By Manya Saini, Saeed Azhar and Tatiana Bautzer
April 14 (Reuters) - Wall Street executives said they were stress‑testing or monitoring private credit portfolios as the asset class comes under scrutiny, but said they were comfortable with their exposure.
The comments came after three of the six biggest U.S. lenders disclosed about $108 billion financing exposure to private credit or related loans during their quarterly earnings. Private credit has been in the spotlight after AI risks, fund outflows
and fears of credit stress hammer alternative asset managers' stocks.
The $3.5 trillion asset class has drawn in pension funds, insurers and wealthy individuals with the promise of steady, higher yields, but its rapid expansion into less liquid, harder-to-value loans has also raised concerns about how it would hold up under stress.
The $1.8 trillion direct lending segment, which is part of private credit, competes directly against the broadly syndicated loans and traditional bank lending for financing of mid-sized and large private equity-backed deals.
"We're passing our own test, and we're comfortable with how we're sitting there, so the constant monitoring the risk capital framework, will play a role," Citigroup CFO Gonzalo Luchetti said on an earnings call. He said the bank was constantly stress-testing its portfolios, including in the private credit space, for a range of macroeconomic environments.
A slew of negative headlines has hurt the private credit sector this year, with concerns mounting that software portfolios are vulnerable to AI disruption and that loans to small, middle-market companies could come under pressure.
The default rate among U.S. corporate borrowers of private credit rose to a record 9.2% in 2025, according to a report last month by credit rating agency Fitch Ratings.
Other signs of stress have also emerged. Private credit funds, known as business development companies (BDCs), are getting hit with higher rates on their bank borrowings even as the historically high double-digit returns they make on private lending shrink.
JPMorgan's Chief Financial Officer Jeremy Barnum on a call with reporters said that the bank was "watching the space very closely," adding that JPMorgan was well protected thanks to portfolio diversification, underwriting and client selection.
"But obviously, if you see a big credit cycle with significant increase in default rates, you're going to see some losses across the whole system," Barnum said.
JPMorgan said its exposure to private credit was $50 billion in the first quarter.
Citigroup reported in its presentation its exposure to non-bank financial institutions was $118 billion in the fourth quarter, of which $22 billion were considered private credit. The bank said the private credit exposure was restricted to 'tier-1' asset managers and the bank had zero losses over the life of the portfolio. Of the total $118 billion in loans, 76% were securitizations.
Wells Fargo disclosed on Tuesday corporate debt finance - mainly private credit - made up $36.2 billion of loans, dominated by 19% in business services loans, 17% in software and 15% in healthcare.
NOT SYSTEMIC
Private credit has grown at breakneck speed over the past decade, swelling into a roughly multi-trillion-dollar market as banks pulled back from riskier lending following the global financial crisis and tighter regulations.
JPMorgan, the largest U.S. bank by assets, reduced the value of the collateral behind some loans to private credit funds after reviewing the impact of market turmoil in software companies, two sources told Reuters last month.
Still, when asked on an analyst call whether 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 driven an enormous amount of negative sentiment around private credit," Goldman Sachs CEO David Solomon said in a post-earnings call with analysts.
"Looking forward, our predominantly institutional drawdown structures, as well as the breadth of our origination funnel, give us the flexibility to continue to patiently and selectively invest capital."
Banks also expressed comfort with the asset class. Wells Fargo's Chief Financial Officer Mike Santomassimo said the bank was comfortable with the risks in its private credit portfolio.
BlackRock CEO Larry Fink said on Tuesday that demand for private credit products is “structural,” reflecting banks’ retreat from some markets following the 2008 financial crisis and rising global indebtedness. “That isn’t changing,” Fink said.
While retail investors have pulled back from some private credit funds, institutional demand is “accelerating,” Fink said, as higher returns and low leverage have made such offerings a core part of portfolio construction. Wider spreads in the market point to shifting short-term sentiment that may create challenges for some providers, he said, a situation that favors BlackRock competitively.
Elsewhere, insurer MetLife's CEO Michel Khalaf told the Semafor World Economy Summit in Washington on Monday that there may be some cracks in the private credit sector but not a sign that it's 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)
