1、May 2024Never Let Me Go:Competition and Opportunity in the Era of Bank Disintermediation2024 Credit Market Outlook2 Markets rebounded sharply following the November and December 2023 Fed meetings,as the risk of recession receded and rate cuts came into view.Loan and bond issuance set records through

2、 the first two months of the year,with credit spreads at their tightest levels since the onset of the pandemic.Much of this activity involved bank-arranged refinancing of loans originated during the period when private credits market share increased substantially relative to broadly syndicated loans

3、.Bank disintermediation continues to gather pace,but new competitive fault lines have emerged.It is one thing to disintermediate loans from bank balance sheets.Its quite another to disintermediate the banks themselves from their most prized clients and customers.As bank balance sheets become more co

4、nstrained due to regulation and other factors,their lending decisions will become even more sensitized to relationship considerations,especially for large banks who derive a disproportionate share of their operating earnings from noninterest income.While this may constrain the growth(or expected ret

5、urns)of direct lenders competing directly with banks for larger borrowers,it should create more opportunities virtually everywhere else,as private funds partner with banks to assume more of their assets in some areas and displace them entirely in many others.EXECUTIVE SUMMARY3Figure 1.Source:Carlyle

6、 Analysis of Federal Reserve Data,Bloomberg,November 2023.There is no guarantee any trends will continue.Market narratives can be fickle things.A year ago,as the Fed was taking base rates to levels that were unimaginable just two years prior(Figure 1),market participants prepared for the recession m