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Two auto-industry bankruptcies involving alleged fraud have spooked markets and raised concerns about systemic lending problems, but current data suggests these are isolated incidents rather than evidence of broader issues with lending standards.

What caught our eyes this week

Investors go hunting for “cockroaches”

A pair of auto-industry bankruptcies are causing reverberations in markets. First Brands, an auto parts company, succumbed to its debt load after revelations of sizable off-balance-sheet financing to go along with heavy borrowing from broadly syndicated loan markets. The other collapse came from Tricolor, an auto dealer and subprime lender who borrowed money from banks to make loans, then packaged those loans into asset-backed securities (ABS). In both cases, there are allegations of fraudulent obfuscation of collateral to expand access to short-term financing. Banks, hedge funds, syndicated loan investors, and ABS investors alike have been burned, and investors are now asking whether they represent a more systemic issue of loosening lending standards and haphazard due diligence.

As JPMorgan Chase CEO Jamie Dimon said when discussing his company’s exposure to First Brands: “When you see one cockroach, there are probably more.” Most data we see on lending standards, debt loads, and delinquency rates suggests that we aren’t dealing with an infestation, but markets are shooting first and asking questions later. Investors have been selling bank stocks on fears that their loan books might not be as strong as they seem and selling stocks of private market asset managers on the assumption that they too would be implicated if the proverbial tide rolls in on credit markets. As of now, we view this reaction as a classic extrapolation of the idiosyncratic to the systemic. Anxiety about lending standards is a reasonable fear, particularly when dealing with opaque privately held companies, but we don’t see the First Brands and Tricolor stories as evidence that broader issues are beginning to materialize.

Chart showing one-month price return on select bank stocks and ETFs

CHART OF THE WEEK: Cerity Partners, FactSet as of 10/17/2025

Past performance does not guarantee future results.

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