The US government’s plan to inject cash into financial institutions, coupled with similar actions by countries around the world, may jump-start the stalled global financial system, Blackstone Group LP chief executive officer Stephen Schwarzman said.
“We’re looking today at an absolute sea change in the global financial system in terms of liquidity,” Schwarzman said yesterday at the Super Return Middle East conference in Dubai. “This could be the time that breaks the back of the credit crisis.”
The US plans to invest about US$125 billion in nine of the country’s biggest banks, including Citigroup Inc and Goldman Sachs Group Inc, in exchange for preferred shares, people briefed on the plan said. The measure follows similar moves by European leaders to unfreeze credit markets and shore up confidence in the financial system.
“There is no reason in the face of this why anyone would have any concerns or fear about putting money into the US financial system,” Schwarzman said. “Before this remarkable initiative, the cost of money for financial institutions was way higher than they could afford to lend it out. The system ground to a close.”
The cost of borrowing in dollars for three months fell from the highest level this year. The London interbank offered rate that banks charge each other for such loans dropped by 7 basis points to 4.75 percent on Monday, the largest drop since March 17.
Restoring liquidity may accelerate the return of private-equity deals that have foundered amid a lack of financing from Wall Street banks struggling to survive.
Announced transactions by leveraged buyout firms have dropped by more than 70 percent so far this year from the same period last year, according to data compiled by Bloomberg.
“What the governments have done will put us back into that world much quicker than we imagined,” said Schwarzman, who founded Blackstone in 1985 with Peter Peterson, his former partner at Lehman Brothers Holdings Inc.
Based in New York, the firm is the world’s biggest leveraged buyout firm.
Schwarzman echoed comments earlier in the day from Thomas H. Lee Partners LP co-president Scott Schoen, who said private equity firms’ returns to their investors would suffer from the high prices and debt loads placed on companies during the two-year buyout boom that ended last year.
Returns from buying investments, fixing them up and selling them again may decline to about 8 percent this year from their historic level of more than 20 percent, Schoen said in a separate speech in Dubai yesterday.
“It’s extremely difficult to achieve returns as in the past when you’re selling into a lower-priced environment,” Schoen said. “We’ve seen what happens when credit dries up and confidence goes away.”
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