Blackstone

45 per cent of world wealth destroyed: Blackstone CEO

NEW YORK: Private equity company Blackstone Group LP CEO Stephen Schwarzman said on Tuesday that up to 45 percent of the world’s wealth has been destroyed by the global credit crisis.

‘Between 40 and 45 percent of the world’s wealth has been destroyed in little less than a year and a half,’ Schwarzman told an audience at the Japan Society. ‘This is absolutely unprecedented in our lifetime.’ But the US government is committed to the preservation of financial institutions, he said, and will do whatever it takes to restart the economy.

US Treasury Secretary Timothy Geithner plans to unfreeze credit markets through a new program that will combine public and private capital in a fund that would buy bank toxic assets of up to $1 trillion.

‘In all likelihood, that will have the private sector buy troubled assets to clean the banks out in terms of providing leverage...so that we can get more money back into the banking system,’ Schwarzman said.

He expects the private sector to end up making ‘some good money doing that,’ but added there were complex issues on how to price toxic assets.

He put part of the blame for the financial crisis to credit rating agencies. ‘What’s pretty clear is that, if you were looking for one culprit out of the many, many, many culprits, you have to point your finger at the rating agencies,’ he said.

Rating companies have been the focus of intense criticism for their role in granting top ‘AAA’ ratings for complex bonds that later plummeted in value, resulting in subsequent rating cuts, in many cases to junk status.

Schwarzman said problems were then exacerbated by mark-to-market accounting rules. Those rules ask banks and other financial institutions to price assets at a value related to how they would be sold in the open market.

Blackstone reported a quarterly loss in February after writing down the value of its portfolio and eliminated its fourth-quarter dividend.

Asked what a good place to invest was, Schwarzman said it made sense to buy cyclical names, which are less exposed to the economic cycles.