(21 October 2025 – Global) JP Morgan Chase boss Jamie Dimon, a man who was lucky to survive the 2009 meltdown in global banking, wasn’t mincing words last week.
“I probably shouldn’t say this, but when you see one cockroach, there are probably more. Everyone should be forewarned,” he said.
His comments followed news that several large US auto financing groups, Tricolor Holdings and First Brands Group, encountered troubles. Both were lending to what’s known as sub-prime borrowers, people who struggle to pay for what they’re buying.
“My antenna goes up when things like that happen,” he said.
Both had tapped private credit markets.
These are lending facilities that operate outside the traditional world of banking, where institutions raise cash from wealthy individuals, pension funds and wherever they can, and then extend loans to borrowers who don’t meet the credit standards of major banks.
During booms, it’s a practice that’s extremely profitable. The lenders extract a hefty premium over bank lending rates. And the borrowers are happy to receive the cash they wouldn’t otherwise be extended.
But the higher rates come with a caveat. Greater risk. And the risk is magnifying as the phenomenon grows.
According to the Reserve Bank, private credit quadrupled in the decade to 2023, when it hit $US2.1 trillion globally. Since then, it is believed to have grown to $US3 trillion.
The vast bulk of that cash has been raised in America while Europe is fast catching up.
“Non-bank lenders have played an increasingly large role in lending to risky companies, in part because some business lending has become more expensive for banks; regulatory reforms after the global financial crisis raised banks’ capital requirements,” it noted in a report last year.
Largely unregulated and lacking transparency, its unfettered growth could pose risks to the financial system.
In recent years, it has caught on in Australia as well. And that has the Australian Securities and Investment Commission’s chief, Joe Longo, concerned.
For all the intelligence, real and artificial, that drives our lives, when it comes to money, so much of our future is driven by raw human emotion.
Time and again, we commit identical errors, jump aboard the very same bandwagon, push the boundaries until breaking point, and are left stunned and horrified when it all comes to grief.
There’s a common ingredient in the rise and fall of financial markets.
On the way up, it’s usually couched in warm and encouraging terms like leverage, credit and any number of synonyms that gloss over the dangers.
When things implode, the headlines take on a harsher tone. Words like debt, obligations, liabilities and mortgage come to the fore.
Every major stock market boom in the past half a century has been spurred on by either the removal of regulations, lax credit standards, or financial innovations that flew under the banking system’s regulatory radar.
And in the aftermath of the inevitable collapse, the investigations and official inquiries end with assurances that, this time, we’ve learnt our lesson.
The great boom in the decade of greed, the 1980s, was preceded by financial deregulation. The noughties boom was driven by a loosening of regulations that led to the financialisation of everything. And then came the global financial crisis.
Right now, we’re in the middle of a stock market frenzy concentrated among a small but powerful band of US-based technology companies that has dragged global markets along for the ride.
Valuations are beyond stretched. They defy gravity.
And there’s now a growing concern among those who’ve been here before that the massive blow-out in debt — government, household and corporate — could pull the rug out from under proceedings.
In recent months, there’s been a growing focus on private credit, the alter ego of private equity, and the potential it may have to destabilise the system.
Australian super funds dive in
When it comes to global finance, Australia is best known for its enormous pool of national savings — our compulsory superannuation system.
It’s a honey pot, a target just ripe for the raiding.
For the past few months, ASIC has been investigating the $1 billion collapse of the First Guardian Master Fund and Shield Master Fund, which have highlighted the vulnerabilities of the sector.
Around a quarter of our $4 trillion superannuation pool is self-managed and not protected by the Australian Prudential Regulatory Authority, which oversees major bank and industry funds.
Many of those SMSFs and quite a few of our major funds now invest in private credit, attracted by the outsized returns available.
Private credit operators now provide around 14 per cent of the loans to Australian corporations. And among the key industries to which they lend is commercial real estate, and particularly property developers.
In fact, of the $200 billion raised in Australia, around half the private credit finds its way into real estate.
Property development isn’t overly bank friendly. There are huge upfront costs in land purchases, ongoing spending on development, and a long lag before returns pour in. It’s a risky business.
And developers have been embraced by the non-bank lenders, who have been more than willing to step in with the readies.
So far, booming residential real estate has kept many developers in the black. But for those with long memories, the spectre of Fincorp, Westpoint and Australian Capital Reserve — which all collapsed around 2007 — there appears to be little understanding of the elevated risks involved.
Each of those firms used debentures to raise money, the scheme that preceded private credit.