Bank stocks are falling around the world and dragging financial markets lower as fears resurface about bad loans and credit risk among U.S. regional lenders.
Wall Street is suddenly gripped with worries about credit quality after two well-known U.S. regional banks warned of losses due to bad loans.
Zions Bank (ZION) said it would take a $50 million U.S. loss on two commercial and industrial loans from its California unit.
At the same time, Western Alliance Bank (WAL) disclosed that it had initiated a lawsuit alleging fraud by one of its biggest commercial customers, Cantor Group.
The stocks of Zions and Western Alliance fell 13% and 11%, respectively, on news of their disclosures. But they have also sparked a selloff in global financial markets.
Days earlier, the U.S. banking sector's exposure in two recent U.S. automotive bankruptcies caused concerns about lending standards in America, particularly in the murky area of private credit where disclosure rules are lax.
The concerns in America have spread abroad, with European bank stocks down a collective 3% on Oct. 17.
Shares of major European lenders such as Deutsche Bank (DB) and Barclays (BCS) are down about 5% each. Bank and insurance stocks are also sliding lower across Asia.
In pre-market U.S. trading, the SPDR S&P Regional Banking ETF (KRE) is down 2% a day after it declined 6%, its steepest one-day loss in six months.
The latest fears about the banking sector come days after America’s largest lenders reported strong third-quarter financial results.
However, on an earnings call, JPMorgan Chase (JPM) CEO Jamie Dimon said about the U.S. credit market: “When you see one cockroach, there are probably more, and so everyone should be forewarned.”
