Earnings Season Gives Glimpse Into Big Banks’ Private Credit Ambitions

The big banks have weighed in this earnings season — not just on credit and debit, and consumer spending and Basel endgames …

… they’ve also detailed, on some cases, the lure of private credit and their longer term plans in the space.

Stretching through the past several months, we’ve seen the announcements between the banks and private equity firms that have sought, as detailed here, to link up with private equity outfits, and to gain share in the estimated $1.7 trillion private credit industry.

There have been announcements from the likes of Citi, pairing with Apollo Global Management; JPMorgan has struck a partnership with Cliffwater, FS Investments and Shenkman Capital Management. As part of those joint efforts, JPMorgan will reportedly originate loans and invest in them “alongside the direct lenders,” we noted earlier this month, and reports have pegged the effort at $10 billion.  Goldman’s efforts have been a bit different — in essence the company has chosen to forge its own direct path, via a private credit platform housed within its own operations.

JPMorgan Weighs In

As for the light shed in earnings calls:

During the JPMorgan conference call with analysts, CEO Jamie Dimon said that — in response to an analyst observation that the banking juggernaut is “less dominant in all things private credit” — he would seek to offer clients both direct lending and syndicated or “other specialized kinds of lending. And they all have pluses and minuses.”

He stated that direct lending might be faster than other channels, and said that “we’ve mentioned before in the past that we allocated $10 billion of capital to make direct loans. We’ve actually deployed a lot of capital, some of this already been paid off, some are done … so we are going to do it directly and we are going at $10 billion, could be $20 billion or $30 billion, [we’re] not limited today. … Very importantly, we are not going to allocate ourselves to one partner.”

As he told the analyst, “We’ve announced a bunch of co-lenders, but that just creates more flexibility and more size.” CFO Jeremy Barnum said on the call that lending is a “competitive environment [that] isn’t limited to competing against banks or traditional financial institutions. … There’s no question that the ecosystem is changing. You’ve got new competitors. You’ve got changes in market structure, new dynamics. And as with any business, we are innovating and adjusting and making sure that we compete in all the traditional ways and all the new ways.”

Goldman’s Platform Approach

Goldman Sachs, for its part, moves further from Main Street, consumer facing banking. CEO David Solomon said during the conference call that 2024 fundraising — in general — should exceed $60 billion across all manner of activities, including private credit.

Said Solomon, in response to analysts’ questions, “we have a very broad and interesting credit platform that is integrated in … a differentiated way than many of the people we compete with. We obviously, as a credit originator in our investment banking business, are one of the leading credit originators,” noting within its Asset & Management business, “we are a leading player in private credit with $140 billion of private credit assets and [we’re] growing and investing in that.”

Citi Mulls More Partnerships

Separately, Citigroup CEO Jane Fraser said that, in her firm’s latest earnings report commentary, along with the $25 billion private credit partnership with “longtime client” Apollo, the joint efforts wind up “giving us the ability to source new transactions without using our balance sheet. This partnership positions us with another solution for debt financing for our clients and it allows us to engage in private credit with the same depths and expertise as we currently do with syndicated debt markets.”

Later in the call, she said, “This platform enhances corporate and sponsor clients’ access to the private lending capital pool at real scale. I think $25 billion is a very sizable partnership here and it provides funding certainty and strategic transactions … and it wouldn’t surprise me to see us doing more partnerships in other pieces going forward.”