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Archive for December 9th, 2010

“We also do cut-glass sherry decanters complete with six glasses on a silver-plated tray that your butler can serve you drinks on, all for £4.95. People say, “How can you sell this for such a low price?”, I say, “because it’s total crap”
Gerald Ratner, 1991 in a speech that practically led to the collapse of Ratner’s jewellery chain

The activity of vultures is never pretty but in an economic sense they do bring liquidity and sense to markets which are in distress. They have their place. But sometimes you get one headed up by someone with a careless mouth – like the chief executive officer and co-founder of US private equity and property specialist, the Blackstone Group, Steve Schwarzman, who is reported by CNBC and thebusinessinsider.com as having let rip at the Obama strategy for the US economy in a speech given at a Goldman Sachs U.S. Financial Services conference this week. He’s “outta here” as far as the US is concerned. And he’s Europe-bound where he sees opportunities. He might regret his choice of words though for describing opportunities in foreign lands – given the size of Blackstone though, perhaps not to the same extent as the hapless Gerald Ratner did with describing his company’s wares as crap in the 1990s.

NAMA is not likely to be enamoured with what Steve had to say about it – “they [Ireland] just set up a massive R.T.C. – they barely know what they own”. RTC is the Resolution Trust Corporation, the agency used by the US in the 1990s to deal with the collapse in their Savings and Loan sector (akin to our credit unions). So Blackstone thinks NAMA “barely know what they own”.

It gets better – in terms of investing in distressed foreign markets Steve said “you want to wait until there’s really blood in the streets.” Elsewhere Steve talked about deals where you can “double your money within a few months”, where returns on loan deals are 30-40% and mezzanine finance without risk is returning 13%. And in respect of Ireland that NAMA will start selling stuff at a clearing price. I would recommend you listen to the speech (free registration required) – it’s 38 minutes long and Europe/Ireland/NAMA kick in after 30 minutes. It is known that NAMA has rejected the advances of several bottom-feeders and vulture funds in recent months. It seems though that the vultures are a patient bunch and willing to wait until the corpse of the economy deteriorates further.

Have some sympathy for poor old Paddy McKillen and his Maybourne group which owns Claridge’s, the Connaught and Berkeley hotels in London which is reportedly in refinancing talks with John Kukral, formerly of Blackstone, and now of Northwood Investors. Indeed Blackstone was a one-time owner of the Savoy group which included the three hotels in the Maybourne group and the Savoy which was sold by Maybourne soon after their takeover of that group.

And to conclude, at the Goldman Sachs conference, Steve apologized that Blackstone’s president, Hamilton James, could not make it – “he’s in Brazil,” Steve said “which should tell you a little bit about the way the world is headed.” I think Steve meant the world was headed anywhere but towards the Obama economic vision for the US. You can’t help but think that for Blackstone’s prospects in Ireland though, it may portentously mean that they’re just going south.

UPDATE: 11th December, 2010. Demonstrating that there are two sides to the investment coin, former FG Taoiseach John Bruton has been busy in his role as promoter of the Irish Financial Services Centre (the IFSC or “Liechtenstein by the Liffey”). He has been touring the Middle East (Qatar, Bahrain , the UAE and Saudi Arabia) trying to attract banking business to Ireland. Ancillary to this it seems, he has been trying to sell the attractiveness of investing in Irish banks and indeed Irish property managed by NAMA.

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