Schwarzman Said to Avert Financial Disclosure in Stock Reshuffle
Stephen Schwarzman, the chief executive of Blackstone (BX) Group LP who said four months ago he pays an effective personal income tax rate of 53 percent, is taking steps to avoid releasing his personal financial information, according to a person familiar with the plans.
Blackstone, the world’s biggest private-equity firm, is reducing its voting rights in BankUnited Inc. (BKU) by converting some shares so that Schwarzman doesn’t have to disclose his financial information to the U.S. Federal Reserve, said the person, who asked not to be named because the information is private.
Compensation of private-equity managers and their taxation has come under scrutiny by U.S. lawmakers, who are considering proposals to eliminate tax breaks that benefit some of the richest Americans. Mitt Romney, the Republican presidential candidate and former Bain Capital LLC CEO endorsed by Schwarzman, said this month his effective tax rate is close to 15 percent, less than half the top rate on ordinary income.
The rate for private-equity executives can be lower because a large part of their income is so-called carried interest, or the share of profits they receive as compensation from the funds they run. Private-equity funds buy companies, financing the purchase by borrowing against the acquired assets with the goal of selling the company later at a profit.
Schwarzman, 64, had a net worth of $4.7 billion as of September 2011, according to an estimate by Forbes Magazine. He told CNBC in September that he was taxed at 36 percent by the U.S. and 17 percent by state and local governments in 2010, and he endorsed a flat tax as part of comprehensive reform of the U.S. tax code. Schwarzman earned $398.3 million in 2006, the year before his firm went public, raising $4.75 billion.
Blackstone, which owns 14.1 percent of BankUnited, Florida’s second-biggest bank, will convert part of its stake to nonvoting preferred stock, said the person.
Christine Anderson, a spokeswoman for Blackstone, declined to comment.
BankUnited was among U.S. lenders that failed during the U.S. housing market’s collapse, prompting regulators to seize its operations and sell most of them in 2009 to a group of private-equity investors.
Blackstone, Carlyle Group LP, WL Ross & Co. and Centerbridge Capital Partners LLC still hold stakes in the bank totaling more than 50 percent, according to regulatory filings compiled by Bloomberg. The investors raised about $900 million in an initial public offering last January, triple what the bank had registered to sell.
The bank this week ended a sale process after receiving takeover offers that fell short of the board’s expectations, according to people with knowledge of the situation. The Miami Lakes-based company said it will instead focus on building its business in Florida.
The Fed requires personal information from bank owners who hold substantial stakes in order to evaluate the financial safety of the institutions. Blackstone’s plan to change the structure of its investment in BankUnited was reported earlier today by the Wall Street Journal.
“If we are to reform taxes and cut spending sufficiently to make a difference, virtually everyone will be affected,” Schwarzman wrote. “Broad-based tax reform will put everything on the table, from the rates we pay at every bracket to serious thinking about a flat tax regime with few or no deductions.”
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