Blackstone CEO says financial rules must change

NEW YORK (Reuters) - The chief executive of private equity firm Blackstone Group (BX.N) said on Wednesday that the crisis striking Wall Street's banks makes it clear that rules governing the financial system need to change.

"We are in unprecedented territory right now," Stephen Schwarzman, asked about the events of the past week, said at a private equity conference organized by Dow Jones.

Schwarzman previously worked at Lehman Brothers LEH.P, which filed for bankruptcy this week.

"Seeing a firm basically evaporate like that is unsettling. It's a tragedy for the people working there and it is a sign that something is amiss with the financial system," he said.

It was "abundantly clear that the current regulatory structure for financial institutions doesn't work well," Schwarzman said.

"It's a whole series of different regulators that were created at different points in times," he said, adding it needed to be simplified and integrated. There should not be "venue-shopping for regulation," he said.

"When you have all of these rules, and companies are in compliance of these rules, and they're going out of business, something isn't right," he said.

Blackstone has taken part in some of the largest leveraged buyouts ever, such as the $23 billion purchase of Equity Office Properties Trust, and has also done numerous smaller buyouts.

The credit crunch last summer froze the debt markets for large leveraged buyouts, and private equity firms have instead been focusing on smaller deals, minority investments, and investing in debt or looking overseas.

Schwarzman said the fact that there would be fewer lenders available following the events of the last week "doesn't mean the aggregate amount of capital is down dramatically" but could take some lending capacity away.

Another shock to the financial world came on Monday when Merrill Lynch MER.N agreed to a hasty sale to Bank of America (BAC.N).

"Typically, when firms get together they don't keep the same lending capacity, there's usually a shrinkage of the two," he said.

He said there ought to be a "pretty robust environment when credit comes back," but because there would be less purveyors of capital, there would probably be more discipline from lenders in the terms and pricing they'd be willing to lend.

(Editing by Gary Hill)