Blackstone taps regional banks

Private equity giant Blackstone is in talks with large regional banks in the US to give them more lending power ahead of a credit crunch. Jon Gray, the president of Blackstone, revealed the talks in an interview with the Financial Times. He said that the private equity company was discussing potential partnerships with banks which had between $100bn and $250bn in assets. The partnerships would involve the banks originating loans which Blackstone would then pass on to its insurance clients. In return, Blackstone would receive a fee for moving the assets to its clients.

Gray said that regional banks are still in the best position to determine whether to lend to commercial and real estate customers. They have “powerful origination capabilities and relationships.” But operations like Blackstone could be a “valuable partner” by helping to lessen some of the risk once a loan has been secured. Rather than putting all the risk on its balance sheet, the bank could keep 50 cents on the dollar and put 50 cents with Blackstone.

The talks come as private capital firms, like Blackstone, seek ways to boost their credit exposure following the recent regional banking crisis. The Federal Reserve warned that the failure of lenders such as Silicon Valley Bank and First Republic Bank had driven a “sharp contraction” in credit that threatened to “drive up the cost of funding for businesses and households.” According to the central bank’s “April 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices,” published on Monday, banks anticipate lending to contract.

Banks expect “deterioration in the credit quality of their loan portfolios and in customers’ collateral values, a reduction in risk tolerance and concerns about bank funding costs.” Other concerns include the banks’ liquidity position and deposit outflows. These factors point to a season of tighter lending standards for the remainder of the year. In the first quarter, banks tightened their standards for loans, and they also saw lower demand for loans from businesses and consumers.