Jamie Dimon, CEO of JPMorgan, recently issued some harsh warnings about the state of corporate lending. His warnings were prompted by two recent auto-industry bankruptcies, including one involving a company in which JPMorgan had a significant investment.

The bankruptcy caused JPMorgan to charge off $170 million, which means the bank acknowledged that the loans would not be paid as a result of the auto company’s inability to come up with the funds. 

Unfortunately, Dimon believes that these two recent bankruptcies could be just the tip of the iceberg and that an industry-wide problem may be brewing. 

Auto-industry bankruptcies are sparking big concerns.

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Two auto-industry bankruptcies spark concern

The two bankruptcies that prompted Dimon’s concern included:

  • First Brands, an auto parts firm
  • Tricolor Holdings, a subprime car lender. 

The companies experienced financial problems amid ongoing industry pressure from tariffs. 

While JPMorgan did not suffer losses due to the bankruptcy of First Brands, it did provide loans to Tricolor, which is what led to the charge-offs. 

Related: 63-year-old bankrupt retail chain closes all stores permanently

“It is not our finest moment,” Dimon said, referring to the losses that the bank suffered due to loaning funds to Tricolor.

“You can never completely avoid these things, but the discipline is to look at it in cold light and go through every single little thing.”

Multiple financial institutions face too much exposure

JPMorgan was not the only large financial institution with exposure to the two auto companies entering bankruptcy. 

  • Jefferies, an investment bank, said companies that bought First Brand inventory owe $175 million to the funds the investment bank runs.
  • UBS said its funds had approximately $500 million in exposure.
  • Fifth Third Bank disclosed last month that it had $200 million in impairments from allegedly fraudulent activity by a borrower, which turned out to be Tricolor.

With so many large banks exposed to these two businesses, the bankruptcies have raised concern about the amount of money private banks have lent to companies that potentially were not as stable as they seemed.

JP Morgan CEO warns of problems with corporate lending

So, why are these auto companies and bank losses so concerning? That’s where Dimon’s warning comes in. 

As Dimon told analyst Mike Mayo during JPMorgan’s earnings conference call:

When you see one cockroach, there are probably more.

This colorful metaphor refers to Dimon’s fear that other companies may have large outstanding loan balances, be in worse shape than anticipated, and be vulnerable to collapse if the economy goes south.  

Have credit standards been too lax?

While the credit metrics that JPMorgan watches are stable right now, Dimon’s warning is focused on a broader issue: Corporate lending standards may have been too lax in recent years, so banks may be overexposed to bad debt. 

“We’ve had a credit bull market now for the better part of what, since 2010 or 2012? That’s like 14 years,” Dimon said in a phone call with CNBC reporters.

“These are early signs that there might be some excess out there because of it. If we ever have a downturn, you’re going to see quite a bit more credit issues.”

More bankruptcy:

  • 34-year-old casual dining chain files for Chapter 11 bankruptcy
  • Major seafood company files for Chapter 11 bankruptcy
  • 55-year-old women’s fashion company files Chapter 11 bankruptcy

Although it remains to be seen whether this will pan out, Dimon is likely correct that these two incidents could be an early indicator that financial institutions may have repeated some of the mistakes from 2008 and been too loose in their credit standards when issuing loans to corporations. 

Banks may simply have been too eager to issue loans to companies without properly vetting their financials. 

This, of course, could have broader implications for the economy. Banks may start to rack up losses if too many companies in which they invested become unable to pay.

Related: Major insurance carrier collapses and files Chapter 15 bankruptcy