Jamie Dimon sees potential trouble - and opportunity - in private credit

By Steve Gelsi

JPMorgan chief foresees clients with locked-up funds demanding their money back and calling their congressperson to complain if trouble arises in the private-credit world

JPMorgan Chase & Co. Chief Executive Jamie Dimon said Wednesday that the bank could one day invest up to $200 billion in private-credit deals off its balance sheet, but he flagged potential risks with the rapidly growing asset class.

"We're confident we can compete," Dimon said. "With our balance sheet and capital, we could put up $100 billion or $200 billion. ... I'm not afraid of that if it's good credit."

Private-credit lending mostly involves private-equity firms lending to middle-market companies in a transaction type that's grown to more than $2.1 trillion in assets and committed capital in 2023, according to estimates from the International Monetary Fund.

Some investment banks, such as Goldman Sachs Group Inc. (GS), also participate directly in the business. Goldman Sachs on Wednesday said it has closed its West Street Loan Partners V senior direct-lending fund with $13.1 billion in capital commitments to deploy.

Overall, the size of the private-credit market now rivals the world of high-yield bonds and syndicated loans.

"There may be problems here," Dimon said. "I don't think it's systemic. I do expect there to be problems."

Dimon said he's been studying the asset class and said it offers another option for business clients to borrow money at different terms than regulated bank loans such as longer-life loans.

"I think some of these people are brilliant," he said at the AllianceBernstein Strategic Decisions Conference. "I know them all. We bank a lot of them. They're clients of ours."

But problems in financial markets are often caused by actors that are not the "good ones," he said.

If retail investors put money into illiquid assets such as direct-lending funds, it could cause problems even if money lockups are fully disclosed to them, he said.

"If a little old lady finds out that she can't get her money back ... retail clients tend to circle the block and call their senators and congressmen, and there could be hell to pay," Dimon said.

Private lenders to small businesses may also be less able to handle disruptions in interest rates or any shocks to the system, he said.

"When the s- hits the fan, and it will one day, we don't know when, there will be a lot of stranded borrowers," Dimon said.

The asset class may often be less liquid than other types of loans, he said.

The value of assets and loans in private-credit funds may not be valued accurately because there's less transparency in the process, he said.

Some borrowers have been toggling from the private-credit loans back to the syndicated loan market run by banks, because the latter loan type is currently priced about 200 basis points lower, he said.

Asked about growth areas for the bank, Dimon said JPMorgan (JPM) continues to hire around its efforts in artificial intelligence.

The bank is also working to build out its presence in offering services to the ultrawealthy. The bank has 20 private-client branches, but that number could grow to 100 or 200 over time, he said.

Overall credit quality in the business in middle-market lending, mortgages and credit cards remains "the best its ever been ... ever," due partly to the billions of dollars in stimulus spending by the government during the COVID-19 pandemic, he said.

Also read: Jamie Dimon doesn't rule out recession down the road as inflation saps consumer confidence

-Steve Gelsi

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05-29-24 1537ET

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