Regional banks and Jefferies shares tank as concerns grow on Wall Street about sour loans
An automated teller machine at Zions Bank headquarters in Salt Lake City, Utah, on July 10, 2023.
Kim Raff | Bloomberg | Getty Images
ZION and KRE, 1 day
The bankruptcies of two companies related to the automotive industry this year have raised concerns about loose credit practices, especially in the opaque private credit market. This has left both the banking industry and investors concerned about whether loan defaults indicate a developing crisis.
The latest signs of trouble came when Zions said Wednesday evening that he was facing a huge expense due to bad loans issued to several borrowers. Western Alliance later alleged fraud by a borrower on Thursday.
Concerns about the health of the banking sector stem from the bankruptcies of automotive companies First Brands and Tricolor Holdings.
Shares of First Brands’ Jefferies fell more than 7% on Thursday. Shares of the investment bank are set to lose nearly 23% in October, their worst month since the Covid outbreak emerged in March 2020.
Jefferies said the hedge funds it operates owe $715 million from companies affiliated with First Brands, while UBS said it has a risk of approximately $500 million.
“When you see one cockroach, there’s probably more,” JPMorgan CEO Jamie Dimon said during the company’s earnings conference call earlier this week on results from First Brands and Tricolor Holdings.
JEF, 1 month old
JPMorgan had no relationship with First Brands but took a $170 million write-off on Tricolor last quarter.
This week’s loan announcements mark the latest challenges for regional banks in recent years. The industry experienced a crisis that began with the collapse of Silicon Valley Bank in 2023.
Alternative and other asset managers also suffered Thursday’s decline amid concerns about the health of some loans.
Blue Owl Capital fell about 4 percent Ares Management And Karataş each fell more than 3%. Apollo Global Management weakened by almost 3% and Carlyle Group fell more than 2 percent.
Of course, declines at major banks were subdued on Thursday. JPMorgan It fell only around 1%. Bank of America It was 2% lower.
The bull market in stocks and the booming private credit market this year have calmed investors’ nerves about whether a systemic crisis is brewing. The stock market appeared to be on the decline on Thursday due to a decline in regional banks, but stabilized later in the day. S&P 500 We see only minor losses.
Research “I think the risk to the bank space today is idiosyncratic,” said Timothy Coffey, associate director of warehouse research at Janney Montgomery Scott. “The risk to the insured bank space for private credit may be more systemic, as well as credit quality risk from a weakening economy.”
— CNBC’s Hugh Son, Sarah Min, John Melloy and Scott Schnipper contributed to this report.
