Le Bons Temps Roulent Pas

Seems some white shoe investment banks are suddenly not able to sell the junk bonds they so recently arranged for LBO's and have to keep them on their own books. This cuts into their profits big time, because investment banks do not have cheap sources of funding (i.e. deposits) and must continually "move the merchandise" to earn fees.

No more than 3 months ago private equity firm honchos boasted they could raise $100 billion with a snap of their fingers. No more, as the market for junk has turned sour with awesome speed (just look at ABX, CMBX and CDX). To add insult to injury, those self-same honchos are telling the bankers that holding on to unsold (and unsellable) merchandise is their problem, because that's what bankers are paid for: to assume risk.

Oh, my! How extremely wrong. I mean, really, really immensely wrong. In the eyes of the bankers, arranging deals and raking in fat fees has absolutely nothing to do with risk. It is all about stamping a deal with their version of the Good Housekeeping Seal of Approval (the usual tombstone reading "BullyBank acted as Lead Underwriter in this transaction"), for which they expect to get paid a bundle. A form of very polite extortion, really. Finding customers to buy the stuff? When les bons temps roulent such customers are supposedly the bankers' very own: cherished, pampered, wined-and-dined, gold dust-covered. But when the music stops, the bankers - to a man - yell at the issuer to go find his own god-damned buyers for the obviously crappy crap he wants to foist on the poor, poor public. And they get all huffy, incredulous and hoity-toity if you tell them it's their job, too: God forbid they should soil their hands with such base tasks. (Here's a trick to play on such an august person: call his firm "a broker" and watch as he turns blue and tries to murder you with his "if looks could kill" stare. I did it once and it cost me his business, but it was worth it. He was just an obnoxious piker in my market, anyway).

Hell hath no fury greater than a lead banker told by an issuer to "stuff it Webster, you own 'em now", when he demands a regular underwriting issue to be reduced in size a posteriori. Naturally, he's talking about the part still sitting in his books, screw everyone else. Bulging eyes, beet-red face, choking sounds as the banana-nut muffin misses the esophagus...

Seriously, though: failed offerings are always signs of a top and with good reason. Markets are all about the balance between supply and demand and such failed issues are the best proof of lack of demand.