By Manya Saini, Saeed Azhar and Tatiana Bautzer
April 14 (Reuters) – Wall Street executives said they were stress testing or monitoring private credit portfolios while the asset class is under scrutiny, but said they were comfortable with their exposure.
The comments came after three of the six largest US lenders disclosed financial exposure of around $108 billion to private credit or related loans during their quarterly results. Private credit has been in the spotlight after AI risks, fund outflows and fears of credit stress hit shares of alternative asset managers.
The $3.5 trillion asset class has attracted pension funds, insurers and wealthy individuals with the promise of consistently higher returns, but its rapid expansion into less liquid and harder-to-value loans has also raised concerns about how it would hold up under pressure.
The $1.8 trillion direct lending segment, which is part of private credit, competes directly with widely syndicated loans and traditional bank loans for the financing of medium and large private equity-backed deals.
“We’re passing our own test and we’re comfortable with the way we’re sitting there, so constant monitoring of the venture capital framework will play a role,” Citigroup Chief Financial Officer Gonzalo Luchetti said on an earnings call. He said the bank was constantly testing its portfolios, including in the private credit space, for a variety of macroeconomic environments.
A series of negative headlines have hurt the private lending sector this year, with growing concerns that software portfolios are vulnerable to AI disruption and that lending to small and medium-sized businesses could come under pressure.
The default rate among U.S. corporate private credit borrowers rose to a record 9.2% in 2025, according to a report last month from credit ratings agency Fitch Ratings.
Other signs of stress have also emerged. Private credit funds, known as business development companies (BDCs), are being hit by higher rates on their bank loans, even as the historically high double-digit returns they earn on private loans shrink.
JPMorgan Chief Financial Officer Jeremy Barnum in a call with reporters said the bank was “watching the space very closely,” adding that JPMorgan was well protected through portfolio diversification, underwriting and client selection.
“But obviously, if we see a big credit cycle with a significant increase in default rates, we’re going to see some system-wide losses,” Barnum said.
JPMorgan said its private credit exposure was $50 billion in the first quarter.
Citigroup reported in its filing that its exposure to nonbank financial institutions was $118 billion in the fourth quarter, of which $22 billion was considered private credit. The bank said that private credit exposure was restricted to ‘tier 1’ asset managers and that the bank had no losses over the life of the portfolio. Of the total $118 billion in loans, 76% were securitizations.
Wells Fargo disclosed Tuesday that corporate debt financing – primarily private credit – accounted for $36.2 billion in loans, dominated by 19% in business services loans, 17% in software and 15% in healthcare.
NON-SYSTEMIC
Private credit has grown at a dizzying pace over the past decade, growing into a roughly multi-trillion-dollar market as banks retreated from riskier lending in the wake of the global financial crisis and tighter regulations.
JPMorgan, the largest U.S. bank by assets, reduced the value of collateral behind some loans to private credit funds after reviewing the impact of market turmoil on software companies, two sources told Reuters last month.
Still, when asked on an analyst call whether the risks in private credit were systemic, JPMorgan Chase CEO Jamie Dimon, widely seen as one of Wall Street’s most influential voices, said: “I don’t think it’s systemic.”
“I know the media headlines have generated a tremendous amount of negative sentiment around private credit,” Goldman Sachs CEO David Solomon said on a post-earnings call with analysts.
“Looking ahead, our predominantly institutional drawdown structures, as well as the breadth of our origination funnel, provide us with the flexibility to continue to patiently and selectively invest capital.”
Banks also expressed comfort with this asset class. Wells Fargo Chief Financial Officer Mike Santomassimo said “the bank was comfortable with the risks of its private credit portfolio.”
BlackRock Chief Executive Larry Fink said Tuesday that demand for private lending products is “structural,” reflecting banks’ withdrawal from some markets following the 2008 financial crisis and rising global debt. “That’s not going to change,” Fink said.
While retail investors have pulled out of some private credit funds, institutional demand is “accelerating,” Fink said, as higher yields and low leverage have made such offerings a central part of portfolio construction. Wider spreads in the market point to a shift in near-term sentiment that may create challenges for some providers, he said, a situation that favors BlackRock competitively.
Separately, MetLife insurer CEO Michel Khalaf said at the Semafor World Economic Summit in Washington on Monday that there may be some cracks in the private credit sector, but not a sign that it is a bubble about to burst.
(Reporting by Manya Saini, Arasu Kannagi Basil, Pritam Biswas and Prakhar Srivastava in Bengaluru and Saeed Azhar, Tatiana Bautzer, Colin Barr in New York, Nivedita Balu in Toronto; Editing by Megan Davies and Nick Zieminski)
