Banks gave away $100 billion to private lenders. Why doesn't this bother the head of JPMorgan?

Three U.S. banking giants have lent at least $100 billion to private credit companies. This segment has recently attracted more and more attention from investors concerned about asset quality and the growing influence of artificial intelligence, Bloomberg writes.

- Citigroup on April 14 reported that at the end of the first quarter its portfolio of loans to private lenders was valued at $22 billion. There have been no losses on the portfolio over its entire life, the bank emphasized. These loans are part of a broader portfolio of loans to non-bank financial institutions, totaling $118 billion. Citigroup specified that less than 1% of its loans to non-bank financial institutions account for business development companies (business development companies, BDC) - closed investment structures that lend to private companies.

- Wells Fargo disclosed on the same day that its exposure to private credit is $36.2 billion. About half of the bank's collateral for these deals is held by companies in the business services, software and healthcare sectors. The bank emphasized that on more than 98% of these deals, it has the right to adjust margins if the credit quality of the underlying assets deteriorates. Securitized loans have a buffer of about 40%: the borrower funds absorb about 40% of losses before the losses affect the bank itself. Wells Fargo's total portfolio of loans to non-bank financial institutions reached $210.2 billion. About $8 billion of Wells Fargo's loans are to business development companies.

- The largest U.S. bank, JPMorgan, in turn said its portfolio of such loans is about $50 billion. The bank's CEO Jamie Dimon said in a call with analysts that he does not consider the current difficulties in private lending a "systemic problem."

"I can't speak for other banks, but in most cases the situation is this: private lending will have to suffer very large losses before the banks are hit," Dimon said. - That doesn't mean you won't feel some pressure and tension and that you may not have to do something about it. But I'm not particularly concerned about that.

Investor attention to the private credit sector has intensified in recent months. Funds affiliated with investment companies Blue Owl Capital and Apollo Global Management have faced a wave of withdrawal requests and questions about asset quality, especially in the segment of lending to technology companies, Bloomberg writes. The agency's sources said Wells Fargo was one of the lenders to U.K. mortgage company Market Financial Solutions Ltd. that filed for bankruptcy in February amid allegations of fraud and the use of double-collateralized assets. The Wall Street giant also syndicated loans to Goeasy Ltd. of Canada, which specializes in lending to borrowers with poor credit ratings. In March, the company said it wrote off hundreds of millions of dollars in consumer loans made by its LendCare unit, which finances the purchase of cars, ATVs and other outdoor vehicles.

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