Asset Managers Are Now Making Loans Big Banks Can't Make

NEW YORK ( TheStreet) -- The Big Banks just aren't making loans like they used to.

To fill the gap created by regulations enacted during the recession that followed the 2008 banking crisis, asset management firms are increasingly making loans that were traditionally made by  JPMorgan Chase  (JPM)  and Bank of America  (BAC) . Two prominent asset management executives cited the trend during two separate conversations while at the annual meeting of Wall Street trade group SIFMA in New York this week.  

The first came Neuberger Berman CEO George Walker in a morning panel discussion.

"We've been purchasing assets from banks who've been forced sellers as a result of Volcker or the increased capital requirements in helping to transfer those assets from levered bank balance sheet assets to pension funds and the like who are arguably better holders," said Walker, a second cousin of former President George W. Bush.

Volcker, of course, refers to the Volcker rule, one of the most controversial parts of the landmark 2010 Dodd Frank Act. The Rule aims to severely limit large directional bets by banks, whether through private equity or trading. It was the idea of former Federal Reserve President Paul Volcker, an adviser to President Obama.

The second comment from David Rubenstein, co-founder of The Carlyle Group (CG) , one of the world's largest private equity firms.

"It's about 400 pages in terms of regulation [and] it's here to stay, and so that has created opportunities for private equity firms to do things that banks used to be able do, like lending money to small companies," he said 

Rubenstein's comments came in a separate session late Monday afternoon, and didn't appear to be prompted by what Walker had said earlier in the day. Like Walker, Rubenstein also referred to tougher capital rules for banks, specifically referring to international capital standards known as Basel 3.

Rubenstein's comments focused on writing new loans to smaller companies, as opposed to buying loans made by banks that have run into trouble, though Carlyle has historically done that too. He said big banks still like making big loans, however.

"I can get financing for a $5 billion buyout a lot more quickly than some people get financing for a $10 or $20 million buyout because the big banks like the fees and other things associated with a large buyout," Rubenstein said.

Walker, on the other hand, said Neuberger was both writing new loans shunned by banks and buying outstanding bank loans that had stopped performing, such as troubled mortgages that hadn't been securitized. He said Neuberger will also buy private equity investments made by banks that they want to get out of.

Referring to bank loans to private equity firms that have elicited warnings from bank regulators because borrowers' debt-to-cash flow ratios are higher than they would like, Walker said "[These are] attractive loans: regulators have just decided they don't belong on bank balance sheets. There are a lot of other balance sheets that would be eager to invest in that."

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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