Apollo Global Management and Pimco have teamed up and are close to acquiring Credit Suisse’s securitized products group as the Swiss bank prepares to significantly reduce its US operations, according to people briefed on the talks.
Officials added that the sale of the unit is expected to be announced in Credit Suisse’s strategy update on Thursday. The Swiss bank also plans to sell several other assets, including a portion of its local bank, as it seeks to fill a capital shortfall of approximately SFr 4.5 billion (US$ 4.5 billion).
The New York-based securitized products business, which bundles debt such as mortgages and yachts before selling them as securities, will reduce the capital load on Credit Suisse’s balance sheet while also cutting off one of the bank’s most profitable lines of business.
The Wall Street Journal reported the talks earlier Wednesday. Apollo and Pimco declined to comment.
Credit Suisse’s board and management decided that the unit required too much capital and little overlap with the private wealth business, which after strategic review would become the bank’s main focus.
If agreed, the deal would underscore the growing presence of private equity groups in many of the riskiest, though most lucrative, lending areas. These firms began creating large internal insurance operations that provided asset-backed loans to fuel their life insurance and annuity businesses.
Apollo, for example, has provided more than $100 billion in loans over the past 12 months directly through its own lending operations, most of which include equipment financing, mortgages and mezzanine real estate loans.
By creating assets directly, Apollo and Pimco seek to ensure that they have a stable source of credit investment and a good understanding of the quality of the paper they sell to their investors.
Private lenders are stepping into a vacuum created over the past 15 years, as European banks are withdrawing from once-valuable businesses to deal with losses from the financial crisis, regulatory changes and until recently a long period of low interest rates. .
As bank lending became more constrained, many European companies turned to alternative sources to finance their operations.