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US private credit defaults hit record 9.2% in 2025, Fitch says

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Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#151

Post by ajross »

JumpCrisscross wrote: post #148
ajross wrote: post #139

Earlier quoted context omitted.

That's not correctly stated. "Private Credit" is defined as non-bank lending. Banks are doing "public" lending in the sense of being regulated. Private lending is any sort of financial instrument issued outside of those guard rails. It's generally felt to be risky and volatile, but useful. Basically, it's never illegal just to hand your friend $20 even if the government isn't watching over the process to make sure yo…

> That's not correctly stated It is. (EDIT: It's a mixed bag. OP was correctly calling out a definitional error.) Banks have loaned $300bn mostly to private-credit firms . Those firms then compete with the banks to do non-bank lending. It's a weird rabbit hole and I'm grumpy after a cancelled flight, but it feels like I'm in the middle of a Matt Levine writeup.

Good grief. I was responding to "Most of what banks do is private credit", which is wrong. Bank lending is not private credit.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#153

Post by lokar »

cs702 wrote: post #116

Trouble has been brewing in private credit for quite a while, but lenders and investors have been reluctant to write anything down, resorting to all kinds of "extend and pretend" games to avoid write-downs.[a] tick-tock, tick-tock, tick-tock... --- [a] https://news.ycombinator.com/item?id=47351462

The only problem is allowing regulated US banks with an implicit gov guarantee to lend money to them.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#154

Post by JumpCrisscross »

sciencesama wrote: post #140
cs702 wrote: post #116

Trouble has been brewing in private credit for quite a while, but lenders and investors have been reluctant to write anything down, resorting to all kinds of "extend and pretend" games to avoid write-downs.[a] tick-tock, tick-tock, tick-tock... --- [a] https://news.ycombinator.com/item?id=47351462

But what will break the clock ?

> what will break the clock ?

So unlike money-market funds, these private-credit funds can gate withdrawals and extend and pretend by turning cash coupons into PIKs. So I don't actually see credit concerns directly driving liquidity issues for the banks that didn't hold the risk on their balance sheet glares Germanically.

Instead, I think the contagion risk is psychological. Which is an unsatisfying answer. But if there are massive losses on e.g. DBIP and DB USA halts withdrawals, then the 2% stock loss Morgan Stanley suffered when it capped withdrawals [1] could become a bigger issue.

[1] https://www.wsj.com/livecoverage/stock-market-today-dow-sp-5...

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#155

Post by JumpCrisscross »

ajross wrote: post #151
JumpCrisscross wrote: post #148

Earlier quoted context omitted.

> That's not correctly stated It is. (EDIT: It's a mixed bag. OP was correctly calling out a definitional error.) Banks have loaned $300bn mostly to private-credit firms . Those firms then compete with the banks to do non-bank lending. It's a weird rabbit hole and I'm grumpy after a cancelled flight, but it feels like I'm in the middle of a Matt Levine writeup.

Good grief. I was responding to "Most of what banks do is private credit", which is wrong. Bank lending is not private credit.

Oh, gotcha. Sorry, got hung up on the first bit.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#156

Post by hnfong »

JumpCrisscross wrote: post #78
hnfong wrote: post #49

Earlier quoted context omitted.

It's decent only if you believe inflation = CPI In actuality, the CPI is lower than inflation because technological advancement, automation, and economies of scale (due to globalization etc) are driving consumer prices low. In other words, if factories are still producing things like they were 20 years ago, the CPI would have been much higher, and that higher number is closer to what should have been the inflation nu…

> if factories are still producing things like they were 20 years ago, the CPI would have been much higher, and that higher number is closer to what should have been the inflation number This is an impossible counterfactual to test. In reality, tracking value across time requires adjusting for immeasurable preferences. This is why inflation is really only a useful measure for personal purposes across periods of years…

I think it's so obvious that no testing is needed, but generally I don't disagree with your take.

The thing is one really needs to understand what "real yields" mean when investing in bonds, i.e. it means your purchasing power with respect to cheap commodities tracked by the CPI is preserved, but it doesn't necessarily mean "value" (whatever that means in the abstract) is retained.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#157

Post by JumpCrisscross »

lumost wrote: post #120
JumpCrisscross wrote: post #94

Yeah, I'm going down a bit of a rabbit hole this morning. Turns out Wells Fargo's $59.7bn of private-credit lending is equal to 44% of its CE Tier 1 capital [1]. Meanwhile, Deutsche Bank got back to being Deutsche Bank while I was not looking [2]. [1] https://www.sec.gov/Archives/edgar/data/72971/00000729712500... [2] https://www.reuters.com/business/finance/deutsche-bank-highl...

With the current concentration of wealth and banking, it almost seems like there is an incentive for banks to ruin themselves when they end up in a little trouble. If the bank has trouble, shareholders/executives lose - if the banking system has trouble... then QE will solve the bank trouble.

> If the bank has trouble, shareholders/executives lose - if the banking system has trouble... then QE will solve the bank trouble

It's a game of chicken, though. The folks at Lehman and SVB didn't cash out. JPMorgan did. (Both times. Actually, all of the times since 1907.)

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#158

Post by derektank »

plagiarist wrote: post #121

Government removes regulations, economy collapses, government bails out the wealthy, quants get ski trips and bonuses while families starve.

It’s more accurate to say that the private credit market was created by the government adding new regulations, not removing them. Business development corporations have existed since the 80s but they didn’t explode in popularity as business loan originators until Dodd Frank and other post-2008 regulations made it more difficult for banks to lend money. This led small and medium size businesses to seek out credit from firms like Ares et al instead.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#159

Post by wizardforhire »

JumpCrisscross wrote: post #134
RobRivera wrote: post #98

Earlier quoted context omitted.

Deutsche gonna Deutsche. Recruitment tables should just have a banner that reads 'we've already spent your bonus on legal fees, here's some chocolate'

I'm re-running some of the Fed's stress tests and, somehow, still find myself flabbergasted that DB is at the top of my risk list. Despite only having $12bn of exposure, if they see a 60% loss on that risk alone (assuming 60% recovery and 1.5x leverage), they breach their 4.5% capital requirement. That's the lowest threshold I'm finding across all of the banks the Fed stress tests. Now 50% loss means wipe out. But gi…

As long as nobody knows then it isn’t risk… /s

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#160

Post by NickC25 »

rvz wrote: post #136

Looks like we have another problem in the banking system once again, even before AGI has even been fully realized. We are definitely in the year 2000 in this cycle [0] and between now and somewhere in 2030, a crash is incoming. Let's see how creative the banks will get to attempt to escape this conundrum. But until then... Probably nothing. [0] http://news.ycombinator.com/item?id=45960032

>Let's see how creative the banks will get to attempt to escape this conundrum.

They don't need to get creative, they just need to buy congress or the administration. Same as they've done every time things get messy.

And you know what? It works every time.

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