Can direct lenders now take a serious bite out of the banks?
The recent spate of deposit flight that spread panic through the banking systems of the US and Europe opens a chance for non-bank lenders to seize more of the core businesses that banks want to retain. Central bank emergency measures may have prevented the crisis from spreading, but a new phase of disintermediation has begun.
The cost of regulatory capital associated with lending will keep rising after the recent scare over deposit flight and the coming credit downturn. The solution for banks is to reduce risk-weighted assets on their balance sheets by buying protection from credit funds eager to diversify away from leveraged loans.
On April 11, one month after the collapse of Silicon Valley Bank sparked panic across the US and European banking systems, HPS Investment Partners, a credit-focused alternative investment firm with $100 billion of assets under management, announced the closure of Strategic Partners V, its latest lending fund.
Having set out to raise $9.5 billion, HPS succeeded in attracting $12 billion in equity commitments from institutional investors for a fund that will provide junior capital to private equity-backed as well as public companies.