Concerns are mounting over potential distress in the credit market, as highlighted by recent insights from Jamie Dimon, the CEO of JPMorgan Chase. Dimon has drawn attention to what he describes as “cockroaches” lurking in the debt market, suggesting that the situation could be more serious than it appears. According to Rosenberg Research, signs of financial strain are emerging among both consumers and businesses, with increasing instances of payment delinquencies.
Rosenberg Research emphasizes that the indicators of credit distress are becoming increasingly difficult to ignore. In light of Dimon’s remarks regarding the failures of auto parts company First Brands and subprime auto lender Tricolor Holdings, the firm has identified several warning signs indicating that the problems may be more widespread.
Rising Delinquency Rates Signal Financial Strain
One of the most concerning trends is the rising rate of newly delinquent loans. Data from the New York Federal Reserve reveals that the percentage of loans classified as newly delinquent, meaning borrowers are at least 30 days late on payments, rose to 5.3% in the third quarter of 2023. This figure marks the highest rate of new delinquencies since 2014.
The breakdown by loan type for the third quarter is alarming:
– Auto loans: 7.7% in early delinquency
– Credit card loans: 8.8% in early delinquency
– Student loans: 14.4% in early delinquency
– Mortgages: 3.6% in early delinquency
Moreover, the trend continues with a rise in “serious” delinquency, where payments are 90 days or more overdue. The percentage of loans transitioning into this category increased to 3% in the last quarter, the highest rate recorded in over a decade. The breakdown for serious delinquency is as follows:
– Auto loans: 5.0% in serious delinquency
– Credit card loans: 12.4% in serious delinquency
– Student loans: 9.3% in serious delinquency
– Mortgages: 0.8% in serious delinquency
Rosenberg Research notes that the financial strain on consumers has heightened as households are increasingly redirecting funds to service debt rather than engage in discretionary spending.
Corporate Borrowers Facing Increased Pressure
The situation is similarly concerning for corporate borrowers. Information from Bloomberg Intelligence indicates a significant spike in the percentage of corporate loans classified as distressed, a trend that has persisted since 2022. Over the past several years, the delinquency rate on business loans has steadily climbed. In the second quarter of 2023, the percentage of business loans in late-payment status rose to 1.2%, reflecting a 28 basis point increase from the previous quarter.
In October alone, the balance of distressed loans increased by an additional $70 billion, according to Bloomberg data. Rosenberg Research comments on the broader implications, stating, “The chickens may now be coming home to roost. For many of the same reasons, households are feeling the stress, businesses have had to deal with elevated borrowing costs, slowing demand, and overall elevated levels of uncertainty.”
As the financial landscape evolves, the insights from Dimon and research firms like Rosenberg underscore the need for vigilance in monitoring credit market trends. The situation remains fluid, and the implications for consumers and businesses alike could be significant as they navigate these challenges.
