FORBES SOUNDS THE ALARM ON PRIVATE CREDIT RISK TO BANKS AND INSURERS -B OF A SAYS LOWEST ASSET CLASS

Ajouté : 2026-05-30

[00:00:01]I came across a story that Forbes put out just a couple of days ago entitled rising private credit defaults are testing banks and insurers. And they did a very detailed story which I'll share with you tying together all of the exposure points across private credit that we've been discussing on this channel for months and months now.

[00:00:26]So, let's get into this because I went Forbes, a publication like Forbes gives uh something like this this much attention, I think it's worth paying attention to because they are sounding the warning signs or the warning alarm big time. Says, "As we know, private credit has grown into a $2 trillion industry over the past decade. It's been fueled by ultra-low interest rates, post-2008 banking regulations, and yield-hungry investors. It's become, according to Forbes, one of the most powerful forces in global finance, but now the environment that created it has reversed. Rates are elevated, refinancing has become harder, and the first real signs of stress are emerging across the asset class."

[00:01:14]It says, "Unlike public loans, private credit is marked using internal models rather than market prices, potentially delaying the recognition of losses. For banks, the risk is contagion through leverage financing relationships. For insurance companies, it's illiquid investments, cash flow uncertainty, and capital pressure. But for investors as a whole, the central question is whether private credit's apparent stability reflects genuine resilience or merely delayed recognition of losses.

[00:01:47]That distinction will determine whether the current cycle resolves as a manageable credit correction or becomes the first true crisis of the private credit era." okay? And let's go through the categories it breaks down. The big concern, defaults are rising and they understate true stress. Recently, key rating agencies and financial institutions have been publishing important data that shows that the credit quality in private credit is worsening. In May of 2026, Fitch Ratings reported the US private credit default rate hit a record high of 6%. We covered that on on a show. The credit rating agency also estimated that private credit backed corporate borrowers experienced a 9.2% default rate in 2025 and Moody's was out saying that distressed restructurings, debt exchanges, and maturity extensions agreed under duress accounted for roughly 65% of all 2025 private credit defaults.

[00:02:46]Excluding them produces headline rates that says they're materially even worse than that. Rising payment in kind, PIK, we've discussed it before, income at business development companies is an additional early warning sign. And I would add they didn't cover uh the non-accrual loans have skyrocketed. That's one step worse than PIK arrangements. It's It's It's uh when the borrowers have basically stopped making any payments on the loan and the lenders, the private credit companies, have stopped recognizing interest income. So, when you're at when you're at a non-accrual status, you're one step away basically from a total loss. All right, please don't forget to subscribe the channel for me and go check out the Risk Map a newsletter. I'll leave uh the link in the description below. The next one drops June 1st, so get on board for that. So, Proskauer's private credit default index tracking 697 loans totaling almost $190 billion recorded a 2.73% default rate in the first quarter of this year, up from 1.84% just two quarters earlier. Bank of America's credit strategy team, listen to this, has called private credit the lowest quality asset class across their leveraged finance universe.

[00:04:04]And look at why we've discussed this.

[00:04:06]The banks are still exposed even after pulling back from lending. After '08, regulators pushed banks out of risky middle market lending, but they never truly left the ecosystem. Instead, they became behind-the-scenes financers providing subscription credit lines, warehousing financing, leverage facilities, and securitization support to private credit funds. By October of last year, Moody's estimated that US banks had extended nearly 300 billion in credit to private credit funds, uh business development companies BDCs, and the collateralized loan obligations, the CLOs we've talked about. The Financial Stability Board recently warned that global banks hold at least hundreds of billions of dollars in direct and indirect exposure to private credit funds. And several institutions have now disclosed or acknowledged it have acknowledged big losses. UPS disclosed more than 500 million in exposure to First Brands. Jefferies Group revealed 715 million in what analysts called questionable receivables.

[00:05:10]And the larger banks, which we'll get to now quickly, have disclosed aggregate exposure with varying degrees. JP Morgan Chase reportedly marked down some private credit loans. Moody's puts JP Morgan's direct exposure to private credit at 22.2 billion. I will tell you this, Jamie Dimon was just out the other day I saw in an article and acknowledged that JP Morgan's exposure to private credit is about 50 billion dollars.

[00:05:37]Deutsche Bank disclosed 30 billion in private credit exposure in March of this year warning of potential indirect credit risks through interconnected portfolios and counterparties.

[00:05:47]And its share price tanked when it when it came out and said that we did a video on that as well. Wells Fargo noted 17% of its $36 billion of corporate debt portfolio carries software exposure. And Jamie Dimon warned in 2026 in a shareholder letter that private credit losses will be higher than expected and criticized industry's lack of rigorous valuation marks.

[00:06:13]Uh Federal Reserve has since formally announced inquiries into the major banks about their private credit exposure. The primary fear here, folks, is contagion. If these defaults keep accelerating as they are, pressure will spread simultaneously through the leveraged finance markets, the regional banks, insurers, and pension funds.

[00:06:33]Let's talk about the insurance companies. They have quietly become major players in private credit. Large insurers, including life insurance uh companies seeking longer duration yields, have become major allocators of direct credit, private asset-backed finance, structured credit, and infrastructure lending. Several large alternative asset managers now operate closely tied insurance platforms, including Apollo Global Management and Athene and KKR's insurance partnerships.

[00:07:03]Also, Blackstone now is in the growing insurance relationship business.

[00:07:08]So, the insurance industry's private credit exposure has grown substantially and is now drawing regulatory scrutiny also. Barclays and analysts, excuse me, Barclays analysis found that private credit assets held by US life insurers grew more than 20% in 2025, reaching approximately 10% of total assets and exceeding 15% for for private equity-affiliated insurers like Apollo-backed Athene and KKR-backed Global Atlantic. The insurance sector became one of the worst performing segments in the US investment grade bonds index in early 2026 as a result of this. And the Treasury Department has assembled a dedicated team now to assess insurer exposure and plans to convene meetings with state insurance regulators on emerging risks.

[00:08:01]The IMF has separately been out and said and warned that insurers holding complex leveraged private credit instruments often rated investment grade with reduced capital buffers could face larger than expected losses. And we're going to start seeing more stories about these bogus you know, ratings that are coming out, okay? And this is going to accelerate.

[00:08:25]So Forbes is a big deal when they sound the alarm on all the different segments we've been talking about for months and months now. With that being said, let's enjoy the content. Leave me a like on the video. Please subscribe to the channel. Go check out the newsletter in the link below. Uh, weigh in on this.

[00:08:41]With that being said, appreciate you and I'll talk to you all soon. Bye.