Overblown credit: Dimon speaks at a forum in Simi Valley, California. The long time JPMorgan chairman and CEO caused a stir when he predicted more credit ‘cockroaches’ might emerge, amid concerns about improperly valued private equity. — Reuters
NEW YORK: The head of a giant Wall Street bank was dining with a buy-side rival when the investor casually called banks “utilities”.
What stung most, the chief executive officer (CEO) thought: It wasn’t meant as an insult.
But at the end of 2025, that bravado is shifting. Bankers who’ve been grinding their teeth as alternative asset managers invaded their turf over the past decade are now brimming with optimism about the years ahead, saying the regulatory and market environment is swinging back their way.
Shareholders are betting heavily on that: The six titans of US banking, JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc, Wells Fargo & Co, Goldman Sachs Group Inc and Morgan Stanley, are up by an average of more than 45% this year.
Stocks of the top four public alternative asset managers, Blackstone Inc, Apollo Global Management Inc, KKR & Co and Carlyle Group Inc, are collectively down, with only Carlyle making a significant gain.
That’s the strongest outperformance by traditional lenders in a generation.
“It’s revenge of the banks,” said Mike Mayo, a Wells Fargo analyst who tracks the industry’s other major lenders.
“For the last 15 years, banks have been competing against non-banks, analogous to playing basketball with one hand behind their back.
All of the sudden banks can now play against their competitors with two hands. That’s a euphoric feeling.”
Shares of big US banks are beating alts by most on record.
This look at the inter-industry rivalry is based on conversations with senior executives inside several of Wall Street’s largest firms, including some of their CEOs.
Almost all of them asked not to be identified so they could speak candidly about government watchdogs and competitors.
To the glee of bank leaders, the second Trump administration’s appointees at the Federal Reserve (Fed) and other regulators are dialing back post-crisis restrictions, including proposed capital rules and stress tests that were long derided by the industry as misguided and costly, but which many outsiders argued were needed after taxpayer-funded bailouts in 2008.
Less disputed is that such tough oversight cleared the way for buy-side firms to make inroads into some of the most profitable types of lending.
While banks scrutinised borrowers and hewed towards safe loans with the lightest capital burden, asset managers raised tens of billions of dollars so they could make faster financing decisions, often charging applicants higher interest rates for the convenience.
Blackstone and Apollo turned into private-credit powerhouses.
Blackstone’s credit and insurance assets under management, a measure of the financing it funds, surpassed US$432bil in September, up 67% from the end of 2021.
At Apollo, credit AUM jumped 83% in that span to $723 billion.
Bankers acknowledge there’s no turning back the clock: The biggest private-markets firms are now established lending rivals, and occasional partners to the banks.
They’re pushing deeper into asset-based lending and other traditional bank territory. And the potential rewards remain greater on the buy side, which has lured away many of the banks’ most talented dealmakers and traders.
But in recent quarters, big banks have started flexing their lending muscles anew after beating back a slew of rules. They defeated an aggressive Biden-era proposal for stiffer capital requirements known as Basel III Endgame.
They got reprieves on other oversight that pushed them to hold more capital, including Fed stress tests and a special cap on balance sheet leverage.
There were also idiosyncratic breaks, giving the industry more leeway to make leveraged loans and handle cryptocurrencies.
One watchdog, the Consumer Financial Protection Bureau, was even gutted.
As regulation eased, the top banks boosted their loan portfolios at the fastest pace since the financial crisis.
Looser US capital rules and oversight let commercial banks lend more.
JPMorgan, which just moved into a new multibillion-dollar headquarters, is opening its checkbook.
In May, it led an US$8bil effort for 3G Capital’s acquisition of Skechers.
A month later, the bank agreed to put up US$17.5bil to help Warner Bros Discovery Inc split itself in two.
And in October it offered US$20bil for the acquisition of Electronic Arts Inc, then the largest-ever commitment by one bank for a leveraged buyout.
Early this month, Wells Fargo pledged US$29.5bil for a bridge facility when Netflix Inc began lining up financing for its bid for Warner Bros.
Altogether, the result is that the top commercial banks have been collectively lending more in recent quarters, narrowing the gap with their private-credit competitors.
Few would have predicted such a comeback in mid-2024 when Apollo CEO Marc Rowan irked banks by describing their loan books as private credit’s opportunity.
But for alternative asset managers, some of President Donald Trump’s signature policies ended up hampering, rather than helping, core operations.
His tariffs rocked certain private equity portfolio companies and rekindled fears of inflation, leaving the Fed reluctant to lower interest rates quickly.
That kept financing costs elevated for longer, making it harder to unload old assets and raise new investment funds.
Meanwhile, the growing clout of the alt giants’ credit arms has started to garner more scrutiny from authorities.
Last month, a key Justice Department official expressed concern about the potential for money managers to improperly value their private equity and credit assets.
In the United Kingdom, officials are even starting to test how the sector would respond to financial stress.
Already, the blowups of subprime auto lender Tricolor Holdings and auto-parts firm First Brands Group have ignited fears that corporate borrowers are abusing competition among lenders and engaging in fraud.
Longtime JPMorgan CEO Jamie Dimon caused a stir when he predicted more credit “cockroaches” might emerge.
Even though banks were at the centre of those debacles, investors sold shares of alternative asset managers with heavy exposures to private debt.
By fall, as Rowan complained during an investor presentation that concerns about private credit were overblown, bank leaders were privately remarking that lending finally felt “fun” again.
JPMorgan is within striking distance of its highest annual profit in the history of American banking. — Bloomberg
