Salomon Sebbag’s Post

The fairly recently attended panel discussion event hosted by CAIA (April 10, 2024) on the subject of Private Credit was immensely debated and discussed with a host of panelists and a question was raised if PC will be like the "internet bubble" or here to stay. Interesting WSJ article here also questions this as well and informs: BANKS STRIKE BACK AGAINST PRIVATE CREDIT "But so far this year, a lot of financing deals are actually coming back to banks from private credit. In the first quarter, almost $12 billion of debt previously from direct lenders was refinanced via the so-called broadly syndicated loan market, according to PitchBook LCD, a channel dominated by banks. This was a sharp reversal of the opposite pattern in the prior two quarters." "Revenue from initial public offerings and merger-and-acquisition closings might still be slower than a year ago. But things are cooking on the credit side of the house, with big year-over-year jumps in loan syndication and debt underwriting fees across the street, according to figures compiled by Autonomous Research. M&A fees might also pick up later this year, if big deals recently struck actually make it to the finish line." https://lnkd.in/epKsrx9B

Did you know banks are finding innovative ways to manage risk and comply with regulations thanks to partnerships with private equity firms? Blackstone and KKR are at the forefront, engaging in synthetic risk transfers to help banks like JPMorgan Chase and US Bancorp lighten their load. This process not only aids banks in meeting aggressive capital requirements but also secures favorable returns for investors. Read more: #PrivateEquity #Banks

The #coveredbonds market began 2024 on a strong footing with three #banks issuing the first seven year deals since August. Renewed confidence that global inflation and #interestrates have peaked, alongside the typical seasonal surfeit of investor cash provided opportune conditions for LBBW, Commerzbank AG and Erste Group to issue the first seven year #deals. Unusually, each of the three issuers had announced their mandates before New Year, meaning #investors were well prepared for their arrival. The deals prompted mandates to pile up after it became clear Tuesday’s transactions went well, confirmed by #bankers that said “a good handful” of #issuers were planning deals in the 7 to 10 year, but a cautious approach to pricing was needed. Sign up to read the details on the mandates, the banks that have issued follow-on deals and what the lead managers had to say: https://lnkd.in/eUXYtaGX Written by Bill Thornhill, covered bonds editor at GlobalCapital #capitalmarkets #banks

Particularly of note is the widening gap between size of traditional and synthetic trades. As of 2022, traditional trades stood at less than €0.5 billion, while synthetic trades surged to €2.25 billion. Following the Federal Reserve's approval of capital relief transactions last year, US banks have joined their UK and EU counterparts in doubling down on SRT transactions. For banks, this is a no-brainer as it allows them to free up capital by reducing their risk-weighted assets. Multiple concerns make SRTs a recipe for a potential black swan event: • 𝐂𝐨𝐦𝐩𝐥𝐞𝐱 𝐃𝐞𝐫𝐢𝐯𝐚𝐭𝐢𝐯𝐞 𝐏𝐫𝐨𝐝𝐮𝐜𝐭𝐬: SRTs are complex derivative products that are not well understood. • 𝐎𝐟𝐟-𝐁𝐚𝐥𝐚𝐧𝐜𝐞 𝐒𝐡𝐞𝐞𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬: Banks creating off-balance sheet liabilities that are not truly off balance sheet. SRTs are often bought by rival banks, keeping the risk within the banking system. When backed by subscription loans, they become even more endemic. • 𝐏𝐞𝐫𝐜𝐞𝐢𝐯𝐞𝐝 𝐒𝐚𝐟𝐞𝐭𝐲: Legitimate players like Blackstone touting these products as risk-free because they have never defaulted, reminiscent of "too big to fail" mentality. • 𝐈𝐧𝐚𝐝𝐞𝐪𝐮𝐚𝐭𝐞 𝐑𝐢𝐬𝐤 𝐏𝐫𝐢𝐜𝐢𝐧𝐠: There is a failure to adequately price in risk, with rating agencies and regulators being slow to catch on. It's only safe until it's not. All it takes is one domino to fall for the entire system to come crashing down.

GlobalCapital is delighted to reveal the winners of this year’s European Securitization Awards. Last night, the best banks, issuers, deals and other market participants from across the European securitization market came together at London’s Pan Pacific to celebrate their successes over 2023 at GlobalCapital’s annual awards dinner. Despite another year of volatility, the market remained resilient, creative and agile in the face of adversity, and the awards shine a spotlight on those who led the way during those 12 months. With a record-breaking 45,000 individual votes cast by over 2,700 voters in this year's awards, our ceremony was attended by over 200 leading market participants – all who celebrated, networked and gained market recognition, as voted by the market. View the full list of this year's winners here - https://lnkd.in/eypRerHk GlobalCapital congratulates all the winners and nominees, and huge thanks to all those who took the time to pitch and vote in the poll — we look forward to celebrating your successes with you all again next year. Brought to you in association with Lenvi #GlobalCapitalAwards #capitalmarkets #securitization #structuredfinance #banks #banking

Watchdogs are concerned about the “substantial” risk to investors in the private credit market after it emerged that almost 40% of funds don’t have skin in the game. #PrivateCredit #DirectLending #CreditRisk #SystemicRisk #PrivateEquity #AlternativeInvestments https://lnkd.in/e5xisYcZ

Almost around the same time in 2008, I joined Nabil Bank and was placed in treasury. Since I was assigned with taking small ticket positions in cross currencies during the probation period, my interest in international economics- the vague world of stock/currencies/commodities/bonds along with technical and fundamental analyses grew exponentially and my inquisitive mind always had questions to seek answers for with anyone I got back then. It was the time I got introduced to credit derivatives Those days, I could hardly find books on the subject readily and thus had to resort to google search predominantly to dig deep. I would spend hours in quest of trying to unravel the complex world of financial engineering comprising of derivatives. Lehman brothers was the largest bank (asset size USD 639 bio and USD 619 bio in debt) that collapsed during the same period causing upheavals in stocks/currencies worldwide. Lehman was a 158 years old institution having seen world wars and great depression all unscathed. Today, after 16 years of progressive banking, I understand a bit of what went wrong with Lehman back then. How and why did a bank that boasted being fourth largest investment bank in US file for chapter-11 bankruptcy protection all within a week’s time. It appears in hindsight that for Lehman (its BOD and senior management), greed and fear did not go hand in hand. In short, the bank leveraged much beyond safe level, entered into repurchase contracts for toxic assets with firms in Cayman Islands but the books showed sales instead of borrowing, bought troubled assets disguised under a fancy “subprime mortgage backed securities and collateralized debt obligations” and sold the same with cosmetic changes to retail investors and AIG, thereby making huge profits in the course. This went on for a sustained period of time without many noticing. As the price of homes started falling, Lehman started experiencing defaults and losses started mounting. This resulted in liquidity crunch whereby it could not raise funds on time. As I later read a biography on Mr. Allan Greenspan, Former Chair of the Federal Reserve of the United States -The age of turbulence, I understand that he was a big voice for free markets and believed a little in Government or central bank interventions. It was during his tenure that the investment banks got larger than lives without much control over and no checks and balances on exorbitant risk taking practices. The law of invisible hand does not work always everywhere when charting into uncharted risk territories. I then also start pondering over the credit ratings as most of these CDOs were rated AAA by hi-fi raters. The world of finance is very vulnerable without governance-both self and regulated. Numbers presented may or may not present every bit of information. Numbers can take 180 degree turn within no time. Regulation and supervision are the most critical pillars for safeguarding the banks and deposits.

The regulation of UBS is currently a big topic of political discussion. Sometimes you need to look back: Congrats Anmol Makhija for that great piece below and the wider database on bad banks. Its worth to take a look. I am also humbled that we are highlighted in that paper and the papers from Marcel Zimmermann and myself on the SNB Stabfund (published in the Central Banking Journal and RBS Reserve Management Trends) are now considered one key historical source on the evolution and management of the SNB Stabilisation Fund #SNB #SNBStabilisationfund #UBS #UBSrescue #toobigtofail https://lnkd.in/e8Ea_wbv

𝐄𝐱𝐨𝐭𝐢𝐜 𝐍𝐞𝐰 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐈𝐧𝐬𝐭𝐫𝐮𝐦𝐞𝐧𝐭.... Here is an interesting read on Banks and Private Equity firms using a new insurance hedge to strengthen the financial position of the Banks. The strategy is called a 𝐂𝐫𝐞𝐝𝐢𝐭 𝐑𝐢𝐬𝐤 𝐓𝐫𝐚𝐧𝐬𝐟𝐞𝐫 𝐨𝐫 𝐂𝐑𝐓. It's swiftly rising to the top of the list of popular strategies used by banks to reduce regulatory obligations, guard against potential losses, and get through a trying time for the sector. Hopefully, it frees up capital for the Banks to lend to the commercial real estate sector

"#Rapid #growth of this #opaque and #highly #interconnected segment of the financial system could #heighten #financial #vulnerabilities given its #limited #oversight" - International Monetary Fund #private #credit #risk #creditloss #liquidity #risk #capital