Banks, private credit firms clash over First Brands, Tricolor fallout

A pair of blowups in the private credit market have sparked a war of words over whether banks or private credit firms are better positioned to weather a broader downturn.

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Car parts supplier First Brands Group filed for bankruptcy in September after the company used private credit to run up debts of more than US$10 billion (S$13 billion). Subprime car lender Tricolor Holdings did the same amid allegations of car loan fraud.

JPMorgan Chase chief executive Jamie Dimon said he expects to see more bankruptcies like First Brands’ if the private credit market goes into an economic downturn.

“I probably shouldn’t say this, but when you see one cockroach, there are probably more. And so we should — everyone should be forewarned on this one,” he told analysts on his bank’s third-quarter earnings call on Oct 14.

Blue Owl Capital boss Marc Lipschultz fired back, saying the issue was in loans banks led, so Mr Dimon should scour his own books if he wants to squash more bugs.

Mr Lipschultz’s remarks gave voice to the sentiments of a swathe of private credit executives. They have privately complained sloppy diligence from banks on Tricolor and First Brands is being held up as evidence of growing risks enabled by private credit lending.

The bickering underscores what is at stake as a tidal wave of change sweeps across the financing landscape. Banks are being forced to cede ground or learn to live alongside upstart lenders.