Private equity lays a bigger golden egg on Wall Street

Posted Jul 12th 2007 10:27AM by Peter Cohan
Filed under: Private Equity, Citigroup Inc. (C), JPMorgan Chase (JPM), Goldman Sachs Group (GS), Blackstone Group L.P (BX)

Bloomberg News reports that private equity is on track for a record year of fees paid to Wall Street. LBO firms paid investment banks $8.4 billion during the first half of 2007, putting the buyout industry on pace to exceed 2006's $12.8 billion. If the current pace continues -- and that's a big if given the financing challenges they have been facing -- LBO firms would pay $16.8 billion to Wall Street by the end of 2007, a 31% increase over 2006.

Who's paying the fees? Here are the top four:

Blackstone Group LP (NYSE: BX): $685.4 million
KKR: $334.8 million
Apollo Management: $407.5 million
CVC Capital Partners Ltd.: $309.1 million

And who's getting them? These five banks profited the most:

Goldman Sachs Group Inc. (NYSE: GS): Goldman, which has a $20 billion fund, actually paid out fees of $250.1 million for advice on LBOs while also leading the pack in earning fees from other LBO funds. Goldman took in $790 million in fees for helping arrange deals for companies. It's not clear to me why Goldman didn't use its own people to advise its LBO funds and saved that $250 million.
JPMorgan Chase & Co. (NYSE: JPM): second-most fees from LBO firms.
Credit Suisse Group was third.
Frankfurt's Deutsche Bank AG (NYSE: DB) was fourth
Citigroup Inc. (NYSE: C) was fifth

What's been driving these fees is takeovers by LBO firms totaling $670 billion in the first half of 2007, more than double the same period in 2006. With financing difficulties, it remains to be seen whether the party will continue. And if it does not, what will the banks do to make up the difference? The answer to that question is above my pay grade.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. Of the securities mentioned, he owns Citigroup stock.

Tags: apollo group, ApolloGroup, blackstone, bx, c, citigroup, credit suisse, CreditSuisse, cvc capital, CvcCapital, db, deutsche bank, DeutscheBank, goldman sachs, GoldmanSachs, gs, jpm, jpmorgan chase, JpmorganChase, kkr