Carlyle Group Finds Upside In Banking Crisis

Although investors and policymakers are worried about the contagion the collapse of Silicon Valley Bank will have on global markets, private equity funds may use this opportunity to buy assets at a discount as they did during the 2008 financial crisis.

The Blackstone Group, The Carlyle Group, Kohlberg Kravis Roberts & Co. and others will likely be hunting for undervalued assets as they did during the 2008-2009 financial crisis when they took advantage of low prices to buy up debt and take control of companies.

“There are a lot of good opportunities,” David Rubenstein, Co-Founder & Co-Chairman of the Board for The Carlyle Group LP, told a conference virtually in Riyadh on Wednesday. “Because of what's going on in the financial sector, there will be some distressed opportunities for private equity as it did in 07,08, 09. We’ll probably find ways to take advantage in the sense of investing in these distressed opportunities.”

The collapse of Silicon Valley Bank, the biggest since the 2008 financial crisis, set off a chain reaction in global markets, one that led to the collapse of New York’s crypto-focused Signature Bank a few days later and a decline in share prices across different sectors and continents. The iShares US Regional Banks ETF cratered about 14.5% on March 13.

Another bank followed. A group of 11 lenders stepped in to save First Republic Bank from collapsing with a $30 billion deposit, which included $5 billion each from Bank of America, Citigroup, J.P. Morgan Chase, and Wells Fargo. The share price of Zurich-based Credit Suisse dropped to record low before it was bailed out by the Swiss National Bank.

“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” the Department of the Treasury, Federal Reserve, FDIC and OCC said in a joint statement.

Despite the show of support, the crisis in the American banking system may have an impact on the US economy. Goldman Sachs Research said that it has lowered its growth forecast as lending standards tighten among those institutions.

“While the macroeconomic impact of a pullback in lending is highly uncertain until the extent of the stress on the banking system becomes clear, economists in Goldman Sachs Research lowered their forecast for U.S. fourth-quarter GDP growth (year-over-year) by 0.3 percentage point to 1.2%,” Goldman Sachs said.

The collapse of Silicon Valley Bank and the tightening of lending will further impact the valuation of tech companies and start-ups, making them more attractive to investors looking to acquire new technologies, such as blockchain. The collapse of FTX and its impact on the cryptocurrency market and digital assets during the last year has also created opportunities to buy assets.

“Something interesting has happened with the onset of crypto winter and lower valuations for tech and all that has happened in the last year or so,” Bob Diamond, Founding Partner and CEO of Atlas Merchant Capital said in Riyadh. “It’s provided an opportunity for the incumbent financial institutions, particularly in the US, from JP Morgan to community banks, have an opportunity to acquire, to invest in existing technology in areas like blockchain.”

Carlyle Group’s Rubenstein echoed a similar sentiment.

“There are a number of really attractive opportunities in financial services, healthcare, and technology,” which is much less expensive than it was a few years ago,” Rubenstein said. There are” some very good opportunities in technology as well, particularly in artificial intelligence,” he said.