Banks strike back against private credit

livemint.com:

When it comes to financing deals, don’t count out the big Wall Street banks quite yet. A big narrative in recent years has been that America’s biggest deposit-taking investment banks are losing ground to their nonbank rivals, the likes of Blackstone and Apollo Global. One worry for banks was that private credit—meaning, in this context, lending directly to businesses by alternative-asset fund managers, insurers and others—was going to eat into investment banks’ business originating loans and distributing them to investors.

But so far this year, a lot of financing deals are actually coming back to banks from private credit. In the first quarter, almost $12 billion of debt previously from direct lenders was refinanced via the so-called broadly syndicated loan market, according to PitchBook LCD, a channel dominated by banks. This was a sharp reversal of the opposite pattern in the prior two quarters.

Moody’s Investors Service in a recent report wrote that “banks are fully aware of the substantial capital that direct lenders have, and are fighting back." Some borrowers were saving up to 2 to 3 percentage points via broadly syndicated loans, according to the report. “Not only have [banks] returned to underwriting deals, they have substantially lowered pricing," Moody’s said. So as Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley report their results in the coming days, it is worth keeping an eye on the revenues generated by capital markets and dealmaking.