NEW YORK — David Solomon, the chief executive of Goldman Sachs, is warning that the rapid boom in private credit is reviving old risks that many on Wall Street seem eager to forget.
“In recent weeks, concerns have been raised regarding private credit, including the quality of loan underwriting and exposure to software companies threatened by artificial intelligence,” Solomon wrote in his annual letter to shareholders released Thursday. “It reminds us that the credit cycle hasn’t disappeared,” he added.
His comments amount to a pointed reminder that, despite more than a decade of tougher capital rules and the absence of a systemic credit meltdown since the 2008 financial crisis, the fundamental ebb and flow of credit risk remains intact — and may be building outside the traditional banking system.
Solomon cited “expanded market volatility across various risk assets, heightened geopolitical uncertainty, and particularly the deepening concentration of capital in the AI sector” as factors that demand “even more thorough risk management.” The concentration of investor capital in a narrow group of AI-linked technology companies, he suggested, is amplifying vulnerabilities across credit markets.
Private credit — direct lending by asset managers and funds rather than regulated banks — has swelled into a multi-trillion-dollar market in the United States and Europe, as investors chase higher yields and borrowers seek alternatives to bank financing. Much of that growth has occurred away from the tighter scrutiny applied to banks since 2008.
Recently, however, questions have intensified over how rigorously loans in this market have been underwritten, especially to software and technology companies whose business models may be disrupted or devalued by advances in AI. Those concerns have been sharpened by rising oil prices and geopolitical tensions, adding another layer of stress to already stretched risk assets.
The unease is not confined to Goldman Sachs. Lloyd C. Blankfein, Solomon’s predecessor who steered the bank through the global financial crisis, recently drew a stark parallel at a Citadel Securities event. “The current situation smells similar to that period,” he said, referring to 2008. “I don’t feel a storm coming, but the horses inside the fence have started to cry.”
Michael Hartnett, chief investment strategist at Bank of America, struck a similar tone in a recent note to clients, writing that “Wall Street is ominously staging a ‘2007–2008-like market.’” His assessment reflects mounting anxiety that the mix of easy money in prior years, risk-taking in opaque corners of the market, and a sudden repricing of assets could once again prove combustible.
Some large institutions are already moving to tighten the screws. JPMorgan Chase, the biggest U.S. bank, has recently marked down the collateral value of loans to software companies held by private credit funds, according to people familiar with the matter. That step effectively acknowledges that the underlying assets may be worth less than previously assumed and could limit leverage available to those funds.
For now, Solomon stopped short of predicting an imminent crisis. But by invoking the durability of the credit cycle and highlighting vulnerabilities in private markets, he joined a growing chorus of Wall Street veterans cautioning that the next bout of serious financial stress may emerge not from heavily regulated banks, but from the shadows where private credit has flourished.
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