The slumping private equity market might not fully rebound until major Wall Street banks get a better handle on the credit crisis, the president of Blackstone Group said Monday as the buyout giant reported somewhat weaker-than-expected operating results.
"The mortgage black hole is worsening," Hamilton E. James, Blackstone's president and chief operating officer, told analysts during a conference call. "It is deeper, darker, scarier than what the banks originally thought. . . . My sense is they don't have a clear picture of how this will play out, and their confidence is low."
Banks such as Citigroup Inc. and JPMorgan Chase & Co. are doing a good job in selling an estimated $300-billion backlog of debt issued to finance leveraged buyouts, he said. But James said he didn't anticipate a resolution to the sub-prime mess -- and a full rebound in the debt markets -- until sometime next year.
As a result, the banks -- pressured by massive write-downs stemming from losses linked to sub-prime mortgages -- will keep lending standards tight for the time being, he said.
Blackstone posted a net loss of $113.2 million, or 44 cents a share. Stripping out the effect of $802.6 million of noncash charges for equity compensation and other items linked to its initial public offering in June, the New York-based firm earned $234 million, or 21 cents a share, down from $239.1 million a year earlier, when the firm was not yet public.
Analysts had expected a profit of 30 cents a share for the latest quarter.
Blackstone shares fell $2.02, or 8.3%, to $22.26 on the results. The stock has tumbled 37% from its closing price on Blackstone's first day of trading as the credit crunch has worsened the climate for private equity takeovers.
The company's IPO was one of the most heavily watched in the wake of a boom in big private equity deals in the last few years.
In a statement, Stephen A. Schwarzman, Blackstone's chief executive, said the tight credit conditions had a "dampening effect" on new corporate buyouts. On the other hand, he said sellers of companies had lowered their price expectations.
"While it will be difficult to structure very large leveraged transactions in corporate private equity and real estate until the credit markets improve, pricing of assets is more favorable," Schwarzman said.
Revenue from Blackstone's largest business, corporate private equity, rose 42% to $227.3 million. The business also posted transaction fees of $11.9 million.
The company's hedge fund business generated revenue of $124.9 million, up 88%.
But revenue from Blackstone's real estate group tumbled 44% to $109.1 million as the firm's investments in that sector appreciated less than they did in the third quarter of 2006.