JP Morgan Chase is concerned about loans that finance some leveraged buyouts, and is scaling back from what is a booming area, even as its overall loan portfolio grows, a top executive at the US bank said.
Loans that funded smaller leveraged buyouts, where companies often do not have the size or financial resources to weather a business downturn, looked particularly hazardous, said Doug Petno, the chief executive of commercial banking.
Other lenders seemed to be overly confident about the future because loan losses in leveraged buyouts - considered a risky area in general - had been low recently, Petno said.
Seven years after the financial crisis, lenders are relatively positive about credit risk. Outstanding loans grew 1.63 per cent in the first quarter for all US banks from the fourth quarter, according to the Federal Reserve, a solid pace by historical measures.
But JP Morgan, the largest US bank by assets, is growing slower than the overall market, and sees reasons to be more selective about credit quality now. It said its loans grew 0.9 per cent on a sequential basis to US$764 billion.
All of its middle market loans represent about US$50 billion of that, so the slow growth likely reflects caution in other areas of the bank, too.