Falling bank stocks
Investors once again sense not all is well with regional banks.
First, Zions Bancorp reported it had to write off $50 million in bad loans tied to borrowers facing legal troubles
Then, Western Alliance announced that it had filed a lawsuit in August that alleged one of its borrowers had committed fraud
The two banks’ stocks fell 13.14% and 10.81%, respectively, on Thursday.
The KBW Nasdaq Bank Index declined 3.64% on Thursday, bringing its year-to-date return to 12.96%, which happens to be exactly in line with the S&P 500.
That marked bank stocks’ worst day since President Trump’s “Liberation Day” tariff announcement.
The regional version of the banking index fared much worse, however, falling 6.3% Thursday.
That turned out to be the KBW Regional Banking Index’s biggest sell-off against the S&P 500 since March 2023, when Silicon Valley Bank collapsed in what turned out to be the third-largest bank failure in US history.
Western Alliance said in a statement it had “sufficient confidence” in its credit portfolio to affirm its guidance, according to a Wall Street Journal report.
Still, the backdrop for the banking sector was already fragile.
Two auto industry companies — First Brands and Tricolor Holdings — just went bankrupt, dragging shares of Jefferies down double-digits due to its exposure to the fallout.
During JPMorgan’s earnings call on Tuesday, CEO Jamie Dimon didn’t exactly calm the jitters as he discussed why he was more concerned than most about the current credit and financial outlook.
“When you see one cockroach, there are probably more,” Dimon said in reference to the auto loan companies going belly-up.
Wall Street banks like JPMorgan, Goldman Sachs and Citi are coming off stellar earnings results this week.
That strength, however, suddenly feels less robust in light of wobbling among the smaller regional peers.
"We've had a credit market bull market now for the better part of since 2010,” Dimon said.
“These are early signs there might be some excess out there because of it. If we ever have a downturn, you're going to see quite a few more credit issues.”
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