JPMorgan Chase The CEO issues a warning about the thriving private credit sector.
Jamie Dimon expects problems to arise in the market, warning that “it could be hell to pay”, especially as retail customers gain access to the sector.
“Would you like to give retail customers access to some of these less liquid products? Well, the answer is — probably, but don’t act like it’s risk-free,” said Dimon, whose comments at an industry conference Wednesday (May 29) included: reported by Bloomberg News.
“Retail customers tend to drive around the block and call their senators and congressmen.”
He added that the bank wants to be “product agnostic” in its lending to clients and that JPMorgan also acts as a bank for many leading private credit firms.
Some in the industry are “brilliant,” Dimon said, but not all, and market problems are often triggered by the “bad” ones.
As the Bloomberg report notes, JPMorgan and other banks are competing in the $1.7 trillion private credit industry as giants like Apollo Global Management close larger and larger deals.
Banks, the outlet adds, are still trying to claim their own stake in the private credit sector, with JPMorgan sidelining more than 10 billion dollars of its own balance sheet for direct lending, setting up a co-lending partnership and considering purchasing a private lending company.
In his annual letter to shareholders in April, Dimon stated that “the banking system as we know, it is shrinking compared to private markets and fintech, which are growing and becoming more and more competitive.
These digital, private companies also “do not have the same transparency or need to follow detailed rules and regulations as traditional banks, even if they offer similar products – this often gives them a significant advantage,” he said. he added, taking the example of startups. and FinTech banks.
As PYMNTS wrote earlier this year, private credit has become a way for small Main Street businesses to get the capital they need, giving lenders the opportunity to “tap a market.” worth billions of dollars.”
This trend is occurring as traditional lending channels – i.e. banks – have become stricter in their underwriting and lending activities. The Federal Reserve estimated late last year that small business lending declined in the third quarter, with “new loans” falling 18.1% from the same period in 2022 and 16.4 % compared to the previous quarter.
The Fed noted that “about 70% of respondents said borrowers’ financial conditions were the most common reason for declining a loan. Other commonly cited reasons were borrower collateral and credit history.
