Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Zoopla wins back customers from online property rival

Zoopla chief executive Alex Chesterman has branded rival OnTheMarket “a failed experiment”, and said that his property site was winning back customers at a record rate. OnTheMarket was set up last year, aiming to compete with Zoopla and Rightmove, the UK’s two biggest property portals. It allowed estate agents to list their properties more cheaply […]

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Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Categorized | Financial

Carlyle in credit market warning

Posted on April 30, 2014

Carlyle co-founder Bill Conway warned that yield-starved investors were snapping up credit securities without properly evaluating risk, as the US alternative asset fund manager reported an 18 per cent decline in quarterly economic net income.

“Given geopolitical and macroeconomic events, we’re surprised at how ebullient credit markets have been in 2014. The world continues to be awash in liquidity and investors are chasing yields seemingly regardless of credit quality and risk,” Mr Conway said during a conference call with analysts on Wednesday.

    Institutional investors are investing in riskier debt securities such as leveraged buyout loans in their hunt for yield amid record low interest rates. They are also abandoning normal creditor protections at a faster rate and in greater proportions than at the peak of the credit bubble.

    Mr Conway said cheap debt financing inflated asset prices, making the investing environment “more challenging” for private equity groups such as Carlyle. But he insisted the firm’s dealmakers were still finding investments at “attractive prices”, while locking in low loan interest rates for their portfolio companies.

    Reflecting a buoyant environment for disposals, the Washington-based asset manager reaped $3.1bn in proceeds from selling assets in the first three month of this year, while spending €1.1bn on new deals, it said. Over 12 months, disposals have amounted to $16.3bn, compared with $6.8bn for new investments.

    The group committed another $3bn on new deals that have not yet closed during the quarter. Investments have included the acquisition of Johnson & Johnson’s ortho clinical diagnostics unit, worth about $4bn including debt.

    Economic net income fell to $322m before tax in the three months ended March 31, from $394m in the same period a year ago, weighed down by losses on international real estate assets and higher pay. The metric includes revenues from fees levied on assets under management and Carlyle’s share of profits on realised as well as unrealised gains.

    Although the investing environment has grown more challenging over the past few quarters, we have been successful in committing to several exciting investment opportunities, and we are executing sales at attractive prices around the world

    – Bill Conway, Carlyle co-chief executive

    The fund manager, which last month appointed JPMorgan executive Mike Cavanagh as co-president, said pay and benefits rose 27 per cent in the period, while revenues grew 5 per cent, boosted by new commitments from investors and an increase in the value of assets. Economic net income after taxes of $0.85 per share missed an analyst consensus of $1.01 per share compiled by Thomson Reuters. The figure was also affected by a $17m loss posted by Carlyle’s real asset operations.

    However, distributable earnings, which exclude the group’s carried interest on unrealised gains, advanced 7 per cent to $183m, or $0.52 a share, from $171m a year earlier. Carlyle amassed $5.5bn of new commitments in the quarter, which along with acquisitions, helped bring assets under management to $198.9bn.

    Private equity groups have rushed to sell stakes in their portfolio companies through listings and disposals to take advantage of stock markets nearing all-time highs. In turn, they have been more careful investing their funds amid high prices.

    Carlyle’s “dry powder”, the term used by private equity fund managers to describe unspent commitments sitting in their funds, stood at $56.3bn at the end of March, including $23.9bn in its corporate private equity funds.

    Shares were down 4 per cent to $32.75 as of 6.40pm GMT.