Blackstone says U.S. action could crack the crisis

By Megan Davies

DUBAI (Reuters) - Blackstone Group Chief Executive Stephen Schwarzman said on Tuesday the injection of government cash into U.S. banks, alongside similar measures around the world, could break the back of the credit crisis.

New York-based Blackstone, one of the world's biggest private equity firms, has been hammered as the year-long crisis practically shut down the credit markets.

A revival in leverage is vital for the firm to be able to do deals of any significant scale, and Blackstone's stock jumped 19 percent in early trading to $11.54.

"We will be looking today to an absolute sea change in the global financial system in terms of liquidity," Schwarzman told a packed room at the Super Return private equity conference in Dubai. This could be the action that "breaks the back of the credit crisis," he said.

He was referring to plans by the U.S. government to inject $250 billion into the nation's banks, following similar action in Europe, to revive money markets and try to stave off global recession.

Schwarzman said there was now "absolutely no reason" why anyone would have concerns or fears about putting money into the U.S. financial system.

Blackstone has taken part in some of the largest leveraged buyouts ever, such as the $23 billion purchase of Equity Office Properties Trust. But the future has looked increasingly bleak for private equity firms that rely on financing to strike leveraged buyout deals.

As the credit and equity markets stared into the abyss last week, Blackstone's share price slumped to a third of its $31-a-share initial public offering price in June 2007.

"We were at a complete freefall a week ago," Schwarzman said. "I think it was an unsettling experience for virtually everyone. It started spilling over into the real world."

But Wall Street roared back from its worst week ever with one of its best single days on Monday, as governments pledged to pour cash into struggling banks to restore confidence in a rocky global financial system.

Schwarzman told reporters on the sidelines of the Dubai conference that it would take several months before the banking system returned to better health.

Despite the credit freeze, he said there was still some access to financing.

"Certain of us still can obtain financing in the current environment," he said.

PRESSURE ON

The pressure is on to do deals because buyout firms raised billions of dollars from pension funds and other major investors during the private equity boom.