Area's Big Financiers Brace for 'a Serious Shakeout'

"The private-equity world is going to have to slow down very meaningfully for a little while," Billings said. "The pricing of transactions and leveraged buyouts are going to have to change substantially."

Walton estimated that the purchase price of companies could drop from around nine times earnings to seven or eight times earnings.

Frederic V. Malek, who was a senior adviser to Carlyle from 1989 to 1991 and then founded Thayer Capital, said the effect on Washington would be less severe than on other financial centers.

"The Washington area has been generally resistant to large swings because of the stability of government employment and spending," Malek said. "This is likely to settle down in the coming weeks or months. And I suspect that this will have a lesser effect in Washington than in the rest of the country."

Perhaps the most high-profile deal pending in the Washington area, the planned buyout of student-loan leader Sallie Mae, is not jeopardized by trouble in the debt markets, a source close to the prospective buyers said. The buyers have lined up commitments for the billions of dollars of financing needed to complete the purchase, said the source, who spoke on the condition of anonymity for lack of authority to comment publicly.

Capital One Financial, one of the Washington area's biggest financial companies, is less vulnerable than it was during the last credit crunch because its recent bank acquisitions make it less reliant on the sale of bonds to raise money, said Scott Valentin, an FBR analyst. The big credit-card issuer now has access to money through bank deposits, Valentin said.

Another high-profile private-equity deal involving a Washington company was a proposed $8 billion purchase three months ago of Harman International Industries, the multibillion-dollar manufacturer of high-end sound equipment. The company was founded 50 years ago by Sidney Harman.

Harman, who structured the deal so shareholders could roll their stock into the new, privately-owned entity, said yesterday that the deal with Kolhberg Kravis Roberts and the private-equity arm of Goldman Sachs would go through despite the credit turmoil.

"I expect it will have no effect on our closing," Harman said through a spokesman. The sale is expected to close in the fall.

Staff writer David S. Hilzenrath and staff researcher Richard Drezen contributed to this report.