Oct. 14 (Bloomberg) -- Blackstone Group LP Chairman Stephen Schwarzman said the U.S. government's plan to inject cash into financial institutions, coupled with similar actions by other nations, may jumpstart stalled global credit markets.

``We're looking today at an absolute sea change in the global financial system in terms of liquidity,'' Schwarzman said today at the Super Return Middle East conference in Dubai. ``This could be the time that breaks the back of the credit crisis.''

The U.S. plans to invest about $125 billion in nine of the country's biggest banks, including Citigroup Inc. and Goldman Sachs Group Inc., in exchange for preferred shares, people briefed on the plan said. The measure follows similar moves by European leaders to unfreeze credit markets and shore up confidence in the financial system.

``There is no reason in the face of this why anyone would have any concerns or fear about putting money into the U.S. financial system,'' Schwarzman, 61, said. ``Before this remarkable initiative, the cost of money for financial institutions was way higher than they could afford to lend it out. The system ground to a close.''

The cost of borrowing in dollars for three months fell from the highest level this year. The London interbank offered rate that banks charge each other for such loans dropped 7 basis points to 4.75 percent yesterday, the largest drop since March 17.

Buyouts Revived?

Restoring liquidity may accelerate the return of private- equity deals that have foundered amid a lack of financing from Wall Street banks struggling to survive. Announced transactions by leveraged buyout firms have dropped more than 70 percent so far in 2008 from the same period a year earlier, according to data compiled by Bloomberg.

Blackstone, which went public in June 2007 in the weeks before the credit crunch took hold, fell 74 percent through last week. The stock rose 26 percent to $10.08 in the past two days in New York Stock Exchange composite trading.

``What the governments have done will put us back into that world much quicker than we imagined,'' said Schwarzman, who founded Blackstone in 1985 with Peter G. Peterson, his former partner at Lehman Brothers Holdings Inc. Based in New York, the firm is the world's biggest leveraged-buyout firm.

Equity Office

Four months before going public, Blackstone won what was then the biggest leverage buyout when it bought Samuel Zell's Equity Office Properties Trust for $39 billion.

The same day, Feb. 7, 2007, Blackstone sold eight office New York City buildings from the Equity Office portfolio to Macklowe Properties, led by Harry Macklowe. After credit became tougher to get, Macklowe lost control of seven Manhattan skyscrapers to Deutsche Bank AG earlier this year.

Blackstone sold enough of the Equity Office properties to almost pay off the deal.

Values for U.S. office buildings fell 7.8 percent from their peak in June 2007, according to Moody's/REAL National Commercial Property Price Index.

Schwarzman echoed comments earlier in the day from Thomas H. Lee Partners LP Co-President Scott Schoen, who said private equity firms' returns to their investors will suffer from the high prices and debt loads placed on companies during the two- year buyout boom that ended in 2007.

Returns from buying investments, fixing them up and selling them again may decline to about 8 percent this year from their historic level of more than 20 percent, Schoen said in a separate speech in Dubai today.

``It's extremely difficult to achieve returns as in the past when you're selling into a lower-priced environment,'' Schoen said. ``We've seen what happens when credit dries up and confidence goes away.''

To contact the reporter on this story: Jason Kelly in Dubai at jkelly14@bloomberg.net

Last Updated: October 14, 2008 10:48 EDT