'Sub-prime black hole is getting scarier'

Blackstone's president warned that the sub-prime crisis on Wall Street was getting "deeper, darker and scarier" yesterday as the US private equity firm posted a loss for the third quarter, hit by a fall in real-estate revenues and charges related to its initial public offering.

Shares in Blackstone fell 8.3 per cent as it revealed a net loss of $113m (£55m) for the three months to the end of September, under the impact of $803m of non-cash charges related to its IPO on the New York Stock Exchange in June. The real-estate division, where quarterly revenues were down by 44 per cent, came under pressure from the sub-prime mortgage crisis. In contrast, the firm reported net income of $372.5 m last year.

Blackstone's group president and chief operating officer, Hamilton James, told investors that sub-prime woes were getting worse. "The sub-prime black hole is appearing deeper, darker and scarier than they [investment banks] thought." While he estimated that banks were about halfway through offloading the leveraged debt backlog on their books, he added that only 15 per cent of bank losses were related to leveraged loans rather than the sub-prime market.

The firm's co-founder, Stephen Schwarzman, echoed Mr James, highlighting the impact of 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, the pricing of assets is more favourable," he said.