Raymond James Issues Warning on Private Credit, Bank Stocks Retreat

Investing.com – Raymond James has released a report examining banks’ private credit exposure amid renewed market concerns over non-depository financial institution (NDFI) loans, which has put pressure on bank stocks.

Private credit became a major issue ahead of the Q3 2025 earnings season, when two auto industry bankruptcies reignited fears about bank sector lending. While losses were significant, they were largely confined to a few banks with specific exposure to certain loans. Fraud was a primary cause of these issues, with borrowers allegedly overstating collateral, leading to ongoing legal proceedings.

By 2026, concerns about private credit eased as interest rates declined and the economic backdrop remained strong. As of February 6, 2026, the BKX and BANK indices had risen 7.3% and 11.3%, respectively, while the S&P 500 only increased 1.3%.

However, the rally in bank stocks proved short-lived. Factors such as the impact of artificial intelligence, tariffs, broader economic uncertainties, renewed private credit concerns following MFS bankruptcy, and ongoing tensions in Iran exerted significant pressure on the sector. Since February 6, 2026, the BKX and BANK indices have fallen 16.5% and 13.7%, respectively, while the S&P 500 declined 4.3%.

At Raymond James’ annual institutional investor conference last week, investors expressed a notable divergence between their expectations and the bank management teams’ views of the fundamentals. While the outlook still appears bright from frontline perspectives, investors and portfolio managers are increasingly concerned about the credit environment and growth prospects, especially in commercial real estate and private credit.

JPMorgan Chase CEO Jamie Dimon noted during the Q3 2025 earnings call, “When you see a cockroach, there may be more.” The firm has seen ongoing issues, including recent announcements from WAL and a surge in investor redemptions, partly due to declining yields.

Raymond James believes concerns over NDFIs are exaggerated and points out that not all NDFI loans are the same. This broad category includes lower-risk loans such as mortgage warehouse lines, capital call lines, and fintech/asset-based financing, which are typically well-structured and exhibit lower credit risk characteristics compared to traditional commercial and industrial loans. The overall credit health of industry NDFI loans shows delinquencies at just 5 basis points and non-performing loans at 10 basis points.

Losses appear limited to loans with structural issues, reflecting potential weaknesses in collateral management or ongoing due diligence, as some lenders have apparently failed to maintain control over cash flows or verify receivables or collateral.

NDFI loans have historically been a significant driver of industry-wide loan growth, accounting for nearly one-third of all growth since pre-pandemic times. This growth has been concentrated mainly among the largest banks, which accounted for 89% of the increase during the same period. NDFI loans make up about 11% of all bank loans, rising to approximately 15% for banks with assets over $100 billion.

Raymond James highlights banks with NDFI exposure exceeding 10%, including strong buy-rated BANC, CUBI, FCNCA, and USB, as well as outperform-rated ASB, AX, CFG, MBIN, OBK, PNC, and TCBI.

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