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FTX CEO John Ray III warned Tuesday that bad loans could cripple more regional lenders due to a “massive wall” of debt that’s looming in private credit and commercial real estate.
A corporate cleanup specialist who handled the Enron liquidation and is now at the helm of the bankrupt crypto trading firm, Ray said at Semafor World Economy that megabanks such as JPMorgan Chase will be fine, but cracks in private credit could cause the demise of regional banks.
He did not lay out a specific timeline for trouble or single out any vulnerable banks by name, but said lenders are holding trillions in commercial real estate loans coming due in the next few years. Other trouble spots include loans to software companies struggling with competition from AI, as well as buyout lending during a time of higher purchase price multiples prior to 2022 that will be more expensive to refinance.
“Is this going to hit the big banks? No, no, no, no, no,” he said. “Where you’re going to see it hit [is] the second tier, third tier banks…They’ve got a lot of private credit on their balance sheet, and it’s going to take some of them out.”
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Ray declined to comment on whether FTX founder Samuel Bankman-Fried, who is serving 25 years in prison for fraud, should be pardoned.
“I feel sorry for him,” Ray said. “I feel sorry for the situation he put himself in. But it is what it is, and I think, you know, unfortunately... He’ll just have to figure that out.”
Bankman-Fried was an early investor in Semafor, which replaced his money after charges were filed.
Ray took over as CEO of FTX in 2022 from Bankman-Fried as the cryptocurrency exchange imploded in what’s been described as one of the largest financial frauds in history.
Ray has kept a relatively low profile in recent years since testifying in Congress in late 2022, when he said FTX suffered from an “utter lack of record keeping and no internal controls whatsoever.”