Blackstone CEO Schwarzman Says U.S. Action Could Crack Crisis

Blackstone Group chief executive Stephen Schwarzman said on Tuesday the injection of government cash into U.S. banks, alongside similar measures around the world, could break the back of the credit crisis.

“We will be looking today to an absolute sea change in the global financial system in terms of liquidity,” Schwarzman told a packed room at the Super Return private equity conference in Dubai. This could be the action that “breaks the back of the credit crisis,” he said.

The United States will announce plans on Tuesday to inject $250 billion into its banks, following similar, concerted measures in Europe to revive money markets and stave off global recession.

Schwarzman said there was now “absolutely no reason” why anyone would have any concerns or fear about putting money into the U.S. financial system.

New York-based Blackstone, one of the world’s biggest private equity firms, has been hammered as the year-long crisis practically shut down the credit markets.

As stock markets plummeted last week, the future looked even bleaker for private equity firms that rely on financing to strike leveraged buyout deals.

Blackstone’s share price has slumped to a third of its initial public offering price in June 2007.

“We were at a complete freefall a week ago,” Schwarzman said. “I think it was an unsettling experience for virtually everyone. It started spilling over into the real world.”

But Wall Street roared back from its worst week ever with one of its best single days on Monday, as governments pledged to pour cash into struggling banks to restore confidence in a rocky global financial system.

Schwarzman told reporters on the sidelines of the conference that it would take several months before the banking system returned to better health.

Despite the freeze, he said there was still some access to financing.

“Certain of us still can obtain financing in the current environment,” he said.

Buyout firms have raised billions of dollars from pension funds and other major investors, but the credit crunch has meant they have been unable to put a lot of that money to work.

Many investors who bought into funds are getting nervous about their exposure, particularly amid high-profile disasters. Texas-based buyout giant TPG lost all $1.35 billion of its investment in Washington Mutual.

Blackstone is currently raising a buyout fund and in July, when it had its first closing to investors, had raised nearly $8 billion, a source familiar with the situation previously told Reuters. Funds typically have several “closes” before they are fully raised.

Asked on the sidelines of the conference about the progress of Blackstone’s buyout fund, Schwarzman said: “We are all captives of the global economy and the credit crunch, and I think that the dramatic changes introduced by the government will benefit all forms of capital raising.”

Commenting on Blackstone’s investment strategy, Schwarzman said it was important to avoid buying cyclical businesses, whose earnings are very dependent on the economic ups and downs.

“Going into a recession what’s most important is that you don’t buy cyclicals that are going to rebound, only to find out that a recession is getting worse and you’ve done the age old trick of trying to catch a falling knife,” he said.

He said that right now the U.S. is “a terrific place to be investing money,” but thought Europe was less desirable, and growth would be slower.

Schwarzman said he was not happy with Blackstone’s current share price.

“People look at our equity as a reflection of the availability of credit,” he said. “I don’t believe any CEO believes his stock is fairly valued.”

By Megan Davies

(Editing by Will Waterman)