Bear Stearns, JPMorgan Deal Fallout Should Be Limited

Private equity acquisition deals that have yet to close may take a beating today as nervous investors try to navigate through the fallout. Some deals shouldn't be affected at all, others may be in trouble. The question is, will investors lump everything together or not?

Below is a list of banks that are financing the Clear Channel (CCU) deal.

1) Citigroup Global Markets Inc.
2) Deutsche Bank AG New York Branch
3) Deutsche Bank AG Cayman Islands Branch
4) Deutsche Bank Securities Inc.
5) Morgan Stanley Senior Funding Inc.
6) Credit Suisse, Cayman Islands Branch
7) Credit Suisse Securities [USA] LLC
8) The Royal Bank of Scotland plc
9) RBS Securities Corporation
10) Wachovia Bank National Association
11) Wachovia Investment Holdings, LLC
12) Wachovia Capital Markets, LLC

As you can see, Bear Sterns (BSC) and J.P. Morgan (JPM) are not on the list. Also Lehman Brothers (LEH) is not on the list, just in case you were about to ask...

Remember, the biggest problem was BSC because they 'specialized' in sub-prime derivatives. Then we have the second tier 'investment banks' like Lehman Brothers and Morgan Stanley (MS) (to a lesser extent) that deal in this kind of paper.

We still do not know if LEH and MS are telling us the truth or lied like BSC. Morgan Stanley has stated that it did not originate this type of paper but has yet to satisfy the market's need for clarity. This is the problem in general but has no effect on the CCU deal closing and there should not be a problem with the rest of the banks. Citigroup (C), being the largest bank had to take the largest write down, but at least was not the major originator of the toxic waste derivatives, just a big dealer that got stuck.

Deutsche Bank (DB) and RBS (RBS) tend to be middlemen and usually would not hold most of the toxic waste themselves. It may take a few days for the market to figure this out so we could be in for some more wild swings in the CCU share price. If this does materialize, this would be a great arbitrage opportunity as the CCU deal will close and it looks like it will be very soon.

We strongly suggest that you look at the list of the banks financing a particular deal and if BSC shows up on the list, you may want to reconsider your position.

Disclosure: long CCU