Auto sector bankruptcies reveal ‘early signs’ of excess lending

JPMorgan Chase CEO Jamie Dimon said Tuesday that bankruptcies in the U.S. auto market are a sign that business lending standards have become too lax over the past decade.

Dimon, a longtime executive at the largest U.S. bank by assets, was speaking about the recent collapse of auto parts company First Brands and subprime auto lender Tricolor Holdings.

“We’ve had a credit bull market for most of what, since 2010 or 2012? That’s about 14 years,” Dimon told CNBC on a call with reporters.

“These are the first signs that there might be excesses because of this,” Dimon said. “If we ever see an economic downturn, we will see a lot more credit problems.”

Dimon used more colorful language about the Tricolor’s failure later Tuesday.

“When you see one cockroach, there are probably others,” Dimon told analyst Mike Mayo during the bank’s earnings conference call. “Everyone should be warned about this.”

These two bankruptcies have raised concerns about the hidden risks posed by banks like JPMorgan, Jefferies And Fifth third provide financing to private businesses. In a quarter where JPMorgan far beat expectations, thanks to booming activity in institutional trading, questions from reporters and analysts about credit losses took center stage.

Even though JPMorgan managed to avoid losses at First Brands, it lent to Tricolor, causing $170 million in write-offs during the quarter, Chief Financial Officer Jeremy Barnum said. Charge-offs occur when a bank acknowledges that it will not be repaid for loans it has made.

“It’s not our best moment,” Dimon said of the Tricolor episode. “When something like this happens, presumably we look at every issue. … You can never completely avoid these things, but the discipline is looking at things in a cold light and going over every little thing.”

Credit metrics monitored by JPMorgan, including early delinquencies, are stable and actually better than expected, Barnum said. The firm is closely monitoring the labor market for signs of weakness that could spill over into consumer credit, which hasn’t happened yet, he said.

The automaker bankruptcies, coming amid pressure on international supply chains due in part to President Donald Trump’s tariff hikes, have ensnared a constellation of banks.

This month, investment bank Jefferies said funds it manages owed $715 million to companies that bought First Brand’s stock, while UBS said its funds had exposure of about $500 million.

Last month, regional bank Fifth Third revealed it expected writedowns of up to $200 million following suspected fraudulent activity at a borrower; the client was Tricolor, Bloomberg reported.