Morning Coffee: Jamie Dimon's sly jabs may have angered private credit. The newest status symbol on Wall Street
Jamie Dimon referred to bad credit deals like Tricolor and First Brands two days ago using the famous “never just one cockroach in the kitchen” metaphor, and he seems to have realised he was being a bit mischievous in doing so. He even said at the time “I probably shouldn’t say this”. And now it seems that half of the private credit industry has stepped up to take the bait.
Although Dimon didn’t actually cast any aspersions on anyone specific, and even said that “we don’t even know the standards of the banks underwriting to some of these entities”, the private credit guys seem to feel like their ears are burning. Marc Lipschultz of Blue Owl Capital has referred to an “odd kind of fear mongering” and to unnamed “people” who have “meaningful, parochial interests” in the private credit space not continuing to succeed.
Other private lenders have been making the case that the high-profile losses so far should be pinned on banks and public markets, rather than them. John Cortese of Apollo suggests that they were “clearly funded by banks and the public markets”, and that “The notion of never letting the facts get in the way of a good story may have gone a bit too far here”. And Blackstone’s Jon Gray agrees, saying “Neither of these are what you think of as direct lending or the traditional private credit market […] To look at those two transactions and then extrapolate that to the private credit market, to me seems a little bit odd”.
Clearly, the phrase “protesting too much” isn’t in the dictionary of quotations for private credit guys. Because the facts are that it’s going to be almost impossible for them to shake off the negative sentiment. However technically correct they are about the immediate specifics, Jamie Dimon is seeing the big picture here. There really is never just one cockroach; credit troubles come in armies, not twos and threes. And when there is credit trouble, everyone is always going to look at the players who have gained market share rapidly in the immediate run-up. Because in almost every credit cycle there’s ever been, that’s where you’ve found the problems.
A further step that nobody seems to have considered yet is that in the cyclical rotation of folksy sayings, the one that comes after the cockroach joke is something like “you don’t go bust on bad credits – you go broke on good credits that go bad”. As long as the credit cycle is in a place where people are blaming losses on poor underwriting, things can still be pretty good. The time to get worried, from a career point of view, is when high-quality companies that everyone agreed on are nevertheless succumbing to economic conditions. That’s when investors and employers both start to believe that the problem is with the whole business and asset class. Because after all, the other proverb that Jamie Dimon might have considered as an alternative is that you begin with a few bad apples, and before long the whole barrel is spoiled.
Elsewhere, it seems that the latest subtle flex for a New York banker is to try to insinuate that someone you dislike might have donated to Zohran Mamdani. Looking at the breakdown of donations recorded with the campaign finance board, the pattern is extremely clear; rich bankers and front-office people are supporting Cuomo, while the less prestigious roles are associated with more donations to his opponent. In a particularly savage burn, equity research (traditionally the Cinderellas of the trading floor) were the only finance occupation to have 100% of their donations going to the candidate promising rent control.
To a certain extent, the pattern cross cuts with age; as one banker put it, “Older guys that have houses in Greenwich are still going to want to keep their houses in Greenwich”. But it’s also the case that in a political race that’s been dominated by the cost of living, the extent to which your salary and bonus makes New York affordable is also an issue.
Of course, as with all such things, the best response is probably to indicate that you don’t care and that you don’t want to talk politics in the workplace. As well as shutting down a boring conversation, it helps keep a bit of mystery about how well you did last year.
Meanwhile …
Pass-through pricing at the top multistrategy hedge funds has now reached the point at which the employees at some of the best performing funds are taking home nearly 25% of the total returns made for investors. By definition, the investors should be pleased at this – they’re not doing 75% of the work of running a top quartile portfolio, after all – but it’s quite surprising in an industry where 2-and-20 pricing was once thought too expensive. (FT)
It is always hard to disentangle the effects of technological change from the business cycle, but the evidence is piling up that the use of AI to carry out elementary and entry-level coding is affecting the labour market. According to the Institute of Student Employment, graduate jobs in the tech sector are down 46% on last year. (The Register)
Backed by Glencore, shunned by some conventional commodities finance houses, and quickly gaining huge market share in iron ore trading … “Radiant World” is the latest sudden success story making a small group of employees very rich. (Bloomberg)
However, it isn’t bad news for everyone – UBS has created a post of “chief artificial intelligence officer” and hired Daniele Magazzeni from JP Morgan to fill it. (Financial News)
Named after a Hobbit thing, and aiming to recreate the franchise of Silicon Valley Bank while also building a set of crypto payment rails of the kind that disappeared with Signature Bank … the interestingly bearded fintech founders of Erebor must definitely be hoping that lightning doesn’t strike twice. (WSJ)
DEI consultancy used to look like one of the few genuine jobs for life in New York; now former consultants are left looking for work as nannys. (The Cut)
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