Europe is grappling with a toxic debt contagion, flirting with another recession, and cities there are erupting in protests. What better time to snap up euro-bargains?
At a Sept. 28 private equity conference,
James speculated about a “30 to 40 percent” chance that conditions in Europe could deteriorate further. But he said that doesn’t preclude Blackstone from finding good deals.
Investors are waiting to see how things play out as European leaders scramble to shore up banks that have been battered by the debt crisis. On Oct. 4, French-Belgian lender Dexia SA became the first European bank to have to be bailed out due to the crisis, and many fear Greece could soon default on its debt, exacerbating a worldwide economic slump.
The struggling financial sector is of particular interest, with many large buyout firms waiting to see if European banks will start unloading asset management, custodian businesses and other assets in order to shore up capital, the global co-head of financial sponsors at one bank told Buyouts. “U.S. guys are asking, ‘If there are divestitures, what will come out? When will they come out? Can I get in the queue to see some of it?'” the banker said.
Buying assets from foreign banks is always complicated. It requires the ability and patience to negotiate with local regulators. But it’s even more complicated now considering tightened credit markets, which could constrain assets like loan origination businesses that need steady access to capital markets to replenish debt, another senior banker told Buyouts. “That doesn’t necessarily lend itself to the LBO market,” he said.
Buyout firms are skeptical of investing in the banks themselves. Low valuations and the prospect of taking part in market consolidation are attractive, but few investments have happened because bank balance sheets are difficult and time-consuming to assess, sister news service Reuters recently reported.
“You know they are underprovided but you don’t know the exact valuation of all the assets,” a private equity executive told Reuters. “Each small mistake in that assumption basically wipes you clean because the numbers are so huge.”