NEW YORK – Citigroup is in discussions to start a new direct lending strategy by early January, the latest in a series of bank efforts to gain a foothold in the booming US$1.6 trillion (S$2.14 trillion) private credit market.

The initiative would complement the bank’s existing broadly syndicated leveraged finance business, according to a person with knowledge of the matter.

It could include teaming up with one or more outside partners that would provide capital for loans, which the bank would originate, the person said, asking not to be named because the details are private.

Citigroup may or may not use its balance sheet to win deals, the person added. Discussions are ongoing and details could still change.

A representative of Citigroup declined to comment.

The push follows similar moves in 2023 by Wells Fargo & Co, Barclays and Societe Generale to break into the fast-growing market for private debt, where risky borrowers bypass the high-yield bond and leveraged loan markets to get financing.

Its emergence has threatened a key profit engine for traditional lenders, which until recent years generated roughly a third of their investment banking revenue from arranging bond and loan sales.

Citigroup’s aim is to be able to offer a potential borrower a high-yield bond, leveraged loan or private credit option, which the company, or a private equity owner, could then choose depending on its needs, the person said.

The bank wants to be ready for a fresh wave of buyout deals as private equity firms eventually have to sell existing portfolio companies to pay back investors, the person said.

Connecting customers to third-party debt financing would allow Citigroup to still earn fees from the transactions, ensure it maintains a relationship with the borrower, and also help the bank sell ancillary services such as cash management or hedging strategies, the person added. BLOOMBERG