00:00So we know the explosive growth in private credit, Herman, initially took market share from the big banks, and then they kind of figured things out.
00:06Talk to us about how it's evolved for regional banks.
00:09Right. So we view private credit for the regionals as both friend and foe, so frenemies, if you will.
00:15There's lots of dry powder, billions of dry powder that needs to be deployed by private credit.
00:20It's going to various areas, leveraged lending, consumer lending for Infantex, and in middle market companies.
00:28So there is some competition, but there's not a lot of overlap yet because the regional lenders do tend to be a bit more conservative with their structure and their borrower base.
00:38But that being said, we do see some clients leaving the regional banks to a private credit loan on the outskirts right now.
00:50Western Alliance and Zions flagged problems with their loans to first brands.
00:53So, of course, we know that private credit, there's an overlap there.
00:57Which regional banks really stand out in terms of exposure to private credit?
01:00Yes. So there's lending to the lenders, which is what we talk about in the note in terms of being friendly to private credit.
01:08So that's happening.
01:10Western Alliance talked about the lender finance business, which is their indirect exposure to first brands.
01:18And then a lot of the other regional banks do do that just because it's a very conservative credit.
01:24And we're talking about the biggest names in private credit where they use the lending to increase their leverage in their funds.
01:32So it's part of the infrastructure and ecosystem within financial services and something that we are watching closely because it is a gross area for the regional banks.
01:41And very quickly, before we let you go, what does the prospect of lower interest rates next year mean for this relationship between regional banks and private credit?
01:49Yeah. So lower interest rates, it decreases the cost of capital for the private credit folks.
01:55So that means that maybe they can take more borrowers from the middle market and really use regional banks to juice their return.
02:05So it's going to be more of the same.
02:06We just see this proliferating.
02:09And it really is interesting to see it all shake out as the banks potentially lose clients,
02:15but also offer some fee income capabilities to private credit firms and portfolio companies.
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