Bank of America is pumping $25 billion into private credit trading, according to an internal memo seen by Reuters on Thursday, as the Wall Street giant prepares a war chest for further expansion into the lucrative financial sector.
Traditional banks such as BofA have been competing with private credit provided by alternative asset managers. Private credit has become an important source of financing for American businesses as post-crisis lending standards tightened and borrowers sought capital outside of traditional banks.
BofA’s move highlights a broader push by Wall Street giants, including rival JPMorgan Chase & Co., to compete with private credit providers, which often have lighter capital and regulatory requirements.
Last year, JPMorgan announced it would allocate $50 billion from its balance sheet to provide private credit to customers. Goldman Sachs also created a new division as part of its move to tap into the lucrative market.
Private credit refers to loans provided by financial institutions other than banks. These are typically done for high-risk borrowers or companies looking to finance mega-buyouts with debt.
These loans can be processed more quickly and are an important source of funding for borrowers deemed too vulnerable.
However, the risk remains. Concerns about credit quality and exposure to AI-vulnerable software stocks are casting a new shadow over the burgeoning private credit market.
Earlier Thursday, the alternative asset manager’s stock price fell sharply after private capital firm Blue Owl Capital permanently suspended redemptions in one of its funds and sold some assets to pay off debt.
Apollo Global Management, Blackstone, KKR, Ares and Carlyle Group fell 4% to 6% during regular trading.
In 2024, Citigroup and Apollo partnered on a $25 billion private credit and direct lending program.
(Reporting by Atib Bhandari in Bengaluru; Editing by Maju Samuel)
