Bloomberg News reports that JPMorgan Chase & Co. is looking for a prospective partner for growing its division of credit business. It aims at accelerating its push in one of the areas that is currently on the hot seat, the area of leveraged finance. The same was reported by people who are familiar with the information.
Discussions are in the Initial Stage
Topics that include pension funds, alternative asset managers, sovereign wealth funds, and endowments started late in recent months. The people said that the discussions are at an early stage. There will likely be more than one partner. However, the terms and conditions governing the partnership have yet to be decided upon. The bank has been receiving inquiries and has also approached a few firms.
Measures Taken by JPMorgan
The bank is hunting for third-party capital to supplement the balance sheet cash of $10 billion and more that it has kept aside for strategizing private credit. JPMorgan started rolling out the same in the past year.
How Would It Help JPMorgan?
If the bank has a bigger capital pool, it will help it compete better with other stalwarts like Blackstone Inc., Ares Management Corp., and Apollo Global Management Inc. Also, it could participate in larger deals or make bigger commitments.
According to a senior executive at JPMorgan earlier this year, $10 billion, this amount is the initial point.
Walls Street Banks Versus Private Credit
The banks on Wall Street are trying to compete with private credit, an area that has already engulfed a large portion of the market share. High-yielding bond markets, leveraged loans, and key fee generators are also in line.
What Do the Investment Banks Do?
It has come to the forefront that investment banks have been selling junk-rated debt to larger groups comprising asset managers instead of holding the risk on their balance sheets. On the other hand, private credit lenders are skilled asset management companies that extend the loans directly from the funds that they have.
Bloomberg News reports that efforts by the banks to compete off the balance sheet of their own is a retreat to traditional lending. However, it is tagged along with a high capital charge that the large loans attract.
What Happens with a Partnership?
If JPMorgan enters a partnership, the bank is to originate the deals while the partner provides the capital. This would be helpful for the bank in letting it grow its private credit strategy despite hiccups on its balance sheet.
Recently, other stalwarts like Barclays Plc, Deutsche Bank AG, Societe Generale SA, and Wells Fargo & Co. all have put in efforts to enjoy a slice of the market that deals with private credit. They have been trying to do the same with the help of a potential partner or with outside capital.
