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“There could be hell to pay” if private credit markets wobble, Jamie Dimon said.
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He warned that there are bad actors in the industry, and they’ll likely be the source of any issues.
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“I don’t think it’s systemic, but I do expect there to be problems.”
JPMorgan Chase CEO Jamie Dimon said private credit could spark turmoil if the opaque sector of financial markets weakens.
“There could be hell to pay,” he said at a conference on Wednesday. “I’ve seen a couple of these deals that were rated by a rating agency and, I have to confess, it shocked me what they got rated. So, it reminds me a little bit of mortgages.”
The private credit market—a corner of finance dominated by non-bank lenders who originate loans to private businesses—has grown rapidly in recent years. Although returns on these assets have increasingly outpaced the S&P 500 since the early 2000s, risks in the industry are not well known, the IMF noted in April.
In Dimon’s view, some players in the space are “brilliant,” and the sector succeeds in filling financial needs for firms that may be overlooked by larger institutions.
“But not all the people doing it are good,” Dimon said. “And the problems in financial markets are often caused by the ‘not good one,’ the people that make the mistakes.”
Issues could start to crop up as retail investors are increasingly exposed to the space and come face-to-face with private-credit assets that might be illiquid, improperly marked, or not stress-tested, he said.
“Retail clients tend to circle the block and call their senators and congressmen,” Dimon said, and later concluded: “
At the same time, JPMorgan is looking to step deeper into this space itself, with the bank looking to acquire a private-credit firm to grow its footprint in the sector, Bloomberg reported. According to the outlet, the lender has also put aside $10 billion for direct lending.
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