Goldman & Citi Fights Back with New Strategy

Major banks like Citigroup and Goldman Sachs are now acting as intermediaries, connecting smaller entities needing loans with private financiers, for a fee. This strategic pivot aims to recapture a portion of the leveraged lending market that private lenders have increasingly captured. Banks have formed alliances with private credit firms and sought partnerships to bolster their presence in the private credit domain.

With $430 billion in capital awaiting deployment, direct lenders are eagerly seeking lending opportunities as the buyout market slows. Banks hold unique relationships with privately held entities, like family-owned businesses, which may not be as visible to direct lenders. Ares Management, a significant player in the private credit market, recognizes the value of banks serving as a comprehensive resource for firms seeking capital.

Citigroup and Goldman Sachs have demonstrated their ability to navigate the private market effectively, placing first lien notes and term loans for companies like Pitney Bowes and Gannett. By shifting towards advisory roles and partnering with direct lenders, banks can mitigate risk and generate additional revenue during periods of reduced deal activity, without directly lending capital. These services are being integrated into existing operations, indicating a strategic approach to this market segment.

Our Opinion:

By transitioning into the role of intermediaries between borrowers and private financiers, these banks are making a prudent move that allows them to maintain their market presence while mitigating risk and generating additional revenue through service fees. It highlights the adaptability of major banks and the increasing importance of collaboration between traditional and alternative lenders.

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