Trump’s Top Bank Watchdog Joins Jeffrey Kaplan’s Credit Firm

After decades running and regulating banks, Joseph Otting has moved on to a booming Wall Street credit sector that’s unencumbered by many of the rules that rein in traditional lenders.

(Bloomberg) — After decades running and regulating banks, Joseph Otting has moved on to a booming Wall Street credit sector that’s unencumbered by many of the rules that rein in traditional lenders.

The former Comptroller of the Currency under Donald Trump joined Andalusian Credit Partners as a managing partner, according to a regulatory filing and a person familiar with the situation.

Otting didn’t return a call seeking comment, and Andalusian declined to comment.   

The private credit firm debuted this year and is primarily owned by Jeffrey Kaplan and Nicholas Savasta, who founded private equity shop Andalusian Private Capital two years ago with funding from billionaire hedge fund manager David Tepper.

Banks have stepped back from lending to middle-market companies in recent years, creating an opportunity for private credit funds that aren’t subject to capital requirements and other regulations. Private credit could expand even more if a regulatory overhaul proposed last month comes to pass.

The former chief executive officer of California’s OneWest Bank, Otting joined the Trump administration in 2017. He faced scrutiny from Congress over his ties to the industry he was brought on to police. Otting worked closely with another Trump administration official and former bank executive, then-Treasury Secretary Steven Mnuchin.

Otting — who was also an executive at US Bancorp — came to his regulatory role with the perspective of a banker frustrated with government regulations and bureaucracy, according to Ian Katz, an analyst at Capital Alpha Partners.

“Otting was a regulator who wanted to deregulate,” Katz told Bloomberg.

Credit Boom

While major alternative asset managers such as Blackstone Inc. have formed the largest private-credit funds, smaller players are also jumping into the field. 

Short Hills, New Jersey-based Andalusian Credit registered as an investment adviser in May. Its funds will make senior secured loans to private companies alongside Andalusian Credit Co., a regulated business development company. 

Andalusian Credit’s major hires reunite key players from a signature deal to emerge from the 2008 financial crisis — the federal government’s sale of failed mortgage lender IndyMac the following year. 

At the time, Kaplan led mergers and acquisitions at Bank of America Merrill Lynch, which advised the investor group that bought IndyMac, including Mnuchin, George Soros, hedge fund manager John Paulson, and billionaire Michael Dell’s family office, named MSD Capital at the time. 

The investment group recruited Otting the following year as CEO of OneWest, the successor to IndyMac. 

Shamit Grover, one of the Merrill Lynch bankers who worked on the IndyMac deal, joined MSD Capital and later worked with Andalusian’s Savasta at an affiliate called MSD Partners. Grover in July joined Andalusian Credit as head of strategy, according to the person familiar with the situation. 

The firm also hired recently retired TIAA CEO Roger Ferguson, a former vice chairman of the Federal Reserve Board, as its executive chairman. Apollo Global Management Inc. alumnus Aaron Kless joined Andalusian Credit as a managing partner and as chief investment officer.

In 2017 Otting became the first banker in decades to run the comptroller’s office, which oversees about 1,200 lenders. One of his chief initiatives was to rewrite provisions of the Community Reinvestment Act that require banks to invest and make loans in poor neighborhoods.

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