The Lender Layoffs Begin

CapitalSource has laid off at least seven employees over the past few weeks, as the credit crunch continues to take its toll. peHUB has learned that the pink-slipped staffers were all based in Chicago, and worked in CapitalSource’s CLO group, credit opportunities group and syndication group.

Firm spokesman Mike Weiss said the following: “CapitalSource completed a modest realignment within its capital markets area reflective of the current dislocation in the credit markets. Overall activity remains strong and CapitalSource remains poised to continue to provide value added solutions to its customers as the broader market corrects.”

If that last part about strong overall activity sounds strange, it’s nothing compared to the fact that CapitalSource is actually hiring new senior staff for its core lending business. In other words, CapitalSource expects to be an active lender, but doesn’t believe most other firms will be (thus the CLO cuts). Perhaps it should be renamed ContraditionSource…

Ok, that was a silly shot. Most of the people laid off were junior folks who could probably be hired back if the credit markets return – Fed meeting next week could help – and CapitalSource should put more of its eggs in its core basket. And hey, Madison Dearborn has so much faith that it just bought another 2.8 million CapitalSource shares on the open market.

The bigger story here is that CapitalSource is just the tip of a giant iceberg. Executive recruiters tell me to expect many more – and larger layoffs – in the loan markets, and in a variety of other industries that rely on leveraged buyouts. It could become one of the fall’s largest financial stories.