Bank shares lead global market fall amid jitters over US private credit | Stock markets

European stocks fell on Friday and gold hit a record high after two US regional banks said they were exposed to millions of dollars in bad loans and allegations of fraud.

Signs of credit stress have rattled markets in Europe and Asia. London’s FTSE 100 fell 0.9%, Germany’s Dax fell 1.8%, Italy’s FTSE Mib fell 1.5%, Spain’s Ibex fell 0.3% and France’s Cac 40 fell 0.2%.

Most of those who fell the most were banks. Nearly £11bn has been wiped from the value of the five largest UK-listed banks. Barclays was worst hit, with its shares losing almost 6%.

More broadly, €37.4bn (£32bn) was wiped out of the pan-European banking sector, including the UK.

Spanish Banco Sabadell lost 6.78% in value, followed by Germany. Deutsche Bank lost 6 percent.

Concerns about credit stress in the network of loans to businesses in the world’s largest economy caused heavy losses on Wall Street on Thursday, followed by Asian markets; Japan’s Nikkei 225 fell 1.6% and Hong Kong’s Hang Seng fell 2%. US markets were calmer in trading on Wall Street on Friday morning.

Gold rose almost 8.5% on the week to its biggest gain since the 2008 financial crisis, hitting a new record of $4,378 (£3,262) an ounce as nervous investors turned to safe-haven assets.

U.S. banking stocks fell Thursday after Zions Bancorporation, a Utah-based lender, said it would write off $50 million on two loans and Phoenix-based Western Alliance said it was taking legal action on a bad loan said to be worth $100 million.

Shares of Zions fell more than 10 percent, while Western Alliance Bancorp lost more than 9 percent.

“While this was a seemingly isolated story for two banks with market capitalizations of less than $10 billion each, the incident inevitably led to comparisons with the regional bank stress that followed the collapse of Silicon Valley Bank. [SVB] “In 2023,” said Deutsche Bank analyst Jim Reid.[That] “It raises broader questions about potential credit quality problems after a long period of high interest rates and the expansion of private credit.”

California-based SVB was the 16th largest bank in the United States, issuing $212 billion in loans popular among the tech sector. Its sudden collapse triggered the most serious financial crisis since 2008.

Although SVB’s underlying problems stemmed from its previous investment decisions, the collapse occurred when it announced a $1.75 billion capital increase, telling investors it needed to fill the gap caused by the sale of its loss-making bond portfolio.

This led to a run on the bank as customers became alarmed about the lack of capital. Two days later, SVB collapsed, marking the largest bank failure in the US since the global financial crisis.

Reid said markets are especially wary of the domino effect because the problems the two banks are facing follow each other. The bankruptcy of subprime automotive lender Tricolor last month.

The U.S. regional banking industry has come under scrutiny after First Brands, an auto parts supplier, filed for chapter 11 bankruptcy in late September amid creditor concerns.

First Brands disclosed in its bankruptcy filing that it had debts of at least $10 billion to $50 billion against assets of $1 billion to $10 billion, the product of risky-looking off-balance sheet financing.

Richard Hunter, head of markets at Interactive Investor, said: “There are growing signs that storm clouds are gathering over the markets, but there is little relief from the wall of anxiety being erected.

“Investors in the AI ​​space, already grappling with strained stock valuations, an unresolved government shutdown and worsening relations between Beijing and Washington, have been exposed to a new source of concern in the form of lending practices and bad loans at U.S. regional banks.”

Derren Nathan, head of equity research at Hargreaves Lansdown, said: “Despite growing hopes of further rate cuts this year, attention is turning to the underlying health of the economy as credit losses among America’s regional banks raise new questions about lending practices.”

VIX indexThe index, which tracks volatility in markets, rose more than 22% on Thursday, reaching its highest closing level since April. The so-called “fear index” rose another 6% on Friday morning.

Earlier this week, Jamie Dimon, the boss of US investment bank JP Morgan, said rather presciently that more “cockroaches” could emerge after the collapse of Tricolor and First Brands.