Jamie Dimon, CEO of JP Morgan recently issued some harsh warnings about the state of corporate lending. These warnings were prompted by two bankruptcies in the auto industries, including one where the bank had a significant investment. These bankruptcies took place amid allegations of fraud.
Auto parts maker First Brands and subprime car lender Tricolor Holdings recently filed for bankruptcy amid mounting pressure from tariffs and tightening credit conditions. While JPMorgan did not take losses on First Brands, it did provide loans to Tricolor and has disclosed a $170 million charge-off — debt written off as a loss — related to its wholesale lending to the company.
READ: JPMorgan Chase puts $10 billion toward US National Security under $1.5 trillion plan (
Both First Brands and Tricolor were backed by private credit from the so-called shadow banking sector, a largely unregulated area that is not required to disclose risk levels on its balance sheets. Regulated banks such as JPMorgan are nonetheless exposed to this ecosystem, either by lending directly to private businesses or by financing the private credit firms themselves.
“When something like that happens, you could assume that we scour every issue, every universe, everything,” Dimon told reporters, while admitting that it was “not our finest moment.” “You can never completely avoid these things, but the discipline is to look at it in cold light and go through every single little thing, which you can imagine, we’ve already done, and maybe there might be more to do,” he added. Dimon also said, “My antenna goes up when things like that happen,” when speaking with analysts later on Tuesday morning. “I shouldn’t say this, but when you see one cockroach, there’s probably more. Everyone should be forewarned on this one,” he added.
READ: JPMorgan, Goldman Sachs deploy AI as banks brace for workforce changes (
Dimon believes that these two recent bankruptcies could be just the tip of the iceberg and that an industry-wide problem may be brewing.
JP Morgan is not the only large financial institution with exposure to the two auto companies entering bankruptcy. Jeffries, an investment bank, said companies that bought First Brand inventory owe $175 million to the funds the investment bank runs, while UBS said its funds had approximately $500 million in exposure. Fifth Third Bank disclosed last month that it had $200 million in impairments from allegedly fraudulent activity by Tricolor.
The recent bankruptcies and Dimon’s warnings have raised concerns that corporate lending standards may have been too lax in recent years, so banks may be overexposed to bad debt. “We’ve had a credit bull market now for the better part of what, since 2010 or 2012? That’s like 14 years,” Dimon said in a phone call with CNBC reporters. “These are early signs that there might be some excess out there because of it. If we ever have a downturn, you’re going to see quite a bit more credit issues.”