Blackstone skids on quarterly loss

Blackstone's units (blue) have lagged the broader S&P 500 index (yellow) since making their market debut in June.

LONDON (CNNMoney.com) -- One of Wall Street's most closely watched dealmakers said Monday opportunities were growing in the battered market for home loans given to borrowers with weak credit.

There are starting to be "real values" in subprime, Blackstone Group's Tony James said. He added that he was focused on mortgages themselves rather than the complex securities into which some of these loans have been packaged.

James, the president and chief operating officer of Blackstone, made the comments during a conference call with analysts to discuss the net loss the company posted in the latest quarter.

The New York-based company reported a net loss of $113.2 million, or 44 cents a unit, for the quarter ended Sept. 30. That compares with a $372.5 million profit in the year-ago period. The results included $802.6 million of non-cash compensation charges tied to Blackstone's initial public offering in June.

Revenue rose 14 percent to $526.6 million from $461.5 million in the third quarter, and total assets under management grew 57 percent to $98.2 billion, up from $62.7 billion in the year-ago period.

Private equity firms were dealt a blow this summer when investors started shunning risky debt, including bonds and loans used to finance corporate buyouts.

That segment of the debt market began to improve in the fall. But since then, another wave of fear - this time triggered by risky mortgage assets - has swept through the credit market.

James, the designated successor to CEO Stephen Schwarzman, told analysts he expects the mortgage wipeout to roil credit markets and restrain bank lending until early next year.

Most of the big banks don't have a clear picture of how the mortgage "black hole" will play out, and they're likely to remain restrained in advancing new credit until those problems are resolved, he said.

Major Wall Street banks have been rocked by writedowns stemming from the decline in value of complex securities backed by home loans. As a result, there are expectations that lending for everything from deals to home loans will be tightened.

Despite what he referred to as "very significant credit market dislocations," Schwarzman said there were both challenges and opportunities in the credit crunch.

"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," he said in a statement accompanying the firm's results.

Blackstone (Charts) units tumbled nearly 7 percent in midday trade as investors expressed disappointment with the results. Analysts surveyed by Thomson First Call had expected the company to post earnings of 30 cents per common unit on revenue of $765 million.

Revenue from the company's core private equity business soared 42 percent to $227.3 million during the quarter, boosted by a rise in fees. But the company's estate business suffered, with revenue sliding 44 percent to $109.1 million during the quarter.

Asset management revenue surged 88 percent to $124.9 million. Financial advisory revenue also jumped, up 60 percent to $84.3 million.

The results reflect Blackstone's first full three-month period since its $4.13 billion initial public offering in June.

Blackstone units are down about 40 percent from the all-time high of $38 they hit on their first day of trading on June 22.

Part of the reason for their decline has been the threat of higher taxes hitting private equity. Commenting on the tax outlook, James said higher taxes are likely on their way, but he emphasized there is no consensus over how bad the hit will be for private equity. A bill that would nearly double the amount of tax fund managers have to pay on their profits, passed the House on Friday and now moves to the Senate.