JPMorgan curbs lending to private credit companies, cuts software loan rates

JPMorgan Chase The company is reducing its exposure to the private credit sector by writing down the value of loans the bank holds as collateral, according to a person familiar with the moves.

The bank’s Wall Street giant wrote down the value of loans – most of which were made to software companies – in the financing portfolios of private credit clients, said the person, who requested anonymity speaking about client interactions.

JPMorgan’s move suggests the largest U.S. bank by assets wants to get ahead of potential disruptions involving private credit loans to software companies. CEO Jamie Dimon, who led his bank through multiple crises during his two decades at the helm of JP Morgan, is known to constantly remind his executives of the risks of borrowers not being able to repay their loans.

Software companies have come under scrutiny in recent months, as model updates from OpenAI and Anthropic have led to concerns that some providers will be disrupted by AI. These concerns have sparked a downward cycle for private credit players, with retail investors hogging money in recent weeks, leading to abnormally high redemptions at companies including… Blue owl and Blackstone.

The adjustments have been made in JPMorgan’s financing business, where private credit companies borrow money to amplify returns on funds in what is known as “back-end leverage.” This business is considered relatively risky because it places leverage on top of financial leverage, magnifying losses when the underlying loans default.

By reducing the collateral for this leverage, JPMorgan reduces the ability of private credit companies to borrow against their loans, and in some cases may even force companies to provide more collateral.

The size of the loans affected and the extent of JPMorgan’s rate cuts cannot be determined.

JPMorgan is likely the first major bank to take such steps, according to the Financial Times, which was first to report the bank’s writedowns.

The moves are a proactive move driven by changes in market valuations rather than actual loan losses, said the person familiar with the bank, who described the move as financial discipline, “rather than waiting for the crisis to come.”

JPMorgan had previously withdrawn its influence from the industry during the early days of the Covid pandemic, according to the person.