A growing coalition between banks and non-banks vying for a piece of the lucrative USD 2 trillion financial market is demonstrated by Citigroup and Apollo Global’s USD 25 billion private credit and direct lending programme.
Both Apollo’s annuity and retirement services division, Athene, and Abu Dhabi sovereign wealth fund Mubadala Investment Company will take part in the initiative, the companies announced.
The afternoon session saw a 2.4% point increase in Citi shares and a 0.6% point increase in Apollo’s.
The loans offered by non-bank lenders like Apollo, who are not as regulated as banks, are referred to as private credit. These loans are usually given to companies that want to secure large acquisitions through debt or to riskier borrowers.
These loans are a valuable source of funding for borrowers who are judged by traditional banks to be too vulnerable because they can be processed more quickly.
Private credit companies were once thought to be a threat to banks, but in recent months, they have hurried to form alliances with conventional lenders.
Without putting their own money at risk, banks can assist in locating customers more quickly and earn a fee. Together with LuminArx Capital, an alternative investment manager, Citi introduced a new private lending vehicle in January.
“Combining the strength of Citi’s banking and capital markets franchise with Apollo’s deep capital resources will provide clients with a range of options to meet their evolving financing needs,” Citi’s banking head Viswas Raghavan said.
Although the programme’s initial focus will be on North America, the companies stated that it may eventually spread to other regions and surpass the USD 25 billion goal.
“The partnership is yet another example of the rapid growth of private credit into mainstream finance,” said Ana Arsov, global head of private credit at Moody’s Ratings.
Additionally, Apollo recently got a USD 5 billion commitment from BNP Paribas to increase the strength of its private credit portfolio.
According to an April 2024 report from the International Monetary Fund (IMF), systemic risks to the larger financial system could arise from the opaque and highly interconnected nature of the private credit market, which calls for closer examination.