Wall Street’s largest financial institutions are closely monitoring their extensive private credit portfolios amidst growing scrutiny of the burgeoning asset class, with executives largely expressing comfort despite recent market jitters. Major US lenders, including JPMorgan, Citigroup, and Wells Fargo, have disclosed approximately A$165 billion (US$108 billion) in financing exposure to private credit or related loans during their recent quarterly earnings reports. This vigilance comes as the A$5.3 trillion (US$3.5 trillion) asset class draws increased attention following concerns over AI risks, fund outflows, and potential credit stress impacting alternative asset managers.
Private credit, which sees non-bank lenders provide financing directly to companies, has expanded rapidly over the past decade, attracting pension funds, insurers, and wealthy individuals with promises of steady, higher yields. However, its swift growth into less liquid and harder-to-value loans has sparked questions about its resilience under adverse conditions. Recent headlines have highlighted a rise in default rates among US corporate private credit borrowers, reaching a record 9.2% by 2025 according to Fitch Ratings, alongside higher borrowing costs for business development companies (BDCs).
Despite these concerns, top executives maintain a confident stance. Citigroup CFO Gonzalo Luchetti stated the bank was “passing our own test” and “comfortable,” citing constant stress-testing for various macroeconomic environments. JPMorgan CFO Jeremy Barnum affirmed the bank was “watching the space very closely” but well-protected by diversification. While acknowledging potential losses in a major credit cycle, JPMorgan CEO Jamie Dimon and MetLife CEO Michel Khalaf do not view the risks as systemic. BlackRock CEO Larry Fink also noted accelerating institutional demand for private credit, reflecting a structural shift as banks have retreated from some lending markets post-2008, a trend he believes is enduring.
