I2C Credit Economy May 2024 Banner

Report: Private Equity Pushing Onto Bank’s Low-Risk Loan Turf

Private equity companies are reportedly stepping up efforts to compete with banks on low-interest loans.

For example, the Financial Times (FT) reported last week, Apollo Global has increased its long-term forecasts for its lending business, telling investors it expected to be able to originate more than $200 billion a year in new loans, up from $150 billion.

Apollo Co-President Jim Zelter said economic growth in the U.S., fueled by increased public and private spending on infrastructure projects, was driving demand for loans.

“When you think about what’s going on domestically … what’s going on in electric vehicles, there are many, many investment grade companies that are going to be confronted with massive growth initiatives,” Zelter said. “It’s not obvious that they should do it through the traditional channels of investment grade public debt or equity.”

The FT said the world’s biggest buyout groups have moved low-risk lending to the core of their growth plans, with investment grade loans becoming attractive, especially to companies that have acquired large insurers, driving an ongoing demand for high-earning investment assets.

By contrast, the report noted, JPMorgan Chase had $699 billion in non-consumer loans outstanding at the end of the first quarter, a $3 billion decline.

Jamie Dimon, the banking giant’s CEO, warned last month that fast-growing new financial products “often become an area of unexpected risk in the markets.”

In his yearly letter to shareholders, Dimon argued that digital, non-bank lenders and private firms “do not have the same transparency or need to abide by the extensive rules and regulations as traditional banks, even if they deliver similar products. This often gives them a significant advantage.”

He pointed to startup banks and FinTech banks. He offered tech goliath Apple as an example of a company which, he wrote, “effectively acts as a bank — it holds money, moves money, lends money and so on.”

There are some upsides here, Dimon added — primarily in the form of “dynamism and churn [that] are good for innovation and invention — with success and failure simply part of the robust process. Innovation runs across payments systems, budgeting, digital access, product extensions, risk and fraud prevention, and other services.”

Meanwhile, PYMNTS wrote earlier this year that private credit could offer a boom for smaller businesses amid a downturn in funding from traditional lending sources.