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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

#191

Post by r_lee »

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...

Are you saying that they're using their private-credit portfolio as a Tier 1 capitalization to meet their regulatory demands (not sure if the ~10-15 something% rule has come back yet?)

Been a bit out of the finance game

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

#192

Post by r_lee »

wizardforhire wrote: post #159
JumpCrisscross wrote: post #134

Earlier quoted context omitted.

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

don't worry, they're adopting AI

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

#193

Post by fairity »

So, if I’m following: Banks are lending to private equity firms to fund purchases of businesses.

Many of these businesses are SaaS which means their valuations are tumbling.

It seems possible that valuations tumble so much that the private equity owner no longer has any incentive to operate the business, bc all future cash flows will belong to the bank. What happens in practice then? Will banks actually step in and take operational control? Will the banks renegotiate terms such that the private equity owners are incentivized to continue as stewards? Or, will they prefer to force a business sale immediately?

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

#194

Post by JumpCrisscross »

fairity wrote: post #193

So, if I’m following: Banks are lending to private equity firms to fund purchases of businesses. Many of these businesses are SaaS which means their valuations are tumbling. It seems possible that valuations tumble so much that the private equity owner no longer has any incentive to operate the business, bc all future cash flows will belong to the bank. What happens in practice then? Will banks actually step in and t…

> Banks are lending to private equity firms to fund purchases of businesses

Not quite. Private credit is to debt what private equity is to equity. (Technically, any non-bank originated debt that isn't publicly traded is private credit. Conventionally, it's restricted to corporate borrowers.)

So bank exposure to private credit generally means banks lending to non-banks who then lend to corporate borrowers.

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

#195

Post by JumpCrisscross »

boringg wrote: post #189
JumpCrisscross wrote: post #154

Earlier quoted context omitted.

> 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 t…

I believe the gated feature can be waived though it causes a precarious situation. It ends up with same psychology of a bank run -- people (institutions) concerned because they can't access funds or they think that the queue to exit a failing fund is too long - filled each quarter (i.e. by the time they redeem NAV has collapsed).

> the gated feature can be waived

Or never invoked. It's a safety feature for the fund and, arguably, systemic stability.

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

#197

Post by boringg »

JumpCrisscross wrote: post #195
boringg wrote: post #189

Earlier quoted context omitted.

I believe the gated feature can be waived though it causes a precarious situation. It ends up with same psychology of a bank run -- people (institutions) concerned because they can't access funds or they think that the queue to exit a failing fund is too long - filled each quarter (i.e. by the time they redeem NAV has collapsed).

> the gated feature can be waived Or never invoked. It's a safety feature for the fund and, arguably, systemic stability.

Totally - its supposed to prevent a collapse of confidence but at the same time can signal a collapse of confidence. Double edged sword.

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

#198

Post by JumpCrisscross »

r_lee wrote: post #191
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...

Are you saying that they're using their private-credit portfolio as a Tier 1 capitalization to meet their regulatory demands (not sure if the ~10-15 something% rule has come back yet?) Been a bit out of the finance game

> they're using their private-credit portfolio as a Tier 1 capitalization

Banks' private-credit lending constitutes part of their risk-weighted assets. So yes, it's part of their CET1 [1], which is part of Tier 1 capital, and since it's equity measured it incorporates fucking everything.

4.5% is the U.S. minimum. Regulators start throwing their toys out of the pram when a bank breaches 7%. To be clear, I'm not seeing anyone in the near future breaching those limits. Deutsche Bank, the stupidest of the lot, seems to have let DB USA stuff most of the risk in its German AG.

[1] https://www.investopedia.com/terms/c/common-equity-tier-1-ce...

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

#199

Post by jmalicki »

JumpCrisscross wrote: post #194
fairity wrote: post #193

So, if I’m following: Banks are lending to private equity firms to fund purchases of businesses. Many of these businesses are SaaS which means their valuations are tumbling. It seems possible that valuations tumble so much that the private equity owner no longer has any incentive to operate the business, bc all future cash flows will belong to the bank. What happens in practice then? Will banks actually step in and t…

> Banks are lending to private equity firms to fund purchases of businesses Not quite. Private credit is to debt what private equity is to equity. (Technically, any non-bank originated debt that isn't publicly traded is private credit. Conventionally, it's restricted to corporate borrowers.) So bank exposure to private credit generally means banks lending to non-banks who then lend to corporate borrowers.

What does this typically look like? Who is the intermediary here between the bank and corporate borrowers - are these buy side created SPVs?
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