Blackstone Inc.’s Steve Schwarzman expects most US banks to withstand the current industry turmoil, blaming it on the after-effects of the pandemic and technology rather than a wave of bad loans.
“The banking system is not in any type of conventional crisis,” Schwarzman said in an interview in Tokyo on Thursday. “We have just an interim issue with interest rates being up and we have a deposit issue caused by technology. And these are both solvable problems for the vast number of banks.”
The rapid collapse of Silicon Valley Bank and two other regional US lenders has fuelled concern that others may succumb to deposit runs. Mobile phone apps that have enabled people to communicate and move their money quickly, coupled with a massive increase in deposits after the pandemic, led to the current tumult, Schwarzman said.
“This crisis was caused by people on iPhones and other devices, hearing on social media that some bank might be in trouble,” the billionaire Blackstone co-founder said. “They responded with huge withdrawals in a very short period of time, collapsing the bank.”
Others including Citigroup Inc. Chief Executive Officer Jane Fraser have also pointed to the role played by mobile banking, which allows depositors to move millions of dollars with a few clicks of a button.
While rising interest rates have decreased the value of bonds held by banks, most of them “are government securities so if you wait long enough, they will be repaid,” Schwarzman said. Loans are “in good shape” and lenders have much bigger capital buffers than 15 years ago, he added.
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Schwarzman, who is CEO of the alternative asset manager, made a distinction between banks and financial firms that don’t handle deposits.
“It’s important to understand that the risk is really restricted to the banking system because of the deposits, and has almost nothing to do with other types of financial institutions which don’t have the requirement to give people their money instantly.”
His firm’s flagship private real estate investment fund, Blackstone Real Estate Income Trust Inc., has also faced pressure from investors to pull out funds, leading to the restriction of withdrawals for four months.
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But Schwarzman said Blackstone’s property investment is in good shape, noting that it has slashed investment in office buildings while other markets such as warehouses are doing well.
Schwarzman said he’s carefully watching whether the banking issues and higher interest rates will weaken global growth. It’s “logical” for the Federal Reserve’s rate hikes to slow the economy, putting pressure on asset valuations, he said.
That would provide buying opportunities for Blackstone, which had US$187 billion in dry powder at the end of 2022.
“There will be a right time to be deploying a lot of that money,” he said.
