Blackstone Group (NYSE:BX) president and chief operating officer Hamilton James said on Monday that the subprime mess that hit Wall Street banks appears to be getting worse.

The subprime black hole is appearing deeper, darker and scarier than they thought, James said, referring to investment banks. James spoke on a conference call with media after its results on Monday. Blackstone posted a quarterly loss.

But James added that Blackstone is starting to go long the subprime market, after a successful bet against the sector that played out over the last 18 months. Blackstone invests in the industry through its hedge fund operation. Its private equity portfolio has only a tiny sliver tied to the residential mortgage industry, James said.

James also said investment bankers expect the Federal Reserve to cut interest rates again, as Wall Street has seen the credit market crisis clog balance sheets with hundreds of billions of dollars in leveraged buyout debt.

That backlog will take around six months to play out, James said, with banks having worked through what Blackstone estimates is around 40 percent of the leveraged loan backlog.

(Reporting by Michael Flaherty and Megan Davies, editing by Gerald E. McCormick)

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