Dimon’s “Cockroach” Alarm: Is Auto Credit Cracking?

The sudden implosions of Tricolor Holdings and First Brands Group have jolted an otherwise calm credit market, reviving memories of past contagions in subprime lending and raising questions about whether the current auto credit cycle is showing early signs of strain. Both companies operated at the riskier end of the spectrum—Tricolor as a subprime auto lender catering to underbanked consumers, and First Brands as a heavily leveraged auto-parts conglomerate built on aggressive acquisitions and opaque financing. Their twin collapses in September, each now under federal investigation, have rattled investors and drawn pointed questions for the nation’s largest banks about whether these failures are isolated—or warning signs of deeper fragility.

At the center of the discussion is JPMorgan Chase, whose CEO Jamie Dimon and CFO Jeremy Barnum became the de facto spokesmen for the state of corporate credit this week. The bank confirmed a $170 million charge-off tied to Tricolor, marking one of “a couple of instances of apparent fraud” that contributed to a modest rise in wholesale charge-offs this quarter. Dimon, never one to sugarcoat, told analysts: “It’s not our finest moment.” He added a dose of classic Dimon candor: “When you see one cockroach, there’s probably more.” The remark captured both the anxiety and realism coursing through Wall Street—acknowledging the potential for more hidden weaknesses while insisting the bank’s overall exposure is small and well-contained.

JPMorgan’s Barnum was equally direct, clarifying that the bank has no exposure to First Brand , which filed for Chapter 11 bankruptcy protection amid allegations of missing collateral and off-balance-sheet irregularities. He characterized the Tricolor loss as an idiosyncratic event within an otherwise “highly secured” lending framework gone wrong due to collateral problems. Dimon expanded on the broader non-bank lender (NDFI) space, saying that while much of JPM’s lending to those firms is secured or structured, “some of the players may not have strong underwriting standards.” He warned that if the economy turns down, “credit in other places could deteriorate a little bit more than people think.” Still, he stopped short of calling it systemic risk, describing the events as reminders rather than red flags.

The Tricolor bankruptcy is particularly troubling because of alleged “double-pledging” of loans—pledging the same vehicle loans as collateral to multiple lenders—and “duplicate VIN” schemes that created phantom loans. The lender’s warehouse creditors, including Fifth Third Bank (FITB) and Barclays, are now tallying losses. Fifth Third disclosed a $170–$200 million hit tied to an asset-backed loan extended to Tricolor, making it one of the most exposed traditional banks. For both JPMorgan and Fifth Third, the financial impact is manageable, but the reputational reverberations are harder to ignore. The Justice Department is now examining whether broader fraud or misreporting occurred across the subprime auto lending network—a space that ballooned during the post-pandemic credit boom.

If Tricolor represents the retail finance side of the problem, First Brands embodies the corporate excess. The Michigan-based auto parts manufacturer, best known for making Michelin-branded wipers and Carter fuel pumps, collapsed under the weight of $12 billion in debt and off-balance-sheet financing, including $5.5 billion in term loans now trading at cents on the dollar. The company relied on complex supply-chain financing facilities—many tied to Jefferies, UBS, and Katsumi Global, a joint venture of Mitsui and Norinchukin Bank—to fund its acquisitions. Creditors now allege that as much as $2.3 billion in collateral has vanished, prompting a Justice Department probe into potential financial irregularities. The CEO and founder, Patrick James, is reportedly considering stepping down amid mounting pressure from lenders and investigators.

The twin failures have inevitably triggered a market-wide stress test in perception, if not in balance sheets. Analysts have begun parsing whether these collapses point to emerging fault lines in subprime and leveraged credit, particularly as the U.S. economy cools and funding costs rise. For now, the consensus among the big banks is reassuring: these are isolated incidents, not systemic tremors.

At Citigroup, CFO Mark Mason told analysts that the quarter’s rise in non-accrual loans was due to “two idiosyncratic downgrades” that remain well-reserved and collateralized. Neither Tricolor nor First Brands was named. Mason emphasized that Citi’s corporate loan book is “predominantly investment-grade,” with double coverage on non-accruals and a conservative macro overlay assuming unemployment near 5%. Citi CEO Jane Fraser described the consumer book as “very prime” and the corporate portfolio as “pristine blue-chip,” implying no spillover from the subprime auto space.

Wells Fargo struck a similarly calm tone. The bank didn’t mention either company but noted that auto loan originations more than doubled year over year, thanks in part to new partnerships with Volkswagen and Audi. CFO Mike Santomassimo acknowledged slightly higher auto losses but said they remain “well within expectations.” CEO Charlie Scharf added that consumer credit trends remain steady and that there were “no negative surprises” in the bank’s auto exposure. Wells slightly raised its auto loan reserves, though primarily to match growth rather than deterioration—an important distinction that suggests confidence rather than caution.

The overarching message from these banks: credit risk remains well-contained. JPMorgan’s $170 million Tricolor charge-off is negligible against $14 billion in quarterly profit. Fifth Third’s potential $200 million loss, while material for a regional lender, is not threatening to capital ratios. And the lack of exposure to First Brands among major banks indicates that its damage may remain confined to hedge funds, CLO investors, and nonbank credit providers.

Still, Dimon’s “cockroach” metaphor lingers. The analogy resonates because it captures the uncertainty inherent in credit cycles: frauds and weak credits often surface near turning points, when liquidity tightens and aggressive operators lose access to easy money. The failures of Tricolor and First Brands are, in that sense, classic late-cycle events—idiosyncratic but cautionary.

For now, there is little evidence of contagion. Auto delinquencies remain manageable across the major lenders, with consumers still broadly current on payments. Corporate credit spreads have widened modestly but not alarmingly. The key question is whether these bankruptcies mark the start of a pattern—a slow reveal of leveraged excess in sectors reliant on subprime or opaque financing—or remain cautionary footnotes in an otherwise stable market.

If Dimon is right, there may be more “cockroaches” yet to be found. But at least for now, Wall Street’s biggest players are betting that the lights are still on—and the infestation is contained.