Morning Coffee: A Barclays/Wells Fargo fantasy merger emerged from the shadows. Private credit loan trading is sort of taking off

It’s been a long while since a big US bank acquired a smaller UK rival. People at British banks have forgotten what it’s like to be newly appended to a US house. Now, just as people in Britain have plenty of other things to think about, some are being gently reminded. They are at Barclays.

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Mark Kleinman, the Sky News City Editor, who was historically rumoured to inhabit the One Lombard Street bar and restaurant proximate to the Bank of England, says there is chat that a takeover of Barclays by Wells Fargo might be a fine thing. Unless, presumably, you work in Barclays' back office.

Chat is not reality and neither Wells Fargo nor Barclays have indicated any serious consideration of the deal. Both banks declined to comment to Kleinman. There is "no suggestion of anything active going on," says Kleinman. The Barclays-Wells Fargo deal exists only in the dreams of FIG bankers and banking analysts.

Ethereal is not incoherent though. Barclays-WF makes a kind of sense. Wells Fargo wants to grow its investment bank; Barclays has one.

Last June, Wells Fargo was freed from a seven year asset cap imposed after the Federal Reserve took enforcement action against it in 2018. The Wall Street Journal noted in April that Wells Fargo has since resumed its quest to be a bigger deal on Wall Street. In the first quarter, Wells Fargo's trading assets were half those of Bank of America. WF has been hiring bankers and hiring traders. Maybe it could just buy Barclays' bankers and traders instead?

Of course there's more to it than that. Kleinman observes that Barclays and Wells Fargo also have retail banks and that it's not clear whether Wells Fargo would really want to own Barclays' large high street bank at the precise point when a generation of Britons face higher rates on their large and possibly unaffordable mortgages. 

If the pound and Barclays' share price fall enough, though, maybe it could be a different matter. Kleinman notes that Barclays trades at 1 times book value whereas Wells Fargo trades at 1.7, so there is value to be unlocked. If the worse comes to the worst, maybe Wells Fargo could simply acquire elements of Barclays' investment bank? There are some fine fixed income traders there, even if they did have a bad first quarter. 

Separately, one year after Bloomberg reported that JPMorgan's private credit traders were having trouble getting anyone to trade private credit loans with them, Bloomberg says private credit loan trades at JPMorgan have lift off.

Sanjay Jhamna, JPMorgan's global head of credit trading, and Jake Pollack, JPMorgan's global head of credit financing, disclosed their new success on the sidelines of JPMorgan's global markets conference last week. Volume is "surging" they said. Private credit market stress means it will surge more in the times to come. 

A closer reading of the article suggests one person's surge is another person's trickle, though. JPMorgan has so far traded only 20 loans of uncertain value. This is not much, given that JPMorgan also trades $1bn of syndicated loans every day.

The feebleness of the surge seems to be because trading private credit loans is not easy. “It’s labor intensive, calling and following up to make sure you’ve got both counterparties’ approval and sponsors’ approval,” says Pollack. Trading private credit cannot be automated. Presumably it is immune to AI. If AI doesn't force you to become a plumber, maybe this is your calling. 

Meanwhile...

Maybe L&G will be acquired by the Americans too. (Financial Times) 

Tech companies are hawking debt globally. Alphabet sold $17bn of US bonds on Monday and then its executives stayed up through the night to pitch a new deal in Japan. It's also issued bonds in dollars, pounds and Swiss francs and will have raised $60bn in four months. “The reality is that there’s so much need for depth, they have to tap every single source of liquidity that they can". (Bloomberg) 

Citi wants to increase headcount in its Asia prime brokerage by 10%. (Bloomberg) 

Virtu Financial is trading on prediction markets too. (Bloomberg) 

Trium Capital hired Harjinder Thandi from Millennium and now it wants to expand in London. (FN) 

Perbak Capital Partners, a hedge fund backed by Schonfeld, is closing because it couldn't raise enough AUM. “Our assets have not grown sufficiently to allow us to maintain the minimum necessary financial buffer that is necessary to deliver the kind of business robustness, resilience and anti-fragility we value.” (Bloomberg)  

MUFG has pitched a $200mn significant risk transfer product to protect it against losses if private credit funds fail to repay their debt. The fear is that SRTs everywhere just create a circular risk, given that the most likely buyers are firms like Blackstone, Apollo and Ares that also have massive private credit operations. (FT) 

If Steve Cohen's SAC Capital had been engaged in dubious activities now, it could just hand itself over to the US Attorney's Office for the Southern District of New York and negotiate a settlement behind closed doors. Wall Street prosecutors have got a new soft approach where they won't charge companies that admit to wrongdoing, or even publish details. They will still charge individuals, though. (Financial Times) 

Morale at Meta has been crushed. (Wired) 

Young people in New York are making thousands of job applications and getting nowhere. “It’s this existential depression and existential dread of, ‘What am I going to do with my life?’" (NY Times) 

When she met her husband, Warren on the private-membership dating app Raya, she asked him to do some blood tests before they met in person and suggested they have their first date in a hyperbaric oxygen chamber. (Bloomberg) 

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