Blackstone in talks with US regional banks over lending partnerships
Talks comes as Federal Reserve warns of credit crunch following worst industry turmoil since 2008
Antoine Gara in New York
Jon Gray, president of Blackstone, said: ‘What’s really changed from our standpoint is that we have a very low-cost capital because of our insurance clients’ © Simon Dawson/BloombergBlackstone is in discussions with large US regional banks about providing them with extra firepower to lend to companies amid signs the recent industry turmoil is morphing into a credit crunch.
Jon Gray, president of Blackstone, told the Financial Times his company was talking to regional banks about entering into partnerships, which would involve lenders making or “originating” loans that the private equity group can funnel to its insurance customers.
“The discussions we are having is to potentially partner with a regional bank,” Gray said in an interview.
He declined to name the lenders involved in the negotiations but said they had between $100bn and $250bn in assets.
Under Gray’s proposal, the insurers would pay a fee to Blackstone for directing the assets their way.
It comes as private capital giants such as Blackstone, Apollo Global, KKR and Ares Management explore ways to increase their exposure to credit after the collapse of two large US regional banks, Silicon Valley Bank and First Republic.
The Federal Reserve on Monday warned the collapse of the lenders was fuelling a “sharp contraction” in credit that could “drive up the cost of funding for businesses and households”.
Gray said regional banks were still best placed to decide whether to lend to commercial and real estate clients, describing them as having “powerful origination capabilities and relationships”.
But he said groups such as his could be a “valuable partner” by helping to offload some of the risk after a loan has been securitised.
“Rather than putting all [of the risk] on its balance sheet, maybe they keep 50 cents [on the dollar], and put 50 cents with us.”
Blackstone plans to channel the securities to asset-hungry insurers which would hold the debt to maturity.
“What’s really changed from our standpoint is that we have a very low-cost capital because of our insurance clients,” Gray said.
Blackstone does not have a controlling stake in any insurers but offers asset management services to large players such as AIG.
These customers, Gray said, are a natural home for assets that might otherwise be held on banks’ balance sheets.
The talks between Blackstone and regional lenders come at a time when private equity groups are making a big push into the insurance sector, which hoovers up trillions of dollars of debt each year.
Apollo chief executive Marc Rowan said on an earnings call this week that he expects his group to dramatically increase lending following the banking turmoil.
The New York group has in recent years built more than a dozen lending businesses that write loans, which sit on the balance sheets of the insurers it owns. The company has forecast these units could originate at least $150bn in annual loans by 2026.
Earlier this year, Apollo increased its own securitisation capabilities by buying a significant chunk of Credit Suisse’s securitised products division.
The unit, now called Atlas SP, lent US regional bank PacWest $1.4bn in March and accepted some of the lender’s asset-backed securities as collateral.
“The banking system wants the client, but not the asset,” Rowan said, echoing Gray’s opinion that in many cases the lender should still have the primary relationship with customers.
Rowan said his group did not pose a significant threat to traditional lenders.
“I assure you that the CEOs of the four big banks in the US do not wake up every day wondering what the mighty Apollo is doing,” he said.
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