Goldman Sachs chief executive David Solomon says one US market is being shielded by a strong economy, but that could change once the cycle reverses.
In a new Bloomberg interview, Solomon says Goldman Sachs is keeping a close watch on the $1.8 trillion private credit market for signs of frothiness and aggression.
According to Solomon, private credit has managed to grow in the last few years without a hitch, thanks to a growing US economy.
“We’ve gone a long time without a credit cycle. We’ve gone a long time without a recession. I do think when you have these long-dated cycles, there are a variety of things that happen. One, credit spreads narrow. Two, people have more capital to play with. They get aggressive. Lending standards deteriorate a little bit. Due diligence standards deteriorate.”
But Solomon warns that when the tide stops rising, those swimming naked will be exposed.
“You probably will find places where the losses are higher than people expect… I do think that when there is a slowdown in the economy, or we do get to a place where we have a recession, you’re going to see losses in credit portfolios, and those losses could be meaningful. But we’ll watch that closely. While the economy’s chugging along, that’s not the primary focus.”
Earlier this week, JPMorgan CEO Jamie Dimon expressed the same concern in the credit market, saying that the US is heading toward a credit downturn as banks and institutions take more risks.
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