tick-tock, tick-tock, tick-tock...
What is the risk, probability of actualizing the risk, and the outcome of actualized risk?
The ticktock ticktock routine reads like baseless fearmongering to me.
For example, consider First Brands, which filed for bankruptcy last year. First Brands had pledged the same collateral to loans from multiple private-credit funds. Those loans were being carried at an NAV of 100 cents per dollar until suddenly they were not.
For many private credit funds, NAVs are basically fantasy.
So unlike money-market funds, these private-credit funds can gate withdrawals and extend and pretend by turning cash coupons into PIKs. So I don't actually see credit concerns directly driving liquidity issues for the banks that didn't hold the risk on their balance sheet.
Instead, I think the contagion is more psychological. Which is an unsatisfying answer. But if there are massive losses on e.g. DBIP and DB USA halts withdrawals, then the 2% stock loss Morgan Stanley suffered when it capped withdrawals [1] could become a bigger issue.
[1] https://www.wsj.com/livecoverage/stock-market-today-dow-sp-5...
They also borrow money from banks to add leverage to this basic setup.
There are kind of 3 types of loans:
- bonds. Loans interned to be bought by a range if investors and traded over time. Arranged and unwritten by investment banks.
- bank loans. The classic loan. The bank takes depositor money (that the depositor can take back anytime!) and loans it to someone or some company. The bank holds the loan
- private credit. Like a bank loan, but they get their money from long term investments by wealth people and institutions, add bank loans for leverage, and then hold the loan.
It's generally felt to be risky and volatile, but useful. Basically, it's never illegal just to hand your friend $20 even if the government isn't watching over the process to make sure you don't get scammed. This is the same thing at scale.
It is. Banks have loaned $300bn mostly to private-credit firms. Those firms then compete with the banks to do non-bank lending. It's a weird rabbit hole and I'm grumpy after a cancelled flight, but it feels like I'm in the middle of a Matt Levine writeup.
Like, when a bank originates a mortgage, that mortgage gets traded, much like private debts don’t.
It's not. It's just that we're seeing potentially 10% losses on the portfolio level [1], which could imply up to 5% losses to the banks' loans to those lenders.
Again, tens of billions of dollars of losses are totally absorbable. But Morgan Stanley's stock price took a hit when it gated one of these funds [2]. And some banks (Deutsche Bank, somehow, fucking again, Deutsche Bank) have small ($12n) but concentrated portfolios where a wipeout could cause material impairment to their ~$80bn of risk-weighted assets.
[1] https://www.reuters.com/business/us-private-credit-defaults-...
[2] https://www.wsj.com/livecoverage/stock-market-today-dow-sp-5...
These private credit numbers are estimates provided by Moody's, who were famously clueless about the scale of mortgage bond risk even as they stamped them all with a AAA rating.
Let's see how creative the banks will get to attempt to escape this conundrum. But until then...
Probably nothing.
They don't need to get creative, they just need to buy congress or the administration. Same as they've done every time things get messy.
And you know what? It works every time.
anything Wells Fargo leads in must be bad
https://podcasts.apple.com/bz/podcast/the-real-eisman-playbo...
He's one of the "Big Short" guys but more importantly he has great guests on. Everyone is trying to teach & inform, not sell.
He's been calling this risk out for over a year, especially once the White House started trying to allow retirement accounts access to private credit. For a lot of people that was the big alert, even before Jamie Dimon said he saw "cockroaches".
neogodless•1h ago
https://news.ycombinator.com/item?id=47349806 US private credit defaults hit record 9.2% in 2025, Fitch says (marketscreener.com)
115+ comments
walthamstow•1h ago
JumpCrisscross•56m ago
[1] https://www.sec.gov/Archives/edgar/data/72971/00000729712500...
[2] https://www.reuters.com/business/finance/deutsche-bank-highl...
RobRivera•54m ago
Recruitment tables should just have a banner that reads 'we've already spent your bonus on legal fees, here's some chocolate'
JumpCrisscross•25m ago
Now 50% loss means wipe out. But given the size of the portfolio, there is also the concentration risk. A single private-credit firm going bust shouldn't take out a bank. But that seems–seems!–to be what I'm seeing.
wizardforhire•8m ago
lumost•32m ago
If the bank has trouble, shareholders/executives lose - if the banking system has trouble... then QE will solve the bank trouble.
sciencesama•20m ago
JumpCrisscross•8m ago
It's a game of chicken, though. The folks at Lehman and SVB didn't cash out. JPMorgan did. (Both times. Actually, all of the times since 1907.)