Why Are US Banks Seeing Heavy Selloffs Today?

• The business development company of KKR oversees a $13 billion portfolio, largely composed of loans extended to private-equity-backed mid-sized companies during the record 2021–2022 takeover cycle.
• According to a report from The Financial Times, software-linked exposures at FS KKR accounted for some of the most significant markdowns.
• Goldman Sachs' asset management arm has assured investors that the redemption rate at GS Credit remains well below that of its peers, according to a report from Reuters News.

U.S. bank stocks are plunging on Friday due to worries about lenders’ exposure to a decline in private credit triggered by concerns over AI.

Shares of Goldman Sachs, Morgan Stanley, Bank of America and Wells Fargo fell 7.4%, 6.3%, 4.5%, and 5.8%, respectively. 

The declines come after FS KKR Capital Corp, a fund managed by private equity giant KKR, reported a jump in bad loans and decline in net income. 

FS KKR Capital Corp Results

Net investment income fell to $0.48 per share in the fourth quarter, down from $0.57 in the prior quarter. The fund also reduced the valuation of certain assets, reflecting a broader repricing across parts of the private credit market.

According to a report from The Financial Times, software-linked exposures at FS KKR accounted for some of the most significant markdowns. Loans tied to Medallia, acquired by Thoma Bravo for $6.4 billion in 2022, were written down to below 80 cents on the dollar. Other adjustments affected debt linked to Cubic Corporation, AmeriVet, Dental Care Alliance, janitorial services businesses, and defence contractors.

The business development company oversees a $13 billion portfolio, largely composed of loans extended to private-equity-backed mid-sized companies during the record 2021–2022 takeover cycle.

Goldman’s Response

Goldman Sachs' asset management arm has reportedly assured investors that the redemption rate at GS Credit remains well below that of its peers. 

Goldman Sachs Private Credit Corp continued to see strong appetite, with December inflows 11% above the year-to-date average and a fourth-quarter redemption rate of 3.5%, compared with more than 5% for peers, according to a shareholder letter seen by Reuters. 

How Did Stocktwits Users React?

Retail sentiment around GS, MS, BAC trended in “bullish” territory while on WFC it trended in “neutral” territory. 

Shares in GS, MS, BAC and WFC have risen 39%, 26%,13.3%,5.5%, respectively, over the past year. 

For updates and corrections, email newsroom[at]stocktwits[dot]com.

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