Blackstone Group expects credit tightening to continue into early 2008

By Jennifer Lanning Drey

Portland, Ore., Nov. 12 - The Blackstone Group expects banks to remain guarded into early 2008 regarding advancements of new corporate credit, chief operating officer Tony James said Monday while commenting on the general state of the credit markets during the firm's third-quarter earnings call.

James said that while banks have made good progress toward eliminating their backlogs of leveraged financing deals since September, in many cases, mortgage-related write-offs have now taken over as their bigger concern.

"Leveraged finance is really the tail of the dog, although it got a lot of the early focus," James said.

"The mortgage black hole, I think, is worse than anyone thought - deeper, darker, scarier than what the banks thought."

James believes most banks don't have a clear picture of how the mortgage-related write-offs will play out and, therefore, will remain restrained with regard to advancing new credit until they have a better sense of where the market stands.

"Their confidence is low," James said.

Blackstone said the credit dislocation and weak equity market experienced during the third quarter made it difficult for Blackstone to finance very large leveraged transactions but that pricing of assets is more favorable in the short term.

The Blackstone Group is a New York-based alternative asset manager and provider of financial advisory services.

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