Business

STEVE’S SORRY

Stephen Schwarzman has been forced to eat a rare slice of humble pie on Wall Street, as the billionaire Blackstone boss went hat in hand to JPMorgan and Lehman Brothers in an effort to mend fences after the banks pulled the plug on his $1.8 billion PHH deal, The Post has learned.

JPMorgan and Lehman made sure it was an unhappy New Year for Schwarzman as the banks refused to come up with promised financing for Blackstone’s purchase of mortgage lender and vehicle fleet manager PHH.

The deal’s failure was a huge embarrassment for Schwarzman and a damaging blow to his once untouchable buyout shop.

In an attempt to mitigate the fallout from the deal’s collapse – and no doubt to try to get someone else to pay the $50 million failure fee – Blackstone pointed the finger at Wall Street, claiming JPMorgan and Lehman had reneged on an already agreed-upon deal to provide the financing.

An ugly fight ensued with JPMorgan and Lehman firing back that Blackstone had failed to provide proper assurances and hadn’t even finished the paperwork it needed for the deal.

The truth of the matter is that PHH is chock full of potentially nasty mortgage-related assets too risky to touch with a 10-foot pole in today’s market.

Blackstone disputed both points and claimed not to know why the banks pulled the plug.

But in the past week, senior Wall Street sources say, Schwarzman personally visited Jamie Dimon, his JPMorgan counterpart, and Dick Fuld, the Lehman CEO, to offer a hand of friendship.

A top level source close to the peace talks said: “It seems we are friends again. It was in nobody’s interest to carry on this p***ing contest and Stephen graciously recognized that.”

Such a climb-down is a first for Schwarzman, who is renowned in deal making circles for his arrogance and complete lack of people skills.

The Wall Street source said, however, that he made the first move because he needs the banks far more than the banks need him, now that the private equity bubble has burst.

Blackstone may have been one of the biggest providers of M&A revenue to Wall Street banks for the past five years, but that trend is not likely to continue in 2008 with deals falling off the rails by the week.

The failure of Schwarzman’s PHH deal, and his embarrassing climb-down on Wall Street, are even more surprising considering that JPMorgan decided not to pull the plug on Sam Zell’s shaky looking buyout of Tribune, the ailing newspaper group.

A senior source close to the deal said JPMorgan’s decision to support Zell and not to support Schwarzman came down to personality.

“Sam Zell’s relationship with JPMorgan goes way beyond The Tribune deal,” the source said. “He has an impressive track record with the bank and no doubt will continue to do so for many years to come. Plus he’s a nice guy. You get paid in many more ways than fees in this business.”