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“There could be hell to come” if private credit markets falter, Jamie Dimon said.
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He warned that there are bad players in the industry, and they are likely to be the source of any problems.
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“I don’t think it’s systemic, but I do expect there will be problems.”
Jamie Dimon, CEO of JPMorgan Chase, said private credit could cause turmoil as the opaque sector of financial markets weakens.
“It can be hell to pay,” he said at a conference on Wednesday. “I’ve seen a few of these deals that were rated by a rating agency and, I have to admit, it shocked me what they got. So it reminds me a bit of mortgages.”
The private lending market – a corner of the financial world dominated by non-bank lenders that make loans to private companies – has grown rapidly in recent years. While returns on these assets have continued to beat those of the S&P 500 since the early 2000s, the risks in the sector are not well understood, the IMF noted in April.
According to Dimon, some players in the sector are “brilliant” and the sector is succeeding in meeting the financial needs of companies that may be overlooked by larger institutions.
“But not all the people who do it are good,” Dimon said. “And the problems in the financial markets are often caused by the ‘bad’, the people who make the mistakes.”
Problems could arise as retail investors become increasingly exposed to this space and face private credit assets that may be illiquid, improperly marked or not stress-tested, he said.
“Retail customers tend to go out and call their senators and congressmen,” Dimon said, later concluding: “
At the same time, JPMorgan itself is looking to move deeper into this space, with the bank looking to acquire a private credit company to expand its footprint in the sector, Bloomberg reported. According to the newspaper, the lender has also set aside $10 billion for direct lending.
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