Top executives from across Wall Street dismissed fears of a brewing credit crisis — even as some of the industry’s biggest names set aside hundreds of millions more to cover potential losses.
Goldman Sachs Group Inc. Chief Executive Officer David Solomon downplayed such worries, arguing he doesn’t see any systemic risk looming in the credit market. Veteran dealmaker Paul Taubman echoed those remarks in a separate interview, while acknowledging there are always “idiosyncratic risks” lurking.
“I don’t see anything in the context of a handful of bad credit situations that’s leading me to say we have a systemic issue around the corner,” Solomon said in an interview with Bloomberg Television on the sidelines of the Future Investment Initiative in Riyadh.
The comments came as BNP Paribas SA reported that provisions in the third quarter rose to €905 million ($1.05 billion), including €190 million to account for “a specific credit situation.” Over at HSBC Holdings Plc, executives set aside $1 billion to cover expected credit losses, including $100 million for a single client in the Middle East.
Executives at both firms declined to name the clients in question, but they also insisted the hits were one-offs and not emblematic of a worsening credit environment.
“We had one specific file in global markets, but we don’t give any color or names,” BNP Paribas Chief Financial Officer Lars Machenil said in an interview on Bloomberg Television. “But it is not a usual suspect, it is in the sphere of payment.”
Taubman, who’s chief executive officer of PJT Partners Inc., said the market reflected a split between sound deals and those built on “free money” a few years ago. Some of those transactions, particularly those done at the height of the pandemic, have now unravelled, he added. “We’re spending a disproportionate amount of time restructuring that vintage of transactions.”
The latest disclosures come after the high-profile collapses of auto-parts supplier First Brands and subprime auto lender Tricolor Holdings rocked credit markets in recent weeks. Over at JPMorgan Chase & Co., which booked a $170 million charge-off tied to Tricolor, CEO Jamie Dimon offered an ominous warning about the environment earlier this month: “When you see one cockroach, there are probably more.”
Those comments sparked an industrywide debate over whether banks or private credit firms are better positioned to weather a broader downturn.
Banks, for their part, have to decide whether their interaction with private credit firms is a “tug of war or a team sport,” Citigroup Inc.’s Chief Executive Officer Jane Fraser said on a panel at FII on Tuesday.
HSBC Chief Financial Officer Pam Kaur emphasized that the lender’s direct exposure to private credit is small — only in the “single-digit billion” — but she’s more worried about indirect exposure that could blow back on the lender. As a result, the firm is reviewing its ties to smaller banks and hedge funds that have large private credit businesses, she said.
Nomura Holdings Inc. CFO Hiroyuki Moriuchi said it’s natural for banks to take the opportunity to re-examine risk management practices and conduct more careful due diligence on new transactions, though the brokerage believes the overall credit market remains relatively robust.
“We’re in a sweet spot: Interest rates are high enough to keep things moving, not so high as to stymie growth,” Standard Chartered Plc Bill Winters said in a separate Bloomberg Television interview. “These are probably one-offs, but the credit cycle is still alive.”
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