Blackstone eyes U.K. banking sector

The Blackstone Group is examining the possibility of entering the banking market in the United Kingdom, according to CEO Stephen Schwarzman.

Last week, sources familiar with the matter said that Blackstone, one of the world’s leading buyout firms, had applied for a British banking license and was working alongside fund manager Cambridge Place on a venture called The Home and Savings Bank.

The new bank could be up and running in the first quarter of the year, one of the sources said, though approval from the Financial Services Authority, the United Kingdom’s regulatory agency for financial services, can take up to 12 months.

Schwarzman declined to comment on whether Blackstone had applied for a U.K. banking license. but when asked whether he was looking to enter the U.K. market, he said, “We are looking at one potential situation.”

A shake-up of the British banking sector—due in part to a forced sell-off of over 900 high street branches by bailed-out lenders and to government support for increased competition—has attracted dozens of potential bidders and new entrants.

“The rationale is that with the banking industry under pressure in the U.K., there is a window for a very traditional banking model focused on savings and mortgages,” a second source told Reuters last week.

Blackstone is expected to put 200 million pounds (or about $325 million) into the new venture and the Pears family a further 50 million pounds ($80 million) with Cambridge Place making a small investment, one of the sources said last week. Former Abbey CEO Peter Birch has been lined up to become the bank’s chairman, according to one of the sources.

Cambridge Place is speaking to other potential investors, which could include private equity and blue chip institutional investors, about investing in the planned bank.

Three years ago, Blackstone acted as an advisor to the bank Northern Rock, which was nationalized by the British Government in 2008. But that was a rare instance of a private equity firm’s involvement in U.K. banking. Few private equity firms have ventured into the traditional banking sector due to the scale of investment needed.

Only British private equity firm Anacap has moved into the space, having established a mortgage lender and savings bank Aldermore, by merging Ruffler Bank with Base Commercial Mortgages.

Any move by Blackstone into high street banking would signal a marked change in the kind of deals the buyout group is prepared to pursue.

One of the sources said it was not yet clear, however, whether the proposed banking venture would come to fruition.

Blackstone, Cambridge Place and the Financial Services Authority declined to comment.

Schwarzman said that opening a bank in the U.K. would not represent a major change in strategy for the firm.

“We’re looking at buying financial assets in other places in the world,” he said on the sidelines of a conference in Riyadh, the capital of Saudi Arabia.

Schwarzman pointed to Blackstone’s move last year with other private equity giants, including The Carlyle Group and WL Ross & Co. to take over failed Florida lender BankUnited.Schwarzman—a billionaire and considered in 2007 by Time Magazine to be one of the 100 most influential people in the world—has always been outspoken about his views of the private equity landscape. In October, he said that the worst of the buyout industry’s problems had passed, with improved capital and equity markets finally providing an opportunity to do deals and liquidate existing investments through IPOs.

Schwarzman also said that he was seeing “more than green shoots” of economic recovery and that now is an excellent time to purchase stable businesses in developed markets.

Thomas Atkins of Reuters and PE Week contributed to this report.