NYT DealBook, October 24, 2008
Three high-powered figures in the financial industry gathered at New York University’s law school on Thursday to discuss the future of mergers and acquisitions in the post-credit-bubble world.
The panelists — Stephen Friedman, the retired chairman of Goldman Sachs and the current Chairman of the Federal Reserve Bank of New York; Martin Lipton, the founding partner of the law firm Wachtell, Lipton, Rosen & Katz; and Joseph Rice III, the founder and chairman of private equity firm Clayton Dubilier & Rice — took turns discussing the challenges and opportunities ahead, as well as reflecting on the current economic crisis.
Mr. Rice said he was convinced that “human greed” took control of the system. But the bubble was egged on, he added, because “there was clearly too much capital around” and “people needed to find something to do with it.” He went on to say that “there is no question that there will be more regulation.”
As for the future of private equity, Mr. Rice sounded optimistic and expressed no doubt that it would make a comeback. “As respect to the buyout business, it is not going away — it’s comatose right now,” he said. “We will see a series of small deals next year and then they will grow in size… It is a perfectly good business, and it’s going to be around as long as there is a financial institution.”
Mr. Friedman spoke at length about the current crisis, which he described as the greatest financial panic since the Great Depression. Part of the problem, he said, was that “people will play the way you pay them,” meaning that the incentive structures that were in place encouraged bad lending and faulty business practices. He said he blamed the banks, consumers and the rating agencies for playing a part in the financial debacle.
He also lashed out at Wall Street bonuses, which he described as a “perverse incentive” that were “structured in a sort of way that you don’t have to give it back.”
Mr. Friedman praised regulators for their decisive and strong actions in 2008, calling them “heroic.” But he said that no one can say they had “done a first-rate job before then.”
Mr. Lipton, pictured above, spoke of a new financial order that he said will be dominated by large banks and filled with lots of smaller boutiques. “Capital raising will be in the hands of the big universal bank,” he said. “They will have the capital and the networks to do it.”
He said he believes the current economic crisis will last between three to five years, but was upbeat about the future of M&A.
“There will always be M&A,” he said, but added that “M&A is very psychological, and C.E.O.’s don’t like to go their boards in this type of economy” and ask to do a deal.