Despite stubbornly high inflation that remains above the Federal Reserve’s 2 percent target, interest rate cuts are on the horizon at last. The Fed’s Open Markets Committee left rates untouched at a range of 5.25 to 5.5 percent during its March meeting, and though the exact timing of the first rate cuts remains uncertain, Fed Chair Jerome Powell indicated at a March 20 press conference that the benchmark rate is expected to decline to 4.6 percent by the end of the year. For investors, the rate cuts won’t come soon enough.
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Capital quandaries
With interest rates likely to come down, how are lenders faring? Capital remains hard to come by, with the near-complete withdrawal of many traditional lenders and regional banks. Add the distress brought on by more than $929 billion in maturing loans this year and a considerable volume of assets under pressure, and investors face plenty of challenges, even as interest rates decline.
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At the same time, for equity investors, select regional banks, life companies and other private lenders with access to large amounts of dry powder, a connecting thread is that these capital sources are prioritizing asset quality and predictability in a still-uncertain market.
For Franklin Street Managing Director Nathan Weyer, this will become more important as interest rates are cut. “We are getting things done, it just takes longer,” he said. “Our biggest concern is not looking at source term sheets and opportunities—our focus is picking the right groups that can execute.”
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