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Wall Street lenders see limited fallout from bankruptcies

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JPMorgan ( JPM ) CEO warns of potential credit market excess

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BlackRock CFO sees strong credit quality despite

bankruptcies

By Nupur Anand, Tatiana Bautzer and Manya Saini

NEW YORK, Oct 14 (Reuters) - The bankruptcies of U.S.

auto parts supplier First Brands and car dealership Tricolor

have prompted soul searching on Wall Street, with JPMorgan Chase ( JPM )

saying it re-examined its controls after finding itself exposed,

although banks broadly said that U.S. borrowers' credit quality

is robust.

On post-earnings calls with investors, top executives at the

largest U.S. banks and financial institutions, including

Citigroup ( C/PN ), Wells Fargo ( WFC ) and BlackRock ( BLK ) said credit investing

activity has been strong, despite some investor fears of a wider

ripple effect slowing down the booming global business of

corporate credit.

The twin collapses of First Brands and Tricolor in September

have affected some pockets of Wall Street's multitrillion-dollar

credit machinery, and forced some debt investors to cut exposure

to certain sectors over concerns about weakness in consumer and

auto lending.

"We've had a credit market bull market now for the better

part of since 2010. ... These are early signs there might be

some excess out there because of it. If we ever have a downturn,

you're going to see quite a few more credit issues," said

JPMorgan ( JPM ) CEO Dimon on a post-earnings analyst call on Tuesday.

"When you see one cockroach, there are probably more, and so

everyone should be forewarned of this one," he added. "First

Brands I'd put in the same category and there are a couple of

other ones out there that I've seen that I put in similar

categories. We always look at these things and we're not

omnipotent - we make mistakes too."

JPMorgan ( JPM ) wrote off $170 million in the third quarter related to

the Tricolor bankruptcy, and said it is reviewing its controls,

with Dimon describing the bank's exposure as "not our finest

moment."

"When something like that happens, you can assume that we

scour every issue, every universe, everything about how it could

be taking place to make sure it doesn't take place from here,"

Dimon said. "You can never completely avoid these things, but

the discipline is to look at it in cold light and go through

every single little thing, which you can imagine we've already

done."

The bankruptcies prompted scrutiny into how exposed fund

managers might be to troubled borrowers. Some large Wall Street

banks including Jefferies and UBS have in

recent days disclosed exposure to First Brands, and said the

fallout is limited and any potential losses will be "readily

absorbable."

A First Brands creditor has claimed that as much as $2.3 billion

"simply vanished" from the bankrupt U.S. auto parts supplier,

which is being probed by the U.S. Department of Justice.

"The teams are generally seeing strong credit quality from

borrowers. Even in syndicated loan markets, default rates have

been declining," said BlackRock ( BLK ) Chief Financial Officer Martin

Small.

"We read the same headlines that you do about private

credit bankruptcies, but those exposures are actually in

syndicated bank loan and CLO markets - they're not with large

private credit managers and direct lending books," he added,

referring to collateralized loan obligations.

"The reported cases look more like idiosyncratic pockets of

stress. They don't look like broad stresses on asset-based

finance or consumer credit."

Earlier in October, BlackRock ( BLK ) requested to redeem some money it

invested in a Jefferies fund that is exposed to the debt of

First Brands, Reuters has previously reported.

Citigroup's ( C/PN ) finance chief Mark Mason said the bank sees no

particular distress signs in corporate credit, and has no

exposure to the recent bankruptcies.

Goldman Sachs CFO Denis Coleman said the bank has a

consistent set of underwriting standards, and conducts robust

upfront due diligence on deals.

"We have ongoing monitoring and reporting diligence

underlying collateral. We manage the granularity of our

portfolio within our own internally set diversification and

concentration limits," said Coleman, noting that Goldman is not

exposed to the debt held by First Brands and Tricolor.