Fear over credit quality in U.S. regional banks rippled through markets on Friday, dragging global financial stocks lower for a time before they regained their losses, and reviving memories of the crisis of confidence that shook sentiment just over two years ago.
The selloff hit Wall Street’s main indexes as futures wavered, deepening investor anxiety that was already heightened by escalating U.S.-China trade tensions and renewed worries about the global economic outlook.
The banking sector’s exposure to two recent U.S. auto bankruptcies has rekindled concerns about lending standards more than two years after Silicon Valley Bank’s failure, when high interest rates drove paper losses on its bonds and sparked a rout of global bank stocks.
Investors are now trying to assess whether recent issues in U.S. credit markets will have a similar effect, as an overnight selloff on Wall Street rippled across Asia and Europe and shone a spotlight on the recent AI-led surge in broader stock markets, which some fear could have created a bubble.
Some analysts say that at this stage, the concerns around U.S. regional banks appears idiosyncratic rather than a sign of something more systemic.
“Pockets of the U.S. banking sector including regional banks have given the market cause for concern,” said Russ Mould, investment director at AJ Bell.
This includes Utah-based Zions Bancorporation flagging an unexpected loss on two loans and Arizona-based Western Alliance alleging a borrower had committed fraud.
Financial stocks hit globally
Some top U.S. banks fell in arket trading on Friday, ending a week of solid earnings from Wall Street’s top banks on a downbeat note.
Bank of America and Citigroup declined 0.33 per cent and 0.4 per cent, respectively.
“What we see in the banks selling off overnight in the U.S., Asia wakes up to it, Europe wakes up to it and so it spreads,” said TD Securities head of global macro strategy James Rossiter.
European banks fell almost three per cent, with Deutsche Bank and Barclays sliding around six per cent, and Societe Generale down 4.6 per cent, after financial firms in Asia, especially Japanese banks and insurers, sank.
Zions Bancorp, at the heart of the investor scrutiny, recovered some lost ground, after closing down 13 per cent on Thursday. Western Alliance was also up 1.2 per cent in early premarket trade after losing roughly 11 per cent on Thursday.
“Despite growing hopes of further rate cuts this year, attention is turning to the underlying health of the economy, as emerging credit losses amongst America’s regional banks raised further questions about lending practices,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
Investors fear risks in private credit
The latest selloff came after Zions said it would take a $50 million US loss on two commercial and industrial loans from its California unit, while Western Alliance disclosed it had initiated a lawsuit alleging fraud by Cantor Group V, LLC. Attorneys for Cantor denied…
Read More: Global bank stocks waver as investors fear credit risks in U.S. regional
