Bank Stress. Loan Fraud. Airline and Auto Bankruptcies. Augurs of a Recession?

Bank Stress. Loan Fraud. Airline and Auto Bankruptcies. Augurs of a Recession?
“I probably shouldn’t say this, but when you see one cockroach, there are probably more. And so we should—everyone should be forewarned on this one,” Jamie Dimon, CEO and chairman, JPMorgan, 3Q earnings call on Oct. 15, 2025
 
In the above quote, Jamie Dimon was answering an analyst’s question on non-depository financial institutions and the bankruptcies of the auto companies Tricolor and First Brands. As proof of the cockroach theory, on the same day, Zions Bank reported a $50 million charge-off for commercial real estate loans the bank made where the CRE borrower has been accused of misrepresentations, contractual defaults and other irregularities (fraud). Verijet and Spirit Airlines also declared bankruptcy over the last few months.
 
Are these signs of stress that are at odds with Wall Street ringing in new highs every day? Is it time to take a more defensive position?
 
Email [email protected] if you’d like updated Auto, Airlines. Fintech and Bank Stock Report Cards.
 
Here are the topics we will cover in this blog.
 
Auto Industry
Airline Industry
Elevated Consumer Debt
Buy Now, Pay Later
The Kids’ Menu
Bank and NDFI Debt & Leverage
Recession Warnings?
 
And here is more information on each point.
 
Auto Industry
The auto and airlines industries are often the canary in a coal mine before a contraction. When Main Street finds its wallet bare and cuts back on spending, Wall Street takes a hit. Why? Because the US economy is driven about 70% by consumer spending.
 
The auto industry is expecting far fewer sales in 2026, perhaps -5% lower than 2025. This isn’t tragic. However, due to fierce competition, particularly from EV makers (especially Chinese), many companies are absorbing the components inflation and White House tariffs instead of passing these expenses onto the buyer. Higher costs will reduce the net profit of automakers, taking some of them from single-digit profitability into a cash negative position. According to a press release from S&P Global on 10.15.2025, “Among major automakers, Ford Motor Co. and General Motors Co. (GM) continue to face the highest exposure to incremental costs from supply chain shifts due to tariffs and delayed EV profitability; Tesla Inc. benefits from vertical integration but contends with slowing global demand and margin compression.”
 
As I mentioned in my Magnificent 7 blog (Tesla is one of the Magnificent 7), Tesla’s net profit might be $4-5 billion this year, down from $15 billion in 2023. Should a company with less than $5 billion in earnings be worth $1.5 trillion – more than the top 4 automakers combined (Toyota, GM, Ford & BYD)?

The recent spate of bankruptcies by auto parts, suppliers and auto dealers reveals a fundamental weakness in a great deal of publicly-traded companies, particularly those founded more than 25 years ago. Over half of the S&P 500 is at or near junk bond status. There is elevated credit risk in the auto industry. All the companies in the Auto Dealers Stock Report Card are below investment grade. The three major US auto makers, Ford, General Motors and Tesla, are all at the lowest rung of investment grade. Ford Motor Company was a junk bond in 2023 and has a negative outlook.
 
Bankruptcies ripple beyond the insurance companies, banks and other non-depository financial institutions (private equity, hedge funds) who loan the troubled companies money. A downgrade would cause financial harm to both stockholders and bondholders. Stock investors almost always lose all their money when a company declares bankruptcy, even if the company continues operating. Elevated debt is a major problem that will affect any industry and corporation that is heavily leveraged. The first sectors to be affected will be those that are losing revenue year over year and are unable to keep up their dividends and loan payments or to meet the terms of their bonds. This is partially why the airline industry is another harbinger of a weakening economy.
 
Airline Industry
Airline CEOs have to specialize in restructuring debt because that industry goes through tough times in every recession. Most of the airlines are junk bonds, with the exception of Delta and Southwest, which are both rated BBB (the lowest rung of investment grade). Profitability for airlines can be in the low single digits or negative, as it is for JetBlue. Revenue is slowing down, which puts the C-suite in a pickle, trying to keep up with all their debt obligations. Only Delta and Southwest pay a dividend. However, if either company receives a credit downgrade, or, even before that happens, if the cash becomes squeezed, the company will cut their dividend and the share price will gap down overnight.
 
The dividend cut or other event often happens before the credit is downgraded. One example of a company defying the odds of a downgrade is Boeing, which is still one of the Dow components. Even though Boeing has been a poster child for poorly run operations and cut its dividend on March 20, 2020, the company is still rated investment grade (barely), with a BBB- credit rating, and a negative outlook.
 
Elevated Consumer Debt
Consumer debt is much higher than it was before the great recession. We’ve also seen a major uptick in student loan delinquencies – to 12.88% – which sinks FICO scores and makes it less possible for those affected to buy a new house or car. Auto loan debt delinquencies are still low, at 2.93%. However, the rate is ticking up.
 

Source: New York Federal Reserve Bank.

Buy Now, Pay Later
Bye now pay later loans have created a shadow debt system that might be flying under the radar of credit scores. In a Lending Tree survey, 41% of BNPL borrowers paid late in the past year, a spike over last year’s rate of 34%. 23% reported having three or more active loans at a time and 25% are using the loans for groceries (1/3 of GenZ BNPL borrowers).
 
Not surprisingly, the personal savings rate is lower today than it has been since 1960 (with the exception of 2005, after the Dot Com Recession). What is the personal savings rate? It is what is left over after you pay all of your bills (including debt payments).
 

The Kids’ Menu
This is more anecdotal, than scientific. However, it makes the numbers come to life. Over the last week I have witnessed two separate examples of adults ordering off the kids’ menu because they couldn’t afford the adult prices. This is saying a lot about how squeezed many Americans are (particularly GenZ).
 
There has been a lot of research about how the wealthiest consumers are the ones who are keeping spending alive these days. According to Mark Zandi, the chief economist of Moody’s Analytics, the delinquency rate on subprime loans jumped to 8.3% in September. This is only 15.3% of bank debt, but is likely much more for the BNPL fintechs like Affirm, Klarna, Paypal and Square, and Sofi Bank. This is one of the reasons why investors and depositors need to understand what’s safe in today’s Debt World. Read my 2026 Dividend and Income Strategies blog for details.

As long as stocks are high, wealthy Americans might continue to keep consumer spending alive. However, we have seen that when share prices are elevated and bankruptcies and delinquencies start becoming more frequent, stock prices can fall far and fast.
 
Remember that our best protection against a bear market isn’t selling everything and trying to market time. The best protection against a correction in stocks is having an age-appropriate, properly diversified plan. Do you know how protected you are currently? Are you suffering from paper losses or feel constrained by the limited options you have in your employer-sponsored retirement plan? There are solutions. Email [email protected] to learn more.
 
Bank and NDFI Debt & Leverage
Many people aren’t aware that a lot of our banks, insurance companies and fintechs have low credit ratings. Additionally, insurance companies and fintechs (including Paypal, Cash App, Gemini, stablecoins and more) are not FDIC-insured. Check out the credit ratings of many U.S., Australian and Canadian banks listed below.

​This is one of the reasons why it is a bad idea to have uninsured deposits at any bank. It’s also one of the biggest reasons why annuities and money market funds are not great bets. They are not FDIC-insured but are only backed by the company that’s offering them. MMFs and annuities can also lose value in a variety of different ways. During recessions, we have seen money market funds that break the buck and have to be bailed out, and insurance companies that were overleveraged and had to be rescued. AIG would not be in business if we hadn’t done the TARP bailout in 2008. That would mean that over 50 million Americans with annuity and insurance products would’ve lost the majority of what they thought they had coming to them.
 
So, why is the broker/salesman pushing their products? Could it be for the commissions? Annuities often pay 6-9% commission for the sale.
 
Recession Warnings?
Economists are predicting the economy to slow down to 1.6% in 2025 and 1.8% in 2026. (We’ll get fresh numbers at the Dec. 10, 2025, FOMC meeting.) However, economists are terrible at predicting recessions. If you wait for the headlines, you’ll be late. By the time Main Street gets the memo of the recession, the Wall Street whales have been taking profits for 6+ months, plunging prices by 35% or more.
 
Again, having an age-appropriate, properly diversified plan that we rebalance 1-3 times a year is always important. If you haven’t rebalanced recently, now that stocks are at all-time highs is a great time to do so.

​Bottom Line
We are starting to see signs of the unfortunate events that typically spark a bear market and/or a recession. Remember, it’s never a crash. Rather something startling will happen causing the market to drop significantly. After the initial shock, investors get complacent, until the next crisis occurs, pushing stocks down further. By the time the recession is declared stocks could have lost 40-45%. We might be closer to the bottom. Many investors sell low, or have to spend most of the recovery hoping to earn back losses, enduring an extended period of hard times after such a significant loss to their net worth.
 
This is something that seasoned investors haven’t experienced since 2009, and younger investors have never experienced. That is because we printed up $5 trillion to avert a recession during the pandemic, due to the economists and Central bankers worrying about having a depression.
 
The powers that be never desire to have a recession on their watch. However, if the 2025 bankruptcies and defaults continue into the new year, if those cockroaches that Jamie Dimon referred to do start coming out of the woodwork, we will see Wall Street react negatively. Again, we want to be ahead of the headlines – to fix the roof while the sun is still shining (and stocks are at all-time highs).
 
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Natalie Wynne Pace is an Advocate for Sustainability Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The ABCs of Money (6th edition) and The Power of 8 Billion: It's Up to Us, and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 6th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is (2nd edition) are the most recent releases of these books. Follow her on Instagram. 
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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly-traded companies, funds or projects mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect an age-appropriate, diversified wealth plan, which has been designed strategically, with the assistance of financial professionals who are familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge, patience and diversified strategy.  
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Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument.