Meta and private credits

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good morning. Investors are hoping for Dubu’s shift in the Federal Reserve after Jay Powell’s term expires. Fed funds have seen rates decline over the past month since April 2026, as implied in the futures market. This could be due to growing expectations that Trump would choose a submissive pigeon (how to put this) to replace Powell in May. However, that could also be due to recent good economic data. I hope it is the latter. Email: Unedged@ft.com.

Meta and private credits

On Friday, colleagues Eric Pratt, Oliver Burns and Hannah Murphy wrote it.

Meta hopes to raise $20 billion to fund an all-in-push to artificial intelligence. . . Consultations between Instagram owners and private credit investors are progressing, and large players like Apollo Global Management, KKR, Brookfield, Carlyle and Pimco are involved in the discussion, according to those familiar with the issue. . .

Meta hopes to raise $3 billion in stock from them and raise another $26 billion in debt. But it discusses how to build large-scale debt procurement. . .

People added (Meta) is considering ways to make debt more easily traded once it is issued. This is one of the factors that potential investors who studied the transaction have raised, taking into account its size.

This hit us a little strangely on our first reading. There are places to raise a large amount of easily tradeable debt capital at competitive prices: the corporate bond market. Just as pigs eat corn, it will eat more meta debt. Meta is a great trust. He has a net cash job of $21 billion (including leases). Its debt/equity ratio is .16. Even dumping $44 billion on capital expenditures has generated $50 billion in free cash flow over the past 12 months. The 2054 bond transactions traded at yields of less than percentage points above the Treasury Department for more than 30 years.

In short, the company is not a company that requires a troublesome private debt structure to get some money, but has very poor leverage and appears to be easy to lend. All of this is miles from Intel, a leveraged and lossy company that last year traded debt and stocks with Apollo to fund a new chip-making factory.

A clearly structured transaction could potentially maintain additional debt from the meta balance sheet and could even build some of the risk of a massive data center investment in someone else. So, wise trading (as people may argue) may look like a classic capital lighting technology company where Meta deserves a high price/return rate for its stock (now around 26 years old). But this argument doesn’t work. Meta is not a business that is more capital-lit, and the funding structure will not change this to investors’ eyes. Or you shouldn’t do it anyway.

The only way we can understand such transactions is not in the demand for Meta’s private debt financing, but in the supply of those of large asset managers. According to McKinsey, huge amounts of money have been raised by private credit providers (over $10 over the five years that will end in 2024). Private equity also has plenty of dry powders. So perhaps the world’s Apollo and KKR are attractive to meta, not because their funding is cleverly constructed, but because it’s cheap. Investors can resolve on their own what it means for the future returns of private capital.

Get a central bank digital currency, but perhaps a crisis is needed first

Last week, JPMD, a deposit token issued by JPMorgan Chase, insisted that it would not add much value as a payment technology other than promoting Crypto Asset Trading. Banks pitch it as a way to make cross-border payments more timely and efficient, but this only works if both the payer and the beneficiary are JP Morgan clients.

That said, if the central bank’s commercial bank reserves are tokenized, then even across borders, “money could actually move between different banks “at internet speed.” If so, there could be a two-tier digital money system (commercial bank deposit tokens and central bank digital currency) that is completely similar to the current two-tier analog currency system (commercial bank deposit tokens and central bank digital currency). In that world, JPMD can exchange real-time for Bank of America or HSBC deposit tokens, allowing them to have much broader use cases (although they don’t exist yet, I think so).

Many inks are spilling, including central bank digital currencies – their use cases, risks, and how they are designed (I recommend this primer from my colleagues on the Monetary Policy Radar). In summary, CBDCs are the digital form of the official currency of the country controlled and issued by the central bank. In theory, there are two flavors. Retail CBDCs can be used by the general public and digital analogue for physical cash. Wholesale CBDCs can only be used in commercial banks for interbank transactions.

Creating a retail CBDCS is currently not available on the US table. There are many issues to be resolved first, but for now the biggest barrier is the Trump administration, which has issued an executive order banning their creation. Perhaps this is because Trump wants to protect the private digital currency industry (he is the participant) from government competition. This is a shame. Why should citizens be restricted to owning state duties only in the old-fashioned form of paper or metal? And, as PGIM’s top global economist Daleep Singh argued to us, if the world is heading towards CBDC, we think the US is leading the accusations, or at least playing a big role in CBDC regulation.

However, it is possible that wholesale CBDCs are on the table. Tim Massad of Harvard Kennedy School, former CFTC chair, argued that Trump’s ruling did not actually target wholesale CBDCs. “I don’t think they’re particularly worried about (wholesale), and in the end (the Trump administration wants them.” In theory, wholesale CBDCs aren’t that dangerous. “So that the reserves don’t leave the Fed walls – they’re simply transferred between account holders – as with deposits (and tokenized deposits), the CBDC is not out “in the wild,”” said in Yale’s Yale program on financial stability.

For now, tokenized retail currency is firmly in the hands of payment companies and Stablecoin issuers. We hope that innovation will continue to blossom. The resistance from the Trump administration and the slow pace of government change (and especially) means that the officially supported international digital two-tiered money and banking system are separate.

How do you get there? Unhedged has predictions based on what we know about the history of banks. Private digital money continues to grow until you are in a major crisis in a moment of stress. Governments need to intervene in a big way. From that intervention, an appropriate digital money system can be born if you’re a little lucky.

One good read

Naming convention.