(March 12): Deutsche Bank AG flagged a €26 billion (US$30 billion) exposure to private credit, an asset class that’s grappling with fund redemptions, scrutiny of underwriting standards and the impact of artificial intelligence (AI) on some borrowers such as software makers.
In its annual report published on Thursday, the lender said it is not exposed to “significant risks” related to non-bank financial institutions, but that it could face potential indirect credit risks through interconnected portfolios and counterparties.
“Failures of a select number of subprime lenders in the US increased investor focus on risks associated with private credit and raised wider concerns around underwriting standards and fraud risk,” it said in the report.
The US$1.8 trillion private credit market is witnessing an exodus of investors after some high-profile corporate blowups led to mounting concerns over loan quality and exposure to software firms, whose business models are being threatened by rapid strides in AI. JPMorgan Chase & Co is restricting some lending to private credit funds after marking down the value of certain loans in their portfolios.
The latest credit shock to rattle both banks and private lenders was the collapse of UK mortgage lender Market Financial Solutions Ltd, which is facing allegations of fraudulent behaviour. Accusations of wrongdoing also surfaced last year in the failures of US auto parts supplier First Brands Group LLC and subprime auto lender Tricolor Holdings LLC.
Deutsche Bank’s annual report showed its private credit portfolio increased to €25.9 billion of loans at amortised cost, from €24.5 billion in 2024. Its loan exposure to the technology sector, including software, accounts for €15.8 billion at amortised cost, up from €11.7 billion.
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People familiar with the matter said last month that the German firm is part of a group of lenders who have been unable to sell about US$1.2 billion of loans backing the acquisition of a software provider in a rare hung deal.
While Deutsche Bank is warning of risks in private credit, it plans to expand its own private credit offering. The bank said it intends to widen distribution through selective regional expansion and the joint development of innovative products and digital investment solutions with its private bank.
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