BlackRock Just Lost $20 Billion On Private Credit | They Are Collapsing

The private credit collapse has just entered a new phase as business development companies are desperate to start giving out credit cards to those who JP Morgan reject for loans as being too risky. Their business, private credit that is, is now so poor and falling apart so quickly that they're desperate to get into any other industry possible, including literally giving out credit cards to fraudsters and those who are or have been bankrupt. We've also seen Hudson Bay and BlackRock, a $20 billion asset manager being Hudson Bay, abandon their plans to break their way into the private credit space after the market turned and BlackRock suffer too. And of course, Japan's bond yields are continuing to rise to terrifying levels, meaning rate hikes are coming and the US's attempt to manipulate the yen is falling apart. All that's to be covered today on Stoic Finance with me, your host Max, and if you want to stay up to date on the financial news the latest media won't show you, well like and comment under this video so the algorithm shows you my future videos and of course subscribe to the channel as well. JP Morgan recently explored a way to ease a long-standing point of contention with credit card partners such as airlines and retailers, a plan that would open the door for private credit to get a new piece of consumer debt. The co-brand cards that millions of consumers use have long been the epicenter of a love-hate relationship between large merchants and banks. Airlines, department stores, and every kind of merchant lean on their card programs to attract more customers, boost loyalty, and increase revenue. Banks take on much of the risk associated with whether those cardholders will default on their payments. But there is often a tension between the two parties, with the merchant trying to get the bank to approve more applicants than meet its credit underwriting and other requirements. JP Morgan, the biggest US credit card issuer by volume, recently started looking into whether other funding sources could The bank sent out requests to more than a dozen entities to discuss whether they would be interested in so-called second-look applications, which would allow them to take on the risk of approving applications that the bank has denied. Some of those entities reached out to private credit firms gauging their interest in funding the JP Morgan loans. Private credit firms raise money from investors and lend it out, mostly to businesses that fall below investment grade debt but have increasingly been wading into consumer debt. Blue Owl, Blackstone, KKR, and 6th Street are amongst the lenders whose executives have been approached about JP Morgan's program, all of whom are heavily invested into private credit. A partnership with JP Morgan would signal another level of acceptance into mainstream finance. Now let's make sure we're all 100% on the same page here. Companies like American Airlines or Walmart, they often partner up with banks to create and give out credit cards, and customers of those companies use those credit cards, they take out debt, and the profit is essentially split between the companies and the banks. But the banks assume almost all of the risk, as they're the ones actually lending out the money. As you'd expect then, the banks are quite careful with who they give these cards out to, as they're the ones who stand to lose if the wrong people get them. The companies on the other hand, they're desperate to just get as many of the cards out as possible, so they're always pushing banks to lower their standards. And this is where private credit comes into the story. What's looking like is going to happen is they're going to shoehorn their way into this industry to guarantee the debt for those who are being rejected for credit cards by banks, and taking on all of the risks themselves. This is a disaster waiting to happen. These people are rejected for credit cards because they're already in loads of debt, or they've already failed to repay cards in the past, they sometimes even have already been or are currently bankrupt. And private credit is in such a dire position right now, they're so desperate to get out of private credit in any way possible, private credit in terms of lending large multi-million dollar loans out to private companies, they're going to go out and give credit cards to those who almost certainly won't repay them. I'm almost speechless at this story, especially how the media is mostly just ignoring this, but when they are reporting on it, like we see here from the Wall Street Journal, they're essentially just rolling over and acting like this is a totally normal idea with no risks to the private credit firms getting involved at all, and even how the media aren't even mentioning how this is very, very clearly driven by the private credit industry collapsing before our eyes. So for those who are naysayers when it comes to private credit being in crisis, I would genuinely be really, really interested to hear how you spin this as something positive for the industry and not a sign of it being in terminal decline. Inflation has been out of control ever since Covid hit all over the world, the UK, US, Canada, Europe, it's the same story. Our currencies are dropping in value and our governments seem more than happy to print away regardless of how much it damages us, which is exactly why I've been personally investing into gold ever since I started on YouTube five years ago, as it's the world's oldest protection against inflation. No matter what our governments try to do, they can't just print more gold out of thin air. And even more importantly, for many people like myself, gold and silver currency is 100% exempt from capital gains and income taxes, making precious metals more important than ever for protecting yourself from this nightmare. That's why I've partnered up with Gold Bullion Partners. They help you protect yourself with gold investments, coin storage, and most importantly, they can even help you invest in gold in your pension, making sure your retirement is safe from the next tax rate. They're based right here in London, about five minutes away from where I live, and I can't recommend them strongly enough. With inflation running rampant and our governments dead set on bleeding us all dry, this is 100% something you need to be paying attention to, and you can click the link down below in the description to get a free information pack from Gold Bullion Partners, so click that link down below in the description now and make sure your future is protected. But there is also more other bad news for private credit, of course. Hudson Bay Capital Management is abandoning plans to start a dedicated private credit business as the $20 billion firm parts ways with two executives it hired from BlackRock. Raj Vig and Tim Morris are leaving Hudson Bay. They were among the most senior investment staff Hudson Bay hired over the past couple of years from BlackRock's legacy private credit business. Since their departure, one part of that operation, BlackRock's TCP Capital Fund, has drastically marked down soured loans and been probed by US regulators over valuation practices. That is incredibly important because it means, finally, the authorities are considering and investigating the idea that this isn't just a typical financial bubble that's tearing private credit apart, it's fraud and it's criminal. Hudson Bay, the team led by Vig, was also allocated about $1 billion in seed capital to start making investments and raise money for a new fund to build out a standalone private credit platform. Morris, who left BlackRock in 2024, said in a statement that during his tenure at the firm there were no regulatory inquiries or issues related to valuation, so he's trying to defend his actions in BlackRock despite the fact we all know it's fraud. The funds he helped manage had received eight years of clean audit opinions and a clean SEC exam. Yes, we're not disputing that the government and the authorities allowed you to commit your fraud before, we're just disputing the fact that it was ever above board and it shouldn't have ever had that clean exam. Morris had been America's chief operating officer for BlackRock's global credit business prior to joining Hudson Bay. The BlackRock fund last month offloaded assets and said it's mulling strategic options including returning capital to shareholders and merging with another entity. So, BlackRock, they built this massive private credit business over the last decade or so as the market was booming on cheap debt, right? Nothing else, it wasn't a good business model, it was just cheap debt. Now, two of the most senior executives at BlackRock who built their private credit businesses then got headhunted to go to Hudson Bay Capital with the intention to do the exact same thing for them in a deal worth hundreds of millions of dollars in salaries and bonuses for those two employees alone. Now, Hudson Bay are so terrified of the collapsing private credit industry and in particular of legal action for fraud against those who built the industry, they're now employees like these two executives, they're basically just fired those two executives and sent them off with golden parachutes worth again hundreds of millions of dollars. All in all, Hudson Bay probably put up somewhere in the region of 1.4 to 1.5 billion dollars into this project overall and they've just announced they're shutting it down before it even started. Again, an indictment into the sorry state of private credit and yet more evidence of its decline across every single company. Finally then, let's take a quick look at the updates coming out of Japan. Japan's two-year government bond yield is closing in on the key two percent threshold as investors ramp up bets on further Bank of Japan rate hikes. The yield, which is sensitive to expectations for monetary policy, rose as much as four basis points to 1.975 percent on Monday, its highest since 1995, that's my entire lifetime. Other maturities also came under pressure with the five-year yield rising three basis points to 2.43 percent. The move comes as investors become concerned the Bank of Japan may be falling behind the curve after the governor offered limited guidance on the pace of future tightening following a widely expected rate hike earlier this month. That's fueling expectations policymakers may ultimately need to raise rates more aggressively, particularly as hawkish Federal Reserve attempts threatens to keep the US-Japan rate gap wide. And you can see just how much this two-year yield has risen over the last year. It has more than doubled over literally 12 months. The central bank could raise its benchmark rate for a second straight month in October, a former executive director in charge of monetary policy told Bloomberg. This timeline is earlier than many economists had expected. So yields in Japan are still steadily rising and actually they're accelerating in their rise and markets have long been expecting some rate hikes for Japan, but the pace of them and the severity of them is increasing as well. And Trump has made it clear he's worried about what's happening as he's desperate to prop up the yen as we saw with the very unique or odd intervention from the treasury just last month. The yen's weakness is adding to the case for tighter policy. Trump shared concerns about the currency during a recent meeting with Japanese Prime Minister Takachi, while finance ministers said that they are not reflectionist, seeking to ease concerns that the government would pressure the Bank of Japan to keep rates low. Now, despite all of these interventions, the yen is still weaker today than it was in August and July as markets are now so sure that even with rates increasing in Japan that won't be enough to stem the bleeding and the Japanese government simply can't afford to raise rates by substantial amounts as the single most indebted government in the entire world. The two-year yield has literally doubled over the last year alone. Debt servicing costs cost Japan about five percent of its GDP right now and that's obviously likely to double and increase even further over the next few years as these old cheap bonds meet their maturity dates and have to be replaced by far more expensive ones. Now, if the US is adamant about keeping the yen strong, they're going to have to intervene again and again month after month for years at this rate. 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