Figure 12. Change in Bank Balance Sheets Over Time SIZE MATTERS be most sensitized to broader strategic calculation. And when looking solely at the largest bank holding companies, For private credit funds, with focused business models that dependence on noninterest income appears bimodally do not take deposits or derive ancillary fees to the same distributed, with noninterest income accounting for between extent as banks, recent developments represent both a 35% and 50% of operating income for a quarter and warning and opportunity. Direct lenders whose scale pushes between 75% and 90% for another 昀椀fth (Figure 13, page 12). them to compete directly for banks’ most prized clients may 昀椀nd themselves in a position akin to U.S. steelmakers in the This suggests that the clients of a relatively small subset 1960s and 70s: forced to sell their product at market prices of especially large banks may be able to access credit on (spreads, in this case) that seem to make no sense. But more favorable terms because of the fees they generate outside of this corner of the market, circumstances are likely from potential IPOs, advisory work, acquisitions, and other to improve materially, as banks disgorge assets and more related needs, including deposit and transaction services. borrowers seek out alternative sources of credit. It’s impossible to know, analytically, which borrowers 昀椀t precisely into this bucket. One suspects that companies Size matters, both in terms of the banks against which above an annual EBITDA threshold between $200 million private lenders compete and the borrowers themselves. to $400 million would be prime candidates for precisely While all bank holding companies experienced a dip in the sorts of value-added services for which banks derive noninterest income over the past two years, it is the largest so much of their operating income, as would companies banks that derive the greatest share of their operating a昀케liated with large 昀椀nancial sponsors with deep and income from fees and whose lending decisions are likely to multifaceted banking relationships. Figure 12. Source: Carlyle Analysis; Federal Deposit Insurance Corporation, March 2024; Federal Reserve Bank of New York, March 2024. There is no guarantee any trends will continue. 11