Credit crisis to blame for Carlyle collapse

Bankers are terrified by the fall of one of the world’s strongest equity funds, but no steps have been taken to try and rescue the firm

YIANNIS PAPADOYIANNIS

The financial world has been shaken by news of the collapse of the Amsterdam Stock Exchange-listed Carlyle Capital Corporation Ltd (CCC), as a result of the global credit crisis.

CCC is an investment fund belonging to the powerful private equity Carlyle Group.

The US-led global credit crisis may be worsening, but the collapse of a “triple A” fund like the Carlyle Group, with investments in securities of the highest credit rating (AAA), was something unexpected.

The development is also seen as a strong blow to credibility: If AAA-rated organizations can sustain such losses, then what else is to be expected? A lot, some bankers say in terror.

The Hellenic Republic enjoys a significantly lower rating, A (from Standard & Poor’s), while the only domestic organization with a higher credit rating is Emporiki Bank (A, Aa3, A+, by various rating houses), and this is simply because the bank is now a subsidiary of France’s Credit Agricole.

The losses incurred by Carlyle Group were not significant, given that CCC is an independent legal entity, in which Carlyle Group has only invested limited own equity. However the fact that it did not make any efforts to try and save its own subsidiary, letting it go bankrupt and severely harming the group’s name, points to the severity of the case.

But in essence, CCC has lost money which belonged to others, since for each $1 million, it borrowed a further –30 million and then invested the funds in US residential securities.

Another interesting point to consider is the stance maintained by banks. When you are unable to find a way out to refinance one of your best clients, then something has really gone wrong.

Carlyle Group is one of the world’s strongest investment groups, and its portfolio includes placements in strategic sectors, such as aerospace and defense industry, energy, advanced technology, telecoms and media.

Carlyle has also been associated with the Agricultural Bank of Greece (ATEbank), which however says it does not hold any shares.

ATEbank says it has only invested in four different equity funds of the Carlyle Group, “none of which faces any problems, and they are not exposed to US residential securities,” ATEbank officials said.

In 2007, the Greek credit institution invested in the above equity funds some –52 million, which returned an overall –11.9 million.

In the past certain rumors circulated, according to which Carlyle was eyeing some Greek organizations, such as Alpha Bank or the Public Power Corporation, but they were never confirmed.

Carlyle Capital Corporation Ltd was founded in 1984 and manages assets totaling $75.5 billion.