US Bank Stocks Fall After Risk Concerns Rise

On Thursday, U.S. bank stocks dropped sharply as investors worried about risks in the banking sector. The fall came after two bankruptcies in the auto industry raised concerns about banks’ exposure to bad loans.

Zions Bancorporation lost 12% in value after saying it would take a $50 million loss in the third quarter. The loss came from two loans made by its California branch. Western Alliance’s shares also fell by almost 11% after it said it had filed a lawsuit against Cantor Group V, LLC, claiming fraud.

Jefferies, a large investment bank, dropped 9% after holding its investor day. The company is linked to bankrupt auto parts maker First Brands. Since First Brands’ bankruptcy, Jefferies’ stock has dropped over 20%.

Stephen Biggar, an analyst at Argus Research, said that poor loan quality at one bank can quickly affect the whole group.

Jefferies’ investor day was not open to the media. Ryan Kenny, an analyst from Morgan Stanley, said that while the event was mostly positive, it did not answer important questions about what went wrong with First Brands and how Jefferies handled the risk.

Sean Dunlop, from Morningstar Research, said that investors are selling Jefferies’ stock before they get all the facts. He warned the drop may be too much.

The wider banking market also reacted. The regional banking index fell 5.8%, and the S&P 500 dropped almost 1%. Analysts compared Zions’ loss to the First Brands case, pointing to weak risk controls and a lack of transparency in the credit market.

JPMorgan Chase CEO Jamie Dimon also warned about more risk in the market. JPMorgan lost $170 million from the bankruptcy of subprime lender Tricolor. Dimon said the market should be careful: “When you see one cockroach, there are probably more.”

These events have reminded investors of the 2023 collapse of Silicon Valley Bank, which also failed due to poor risk management.

Both Zions and Western Alliance are now trying to recover money through legal actions. Western said it plans to share more about its business strength during its earnings report on October 21.

Some analysts believe the problems are specific to certain companies, not the whole banking system. But experts say banks need to be extra careful in today’s credit environment.