Back in October, JP Morgan boss Jamie Dimon, a veteran of the cascading credit catastrophe of the GFC, warned of “cockroaches” infesting the rapidly growing private credit sector, implying the collapse of two auto-related lenders was most likely the start of something bigger and nastier.

First, the US subprime auto lender Tricolor went belly up. It was quickly followed by another auto business, First Brands, which imploded while holding a complex and somewhat opaque loan book.

“My antenna goes up when things like that happen,” Mr Dimon said at the time.

“And I probably shouldn’t say this, but when you see one cockroach, there are probably more … Everyone should be forewarned on this.”

Mr Dimon knows a thing or two about the contagion of toxic credit.

He was there to pick up the pieces of the crumbling Bear Stearns investment bank in 2008, when the financial “cockroach” plague was of biblical proportions — and the cockroaches in question were the size of Godzilla, with similarly destructive capabilities.

The recent “problems” at US private credit outfit Blue Owl raised the issue again, causing a chorus of “erk, a cockroach” — distaste, but not panic.

Friday’s collapse of a hitherto unremarkable UK mortgage provider, Market Financial Solutions (MFS), had more impact — again.

Investors raced for the exits, screaming “cockroaches!” and dumping their bank holdings along the way.

MFS may have been “double pledging” assets, and there could be a collateral shortfall of 930 million pounds ($1.8 billion), administrators working on behalf of creditors warned in High Court filings.

The MFS collapse raises further questions about the practice of asset-based financing, which involves loans backed by collateral such as hard assets.

It also puts the spotlight on double-pledging that was at the heart of the twin bankruptcies of First Brands and Tricolor.

For loans to MFS totalling 1.16 billion pounds, there was only 230 million pounds of “true value” available in the collateral accounts, the administrator said.

Anything adjacent or nearly adjacent to MFS was punished. Anything involved in asset-backed financing was on the nose too.

Shares in investment banks Barclays and Jefferies, on both sides of the Atlantic, tumbled and accelerated a broader sell-off in financial firms and alternative asset managers.

Jefferies fell almost 10% in the US after its exposure to MFS spooked investors. It wasn’t alone.

Goldman Sachs fell 7.5%, Morgan Stanley 6.2%, Wells Fargo 5.6%, Citigroup 5% and Bank of America 4%.

Mr Dimon’s JP Morgan was down just 1.9%. Maybe he already had his joint fumigated.

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