Earlier this week, in a CNBC exclusive interview, Wilbur Ross, CEO of WL Ross & Co. noted that in the current tumultuous financial environment, private equity firms and buyout specialists may reap a rather depressing benefit--the ability to scoop up distressed banks at rock-bottom prices.
Will this sector of the financial services industry be a safe haven for those left holding pink slips? Unfortunately, the answer is probably not.
This week, as Wall Street was in tumult, the annual Dow Jones Private Equity Analyst Conference went on at the tony Waldorf Astoria Hotel in midtown Manhattan. Seeking Alpha called the scene at the conference positively “calm” despite the storms brewing downtown, though a survey of attendees did point to some pessimistic thinking: 64 percent of attendees agreed that the deal flow for the rest of 2008 will be patchy as the financial markets recover from recent events. How observant of them!
Dow Jones reporter Peter Lattman summed up the mildly optimistic attitudes on display at the conference nicely: “Locked-up money. Long-term investors. Flexible capital structures. Ahhh, the private-equity business, where you can put off until tomorrow what others have to deal with today.”
Stephen Schwarzman, chairman and CEO of the troubled Blackstone Group was understandably the biggest Pollyanna of all the assembled speakers – his firm is struggling after going public last year just a few months before the genesis of the credit crunch.
He declared that even if there’s fewer investment banks (and bankers) to push deals through, the capital will essentially still be available somewhere. He also noted that economic downturns traditionally are great when it comes to returns on investments two or three years down the road: “Deals done in the second year of a recession and the two years after that tend to significantly outperform deals done at other times,” Schwarzman said.
However, John Snow, former U.S. treasury secretary and current chairman of PE behemoth Cerberus Capital Management LP, told Bloomberg yesterday, “Our debt markets are close to frozen.” Makes it kind of hard to finance those deals Schwarzman is so optimistic about when there’s no funding available to get them off the ground. And no deals means no job openings for unemployed investment bankers.
Michaela R. Drapes is an editor at Vault.com. She graduated from the University of Texas at Austin and has degrees in radio/TV/film and English. Before joining Vault, she was an editor at award-winning business publisher Hoover’s Inc. and covered an array of industry sectors, including pharmaceuticals, amusement parks, real estate, and international banking and finance.
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