Wall Street Banks Look to Begin Trading in Private Debt

Wall Street banks are reportedly interested in trading private credit loans.

JPMorgan Chase, Barclays and Goldman Sachs are among the companies that are in discussions with private debt funds about engaging in secondary-market transactions, Bloomberg News reported Wednesday (March 28), citing unnamed sources.

Additional sources tell the news outlet that JPMorgan has seen an uptick in client interest in the idea, leading the county’s biggest bank to use its own balance sheet to create markets.

The report notes that proponents say secondary trading would help direct lenders manage their portfolio mix and free up capital, while critics warn that regular price discovery could force shops to lower the value of their debt amid financial stress, leading to greater volatility.

As noted here last week, the news follows reports of a drop in activity for investment-grade bonds, junk bonds and small business loans in the wake of the Silicon Valley Bank collapse.

Among investment-grade companies, the week of March 10 through 17 passed with no new bonds being sold. That was the first time that’s happened during a week in March since 2013, according to the report.

In the junk-bond market, sales have essentially stalled at $5 billion as of March 24, compared to a five-year average is $24 billion, a recent Wall Street Journal report said.

The report ties these trends to weakening investor confidence and the ups and downs of the Treasury market, which has seen some of the largest daily changes in years and has caused companies to avoid the bond market.

Meanwhile, Interest rate increases have made it more expensive to borrow and to issue leveraged loans, while small businesses are having a tougher time accessing credit.

Personal loans have been harder to come by as well for some borrowers, PYMNTS wrote last month. Recent earnings results from platform lenders show elevated demand for personal loans, as would-be-borrowers look to consolidate credit card debt or finance their vehicles.

“But the lenders on the other side of the platforms — the banks, the credit unions, the investors, too — are balking a bit,” PYMNTS wrote.

Earnings materials last month from Upstart showed that lending partners originated a little more than 154,400 loans, totaling $1.5 billion across the company’s platform in the fourth quarter, a 62% decrease from the same quarter of the previous year.

CEO Dave Girouard said last year represented a “perfect storm for our business model. The withdrawal of federal stimulus disproportionately harmed our borrowers, akin to a simulated recession where millions of mainstream Americans suddenly lost what had become their primary source of income.”

And in that environment, he said, macro pressures are impacting lenders to the point where they “are slowing down or they’re pausing.”