From cockroaches to 'comfortable': How bank leaders are now playing it cool on private credit

• Analysts asked Wall Street leaders about their private credit exposure on earnings calls this week.
• CEOs detailed how much they have at stake, but said they're comfortable with it.
• Jamie Dimon repeated his belief that private credit doesn't pose a systemic risk.

On an earnings call in October, after two high-profile bankruptcies sent the market reeling, JPMorgan CEO Jamie Dimon issued a blunt warning about the health of the credit market: "When you see one cockroach, there's probably more."

Six months later, that now-infamous metaphor has taken on a life of its own amid growing investor jitters over the opaque private credit industry.

When analysts pressed Wall Street executives with questions about the future of private credit on earnings calls this week, the bank leaders generally projected confidence. Despite rising concerns around the asset class, the biggest US banks say their exposure is manageable and unlikely to trigger broader instability.

Dimon said the about $1.8 trillion leveraged private credit market does not pose a systemic risk, a sentiment he also shared in his annual shareholder letter.

"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."

Private credit firms make loans to companies using a mix of their investors' capital and money borrowed from banks.

Anxiety has been mounting over the asset class, particularly over loan quality and potential AI disruption, and some have compared the market climate to that of 2007, just before the Great Recession. Some investment funds have seen higher redemption requests.

Banks from JPMorgan to Citi shared how much they've lent to private credit companies. Together, JPMorgan, Citi, Bank of America, and Wells Fargo have more than $128 billion in exposure to private credit loans, according to their latest earnings presentations.

JPMorgan's exposure to private credit funds is around $50 billion, the bank's CFO Jeremy Barnum said, adding that he is "quite comfortable" with the bank's position because of high-quality underwriting and structural protections.

Other Wall Street leaders sent a similar message — executives at Citi, Wells Fargo, and Bank of America used the word "comfortable" as well when discussing their private credit exposure on calls with analysts this week. The banks estimated that their exposure to the private credit market is $22 billion, $36.2 billion, and $20 billion, respectively, in their first-quarter earnings presentations.

Morgan Stanley and Goldman Sachs, which both manage clients' private credit investments through their asset management units, did not break out their loan exposure in their earnings presentations.

Ted Pick, Morgan Stanley's CEO, said that the conversation around private credit is evolving and that new lenders have entered the space.

"While it's still a growing class, it's having a learning moment—we'll call it an adolescent moment—where both the lenders and the borrowers are being looked at carefully," he said during a call with analysts on Wednesday. "But the reality is it's credit, and credit is going to broadly perform when the economy is in the kind of good shape it's in right now."

Pick said the industry has strong long-term growth potential and that it's "a question of time and working through economic cycles." Bank of America CFO Alastair Borthwick echoed Dimon's message that the private credit industry doesn't pose a systemic risk on his bank's call with analysts on Wednesday.

Goldman Sachs CEO David Solomon said in an analyst call on Monday that it "continues, with any sort of a medium-term or longer-term view, to be a very, very attractive platform for us." He predicted, however, that there will continue to be "some noise" in the retail space.