BofA Targets European Banks With Private Credit Short Basket

Bank of America is offering clients a basket of 17 European financial stocks that allows them to bet against companies the bank said are among the “most exposed to private credit shocks,” the Financial Times reported Wednesday (March 18).

The bank told clients that these stocks had 30% “downside risk” compared with their U.S. peers because their shares have not fallen as much, according to the report.

U.S. private capital groups Blue Owl and Blackstone have lost 40% and 27% of their market value, respectively, since the beginning of the year, in part because of investors’ worries about private credit and software, the report said.

Private credit companies have invested heavily in software companies, which are now facing a potential threat from artificial intelligence, per the report.

One of the companies whose stock is included in the basket offered by Bank of America is Deutsche Bank, according to the report. Deutsche Bank CEO Christian Sewing said Tuesday (March 17) that the bank had not lost “one cent” in over a decade of private credit, per the report.

It was reported Feb. 9 that Deutsche Bank analysts said a downturn in the software and technology sectors could have an impact that rivals that of the energy sector’s issues in 2016.

The analysts highlighted concentration risks to the speculative-grade credit market, saying that the software and tech sectors account for 14% and 16%, respectively, of that credit universe.

That total is “a meaningful chunk of debt outstanding that risks souring broader sentiment, if software defaults increase,” the Deutsche Bank analysts said.

The Financial Stability Board (FSB) highlighted the rapid rise of nonbank financial intermediaries, including private credit markets, in a November letter and flagged them as a focus area for 2026 oversight work.

Among the risks the FSB highlighted were the speed of private credit’s expansion, the lack of transparency around direct lending deals, and the growing entanglement between private credit funds, banks and the broader financial system.

On Monday (March 16), three Bank for International Settlements economists said that banks could be impacted by a trend in which AI hyperscalers are tapping private credit firms to help build AI infrastructure.