Facetime June 18, 2009, 5:00PM EST

Inside the Big Deal Between BlackRock and Barclays

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Ken Feinberg, the new salary czar. BlackRock's Fink fears restrictions could chill the IPO market Charles Dharapak/AP Photo

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There is only one culture at BlackRock—the BlackRock culture. We are integrating two firms that are very common in their culture, the same team values, the same intellectual curiosity. And in terms of being too large, scale is not the issue because a good part of the assets are passive. This is not $2.7 trillion of actively managed strategies. I'm not even paying attention to the dollar amount of assets we manage because it's all about scale. We saw huge consolidation in the investment banking business in the last five years, a huge consolidation in the banking system. We've just begun to see a consolidation in the investment management business, and I believe we're going to be one of the leaders. I believe our clients are going to be rewarded in terms of having our scale. They're going to have an opportunity for more information and more products.

Larry, let me switch gears. You've really become a lightning rod because of all the Washington programs BlackRock has been managing. How are those Treasury and Fed programs working right now?
Most of the problems that we're involved in at BlackRock are helping the Federal Reserve manage the portfolios of AIG (AIG) and Bear Stearns. We have not heard if we are a selected partner for the Treasury's PPIP [Public-Private Investment Program]. Overall, I think these programs are doing well. I believe what Secretary [Tim] Geithner did in the stress tests truly stabilized our banking system. No one would've predicted there would be $100 billion of equity raised in the banking system a few weeks following the stress tests. Our banking system is so much more solid than any banking system in the world with all this capital raised.

Let me ask you about that PPIP because I feel people are backing away from it. The other day, [JPMorgan Chase (JPM) CEO] Jamie Dimon said: "Look, if I want to sell assets, I'll sell assets. I don't need a PPIP to sell assets." Maybe people worry that the rules are going to change? Maybe they don't want to invest side by side with the government. Are they walking away from the PPIP?
BlackRock and our investors are not worried. We believe the government will be a great partner. And I think there will be sellers who need to eliminate some of their troubled assets. I believe there will be a role for the PPIP.

Let me ask you both where you think we are in this economic slowdown.

BOB DIAMOND

It was 18 months of difficulty and turmoil for the financial system, but it's in recovery mode, and I think every day it feels a lot better. So we're reasonably optimistic, but very cautious going forward. It's not going to be all better in a couple of days.

Larry, how do you see it? Of course we know that consumer confidence is critical here—certainly confidence in the housing market is essential. Do you think prices for homes are still falling? Have they hit bottom, or is there more to come?

LARRY FINK

You know, there's no evidence the [housing] market is stabilizing, but the descent and the steepness of the descent is moderating. Stabilization is going to be critical, though, and one of the worries I have is that we've seen a very large rise in longer-dated Treasuries, and even with the great rally in credit, we now have a mortgage market with about 5 3/4% to 6% interest rates. Just three or four weeks ago, individuals could refinance their homes with a 5% mortgage. That's a significant difference in terms of the ability of the homeowner to reliquefy. And I think it is an issue we need to watch. The whole key to the stabilization of our economy is housing, and we need, unfortunately, lower rates to really have housing stabilized quicker. So as a result of higher mortgage rates, I think the economy is going to take longer to find its footing and grow. I know many people are thinking we're going to have maybe a positive third-quarter GDP number and certainly many people believe in a positive fourth quarter. I'm in the camp that thinks it's going to take a little longer.

Final question. The Obama Administration is supporting congressional restrictions on bonuses, and it's appointing Ken Feinberg as "pay czar." How big of a chill will that cause on Wall Street, and will the new rules apply to BlackRock, given that it's partly owned by Bank of America?
We're partly owned by three banks [BofA (BAC), PNC (PNC), and Barclays], and the answer is no because all the banks have a minority interest in our firm. We have a totally independent board that is the navigator of our policies and direction. My only fear about a salary czar is if he becomes so restrictive and impacts more than just the banks, we will have a risk that companies are not going to want to go public. And one of the real differences between the U.S. capital markets and those of almost any other country is the extent that our companies have access to capital through public means. If people feel that there's so much government intrusion on compensation that it inhibits their ability to reward employees and compete, we're going to see fewer companies going public and more companies going private. Also, many companies may leave the U.S. and go elsewhere to be out from under government policies. Whatever we do, we have to make sure our policies allow our companies to compete in global markets.

Maria Bartiromo is the anchor of CNBC's Closing Bell.