Blackstone Group L.P., manager of the world's largest buyout fund, said yesterday that fourth-quarter profit plunged 89 percent after a "meltdown" in the credit markets and it predicted a shortage of financing for takeovers in 2008.
Profit excluding costs tied to its June initial public offering fell to $88 million, or 8 cents a share, from $808.1 million, or 72 cents, a year earlier, when the company announced its biggest leveraged buyout ever, the $39 billion purchase of Equity Office Properties Trust. Blackstone lost as much as 5.2 percent in New York trading as earnings missed analysts' estimates, but closed up 42 cents, or 2.9 percent, at $15.
"Credit-market problems persist and if anything have gotten worse," Tony James, president of the New York-based company, said on a conference call with reporters yesterday after the results were released. "We're looking to 2009 before we see much of an improvement."
Blackstone, which has lost 55 percent of its market value since the IPO, hasn't completed a takeover of more than $2 billion in five months as credit costs doubled and the LBO market shut down. Chairman Stephen Schwarzman, who owns 23 percent of the company, is struggling to close the $6.6 billion buyout of Alliance Data Systems Corp., the Dallas-based credit-card processor, announced in May.
The company was expected to earn 20 cents a share, the average estimate of seven analysts surveyed by Bloomberg.
Earnings were hurt by an 11 percent decline in performance fees on investment profits and a write-down of its stake in New York-based bond insurer Financial Guaranty Insurance Co., the company said yesterday in a statement. James told investors on his conference call that Blackstone wrote its FGIC holdings down to "a few cents on the dollar."
Leveraged-buyout financing started to evaporate last July as banks and investors pulled out of the market amid the fallout from rising subprime-mortgage delinquencies. The value of deals announced in the second half of 2007 declined by two-thirds from the first six months to $204 billion, according to data compiled by Bloomberg.
Including compensation expenses related to the vesting period for executives' ownership stakes, Blackstone had a fourth-quarter net loss of $170 million, compared with net income of $1.18 billion a year earlier. The company will continue to post net losses during the next five years because of the vesting expenses.
Revenue rose 17 percent to $3.05 billion. A 45 percent jump in fees for advisory services and managing hedge-fund, private-equity and real estate assets offset the decline in performance fees.
Assets under management jumped 47 percent to $102.4 billion, driven by real estate, which doubled to $26.1 billion. Money-management assets rose 65 percent to $44.5 billion. Private-equity assets gained 7 percent to $31.8 billion.