It’s finally happened: top private-equity firms have slapped a veritable Who’s Who list of banks with lawsuits in New York (as well as Bexar County, Texas) enjoining them to cease and desist with all their foot-dragging over financing the $19.4 billion Clear Channel buyout. As traditional Wall Street alliances unwind fast, one of the filings even goes so far as to say, "If the banks' promises are not worth the paper on which they are written, commercial transactions – from the most basic to the highly complex – cannot work." As the banks in question remain unwillingly on the hook for billions, could this be the end of Wall Street dealmaking as we know it?

The dispute over Clear Channel Communications Inc.'s buyout escalated as private-equity firms Thomas H. Lee Partners LP and Bain Capital Partners LLC filed lawsuits against a syndicate of Wall Street banks to force the lenders to fund the $19.4 billion transaction.

The pair of suits, one filed in New York State Supreme Court and the other in Bexar County, Texas, claim that the banks -- Citigroup, Morgan Stanley, Credit Suisse, The Royal Bank of Scotland, Deutsche Bank and Wachovia -- illegally balked at their obligation to fund the deal.

The New York suit alleges breach of contract and fraud. The Texas complaint, which was joined by San Antonio-based Clear Channel, claims that the banks have improperly interfered with the merger agreement. The litigation, which comes after a breakdown in negotiations over the financing terms on the deal, could undo the transaction just days before it was supposed to close.

The dispute is the latest instance of a major Wall Street deal that has landed in the courts in the wake of the credit crisis. But the willingness of two of the world's biggest private-equity firms to sue some of their biggest backers highlights just how much the financial crisis has undone Wall Street's traditional alliances.

Indeed, the New York lawsuit gets to some of the bedrock upon which deal making rests. In asserting the banks intentionally tried to squelch the deal, the lawsuit chides the lenders: "If the banks' promises are not worth the paper on which they are written, commercial transactions -- from the most basic to the highly complex -- cannot work."

The financial firms "pretended to negotiate the final documentation in good faith," the New York lawsuit states, "but in reality, inserted into the final documents poison provisions" contrary to the terms of the agreement.

The banks face billions in losses if the deal goes through because the credit-market turmoil has made it all but impossible for them to package leveraged debt and sell to investors. Such debt has typically been marked down by about 15%, meaning the banks would take a hit of nearly $3 billion. The banks committed to lend as much as $22 billion to fund the deal, $18 billion of it as senior secured loans.

"The banks have a huge loss and they're trying to figure out how to get out of that commitment," said Clear Channel Chief Executive Mark Mays in an interview. "But a deal is a deal. Lenders' remorse is not Clear Channel's problem."

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