<p>Bank of America Securities is recommending a strategy to clients for shorting European private credit exposure stocks, with Deutsche Bank, Partners Group, and other institutions prominently listed. Goldman Sachs has previously begun marketing derivative tools for shorting corporate loans to hedge funds. The sequential moves by these two Wall Street giants in the private credit market have heightened concerns about systemic risks associated with this asset class.</p>
<p>According to a report by the Financial Times on Thursday, Bank of America warned clients that European private credit exposure stocks have a &#34;downside risk&#34; of 30% compared to similar U.S. stocks, as these stocks have not declined as much as their American counterparts. To this end, Bank of America has specifically constructed a short basket consisting of 17 European financial stocks, which, in addition to Deutsche Bank and Partners Group, also includes insurers Axa, Legal and General, Aviva, and pension group Aegon.</p>
<p>This move comes as pressure continues to build in the private credit market. Following Blue Owl's announcement to permanently close the redemption channel for one of its funds, the sector has faced massive sell-offs—Blue Owl's market value has evaporated by about 40% year-to-date, and Blackstone has also seen a decline of 27%. Wall Street's role as a provider of shorting tools during times of accumulating risk has led some market observers to draw parallels to the situation before the 2008 financial crisis.</p>
<h2>Bank of America Constructs a 17-Stock Short Basket, Targeting European Exposure</h2>
<p>The core logic behind Bank of America's short recommendation is that the valuation adjustments for European private credit-related stocks have not yet materialized. The bank believes that, compared to the significant corrections experienced by similar U.S. assets, the declines in European stocks are noticeably lagging, creating approximately 30% potential downside.</p>
<p>The short basket tailored for clients by Bank of America includes 17 European financial stocks, covering multiple sub-industries such as banking, insurance, and asset management. Deutsche Bank and Partners Group are identified as representative targets &#34;most exposed to the impact of private credit,&#34; with insurers Axa, Legal and General, Aviva, and pension group Aegon also included.</p>
<p>It is noteworthy that Bank of America itself has not shied away from the private credit market. Just last month, the bank announced it would invest $25 billion in the private credit lending sector, at a time when concerns about credit quality and liquidity were already beginning to rise.</p>
<p>Meanwhile, analysts within Bank of America's research department expressed on Wednesday that media attention on private credit is &#34;still excessive&#34; and focuses on &#34;low-value data points,&#34; which they believe is driving this round of sell-offs, characterizing it as a &#34;First Take buying opportunity.&#34; The internal disagreements at Bank of America regarding private credit issues reflect the high divergence in market judgments about this asset class.</p>
<h2>Goldman Sachs Has Previously Entered the Market, Total Return Swaps as Shorting Tools</h2>
<p>Bank of America's actions are not an isolated case. According to a previous article by Wall Street Insight, Goldman Sachs has taken the lead in recommending shorting corporate loans to hedge fund clients, with the core tool being a derivative known as a &#34;total return swap,&#34; which allows investors to profit when loan prices decline
According to informed sources, Goldman Sachs has recently received inquiries from multiple clients and has proactively contacted hedge funds interested in shorting loans to technology companies, but no actual transactions have been completed yet. The core logic behind the hedge funds' desire to short is the dual risk exposure of private credit and the software industry—Blue Owl is at the center of this turmoil due to its substantial lending to the software sector, and concerns about the survival prospects of software companies triggered by advancements in AI technology directly led to the fund's redemption closure.</p>
<p>Two top Wall Street institutions have successively built shorting channels for clients, indicating that institutional investors' demand for risk hedging of private credit assets is rapidly increasing, and the market is seeking more structured tools to express this judgment.</p>
<h2>Market Pressure Signals Intensify, European Bank Executives Attempt to Soothe</h2>
<p><strong>Pressure signals in the private credit market have been continuously flashing. In addition to Blue Owl's closed redemption, it has been reported that Blackstone's private credit fund faced a record 7.9% redemption requests, BlackRock announced restrictions on redemptions from its $26 billion corporate loan fund, and PIMCO warned that the direct lending industry is about to enter a &#34;full default cycle.&#34;</strong></p>
<p>In response to external doubts, European bank executives collectively spoke out this week in an attempt to stabilize market expectations. Deutsche Bank CEO Christian Sewing stated on Tuesday that the bank has not lost &#34;a single penny&#34; in its over ten years of private credit business, and after disclosing a €26 billion private credit exposure last week, emphasized: &#34;I don't think this poses a particular risk for us.&#34; He also stated that Deutsche Bank is a &#34;very robust underwriter&#34; in this business area.</p>
<p>Steffen Meister, Chairman of Partners Group, admitted to the Financial Times last week that the default rate in private credit could double in the coming years, but emphasized that institutions adopting strict &#34;private equity-style&#34; underwriting standards are still expected to achieve strong credit returns.</p>
<h2>A Reflection of 2008? Wall Street Again Plays a Dual Role</h2>
<p>The current situation has led some market observers to feel a sense of déjà vu. On the eve of the 2008 financial crisis, Deutsche Bank trader Greg Lippmann's team marketed up to $35 billion in credit default swaps (CDS), assisting clients in shorting subprime mortgages, ultimately earning Deutsche Bank substantial profits during the crisis. <strong>Wall Street's role as a provider of shorting tools during times of risk accumulation seems to be replaying in the corporate loan market today.</strong></p>
<p>This analogy is not without controversy. The scale, structure, and nature of the current private credit market differ fundamentally from the subprime mortgage market of 2008, and European bank executives are emphasizing the robustness of their portfolios. However, the fact that Goldman Sachs and Bank of America have entered the market and built shorting tools for clients is enough to prompt investors to reassess the risk pricing of private credit assets—especially in the European market, where the valuation adjustments of related stocks may have only just begun</p>

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<p>Bank of America recommends clients to short a basket of 17 European financial stocks, targeting Deutsche Bank, Partners Group, and other private credit exposure, warning of a 30% downside risk; Goldman Sachs has previously built a derivative channel for hedge funds to short corporate loans. The two Wall Street giants have successively laid out short positions, combined with pressure signals such as Blue Owl's closed redemption and Blackstone facing record redemption waves, leading to a sudden rise in market vigilance regarding systemic risks in private credit, reminiscent of the historical specter before the 2008 crisis</p>

- Bank of America is advising clients to short European private credit-exposed stocks, citing systemic risk concerns intensified by actions from major firms like Deutsche Bank and Partners Group.  
- A report indicates that these stocks face a 30% potential downside compared to their U.S. counterparts, prompting Bank of America to create a short basket of 17 European financial stocks.  
- This move, accompanied by pressure signals in the private credit market, suggests a rising need among institutional investors for risk hedging and structured tools amidst increasing market volatility.

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The taste of 2008! Bank of America recommends shorting "European private credit-related assets," including Deutsche Bank