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‘Hell is coming’ warns JPMorgan if private credit worsens

'Hell is coming' warns JPMorgan if private credit worsens
Elmaz Sabovic

Jamie Dimon, CEO of JPMorgan (NYSE: JPM), warned that issues may arise in the private credit sector, especially as retail clients gain access to this rapidly growing asset class. 

Speaking at an industry conference, he emphasized the risks involved, noting that retail clients often react strongly during financial difficulties.

Concerns Over Market Stability

JPMorgan CEO’s warnings come amid signs of potential instability in the private credit market. Former Apollo partner Sachin Khajuria, now running the family office firm Achilles Management, recently noted cracks forming in direct lending due to the influx of money. 

Furthermore, Moody’s downgraded its outlook on direct lending funds linked to major fund managers such as BlackRock (NYSE: BLK), KKR & Co. (NYSE: KKR), and Oaktree Capital Management.

In his annual letter to shareholders, Dimon pointed out that the private credit industry has not yet faced a major downturn, which typically exposes the weaknesses of new financial products. He expressed surprise at some of the ratings given to private credit deals by agencies, comparing the situation to the mortgage market.

‘There could be good owners when you are a private proprietor, but not by the people who aren’t operating well, not good ones, those making mistakes. These people don’t understand credit scores, and there could be hell to pay,’ said Dimon.

Dimon recently weighed in on the worst-case scenario for the U.S. economy, saying, ‘I look at the range of outcomes, and again, the worst outcome for all of us is what you call stagflation, higher rates, and recession.’

Dimon’s cautionary remarks are a stark reminder of the potential risks of private credit. As this asset class becomes more accessible to retail clients, all stakeholders must be fully aware and cautious.

Competition and JPMorgan’s Strategy

JPMorgan, along with other banks, is facing stiff competition in the $1.7 trillion private credit industry, where giants like Apollo Global Management Inc. are handling increasingly larger deals. However, JPMorgan is not sitting idle. 

The bank has earmarked over $10 billion from its own balance sheet for direct lending and is forming a co-lending partnership. Furthermore, its asset management division is actively seeking to acquire a private credit firm, as reported by Bloomberg. These strategic moves demonstrate JPMorgan’s commitment to maintaining its competitive edge.

Dimon highlighted that his firm aims to lead in lending practices and provide banking services to many key private credit firms. While he acknowledged that some players in the industry are brilliant, he cautioned that problems often stem from less competent participants.

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