As several Wall Street banks reported first-quarter earnings on Tuesday, executives had to answer for their exposure to the private credit market, which has been under a microscope recently.
CFO Jeremy Barnum estimated the bank’s exposure to private credit funds was $50 billion.
“We’re broadly comfortable with it,” Barnum said on a call with analysts. He explained that the $50 billion is part of approximately $160 billion worth of broader exposure to non-bank financial institutions. The private credit market has been under heightened scrutiny for the quality of its loans and for exposure to companies that could be vulnerable to AI disruption. As a result, some retail-oriented investment funds have had higher redemption requests.
When answering a question on private credit, Barnum said that though nothing JPMorgan does is without risk, “this is a space that we’re quite comfortable with as a function of very close scrutiny on the way that we do the business and ensuring that the underwriting is high quality and that we’ve got a bunch of structural protections in place.”
On the call, Dimon said he doesn’t think the risks to the private credit market are systemic, echoing his comments in his annual letter to shareholders earlier this month.
“You have to have very large losses in private credit before, at least it looks like, banks are going to get hit,” he said on Tuesday’s call with analysts. “It doesn’t mean you won’t feel some stress and strain, and that you might have to do something about it, but I’m not particularly worried about it.”
Dimon said that the bigger risk, as he sees it, is how a credit cycle will filter through the economy. He predicted that losses would be worse than people anticipate when there is an eventual credit cycle.
Wells Fargo and Citi, which both reported first-quarter earnings on Tuesday, also revealed their exposure to private credit firms. Wells Fargo estimated that its exposure was around $36.2 billion, and Citi said its exposure was $22 billion in their respective earnings presentations.
Many banks also offer investment vehicles for customers who want to invest directly in private credit. JPMorgan is planning to launch the JPMorgan Public and Private Credit Fund, an interval fund open to retail investors that allows quarterly redemptions of 7.5%, according to an SEC filing from last month. Many of the largest private credit managers have recently capped their quarterly withdrawals at 5%, despite investors requesting higher withdrawals.
