May 15 (Bloomberg) -- Blackstone Group LP President Tony James said banks are mistaken if they think credit markets have begun a sustained recovery.

``It's not clear to me if it's a permanent upswing, as I think many of the banks are saying, or the eye of the hurricane,'' James told reporters on a conference call today.

High-yield, high-risk loan prices have climbed from a low of 86.3 cents on the dollar in February to 92.42 cents after banks whittled down a backlog of buyout debt to less than $100 billion from more than $300 billion last year. Banks still must find a way to sell loans and bonds backing the takeovers of telephone company BCE Inc. and Clear Channel Communications Inc.

Private equity firms Bain Capital LLC and Thomas H. Lee Partners LP, which are buying Clear Channel, had sued Citigroup Inc. and five other banks for trying to back out of financing the deal. San Antonio-based Clear Channel, the largest U.S. radio broadcaster, said this week it settled the legal fight by agreeing to a reduced buyout price of $17.9 billion, 8.2 percent less than the Boston-based buyout firms agreed to pay last year.

``The Clear Channel deal moving forward was a blow to the banks,'' James said on the call, noting credit prices have moved down two or three points since the legal fight ended. ``The next big event will be BCE, which is even bigger than Clear Channel.''

Blackstone Buying

Montreal-based BCE, Canada's largest telephone carrier, agreed to a C$51.7 billion ($50.7 billion) buyout by an investor group led by the Ontario Teachers' Pension Plan. Three of the banks that committed funding to the Clear Channel bid -- Citigroup, Royal Bank of Scotland Group Plc and Deutsche Bank AG -- are also financing the BCE transaction.

Banks are willing to lend for acquisitions, though ``I would not call it aggressive but they are open for business,'' James said. ``It's got materially better,'' he said.

New York-based Blackstone has committed to buy $7 billion of high-risk, high yield loans from banks in the past 45 days at discount to face value, James said. Banks are willing to finance those transactions, he said.

Blackstone, which went public last year, reported a loss of $66.5 million as fees tumbled in every business, including deal- making, hedge funds and mergers advice. The first-quarter net loss excluding some compensation costs was 6 cents a share, compared with a profit of $838.5 million, or 75 cents, a year earlier, the New York-based company said today in a statement.

That missed the average estimate of 12 cents a share by seven analysts surveyed by Bloomberg. Blackstone rose $1.04 to $20.54 in New York Stock Exchange composite trading. The stock has fallen 34 percent since the initial public offering in June.

To contact the reporter on this story: Pierre Paulden in New York at ppaulden@bloomberg.net

Last Updated: May 15, 2008 16:07 EDT