"Banks employ an idiot army of offshore credit underwriters. They will regret it"

There's been noise lately cockroaches in private credit. Cute. But if I had to choose between private-credit funds and bank stocks, I'd still take the former every single time. At least fund managers have a mandate: protect capital and generate returns. They're accountable. If they're incompetent, investors walk. No fund manager wants to load up on bad credit.

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Bank lending, fuelled by retail deposits and governed by internal politics, operates on a very different logic.

We were supposed to have learned something after 2008. As millennials, that crisis sits in our bones. And on the surface, it looks like banks learned: billions thrown into compliance, regiments of credit analysts, layers of risk, audit, second lines, third lines, "independent" oversight stacked to the ceiling.

So what went wrong?

Simple: it's all theatre.

Banks do not want intellectual, commercially astute, high-EQ underwriters who understand deal dynamics and have the spine to challenge them. That kind of competence is inconvenient. It threatens fee pools. Do we really think a major American bank will turn down a multi-million-dollar fee for a sub-par credit, especially when an acquisition is in motion? Of course not. The entire system is built on pretending that a company needs a perfect storm to default. A realistic probability of default rating would force banks to hold more capital. More capital means lower returns. Lower returns mean angry shareholders.

Incentives do not merely misalign. They actively punish truth.

So underwriting gets staffed with analysts who either bow to coverage, disengage entirely, or lack the commercial and emotional intelligence to push back. They're handed the illusion that they belong to origination: a comforting slogan that masks the reality that they're there to feed the regulatory machine, not influence a deal.

And now, the masterstroke: offshoring.

Underwriting teams are increasingly located thousands of miles from the markets they're supposedly evaluating. Someone in an emerging-markets center, with no cultural or market context, is tasked with analysing a deeply leveraged buyout in Western Europe or the U.S. This is not an accident. It is deliberate structural insulation. Keep them far from diligence, management meetings, advisor calls, independent reports. Half of them don't even know these reports exist. Just churn the memo. Tick the boxes: DCF (done), Financial analysis (done), ESG checklist (done). 

No one reviews the DCF. The managers aren't corporate financiers; they run outsourcing factories. The end product isn't underwriting. It's a PDF.

If weak numbers appear, the pressure is instant and immense: Adjust earnings, normalise; synergies; one-offs. And why would an offshore analyst earning a modest salary challenge a senior originator? Why would they burn their weekend rebuilding a model? They have no incentive. They are structurally discouraged from caring.

And so the deal gets done. Always.

Audits? Sure. They happen everywhere. And they fix nothing. Findings come out, remedial actions are drafted, training slides circulate. By then, the analyst in question has already left. Turnover is high because the work is meaningless, and firing people is rare because replacing them with someone else who knows which boxes to tick is expensive.

The truth is brutally simple:

Banks do not want strong underwriters.

They want plausible deniability wrapped in PowerPoint.

At my own bank, money has been thrown at regulators to show investment in credit risk. But behind the scenes, the function is being hollowed out: offshored, automated, sidelined, diluted. Proximity to origination is treated like a biohazard. The quality drain is not subtle; it's breathtaking. And the most damning part?

No one cares. Not really. Not enough to make it meaningful. 

And that is why the next crisis won't start in private credit. It'll start where everyone assumes the safety nets are: inside the banks. And when it does, regulators will ask the same question they always do:

"How did we miss this?"

The answer will be the same as it's been for years: You weren't looking. You were too busy counting checkmarks.

Rino Novara is a pseudonym 

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