Billionaire buyout boss Stephen Schwarzman can’t seem to get a break.
Yesterday, Schwarzman’s Blackstone Group reported that fourth-quarter net profit – excluding costs tied to its June initial public offering – plunged 89 percent amid a “meltdown” in the credit markets and a falloff in fees for managing the world’s largest buyout fund and other investments.
“Despite the meltdown” in credit markets, the company sees deal opportunities, especially in Asia, Schwarzman said.
Including the IPO costs, Blackstone posted a fourth-quarter net loss of $170 million, compared with net income of $1.18 billion a year earlier.
Schwarzman has been under fire from lawmakers who want to raise his taxes and has taken heat for the amount of money he earns buying and selling companies.
“Credit market problems persist and, if anything, have gotten worse,” Blackstone President Tony James said on a conference call. “We’re looking to 2009 before we see much of an improvement.”
Wall Street banks have tightened their purse strings to a point where there’s very little capital available to finance giant takeovers. That has severely hampered private equity firms like Blackstone to buy and sell large companies – their bread and butter.
Blackstone primarily gets fees for cashing in profitable investments and completing large deals. The firm also generates fees from advising on corporate mergers and managing hedge funds. It recently landed a choice spot advising Microsoft on its pending bid for Yahoo!
But Blackstone is currently struggling to close the $6.6 billion buyout of Alliance Data Systems, the credit-card processor, announced in May.
Blackstone has lost nearly 55 percent of its market value since its IPO, dealing a $3.5 billion blow to Schwarzman’s net worth and costing the Chinese government, which bought a 10 percent stake, nearly $1.58 billion.
Blackstone shares ended up 42 cents, or 2.9 percent, to close at $15.
Investors have had a difficult time understanding Blackstone’s business model, which is based on the performance fees it collects for managing other funds.
The credit crunch has caused many investors to flee the stock, believing that Blackstone’s ability to do deals will hamper its fee income.
Some analysts contend the firm’s shares are now undervalued given Blackstone’s venerable track record of making money.
“While Blackstone shares have been caught up in the credit storm, the business has not,” Citigroup analyst Prashant Bhatia wrote in a note. “The franchise is under no pressure to sell assets.”
The firm’s earnings were hurt by an operating loss of $37.2 million at its corporate buyout unit, mostly on a writedown of its stake in New York-based bond insurer Financial Guaranty Insurance Co.
All of the company’s hedge funds ended 2007 with gains, and Schwarzman said Blackstone recently raised $1.2 billion to buy debt in companies undervalued amid market turmoil, including loans sold to fund LBOs.