Buyout behemoths bemoan the banks

With deals still hard to come by, you'd think private equity titans would be pulling in their horns...

Last Updated: 31 Aug 2010

But apparently not. Blackstone Group boss Steve Schwarzman has caused widespread outrage by comparing the tough deal environment to the aftermath of the atomic bomb at Nagasaki.  Speaking at a conference in the US, Schwarzman was explaining how Blackstone had found it impossible to persuade a single bank to finance the acquisition of mortgage lender PHH last summer – and according to trade mag Private Equity Insider, he opted for a rather fruity simile.

‘Trying to buy a mortgage bank in the midst of the subprime crisis was the equivalent of being a noodle salesman in Nagasaki when the atomic bomb went off,’ he apparently said. ‘Not a lot of noodles left or even a person - and that's what happened to us on this deal.’

Now while we generally appreciate Schwarzman’s straight-talking style and flair for the colourful soundbite (a relatively rare thing within the industry – perhaps he’s rich enough not to care?), we can’t help feeling that is pushing the envelope a bit too far. After all, while we’re no experts on the consequences for the noodle industry of the second atomic bomb, we’d imagine that – judging by the estimated 80,000 fatalities – they were probably slightly worse than a few zillionaires failing to buy a mortgage bank. And given that Japan (and Asia more generally) is a very important market for Blackstone, it’s not exactly a masterclass in diplomacy...

Still, this sudden reluctance of banks to lend money to private equity – after spending the last few years desperately sucking up to firms like Blackstone – is clearly weighing heavily on the industry’s mind at the moment. On the other side of the Atlantic, two of the top firms (Bain Capital and Thomas H Lee) are actually taking six of the biggest lenders (including the likes of RBS and Citigroup) to court. They’re accusing them of torpedoing the $27bn acquisition of radio group Clear Channel by reneging on an agreement to provide billions of dollars in loans – and if they win, it could have serious consequences for those banks who agreed to fund buyout deals before the credit crunch hit (whereupon they mostly thought better of it).

On the other hand, deciding to sue six of the world’s biggest lenders seems to us like a pretty risky strategy. When these two firms are looking to finance their next $20bn deal once the market picks up again, we can’t help feeling that they might not get a terribly warm reception from RBS and co...

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