Carlyle Group co-founder David Rubenstein told Yahoo Finance:
“I think First Republic Bank is clearly on a watchlist, and probably somebody at some point will buy it. But the challenge there is that it needs government assistance.”
Will Carlyle be part of that somebody at some point who buys First Republic?
“There's a big hole in the balance sheet of First Republic Bank, I've been told. And therefore, I suspect the government will have to provide some assistance if that deal's gonna get done.”
Sheila Bair's FDIC gifted BankUnited to a consortium of private equity underwriters (PEU) during the last financial meltdown. It was a hugely profitable venture for Carlyle, Blackstone, Centerbridge and W.L. Ross.
Rubenstein says he isn’t seeing the same type of contagion in the financial system as occurred in 2008 when over-leveraged investment banks like Lehman Brothers and Bear Stearns went bust.
Carlyle Capital Corporation, a highly leveraged mortgage back securities fund, failed in March 2008. Some saw it and Bear Sterns as canaries in the financial crisis coalmine, which collapsed in September 2008.
Carlyle wins no matter what in First Republic's failure. Tighter bank lending has pushed borrowers to private equity for credit.
Avenue Capital CEO Marc Lasry said banks should be lending at 5% but since they're not his firm gets to offer loans at 15%.
The story described Rubenstein as "one of the most plugged-in high financiers." Fed Chief Jay Powell once worked for Carlyle. Rubenstein sits on an Investor Advisory Committee for the New York Fed.
He's also been called a "policy making billionaire." How will Uncle Sam's largess benefit Rubenstein and his PEU brethren, directly or indirectly? Time will tell.
Rest assured that politicians Red and Blue love PEU and increasingly, more are one.
Update 4-18-23: Private equity has the same issue as banks in that their holdings are worth less today. The Spread Thread tweeted:
... credit rationing carries forward to small/mid-sized businesses. The leveraged loan market is probably most representative of mid-sized companies, and here, borrowing costs have surged. Small business borrowing costs are in the teens in many cases at this point. That matters.
FT noted that public pension funds are starting to write down their commercial real estate holdings.
Update 4-22-23: Fox Business News reported:
"These PE funds overpaid for stuff and now we’re saying ‘you’re not generating good returns, so go pound sand,’" said one official at a major public pension fund who spoke on the condition of anonymity. "They have taken their eyes off the collective ball and they’re now collectively panicking that they’re badly missing their numbers."
Update 5-4-23: Insurance companies are next to fall into the asset devaluation sinkhole. Carlyle highlighted their partnership with Fortitude Re and how that will drive fees and profits. Prudential reported a 12% decrease in AUM in their Q1 earnings report. Can Fed Chair Jay Powell get interest rates low enough in time to save Carlyle and its wave of affiliate refinancings starting in 2025?
