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JPMorgan (JPM) Struggles to Form Private Credit Syndicate
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In an effort that could recast the evolving market trend, JPMorgan (JPM - Free Report) faces some hurdles regarding fees and controls as it seeks to bring together a group of lenders for the purpose of funding private credit deals it originates.
Last month, Bloomberg reported that the bank was looking for third-party capital to supplement the more than $10 billion it has already allocated for its private credit strategy.
JPMorgan’s ability to originate deals with its external partner and provide capital would lower balance sheet risk, resulting in private credit revenue growth.
Per the people familiar with the matter, JPMorgan held discussions with a number of private credit firms in order to form a syndication group where members would get some share of each loan. The loans would be selected by JPM and the other members of the syndicate would have no or limited ability to protest against deals they do not wish to finance.
JPMorgan is currently in talks with potential partners and during certain meetings, they have proposed charging fees of around 2.5%. In line with this, some firms have resisted joining the effort due to the fees and lack of veto power discussed during some conversations.
JPM is a major provider of leveraged loans and high-yield bonds, and the private credit effort may safeguard an essential part of its business. By implementing the proposed structure, it could maintain control over client relationships and provide a level of certainty to borrowers that agreed loans would be funded.
As higher interest rates trigger an investor rush and increasing stringent capital requirements make banks more cautious of keeping loans on their balance sheet, lenders are looking for the best way to create their own slice of the $1.6 trillion private credit market. Thus, if JPMorgan moves forward with its efforts to form a partnership, it will help it diversify its fee income later.
Over the past six months, shares of JPMorgan have gained 12.4% compared with the industry’s rise of 10.1%.
Other Banks Considering Expansion into Private Credit
A number of lenders have announced private credit partnerships and others are considering alternative options. A couple of stocks that are looking for partners to expand in the private credit business are Citizens Financial Group, Inc. (CFG - Free Report) and Citigroup Inc.(C - Free Report) .
CFG, capitalizing on the increasing private capital activity, is undertaking discussions with potential sponsors, per a Bloomberg article.
Per a source familiar with the matter, Citizens Financial has still not concluded any agreement or finalized any deal.
C intends to enter the direct lending space by early January next year. This was reported by Bloomberg. According to a source familiar with the matter, “The initiative would complement the bank’s existing broadly syndicated leveraged finance business.”
Citigroup is expected to associate with one or more partners as it would aid in providing the necessary capital for giving loans.
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JPMorgan (JPM) Struggles to Form Private Credit Syndicate
In an effort that could recast the evolving market trend, JPMorgan (JPM - Free Report) faces some hurdles regarding fees and controls as it seeks to bring together a group of lenders for the purpose of funding private credit deals it originates.
Last month, Bloomberg reported that the bank was looking for third-party capital to supplement the more than $10 billion it has already allocated for its private credit strategy.
JPMorgan’s ability to originate deals with its external partner and provide capital would lower balance sheet risk, resulting in private credit revenue growth.
Per the people familiar with the matter, JPMorgan held discussions with a number of private credit firms in order to form a syndication group where members would get some share of each loan. The loans would be selected by JPM and the other members of the syndicate would have no or limited ability to protest against deals they do not wish to finance.
JPMorgan is currently in talks with potential partners and during certain meetings, they have proposed charging fees of around 2.5%. In line with this, some firms have resisted joining the effort due to the fees and lack of veto power discussed during some conversations.
JPM is a major provider of leveraged loans and high-yield bonds, and the private credit effort may safeguard an essential part of its business. By implementing the proposed structure, it could maintain control over client relationships and provide a level of certainty to borrowers that agreed loans would be funded.
As higher interest rates trigger an investor rush and increasing stringent capital requirements make banks more cautious of keeping loans on their balance sheet, lenders are looking for the best way to create their own slice of the $1.6 trillion private credit market. Thus, if JPMorgan moves forward with its efforts to form a partnership, it will help it diversify its fee income later.
Over the past six months, shares of JPMorgan have gained 12.4% compared with the industry’s rise of 10.1%.
Image Source: Zacks Investment Research
Currently, JPM sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Other Banks Considering Expansion into Private Credit
A number of lenders have announced private credit partnerships and others are considering alternative options. A couple of stocks that are looking for partners to expand in the private credit business are Citizens Financial Group, Inc. (CFG - Free Report) and Citigroup Inc.(C - Free Report) .
CFG, capitalizing on the increasing private capital activity, is undertaking discussions with potential sponsors, per a Bloomberg article.
Per a source familiar with the matter, Citizens Financial has still not concluded any agreement or finalized any deal.
C intends to enter the direct lending space by early January next year. This was reported by Bloomberg. According to a source familiar with the matter, “The initiative would complement the bank’s existing broadly syndicated leveraged finance business.”
Citigroup is expected to associate with one or more partners as it would aid in providing the necessary capital for giving loans.