Alternative Lenders & the End of Risk Taking for Banks - Opportunity or Risk?
Many of you may not know it's conference season, where guys like me get flown to exotic places listening to firms this forum salivates over (BX, KKR, Oaktree, PIMCO, GSAM, etc.) pitch investment ideas to us and blow tons of money to try to earn our business. It's both a nice escape from the office and a great learning opportunity.
The point of this thread is to ask experienced guys (particularly in FI) if one of the major themes I'm hearing has legs. Been hearing a lot about the banks' movement away from credit markets and alternative lendors stepping in. particularly in RMBS, CMBS, MM lending, and structured finance. On top of that, banks are looking to still offload financial crisis era loans from their balance sheets to comply with basel 3 and other regulations.
as a result of this, firms like the ones I've mentioned have stepped in as an alternative to banks. they have their own credit analysts, they know fixed income, and lending is fixed income, so why doesn't it make sense? of course, this does not mean that Oaktree is going to open a mortgage brokerage, but what it does mean is that Oaktree may go into partnership with Quicken Loans, ABC Mortgage, etc., give them underwriting standards (banks are not very lenient on res lending today), securitize the loans, and earn much higher returns than a standard 30y fixed from Wells Fargo.
there are similar gaps in willing lenders in middle market businesses, CMBS, and so on. there hasn't been much of a gap in high quality traditional borrowers looking for a mortgage or companies like Coca Cola looking for money (they can access capital markets), but for a hardware store franchise or a supplier of components to qualcomm that may have a ton of upside but just isn't the market cap needed to issue bonds, they need to go somewhere. without the banks, then who?
my question is this: you bond guys out there, is this really an opportunity? or is it smoke & mirrors? it seems to me like the opportunity is legit and if people who know credit inside and out are making the loans, it's not like in The Big Short where people are lending to strippers with 6 condos all on 5/1 ARMs. I don't get the sense that this lending market is being driven off of greed, moreso off of a supply/demand mismatch due to onerous regulations.
sidebar: for students/interns, look into credit. if this blows up, it could be incredibly lucrative. also, very few people in your generation look at being a credit analyst, long/short hedge funds are so much sexier, but I will tell you from experience that the best people to listen to are often the bond guys, and god knows Bill Gross and Jeff Gundlach have made tons of money being in the upper half of the capital structure.