Blackstone Posts 3Q Loss on IPO Charges By Joe Bel Bruno, AP Business Writer

NEW YORK (AP) -- Blackstone Group LP President and Chief Operating Officer Hamilton James said Monday the slumping private-equity market might not fully rebound until major Wall Street banks get a better handle on the credit crisis."The mortgage black hole is worsening...it is deeper, darker, scarier than what the banks originally thought," he told analysts during a conference call. "My sense is they don't have a clear picture of how this will play out, and their confidence is low."

James said the banks -- pressured by massive writedowns from losses linked to subprime mortgages -- will keep lending standards tight for the time being. He believes the market for leveraged loans, which buyout funds use to finance deals, appears to be picking up after a crippling summer.

Banks like Citigroup Inc. and JPMorgan Chase & Co. are doing a good job in selling an estimated $300 billion of backlogged debt committed to leveraged buyouts, he said. But, James doesn't see most of the subprime mess -- and a full rebound in the debt markets -- until sometime next year.

Blackstone's third-quarter loss was pinned on charges related to its initial public offering and lower real-estate fees. The buyout shop posted losses of $113.2 million, or 44 cents per share, which included the impact of $802.6 million of non-cash charges for compensation and other items linked to its IPO.

Stripping out those charges, the New York-based buyout fund reported a profit of $234 million, or 21 cents per share. Analysts polled by Thomson Financial expected a profit of 30 cents per share and Blackstone shares fell more than 6 percent Monday.

Revenues rose to $526.7 million from $461.5 million a year earlier. Deals signed during the quarter included Blackstone's $20 billion acquisition of Hilton Hotels.

It was Blackstone's first full quarter operating as a public company after its debut on the New York Stock Exchange in June. The company was founded in 1985 by Stephen Schwarzman and Peter G. Peterson, and its IPO was one of the most heavily watched amid a boom in big private equity deals during the past few years.

Yet the stock is down some 38.9 percent since Blackstone went public, and fell $2.02, or 8.3 percent, to $22.26 Monday.

Schwarzman said the tightening global credit conditions created a "dampening effect" for new corporate buyouts, though he believes many sellers will lower their price expectations going forward.

"While it will be difficult to structure very large leveraged transactions in corporate private equity and real estate until the credit markets improve, pricing of assets is more favorable," said Schwarzman, the company's chairman and chief executive, in a statement.

Revenue from Blackstone's largest business, corporate private equity, rose 42 percent to $227.3 million. The business also posted transaction fees of $11.9 million.

Meanwhile, the company's hedge fund business rose 88 percent to $124.9 million during the quarter. Blackstone took advantage of market volatility during the quarter, securing big gains from its hedge and proprietary trading funds.

The same volatility sliced into Blackstone's real estate group, which dropped 44 percent to $109.1 million. The drop was blamed on weakness in commercial real estate stemming from declines in subprime residential lending.

The real estate business operates companies like Equity Office Properties Trust, which it acquired earlier this year. It also controls hotels and resorts through the Hilton acquisition.

Blackstone owns broad swath of businesses -- from London Eye and Legoland operator Merlin Entertainment Group to Pinnacle Foods Corp. -- but hopes that those interests would sustain profits during a rough quarter failed to materialize.