Fortress Likes Financials

Will private equity lead new investment?


Private-equity firm Fortress Investment Group (FIG) says it won't pay a third-quarter dividend so it can invest in...the financial sector.

"Given the significant dislocations in the world's financial markets, we see tremendous opportunities for the firm to invest capital and to grow and diversify our business. In particular, we are focused on potential investments in banks, insurance companies and other asset-management businesses," CEO and Chairman Wesley Edens said.

Analysts see more buyers lining up to send cash back to one of the more battered bits of the market after Warren Buffett's $5 billion investment in Goldman Sachs this week. On Wednesday, Legg Mason's Bill Miller told reporters, "There's a lot of capital out there ready to come in, as long as it believes that it is not going to be treated punitively if things don't go well." Fortress shares were up about 4 percent at midday Thursday, at $13.52.

That doesn't mean average investors should swarm back into financials. There has been a lot of pain so far, and the damage isn't over, even if the government passes its $700 billion bailout this week.

And Fortress may be ready to buy, but Standard and Poor's thinks that won't help the firm much this year. It cut Fortress to "sell" from "hold" today, saying that while the dividend cut will preserve about $25 million in capital, S&P is "less optimistic about flows to funds and performance fee income in the second half." It cut '08 earnings projections from 61 cents to 50 cents a share and left its price target at $12.