Fears are mounting about trouble in the corporate lending market, with banks and their lightly regulated cousins in the investment world pointing fingers. The blame game is overly simplistic, several executives said.
“I don’t really understand why we’re talking about private credit as one thing and lending in the banking system as another thing,” Goldman Sachs President John Waldron said at Semafor’s World Economy Summit last week.
The three places low-rated companies can go for cash — banks, private credit funds, and the junk-bond market — are approaching equal sizes, Waldron said: “There’s one system …We may, and probably will, have some defaults, and it’s not going to be pretty when it happens. Everybody in that system will feel that to an extent.”
Private-credit executives including Blackstone’s Jon Gray and Blue Owl’s Marc Lipschultz were quick to point out that much of the lending to First Brands and Tricolor — two deeply indebted companies whose recent bankruptcies set nerves on edge — was originated by banks. (Allegations of fraud are swirling around both companies.)
“We’re deep into a credit cycle and people get sloppy,” PNC President Mark Wiedman said. “It’s about whether or not you’re certain that your security interest is actually secure. There are established protocols for how to do this. It’s not complicated.”
Per Franzen, CEO of EQT, cited “pockets of, maybe, complacency” by lenders. But he told Semafor’s Andrew Edgecliffe-Johnson that “we don’t see any systemic risk at this point.”