Blackstone to target small US banks

An IPO of BankUnited would create a platform for Blackstone to buy smaller banks in the US, the firm’s president Tony James said during an earnings call.

The Blackstone Group is planning to acquire small banks around the US, and will use capital raised in a public offering of portfolio company BankUnited if the initial public offering is ultimately successful.

“We view this as a very interesting acquirer of smaller, troubled banks in the market,” said Tony James, Blackstone’s president, during a media conference call about the firm’s third quarter earnings Thursday. “This gives us the capital base to take advantage [of some of those opportunities].”

BankUnited, which is owned by Blackstone, The Carlyle Group, WL Ross and Centerbridge Partners, is expected to file a $500 million IPO this week, according to various media reports. James didn’t deny the media reports, but said the firm has not yet filed anything.

Tony James

The consortium, which also included institutional co-investors like UK-based charity The Wellcome Trust, acquired BankUnited for about $900 million in a 2009 auction.

Blackstone is working closely with the FDIC on the IPO, James said. “We wouldn’t do anything the [FDIC] wasn’t supportive of,” he said.

Even if the IPO ultimately fails, Blackstone remains interested in buying smaller banks, both distressed and healthy, James said. BankUnited would not be Blackstone’s only platform for smaller bank acquisitions, and the firm is currently “working on two others”, he said without elaborating.

Blackstone on Thursday reported a net return for its private equity funds of 5.1 percent in the third quarter, compared to 3.9 percent in the same period last year and 2.5 percent in the second quarter 2010. The firm spent $679 million of limited partner capital in the third quarter and has $1.6 billion of capital committed to deals that have not yet closed.

Blackstone reported a drop in private equity revenues to $215 million in the third quarter, compared to $227 million in the same period last year. The slight change was due in part to decreases in performance fees.

The firm expects to close its sixth buyout fund by the end of the year just over $13.5 billion, James said. “At this point we haven’t announced a final number. We’ve told people [the fund will be] up over $13.5 billion,” James said.

Real estate returns

In real estate, the fund’s net return in its carry funds was 16.9 percent for the third quarter, compared with a negative 2 percent in the same period last year. Net returns for the real estate debt hedge funds declined slightly to 3.3 percent in Q3, compared to 7.8 percent in the same period in 2009.

Overall revenues in real estate in the third quarter increased in the third quarter to $258 million, compared to $100 million in Q3 2009. Over nine months, revenues increased to $618 million, compared to negative $131 million in the same period last year.

The revenue increases were due to improvements in performance fees and allocations and losses in investment income, which improved this year through better operating performance, projected cash flows and exit multiples across the real estate segments’ investments, the firm said.

Real estate opportunities “continue to improve”, James said, especially in areas like hotels. “Longer-cycle businesses” like offices have improved as occupancy levels have stabilised, he said.

The firm invested $689 million in the third quarter, up from $35 million in the third quarter of 2009. The firm has about $1.6 billion in investments that haven’t closed yet, he said.