Dimon sounds alarm as $170m Tricolor hit jolts JPMorgan
JPMorgan Chase recorded a $170 million charge-off in the
third quarter connected to Tricolor, the bankrupt Dallas-based subprime auto
lender and used-car seller, executives said Tuesday.
“It is not our finest moment,” CEO Jamie Dimon said on a
media call, adding that the bank has already begun combing through processes
and controls to prevent a repeat.
“You can never completely avoid these things, but discipline
is to look at it in cold light, and go through every single little thing,” he
said.
Tricolor filed to liquidate on September 10 and is under
federal investigation over fraud allegations, according to reporting cited by
executives.
Dimon insisted the episode has sharpened internal focus,
saying: “My antenna goes up, when things like that happen. When you see one
cockroach, there are probably more. Everyone should be forewarned on this one.”
The $4 trillion-asset bank said total net charge-offs for the
quarter were $2.6 billion, up $506 million from the prior period.
Chief Financial Officer Jeremy Barnum said wholesale unit
losses “were slightly elevated as a result of a couple of instances of apparent
fraud in certain secure lending facilities”.
Dimon said the company is reviewing “processes, procedures
and underwriting” in the wake of the cases, signaling tighter scrutiny across
corporate lending channels. He framed the losses against a backdrop of a long
credit bull market and elevated asset prices, noting that recent failures may
be signaling a turn. “These are early signs there might be some excess out
there,” he said.
JPMorgan executives said the bank had no exposure to First
Brands, the auto parts maker that collapsed in September and has rippled
through credit markets. By contrast, Jefferies disclosed last week that one of
its credit funds held $715 million of exposure linked to First Brands.
The fallout from Tricolor’s collapse has not been contained
to a single lender. Fifth Third, the Cincinnati-based bank, said last month it
had uncovered “alleged external fraudulent activity at a commercial borrower,”
warning of a potential impairment charge of up to $200 million.
Fifth Third was also affected by Tricolor’s demise,
executives there said, highlighting how fraud events can spread across
syndicated or structured borrowing relationships.
For JPMorgan, the Tricolor hit arrives as the bank continues
to post resilient results across consumer and corporate divisions.
But the fraud-linked charge-offs add a cautionary note to
broader credit quality. Dimon’s remarks suggest the bank is bracing for further
discovery work and the possibility that other problem credits could surface as
conditions tighten.
Executives emphasized that the bank remains committed to
rigorous post mortems.
“When something like that happens, you could assume that we
scour every issue, every universe, everything about how it could be taking
place,” Dimon said, adding that the response is designed to reinforce controls
rather than to chase losses after the fact.
While the CEO declined to predict broader contagion, the
combination of higher-for-longer rates, selective pockets of fraud and a fading
tailwind from years of easy credit could test lenders’ underwriting and
monitoring.
JPMorgan is signaling it intends to meet that test with
heightened discipline - and a reminder that in credit markets, early warning
signs rarely appear alone.