Blackstone shares drop as profits plummet

Despite $170 million in fourth quarter losses the firm is confident present market conditions will play to its strengths as a private equity investor.

The Blackstone Group’s share price dipped to a new low of $13.82 (€9) per share today as it reported it had made a fourth quarter loss of $170 million, under accounting standard GAAP, according to its annual results.

Schwarzman:
opportunities
despite losses

Blackstone chairman and chief executive Stephen Schwarzman said it would be foolish for investors to focus on a particular quarter when investing in private equity.

The firm said in a statement it is likely to have GAAP net losses for the next five years because of significant equity interests held by senior managing directors and other employees which is subject to future vesting, minimum retained ownership interests and transfer restrictions.

The firm also reported economic net income (which excludes these payments) of $128.2 million, which was 14 percent of income in the same quarter the previous year.

The firm’s annual GAAP profits were down from $2.27 billion in the year ending 2006 to $1.62 billion in 2007. But pro forma adjusted economic net income after taxes was up to $1.82 billion from $1.43 billion in the previous year.

Schwarzman said: “We think this environment creates enormous future opportunities for firms like ours to buy assets cheaper as assets are re-pricing lower as investors flee. I predict this cycle to be no different.”

Given the illiquidity of limited partners’ investments the firm was sheltered from general investor demands to withdraw capital across the markets, he said. “One of the great things about private equity is there is no conceivable run on the bank,” he said.

Blackstone president Tony James said: “This is less than an ideal time to sell assets and fortunately we don’t have to. The flip-side is gains will be modest until market conditions have stabilised.“

The firm’s corporate private equity revenues were down to $821.3 million from $999.4 million in 2006, after the write-down on its investment in monoline insurer Financial Guaranty Insurance Company.

Financial Guaranty Insurance Company accounted for a decline of $122.2 million of these revenues.

The firm’s share price had rallied to $14.34 per share at 1316EST. This was 1.65 percent down for the day and 11.64 percent down on last week. It remains less than half the company’s initial public offering price of $31 per share last year.