for the First Data buyout. That sale came with a big price tag — banks agreed to sell the debt at 96 cents on the dollar, which means they locked in losses after their fees.

And then there was the problem of what to do with the other 90% of LBO loans in the pipeline.

The Wall Street Journal (subscription required) reported today that Citigroup Inc. (NYSE: C), Credit Suisse Group and J.P. Morgan Chase & Co. (NYSE: JPM) hold $400 billion in debt they promised for financing purchases private equity firms have in the works globally. If they can’t sell the debt, they’re left holding the bag, which means a lot less money for other loans. If the economy slows as expected and corporate profits weaken, the only way the banks will be able to unload the debt they’re holding will be a fire sale on that debt at even deeper discounts then the First Data deal.

Continue reading Next debt collapse: LBO loans?

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This entry was posted on Thursday, October 11th, 2007 at 12:40 am and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.