Trade in Groups

A sustained and severe credit crunch means that it is harder and more expensive for companies, institutional investors, and consumers to obtain loans in order to fund operations, purchase assets, or acquire companies. Lack of confidence in the financial services sector, partly due to the subprime mess, means that lenders are less willing to risk their capital, in order to avoid further defaults. There is less capital available for the purposes of lending. Buy-out firms and private equity groups are having a harder time securing debt. Transaction service providers that facilitate lending and acquisition transactions are seeing less business.

A credit crunch means there are less lending and acquisition business for buy-out firms and transaction services companies (such as investment banks, due diligence professionals, etc.). Accounting, law, and consulting professionals who provide third party transaction-related and due diligence services are also affected. It is harder for a private equity fund to put together a deal during a credit crisis; some firms cannot secure enough leverage to fund a company purchase, meaning that millions of dollars in fees do not materialize for transaction service providers and intermediaries. Recently, Citigroup announced its intent to slash up to 10 percent of its approximately 65,000-member investment banking group. Less work means management must cut overhead. In these times, those that find themselves being “spit out” by Wall Street may end up obtaining a MBA, or switching careers. Wall Street, former employees, and the world, move on.