Business Insight Zone

I’ve long been a fan of the Wall Street Journal’s Deal Journal blog, and these two posts on The Blackstone Group from Heidi Moore will illustrate why — at least if you’re a fan of hard-core high finance:

• Blackstone: ‘The Credit Markets Have Bottomed Out’
• Live-Blogging the Blackstone Earnings Call

Moore’s got wit, and I laughed out loud more than once as I read through these two live-blogged conference calls (one for press, one for analysts). She makes funny comments about the hold music, the repeated technical difficulties on the second call, and any number of financial points.

(This, by the way, is one of the things I love about reading blogs as compared to traditional print media. If a Blackstone honcho says something funny, why not share the joke instead of couching everything in formal journalese?)

Why Blackstone is so interesting

First, because I’ve been covering them for a while. If you’re a truly old-school reader of this blog, you’ll recall that I covered Blackstone’s IPO (here, here, here, and here) in the summer and fall of 2007, but I had already been an interested spectator of Steve Schwarzman and his firm for years before that.

Second, because of what we can learn from the best companies in a given field. On the one hand, it can be revealing to see how firms handle disaster (Lehman), imminent disaster (Merrill), or slow decline (Yahoo).

But on the other end of the spectrum, you have those bellwethers — I’ve used the example of Toyota before – whose results tell you what the bedrock conditions are for their industries. When Alcatel-Lucent says it’s facing tough times, well, the company’s been listless, if not pathetic, for quite a while, so you discount what it says. But when Cisco says that times are dire, as it did yesterday, you can take it as gospel.

Why it’s good to be Blackstone right now

In short form: because the firm is well-run and has truckloads of money. (”We have a bulletproof balance sheet with no net debt.”)

Beyond that, Moore’s reports talk indicate how the diversity of Blackstone’s business helps it weather the current economic storm. So, for example, while its commercial real estate unit is facing lean times, its bankruptcy-advisory unit is looking ahead at a couple of years of brisk business.

From the sound of it, Blackstone has also done a very good job of limiting its exposure to bad debt, enough so that Moore can report, “Blackstone is in the ‘enviable’ position of being a buyer of assets. If they do say so themselves.”

What’s going on in the markets

Some excerpts:

[Blackstone president Tony] James says the real estate market has not bottomed out, except for subprime. He expects trouble in commercial real estate when borrowers have to roll over their financing. . . . He expects the economy to have another six months of decline. Well. That’s cheery.

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When will leveraged finance be better? James says the bottom for finance was Oct. 10. . . . No real clue on when the equity markets bottom, however.

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M&A business in general is down, but many corporations are viewing this as a historic buying opportunity because valuations are low, and the antitrust regulations are relatively benign. That may change in a new administration.

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How will Blackstone exit its investments? Not through IPOs, that’s for darn sure. James says the firm will exit by selling companies to other private equity firms or strategic buyers.

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[Blackstone co-founder Steve] Schwarzman . . . sums up by saying that the fourth quarter will probably read very badly for the economy, because consumers were in a financial panic between late September and mid-October. The upshot: severe consequences in the fourth quarter.

There’s much, much more than this, so do check out both posts if you want some inside-baseball finance from one of the biggies. For now I’ll leave you with the best tidbit gleaned from the posts, one that reaches far beyond’s Blackstone’s fortunes:

“We’re out of the woods for a systemic meltdown.”

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Category: Company of the Day, Economics, Finance & Real Estate