JP Morgan’s Jamie Dimon warns more big bankruptcies could be on the way

“My antenna goes up when things like that happen,” JP Morgan Chase chief executive officer Jamie Dimon said during a call with analysts.

“I probably shouldn’t say this, but when you see one cockroach, there are probably more. Everyone should be forewarned on this one.”

The pair of bankruptcies were a shock for the credit markets, where companies have been borrowing at a record pace while handing investors outsized returns. And Mr Dimon, fresh off posting results that put his bank on track for another record year, said there could be more pain than usual when the economy takes a turn for the worse.

“I suspect when there’s a downturn you will see higher-than-normal downturn type of credit losses in certain categories,” he said. “Look at the price of the BDCs [business development companies] and their publicly traded private credit facilities and do the homework.”

In drawing attention to investors’ growing disillusionment with public vehicles that hold private-debt investments, Mr Dimon touched on a niche corner of the market where investors are on the lookout for signs of widening cracks in debt markets.

Investors have been fleeing BDCs, seen as a proxy for the $1.7tn (€1.46tn) private-credit market, as they cut distributions available to shareholders. That has opened a widening gap between the broader equity market and private-credit BDC stocks.

Last month, the $75bn non-traded Blackstone Private Credit Fund, the largest in the industry, said it was reducing its shareholder payouts.

I expect it to be a little bit worse than other people expect it to be

A growing part of banks’ loan books is providing financing to private-market players that are encroaching on the banks’ traditional commercial lending territory. JP Morgan Chase chief financial officer Jeremy Barnum and his Wells Fargo counterpart, Michael Santomassimo, reassured analysts that much of their exposures are to large, established private-credit players.

Still, Mr Dimon offered a caveat.

“I expect it to be a little bit worse than other people expect it to be, because we don’t know all the underwriting standards that all these people did,” he said.

“They know what they’re doing, they’ve been around a long time, but they’re not all very smart.”

Citigroup CEO Jane Fraser said growth in the US economy is still humming, while also pointing to signs that some sectors are cooling. She said the bank is keeping a close eye on the US labour market, echoing a similar warning from Mr Dimon, who reiterated his concern about the risk of sticky inflation.

“Just because things are fine now, doesn’t mean they’ll be great for ever,” Mr Barnum said on the earnings call.

Such notes of caution were a sharp contrast to the results being posted by their banks. JP Morgan is on track for another year of record revenue. ­Citigroup, meanwhile, has emerged as the best performing big US bank stock.