JPMorgan (JPM) CEO Jamie Dimon delivered a cryptic warning to the financial system after acknowledging missteps at his firm earlier this month.
“When you see one cockroach, there’s probably more,” Dimon said on Oct. 14, referring to the bankruptcies of auto parts supplier First Brands and subprime auto lender Tricolor Holdings. “Everyone should be forewarned on this one.”
JPMorgan took an impairment of $170 million related to Tricolor, which Dimon said was not the firm’s finest hour. Fifth Third Bancorp (FITB) and Barclays disclosed credit impairments of $178 million and $147 million, respectively, related to Tricolor Holdings.
Regional banks First Citizens Bancshares (FCNCA) and South State have called out charge-offs related to loans tied to First Brands of $82 million and $32.2 million, respectively, during analyst calls. Two of the country’s other midsize lenders — Zions Bancorp (ZION) and Western Alliance Bancorp (WAL) — disclosed exposure and related issues in a separate alleged borrower fraud scheme.
This week, European banks BNP Paribas and HSBC each called out specific write-downs of $100 million or more in loan exposure.
While these disclosures shook investor confidence for a time earlier this month, sentiment appears to have stabilized.
On Wednesday, Fed Chair Jerome Powell said the central bank is “paying close attention” to recent cracks emerging from the subprime auto loan market, but it doesn’t yet view that deterioration as a “broader credit issue.”
“You’ve seen rising defaults in subprime credit for some time now, and now you’ve seen a number of subprime automobile credit institutions having significant losses, and some of those losses are now showing up on the books of banks,” Powell said in response to a question from Yahoo Finance’s Jennifer Schonberger.
“We’re paying close attention. I don’t see at this point a broader credit issue,” Powell added. “It doesn’t seem to be something that has very broad application across financial institutions. But, you know, we’re going to be monitoring this quite carefully and making sure that that is the case.”
The Federal Reserve on Wednesday voted to lower interest rates by another 0.25% as the central bank weighs a slowing labor market and inflation that is easing but remains above its 2% target.
During third quarter earnings season, the country’s largest banks have generally reported stronger-than-expected results, with analysts declaring overall credit quality to be stable. In other words, the loan books from these firms appear to be in good health.
Read More: Jamie Dimon warned of ‘cockroaches’ in the financial system. Fed Chair
