Goldman, Morgan Stanley, UBS Find Upside in Private Credit’s Downturn as War Ebbs

Welcome to Bloomberg’s Banking Monitor. Every Thursday we’ll deliver you the top news of the global banking industry with emerging trends, winners and losers and market opportunities. Sign up now if you’re not already on the list.

Amid hopes for a robust peace and restored navigation in the Hormuz Strait, bankers are gingerly returning to their offices in the Middle East. Meanwhile their global colleagues return to more prosaic problems that were there before the war broke out, including the turmoil in private credit. And right on schedule, here comes earnings week, with Wall Street banks expected to report a record $18 billion stock-trading haul, in part because of volatility caused by the war and private lending.

Oaktree’s Howard Marks, the dean of distressed investing, likes to say that there are no bad assets, only bad prices. Wall Street is taking this to heart: Morgan Stanley is setting up an interval fund to buy private credit at a time when some investors are dumping holdings in a near panic. Deutsche Bank’s US distressed specialists doubled their quarterly profit. Some nonbanks also are set to take advantage of hasty exits: Blackstone took in $10 billion for a new opportunistic credit fund, and Ares Management raised almost as much for a similar portfolio.

Fans of irony will note that even Blue Owl, the firm at the center of the tumult, raised $2.9 billion for a new opportunistic credit fund. The firm gamely cited “an increasingly attractive opportunity set, driven by market dislocation, complexity and the demand for flexible capital.”

Goldman Sachs Group, which has a knack for doing well where others do badly, persuaded customers to keep redemptions in its Private Credit Fund to just 4.999% of their cash in the first quarter, a sliver under the 5% limit. UBS Group did some financial alchemy by packaging stakes in private credit funds into debt that’s backed by an insurance company, allowing it to cash out of the positions without having to unload them directly.

Canadian banks are mostly absent from the big headlines this week. If you’re hungering for a deeper dive into those firms, check out Bay Street Edition, Bloomberg’s weekly newsletter written by Christine Dobby in Toronto. Recent topics have included auto-lending-related turmoil at Goeasy and the nation’s soaring household debt levels. Sign up here. — Rick Green