JPMorgan Chase & Co. chief executive officer Jamie Dimon said he expected problems with the private credit market.
Also, the head of the mentioned financial institution, which is the largest in the United States, warned of the risk that an extremely difficult situation will form after retail customers gain access to a booming asset class. In this context, Jamie Dimon also noted that, theoretically, banks can offer representatives of their consumer base some of the less liquid products, but there will obviously be a risk. JPMorgan CEO made the corresponding statement last Wednesday, May 29, at an industry conference.
Moreover, Jamie Dimon stated that retail clients tend to circle the block and call their senators and congressmen.
It is worth noting that recently JPMorgan and other financial institutions belonging to the category of traditional banks have been competing with the private credit industry, which is on a growth trajectory and is currently in a kind of condition of intensive scaling. Giants of the mentioned sector such as Apollo Global Management Inc. are taking on increasingly large deals. Currently, the financial volume of the private credit industry is $1.7 trillion. At the same time, lenders belonging to the category of traditional banks demonstrate a confident and determined desire to make inroads of their own. JPMorgan earmarked more than $10 billion from its balance sheet for direct lending.
The financial institution also forms a co-lending partnership. Moreover, last week the media released information that its asset manager has plans to acquire a private credit company.
On Wednesday, Jamie Dimon said that the bank he heads is striving to be product-agnostic in its lending to clients. Also in this context, JPMorgan’s CEO separately noted that the financial institution serves many key private credit shops, some of which are brilliant, but not all.
The cautious approach taken by Jamie Dimon is associated with some signs that problems may be forming at the moment. Former Apollo partner Sachin Khajuria, who runs the family office firm Achilles Management and invests across private assets, said in May that there are negative circumstances in the direct lending sector because money keeps flooding in.
In the current month, Moody’s lowered its outlook on direct lending funds with ties to some of the largest fund managers in the space, including BlackRock Inc., KKR & Co., and Oaktree Capital Management.
Jamie Dimon, in his annual letter to shareholders in April, noted that the private lending industry has not yet been tested by bad markets, which tend to reveal the weaknesses of new products. At the same time, he stated that the banking system in its traditional configuration is shrinking compared to private markets and the fintech sector, which are showing growth and becoming more competitive. According to him, these digital and private companies do not have such transparency and are not obliged to comply with the rules and regulations that apply to banks. He noted that the mentioned firms do not find themselves in the area of standard regulation even if they offer the same products as traditional financial institutions. This circumstance is an advantage of the specified companies.
For smaller Main Street businesses, private credit has become an opportunity to obtain the necessary capital, allowing lenders to tap into a market worth trillions of dollars. The credit of the mentioned category has become popular against the background of the tendency, in which the traditional channels of providing relevant financial services have become more stringent in terms of underwriting and lending activities.
The Federal Reserve estimated that in the third quarter of 2023, the volume of new loans to small businesses fell by 18.1% compared to the same period in 2022 and by 16.4% compared to the period from April to June last year. According to the central bank of the United States, in a special survey, about 70% of respondents said that the financial indicators of the borrower are the most common reason for refusal to issue a loan.
As we have reported earlier, JPMorgan CEO Urges United States to Deal With Deficit.
