Visa Embedded Lending June 2024 Banner

Dimon Forecasts Problems in Private Credit Market

JPMorgan CEO Jamie Dimon

JPMorgan Chase’s CEO is sounding a warning on the flourishing private credit sector.

Jamie Dimon anticipates problems to pop up in the market, cautioning “there could be hell to pay,” especially as retail clients gain access to the industry.

“Do you want to give access to retail clients on some of these less liquid products? Well the answer is — probably, but don’t act like there’s no risk with that,” said Dimon, whose comments at an industry conference Wednesday (May 29) were reported by Bloomberg News.

“Retail clients tend to circle the block and call their senators and congressmen.”

He added that the bank wants to be “product-agnostic” in lending to clients, and that JPMorgan also acts as a bank for many high-profile private-credit outfits.

Some in the industry are “brilliant,” Dimon said, but not all of them, and problems in the market are often triggered by the “not good” ones.

As the Bloomberg report notes, JPMorgan and other banks have been competing with the $1.7 trillion private-credit industry, as giants like Apollo Global Management are taking on increasingly larger deals.

Banks, the news outlet adds, are still trying to claim their own stake in the private credit space, with JPMorgan setting aside more than $10 billion of its own balance sheet for direct lending, putting together a co-lending partnership, and considering the purchase of a private-credit firm.

In his yearly letter to shareholders in April, Dimon argued that “the banking system as we know it is shrinking relative to private markets and fintech, which are growing and becoming increasingly competitive.”

Those digital and private firms also “do not have the same transparency or need to abide by the extensive rules and regulations as traditional banks, even if they offer similar products — this often gives them significant advantage,” he added, using the example startup banks and FinTech banks.

As PYMNTS wrote earlier this year, private credit has become an avenue for smaller Main Street businesses to get the capital they need, giving lenders the opportunity “to tap into a market worth trillions of dollars.”

This trend is happening as traditional lending channels — that is, banks — have grown more stringent in their underwriting and lending activities. The Federal Reserve estimated late last year that small business lending declined in the third quarter as “new lending” slipped 18.1% from the same period in 2022 and 16.4% from the previous quarter.

The Fed noted that “about 70% of respondents indicated borrower financials were the most common reason for denying a loan. Other commonly cited reasons were borrower collateral and credit history.”