BofA withdraws advice to bet against EU financial firms due to 'errors of fact'

Bank of America (BofA) has withdrawn a recommendation to clients to bet against European companies potentially exposed to "shocks to the private credit segment," the Financial Times reports. Last week's note, BofA acknowledged, contained "factual inaccuracies." It was about a basket of 17 financial companies, including Deutsche Bank and Aegon, against which the U.S. bank offered to open short positions as early as March 18.

BofA sent out a message to clients on Wednesday evening - just hours after the initial letter - warning that a previously circulated market commentary - which recommended betting against a basket of stocks including Deutsche Bank and Partners Group - had been withdrawn. This decision at Bank of America was made "following a review of new information" as well as due to errors of fact, the Financial Times said. The bank added: "These views do not reflect the position of BofA Research or the organization as a whole. We apologize to the companies that were referred to [in the comment] incorrectly."

In its initial recommendation, which the Financial Times published the day before, BofA reported that European stocks with exposure to private credit have "the potential to decline by 30%" compared to their U.S. counterparts, as their quotations on the background of risks in the private credit sector fell not so sharply. The bank also created a basket of 17 European financial stocks against which clients were encouraged to open short positions. Such recommendation from BofA, in particular, received securities of pension group Aegon and insurers Legal & General, Axa and Aviva.

According to the publication's sources, companies on the "shorting list" complained to the bank about its own recommendation - in some cases, they were included on BofA's list even with minimal connection to private lending, the FT notes. The bank told them that not only was the recommendation being withdrawn, but that the situation was under review by the bank's management.

The roughly $1.5 trillion private credit market is facing a surge in withdrawal requests from funds amid increasing scrutiny over the quality of loan originations, as well as the sector's exposure to software companies that could be hurt by AI developments.

Private credit funds managed by major investment firms - Blackstone, BlackRock, Cliffwater, Morgan Stanley and Monroe Capital - have agreed to return to investors about 70% of the $10.1 billion they requested during the current quarter, the Financial Times estimated on March 16.

At the same time, European bank chiefs this week tried to reassure markets by saying they are seeing limited stress levels in their private lending portfolios. Deutsche Bank CEO Christian Zewing said Tuesday, March 17, that the bank has not lost "a dime" in more than 10 years of private lending. The German bank last week disclosed its exposure to the sector at €26 billion. "I think we have a very robust approach to lending in this business. I look at our portfolio, the level of transparency ... and I don't think it poses any particular risk for us," he said.

Société Générale head Slawomir Krupa, meanwhile, said on March 17 that "a cleansing process awaits the market," adding that "late entrants" in the private credit boom have started to make "less informed decisions." "To some extent, the market reacts quite quickly to such overreactions and I think it is already putting things in order," Krupa said.

This article was AI-translated and verified by a human editor