Filed under: Financials and analyticals, Raising money, Citigroup, Private equity industry
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That loud thud you heard Thursday morning at 8:30 was Chuck Prince, CEO of Citigroup (NYSE: C), hitting the floor following the much-stronger-than-expected GDP report.
Citigroup, which has committed tens of billions of dollars to finance many of the more massive private equity deals, will be stuck holding these loans on its books for much longer than it anticipated due to this report. The easy fact of the matter is the Fed will not be able to lower short-term rates with GDP growth of 4%.
Leaving short-term rates unchanged means the yield curve won’t change for the superior and could actually change for the worse. If rates begin heading higher, this means the loans the money-center banks are holding will drop even more in value.
Yesterday’s GDP report means this post-PE-bubble environment will be difficult to work through. Any simple fix of a slowing economy leading to the Fed dropping rates and a downward shift in the yield curve isn’t going to happen. Actually, it looks like the longer end of the bond curve was wrong in forecasting an economic slowdown, with the possibility of rates rising. This means it is too early to get back into the money-center banks.
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