Global bank stocks waver as investors fear credit risks at US regional banks

Fears over credit quality at US regional banks spread through markets on Friday, sending global financial stocks briefly lower before they recovered their losses, and reviving memories of the confidence crisis that rocked sentiment two years ago.

Volatile futures trading led to a selloff on Wall Street’s main indexes, adding to investor anxiety already heightened by escalating US-China trade tensions and concerns about the global economic outlook.

The banking sector’s exposure to two recent U.S. auto bankruptcies has reignited concerns about lending standards, more than two years after the failure of Silicon Valley Bank, when higher interest rates led to paper losses on its bonds and global bank stocks tumbled.

Investors are now trying to assess whether recent issues in US credit markets will have a similar impact, as an overnight selloff on Wall Street spread across Asia and Europe and highlighted a recent AI-led surge in broader stock markets that some fear could lead to a bubble.

Some analysts say that at this stage, concerns over US regional banks appear to be idiosyncratic rather than indicative of something more systemic.

“The collapse of the US banking sector, including regional banks, has given the market cause for concern,” said Russ Mould, investment director at AJ Bell.

These include Utah-based Zions Bancorporation alleging windfall losses on two loans and Arizona-based Western Alliance alleging fraud on a borrower.

Financial stocks fell globally

Some top U.S. banks fell in market trading Friday, ending a week of solid earnings declines for Wall Street’s top banks.

Bank of America and Citigroup declined 0.33 percent and 0.4 percent, respectively.

“What we see in the overnight bank sell-off in the US, Asia wakes up to it, Europe wakes up to it and so it spreads,” said James Rossiter, head of global macro strategy at TD Securities.

European banks fell nearly three percent, with Deutsche Bank and Barclays down nearly six percent and Societe Generale down 4.6 percent, following the collapse of financial companies in Asia, especially Japanese banks and insurance companies.

Zions Bancorp, which has been at the center of investor scrutiny, regained some lost ground Thursday after falling 13 percent. Western Alliance was also up 1.2 percent in early premarket trading after falling nearly 11 percent on Thursday.

“Despite rising expectations for further rate cuts this year, the focus is turning to the underlying health of the economy, as looming credit losses among US regional banks raise further questions about lending practices,” said Darren Nathan, head of equity research at Hargreaves Lansdowne.

Investors fear risk in private debt

The latest selloff came after Zions said it would take a US$50 million loss on two commercial and industrial loans from its California unit, while Western Alliance revealed it had launched a lawsuit accusing Cantor Group V, LLC of fraud. Cantor’s lawyers denied the allegations.

Such disclosures would not normally affect broader markets, but they attracted attention after the collapse of two US companies, FirstBrands and Tricolor.

Those failures unsettled investors who are worried about the risks in private debt, a fast-growing but less regulated market where companies have borrowed heavily in the past few years.

The gloom spread to other parts of the financial sector, hitting mortgage lenders, buy-now-pay-later firms and brokerages.

Analysts say any cracks in credit on Wall Street are likely to spread to other areas of the financial sector.

Buy now-pay later lenders Affirm and Klarna fell 2.3 percent and 0.4 percent respectively, while consumer finance firm SoFi dropped 1.3 percent. Robinhood and Interactive Brokers each declined 2.6 percent.

Earlier this week, JPMorgan Chase CEO Jamie Dimon had this to say about the credit markets: “When you see one cockroach, there are probably more cockroaches, and so everyone should be forewarned.”

broad market impact

“The market is clearly pricing in perfection,” said Bo Pei, analyst at U.S. Tiger Securities. “This tends to weaken sentiment, so even isolated negative headlines can trigger big reactions like we saw yesterday.”

European bank shares have risen nearly 40 percent year to date, while world shares have gained 16 percent, as investors gravitated toward companies that could benefit from the AI ​​boom.

Meanwhile, gold hit a new record high, setting up for its best week in more than 17 years.

“The market has been concerned about a private debt bubble over the past few months,” said Alan Devlin, global financial research analyst at Impax Asset Management. “The market is basically shooting first, asking questions later.”