As risks quietly build across the $3 trillion private credit market, Jamie Dimon is warning that the next downturn could expose weaker lenders—though regulators say the fallout is unlikely to threaten the broader financial system.
The JPMorgan (NYSE:JPM) CEO, in a letter to shareholders, wrote that “it’s always been true that not everyone providing credit is necessarily good at it,” when speaking about the current private credit environment.
“There are many players who are late to this game, and it should be expected that some credit providers will do a far worse job than others. We have not had a credit recession in a long time, and it seems that some people assume it will never happen,” Dimon said.
When we hit the next credit cycle, losses on all leveraged lending will be higher than expected, he argued. Why? Blame weaker credit standards and covenants, coupled with more aggressive add-backs and the increased use of payment-in-kind (PIK) structures.
In the grand scheme of things, private credit probably does not present a systemic risk, Dimon continued.
Federal Reserve Chair Jerome Powell issued a similar sentiment during a talk at Harvard University last week.
“I’m reluctant to say anything that suggests we’re dismissive of the risk, but we’re looking for connections to the banking system and things that might result in contagion. We don’t see that right now,” he said. “What we see is …
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