"Opportunistic" BlackRock thrives in credit turmoil

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BOSTON (Reuters) - The U.S. credit market turmoil is battering the financial sector but is proving to be a bonanza for money manager BlackRock Inc <BLK.N>, which, with its deep fixed income roots, has assumed the role of clean-up king.

By Muralikumar Anantharaman

BOSTON (Reuters) - The U.S. credit market turmoil is battering the financial sector but is proving to be a bonanza for money manager BlackRock Inc <BLK.N>, which, with its deep fixed income roots, has assumed the role of clean-up king.

The biggest listed U.S. asset manager saw its shares close Wednesday at $202 up 45 percent from its 52-week low set on August 16 in the midst of this year's first wave of credit collapse.

Florida officials accepted BlackRock's offer to keep a $14 billion investment pool for local governments afloat by isolating $2 billion of the fund's worrisome holdings and restrict withdrawals.

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BlackRock's appointment as an interim administrator to the Florida fund comes as it tries to become the lead manager for a roughly $75 billion fund being created by America's three biggest banks to support the asset-backed securities market.

"They've got long-standing expertise in risk management and fixed income and in managing portfolios of complex structured products. People hire them for their expertise and experience in doing that," said Robert Lee, analyst at Keefe, Bruyette & Woods.

Last week, BlackRock affiliated firms invested $100 million in notes of E*Trade Financial Corp <ETFC.O> and picked up a 1.14 percent equity stake in the discount broker as part of a $2.55 billion cash bailout of E*Trade by hedge fund firm Citadel Investment Group. Lee of Keefe, Bruyette & Woods saw the move as "opportunistic."

BlackRock began as a bonds shop 19 years ago under co-founder Laurence Fink but has diversified over the years into equities and alternative investments. Fink began his career in 1976 as a bond trader in First Boston, where he was one of the earliest proponents of mortgage-backed securities.

This is not the first crisis the firm has been called upon to help. BlackRock was an adviser to the Federal Deposit Insurance Corp, helping in evaluations and liquidations in the savings-and-loan crisis of the late 1980s. It also helped former General Electric <GE.N> unit Kidder Peabody liquidate a troubled portfolio in 1994.

"We may not have been very outspoken about doing these kinds of assignments, but we bring a combination of capital markets expertise and a lot of structuring background," said Barbara Novick, BlackRock's vice chairman.

BlackRock bought Merrill Lynch & Co Inc's <MER.N> funds unit for $9.5 billion last year. It now has $1.3 trillion in assets under management and competes with broad-based firms such as Legg Mason <LM.N> and AllianceBernstein Holding

<AB.N>.

About 40 percent of the firm's assets are in fixed income, 35 percent is in equities and balanced products and 22 percent is in the money markets area. Merrill owns a 49 percent equity stake in BlackRock and is also its largest client.

BlackRock has generally invested very conservatively, steering clear of subprime mortgages and riskier assets, but has been eager to benefit from opportunities. It raised $2.9 billion in a credit fund launched in August and plans more funds to benefit from the troubled markets.

But a stern test for the firm awaits in the form of the bank-sponsored fund, details of which are expected to be announced soon. BlackRock declined to comment on its role in the fund but some analysts felt it was a logical choice to lead-manage it given its large money markets presence.

Wachovia Capital Markets wrote in a note last week that mandate could bring in $150 million in revenue for BlackRock in 2008 and add 3 percent to 4 percent to earnings.

"It would be a positive for the firm, not only from an asset and revenue perspective, but also it would certainly put the brand out there. It would improve the brand equity," said Michael Kim, an analyst at Sandler O'Neill & Partners.

But a failure of the fund may hurt, some analysts said. "By putting their brand on the line, they have a lot of skin in the game," said Rachel Barnard, an analyst at Morningstar.

BlackRock shares are up 29 percent since the end of June.

Over the same period, shares of some other major money managers are lower. Legg Mason is down 25 percent and units of AllianceBernstein are off 9.6 percent. But BlackRock's sharp recent gains have limited the potential for future rises, some analysts said.

"It's a premium priced stock as it should be. It reflects most of the good news," said Lee of Keefe, Bruyette & Woods.