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Banking | Belts Tighten to Cope With Mortgage Mess
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Even the private-equity deals, which almost daily seemed to climb higher and higher, have eased.
Sallie Mae saw its $25 billion sale to J.C. Flowers crater in August and has gone to Delaware court to force the private-equity firm to follow through or pay a $900 million walk-away fee in a case closely watched by Wall Street.
Another closely followed company is District-based Carlyle Group, the private-equity giant that some still expect to go public next year. Carlyle has not been immune to the downturn; it postponed the sale of a cable company because of low bids. The firm was also forced to make $200 million available to shore up an ailing European mortgage fund.
Washington's specialty lenders such as CapitalSource, Allied Capital and American Capital Strategies, all of which lend to small- and mid-size companies, ran into headwinds. American Capital was unable to sell all the debt it wanted to place last summer because of jitters in the credit markets. Allied Capital stock is down 37 percent from its 52-week high.
CapitalSource stock has dropped from $25 to $17 a share, prompting Farallon Capital Management, a San Francisco hedge fund, to add 3.2 million shares to its holdings. Farallon owns 31.7 million shares, amounting to 15 percent of the company and worth around $585 million, according to SNL Financial, a data company that follows the markets.
The chief executives at all three specialty lenders said their companies are well-stocked if a recession hits. Delaney said CapitalSource, which is in the midst of acquiring a Nebraska bank, is in a good position to lend in this market where credit is tight. Mini-versions of the specialty lenders, such as Chevy Chase's MainStreet Lender, which provides $200,000 to $3 million loans guaranteed by the Small Business Administration, should thrive if the coming year gets rocky.
"Whenever there is a recession, small businesses run by entrepreneurs turn back to the government programs," said George Harrop, co-founder of MainStreet with Bobby Haft. "Some banks are getting out of that space, and we will be there."
