NEW YORK (AP) – Executives of Blackstone Group and Goldman Sachs Group Inc. said Monday they see opportunities in the deteriorating debt market, and plan to swoop in and buy some of those obligations at steep discounts.
The weakening of debt, triggered by collapsing demand for securities backed by subprime mortgages, has led to a wider credit crunch on Wall Street. While many big financial institutions have taken a beating and fled to safer investments, both Blackstone and Goldman see a chance to invest profitably.
Blackstone Chief Operating Officer Tony James said during a conference call that the company might even realize stronger profit margins buying cheap debt than if it had bought stock as part of a corporate takeover.
“We are starting to look directly at some of these distressed debt securities,” he said. “But, they aren't distressed from a credit perspective. I think we may be able to buy the debt in these companies and get a better return than then if we had bought the equity.”
At Goldman Sachs, Chief Financial Officer David Viniar on Monday revealed that three hedge funds the firm controls have been hurt because of recent market volatility. Big triple-digit swings in the Dow Jones industrials caused losses at the funds, but also created an opportunity for investors.
The venerable Wall Street investment bank signed billionaires Maurice “Hank” Greenberg and Eli Broad to provide $1 billion of a total $3 billion investment into one of Goldman's funds. It was not a bailout, according to Viniar, but an infusion of capital used to take advantage of lower debt prices.
“It is an attractive opportunity,” Viniar said. “While there is a lot of volatility and difficult market conditions, we also think there are a fair number of assets that are selling at distressed prices that really aren't distressed.”
“When we see those assets, we will try and take advantage of it,” he said.
Wall Street firms are looking to take advantage of the market's downfall. Buying mortgage-backed securities in the secondary market allows them to buy investments that have been steeply devalued, and then hold them until prices stabilize.
Goldman joined Bear Stearns Cos. and France's BNP Paribas in revealing that its hedge funds have been slammed by the credit market crisis. Bear Stearns earlier this summer disclosed that two of its multibillion-dollar funds were all but wiped out because of bets on mortgage-backed securities.
Last week, BNP Paribas said it would freeze three funds invested in U.S. asset-backed securities.