> THE FEE MACHINE
How banks profit at every step of the PE/PC chain
THE FEE CHAIN — HOW BANKS CLIP EVERY TICKET
Acquires company at 10-14x EBITDA with 60-70% debt
$3.5-8M in fees per $100M of debt arranged
Earns SOFR + 200-400bp spread while holding
1-2% structuring fee on the entire vehicle
Rating agencies bless junk loans repackaged as 'safe'
Athene, Global Atlantic, Fortitude Re
No mark-to-market = no visible losses
The ultimate bag-holders in the chain
BANK COMMITMENTS — THE BIG PLAYERS
| Name | PC Commit ($B) | NDFI ($B) ▼ | IB Fees ($B) | CLO ($B) | PE Partner |
|---|---|---|---|---|---|
| JPMorgan Chase | $50B | $310B | $10B | $45B | — |
| Goldman Sachs | $145B | $250B | $9.3B | $35B | Capital Solutions Group (internal) |
| Bank of America | $25B | $200B | $7B | $40B | — |
| Citigroup | $25B | $180B | $6B | $30B | Apollo + Mubadala |
| Morgan Stanley | $30B | $150B | $5B | $25B | — |
| Wells Fargo | $7B | $120B | $4B | $20B | Centerbridge Partners |
| Barclays | $20B | $90B | $4B | $20B | — |
| Deutsche Bank | $15B | $80B | $3B | $15B | — |
| Norinchukin Bank (Japan) | — | — | — | $54B | — |
PER $100M LBO — WHERE THE FEES GO
Commitment and arrangement fees for structuring the debt package
Loan sold below par — bank pockets the difference
Fees for distributing loan to other lenders and CLOs
M&A advisory fees on the enterprise value of the deal
On a $5B LBO, the arranging bank earns $175M–$400M in total fees — risk-free.
THE INTERCONNECTION PROBLEM
SYSTEMIC RISK: The same banks that arrange PE debt, warehouse it, package it into CLOs, and sell it to PE-owned insurers are also the counterparty on credit lines to those same PE firms. A single credit event cascades through every link.
THE COUNTERPARTY WEB
The same firms appear at every node of the chain. Capital doesn't leave the loop — it just changes labels.
Originate deals, collect fees, own insurers
Arrange debt, warehouse loans, provide credit lines
PE-owned, buy CLO tranches, report at cost
Repackage B-rated loans as "AAA"
AT EVERY STEP
CIRCULAR RISK: When the same entity sits on both sides of every transaction, "diversification" is an illusion. A default at any node propagates to all others instantly — because they are all the same counterparty.
STRUCTURED PRODUCT FLOW — HOW THE RISK GETS PASSED
Take $500M of B/B- rated leveraged loans. Slice them into tranches. The top slice gets a AAA rating despite the underlying collateral being junk.
| Tranche | Rating | % of Deal | $ Amount | Buyer | Spread |
|---|---|---|---|---|---|
| AAA | AAA | 65% | $325M | PE-owned insurers, pension funds, Japanese banks | SOFR + 130-160bp |
| AA | AA | 10% | $50M | Insurance companies, bank treasuries | SOFR + 180-220bp |
| A | A | 8% | $40M | Insurance companies, asset managers | SOFR + 240-280bp |
| BBB | BBB | 5% | $25M | Hedge funds, opportunity funds | SOFR + 400-500bp |
| BB/Equity | BB/NR | 12% | $60M | CLO managers, PE firms (retained risk) | 12-20% target return |
ALCHEMY: The AAA tranche gets a pristine rating despite the underlying collateral being B/B- rated junk leveraged loans. Same structure, same logic as 2007 CDOs. The rating agencies earn fees for grading them — just like last time.
NORINCHUKIN BANK (JAPAN): $54B in CLO holdings — the world's largest single CLO investor. Lost $9.3B in FY2024 on CLO markdowns. Japanese farmers' deposits backing leveraged US buyout debt. The poster child for how structured products pass PE risk to unexpected end holders.
BANK PROFILES
Goldman Sachs
#1 Lev Fin#1 leveraged lending arranger. $145B alternative credit AUM. Capital Solutions Group bridges bank lending and PE. IB fees $9.3B. Top CLO structurer. Goldman is both lender and advisor to the same PE firms.
JPMorgan Chase
#2 Lev FinLargest US bank. 100+ private credit deals since 2021. $50B committed to direct lending. Dominant in leveraged finance origination. Jamie Dimon warned about 'cracks in private credit' while simultaneously expanding PC commitment.
Bank of America
#3 Lev Fin$25B private credit commitment announced Feb 2026. Hold-to-maturity model. NDFI exposure growing rapidly. Top-3 leveraged finance arranger. Advisory fees surging from PE deal flow.
Citigroup
#4 Lev Fin$25B partnership with Apollo for private credit origination. Mubadala joint venture. Citi earns fees at every step: advisory, underwriting, syndication, CLO structuring. Classic fee machine model.
Morgan Stanley
#5 Lev FinAdvisory revenue up 47% YoY driven by PE deal flow. $235B in alternative investments via MSIM. Growing direct lending via Morgan Stanley Capital Partners. Cross-selling IB and wealth management to PE firms.
Wells Fargo
#6 Lev Fin$7B deployed via Overland Advantage BDC with Centerbridge. Smaller PC player than peers but growing fast. Wells earns origination and advisory fees on top of lending spread.
Barclays
#7 Lev FinTotal revenue $38.4B. Major European leveraged finance arranger. Growing US direct lending exposure. CLO structuring business expanding. UK-based but increasingly US PE-connected.
Deutsche Bank
#8 Lev FinIB revenue up 10% YoY. DWS subsidiary manages $119B in alternatives. European leveraged finance originator. Cross-border PE deal flow growing.
Norinchukin Bank (Japan)
$9.3B LOSSESJapanese agricultural cooperative bank. $54B in CLO holdings — world's largest single CLO investor. Lost $9.3B in FY2024 on CLO markdowns. The poster child for how structured products pass PE risk to unexpected end holders. Japanese farmers' deposits backing leveraged US buyout debt.