A war of words has erupted over the health of the U.S. credit markets, with Blue Owl Capital Inc. (NYSE:OWL) co-CEO Marc Lipschultz firing back at a stark warning from JPMorgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon.
Blue Owl Co-CEO Rejects Problems In Private Credit Market
In response to Dimon's comment that recent bankruptcies are like seeing a “cockroach” that suggests more are hidden, Lipschultz quipped, “I guess he’s saying there might be a lot more cockroaches at JPMorgan.”
Speaking at the CAIS Alternative Investment Summit, Lipschultz rejected the idea that the multi-billion dollar collapse of auto-parts supplier First Brands signals a systemic problem in private credit.
He dismissed the widespread concern as “an odd kind of fear-mongering.” He argued that the failure was an isolated incident of alleged “major fraud” within the traditional syndicated loan market—the domain of large banks—not the direct lending space.
Lipschultz contended that the market turmoil should instead prompt a “flight to safety” away from syndicated bank debt and into private credit, which he described as “incredibly healthy.”
El-Erian Echoes Jamie Dimon’s ‘Cockroach’ Warning
However, this optimistic view faces a strong counterargument from prominent economist Mohamed El-Erian. Siding firmly with Dimon, the Allianz chief economic adviser said in an interview with CNBC that the recent credit issues are a predictable consequence of a long period of easy money.
“I agree with what Jamie Dimon said, which is, you know, cockroaches don’t come in ones and twos,” El-Erian stated.
He explained that years of “incredibly loose” credit and lax standards have created an environment where more defaults are inevitable, even if they don’t pose a systemic risk to the entire economy.
See Also: Billion Dollar Auto Supplier Went Poof—What You Need To Know About First Brands Catastrophe
First Brands And Tricolor Holdings Bankruptcies Trigger Markets
The debate was ignited by the bankruptcies of First Brands and subprime auto lender Tricolor Holdings. These events have amplified fears of credit deterioration, rattling investors and contributing to significant sell-offs in regional bank stocks.
Moreover, Zions Bancorporation NA (NASDAQ:ZION) announced on Wednesday evening that it had incurred a sizable charge due to bad loans to a couple of borrowers. Meanwhile, Western Alliance Bancorp (NYSE:WAL) alleged on Thursday that a borrower had committed fraud.
Additionally, the SPDR S&P Regional Banking ETF (NYSE:KRE) plunged 6.20% on Thursday, logging its worst single-day performance since April 4.
The S&P 500 index ended 0.63% lower at 6,629.07 on Thursday, whereas the Nasdaq 100 index dipped 0.36% to 24,657.24. On the other hand, Dow Jones fell 0.65% to 45,952.24.
On Friday, the futures of the S&P 500, Dow Jones, and Nasdaq 100 indices were trading lower.
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