Regional Bank Loan Books: A Treasure Trove for Private Investors

By: Gridline Team | Published: 05/11/2023
 | 
Est. Reading Time:
2 minutes

The recent failures of Silicon Valley Bank, Signature Bank, and First Republic Bank have thrown a wrench into the gears of an otherwise strong bear market rally.

Amidst the chaos, large banking institutions such as JPMorgan Chase are capitalizing on the situation, scooping up smaller regional banks to strengthen their foothold. However, not just the big banks are seizing opportunities in these uncertain times.

Private investment firms are also closely examining the loan books of these struggling banks, seeking valuable assets that might fit well within their credit portfolios.

A Look Into Regional Bank Loan Books

To better understand the scale of opportunity for private markets, let’s take a closer look at affected regional bank loan books.

Signature Bank’s commercial real estate loans totaled $33.1 billion at the end of 2022, primarily focusing on multifamily assets, commercial assets, and acquisition, construction, and development financings. Silicon Valley Bank, on the other hand, had $2.6 billion in commercial real estate secured loans, with a total loan book worth around $74 billion. First Republic Bank’s real estate loans alone amounted to $73.4 billion.

The regional banking crisis has created a sizable–and potentially growing–opportunity to take yield opportunities from the banking system to private markets, further diversifying portfolios. That opportunity has contributed to the resiliency of private equity, even amidst broader market turmoil. 

Private Market Players and Their Strategies

Several prominent private investment firms, such as Blackstone Group, Apollo Global Management, KKR, Ares Management, and Carlyle Group, are eyeing the regional bank loan books for potential acquisitions.

With $246 billion in assets, Blackstone is contemplating purchasing some of SVB’s larger loan portfolios and considering bidding for the entire loan portfolio outright. KKR, Carlyle, and Ares are also conducting due diligence on loan asset purchases from SVB. With $550 billion under management, Apollo is actively reviewing the SVB loan book, seeking assets that complement its credit unit.

Another player, Oakmark Fund, bought up shares of Truist Financial during the first-quarter banking fiasco, while equity group Stone Point Capital bought up 20% of the firm’s insurance brokerage business. Leading private equity investors note that there’s no “spiraling fundamental problem” with many regional banks, which are largely stronger than they were during the Great Financial Crisis.

In tandem with these developments, leading private equity firms purchase the debt of their portfolio companies from banks at deep discounts, sometimes as low as 60 cents on the dollar.

The appeal of this strategy is twofold. On one hand, purchasing debt at a discounted rate allows private equity firms to achieve higher investment yields. The lower acquisition price increases the potential return on investment while minimizing downside risk.

On the other hand, acquiring the debt of their own portfolio companies allows private equity firms to exercise greater control over the financial restructuring process. They can negotiate more favorable terms, streamline operational efficiencies, and even convert debt into equity to strengthen their position within the company.

This crisis makes it clear that when one door closes, another opens. The regional banking drama has opened the door to loan book opportunities for private investors. With platforms like Gridline, individual investors can step through this doorway to access high-quality alternative investments, building diversified portfolios that can weather any storm.

Download this article for later.
Sed ut perspiciatis unde omnis iste natus error sit voluptatem accusantium doloremque.
Share this Article