Apollo’s Marc Rowan and Blackstone’s Jonathan Gray say banks helped sow the seeds of two high‑profile failures

The abrupt unraveling of First Brands Group and Tricolor Holdings has ignited a fresh debate over who truly owns today’s credit risk — and whether the race to win mandates pushed lenders into dangerous territory. Speaking on Tuesday, Apollo Global Management chief executive Marc Rowan said the recent turmoil “does not surprise me,” describing the collapses as “late‑cycle accidents” born of a competitive lending environment in which “a desire to win … sometimes leads to shortcuts.”

His comments were echoed by Blackstone president Jonathan Gray, who argued that regulated banks had amassed sizeable exposure to the two failed borrowers — not simply as pass‑through intermediaries, but as active participants in the financing structures. The message from two of the world’s largest alternative‑asset titans was not that a broad crisis is at hand, but that credit markets are confronting the consequences of years of yield‑chasing and looser guardrails.

At issue are two very different businesses that nonetheless became case studies in the same phenomenon. First Brands, a storied auto‑parts supplier, and Tricolor, a subprime auto lender focused on underserved borrowers, both collapsed into disorderly resolution this month after liquidity evaporated and alleged irregularities surfaced. The failures ricocheted through corners of Wall Street that had long touted their ability to price and police risk. Banks that had structured financing for, syndicated debt of, or otherwise warehoused exposure to the pair now face write‑downs. JPMorgan, for example, disclosed a loss tied to Tricolor, while other institutions, including broker‑dealers and insurers, have reported hits linked to First Brands’ debt.

For Rowan, the episode illustrates how incentives shifted over the past few years. In an environment where private credit funds and banks competed fiercely to win deals — and where investors demanded higher‑yielding paper — underwriting sometimes turned into a contest of optimism. “When markets are tight and money is dear, you find out where the documentation is thin and where diligence relied on trust more than verification,” he said. None of that means the system is about to crack; it does mean that losses, when they come, are landing in unexpected places.

Gray agreed, drawing a line between asset‑manager responsibility and bank behavior across the cycle. He noted that private‑market lenders are not monolithic: the best‑capitalized platforms with long track records have stuck to conservative structures and covenants, he said, even as others drifted to the edge. But he also made a point that raised eyebrows among bank investors: many of the problematic structures were led or facilitated by banks themselves, attracted by fees and the chance to maintain client relationships. When the music stopped, they were left holding more risk than anyone appreciated.

The question of “who holds the risk?” has vexed regulators since the rise of private credit transformed corporate finance. In theory, the migration of lending from banks to non‑bank institutions spreads risk away from the core of the financial system. In practice, the webs of total‑return swaps, warehouse lines, subscription facilities and co‑investment sleeves can route that same risk right back onto bank balance sheets. Collateral can be thin, triggers can be soft, and intercreditor agreements can obscure who gets paid — or who takes the first loss — in a stress scenario. The First Brands and Tricolor failures exposed all of those fault lines at once.

Bankers counter that this is precisely what markets do in the later stages of a cycle: they differentiate. Weaker credits lose access to funding, leveraged capital structures are repriced, and losses are realized. That dynamic, they argue, is harsh but healthy — and hardly systemic. Even so, the industry’s response has been to quietly tighten: new financings now carry higher spreads and tougher covenants; banks are scouring their balance sheets for hidden correlations; and investors are demanding clearer disclosure around the use of asset‑backed facilities and synthetic leverage inside funds.

There is irony in who spotted trouble first. People familiar with Apollo’s positioning say parts of the firm had wagered against First Brands’ debt before its collapse — a reflection of the house’s opportunistic credit DNA and of Rowan’s insistence that “discipline is strategy.” The firm’s ability to play offense and defense in the same market underscores why large alternative‑asset managers have thrived in volatile periods. Their platforms can originate loans, buy discounted paper, short deteriorating credits and provide rescue financing — sometimes to the same ecosystem of borrowers.

For bank chief executives, the bigger concern now is reputational rather than existential. Jamie Dimon of JPMorgan has warned that more “cockroaches” may emerge as due‑diligence lapses come to light and as questionable practices are flushed out by tighter liquidity. That does not mean every shadow is a monster; it does mean that complacency is a luxury no one can afford. Regulators, including those at global financial watchdogs, are pressing for better transparency into bank entanglements with private funds. They want a clearer picture of where leverage lives, how it is funded, and who suffers when it breaks.

The policy debate is complicated by the benefits private credit has delivered. For middle‑market companies frozen out of public bond markets, direct lenders became lifelines. For pension funds and insurers grappling with low yields, private credit offered an attractive spread with historically low default rates. The question now is not whether to dismantle that ecosystem — few serious voices advocate that — but how to ensure it can handle stress without forcing banks into damage‑control mode.

Market structure reform would help. First, disclosures around bank‑provided leverage to funds should become more standardized and timely, allowing investors to understand how warehouse lines and repos are collateralized and margined. Second, credit documents should retire the mythology of “covenant‑lite” for credits that plainly do not merit it; clarity on maintenance tests and cash sweeps reduces the scope for self‑delusion. Third, risk retention rules should be revisited for bespoke securitizations that shuffle exposure between banks and non‑banks in ways even insiders struggle to map. None of these steps would choke off credit; they would simply make explicit where the risk sits and at what price.

Meanwhile, dealmakers are adjusting. Sponsors say they are more willing to inject fresh equity and accept higher coupons to close transactions. Borrowers with marginal cash flows are shelving ambitious acquisitions and selling non‑core assets to build liquidity. Lenders are triaging portfolios and, where necessary, appointing independent directors or observers to boards sooner. Those moves may not prevent losses, but they can keep isolated fires from becoming a conflagration.

There is also a lesson in humility. The decade‑long experiment of abundant liquidity fostered the illusion that structure could substitute for substance. When money is cheap, even flawed business models can be refinanced. As rates normalize and growth slows, fundamentals reassert themselves. That is not a condemnation of financial innovation; it is a reminder that complexity does not erase credit risk — it only rearranges it.

Rowan’s broader point — that “late‑cycle accidents” are the natural result of competitive pressure — resonates beyond two failed companies. It speaks to the danger of treating market share as a strategy in itself. For banks, the temptation to “win the league table” will always be there. The discipline to walk away is what separates prudent lenders from the next headline casualty.

Gray, for his part, emphasized that the industry’s strengths remain intact: deep pools of private capital, sophisticated underwriting at the best platforms, and a significant role in financing productive investment. But he also called on banks and funds alike to recommit to first principles: cash flow matters, collateral matters, and character — the willingness to face hard truths early — matters most of all. “Shortcuts,” he suggested, are a fickle strategy; they work until they don’t.

The immediate aftermath of First Brands and Tricolor is likely to be a resetting of terms rather than a wholesale retreat. Spreads will stay wider, documentation tighter, and diligence more exhausting. That is not a bad outcome. It is how credit cycles cleanse excess. If the cost is a handful of embarrassing losses and a few bruised egos on Wall Street, the benefit may be a sturdier bridge between the banking system and the private‑credit machine that now undergirds so much of corporate America.

In the end, the question confronting lenders is not whether they can keep extending credit, but whether they can do so without cutting corners. The answer will determine whether the next accident is contained — or whether it turns into a pile‑up that reminds everyone, yet again, where risk really resides.