(Reuters) -U.S. regional bank stocks fell on Thursday after Zions Bancorporation disclosed that it would take a $50 million charge-off in the third quarter on two commercial and industrial loans extended by its California division.
The disclosure added to growing investor unease about hidden credit stress as lenders navigate elevated interest rates and economic uncertainty.
"The optics of a large balance C&I loan to a fraudulent borrower from a bank that specializes in small balance C&I loans is not
great, and puts into question Zions’ underwriting standards and risk management policies," analysts at Raymond James said in a note.
Shares of Zions were last down 6% in late-morning trading. The bank said it expects to recognize the charges in the third-quarter and has filed a lawsuit in California to recover the loans.
"Zions faces the challenge of showing that this is a one‐off event and not indicative of broader supervision or credit control weakness," said Brian Mulberry, senior client portfolio manager at Zacks Investment Management.
Western Alliance's stock pared losses after the bank disclosed it had initiated a lawsuit alleging fraud by a borrower. The Phoenix, Arizona-based bank said that it is providing additional information about one of its credit relationships after a recent peer bank 8-K filing.
The lender sought to reassure investors, saying its total criticized assets — credit identified as weak — were lower than on June 30. The shares were last down 5.4%.
"If further disclosures reveal more losses or related exposures, the risk is that the broader regional banking index — or weaker names — gets re-rated aggressively downward," Mulberry added.
The broader regional banking index fell about 3.4%.
Wall Street analysts pointed to JPMorgan Chase CEO Jamie Dimon's comments this week about anxiety in the credit market following the twin bankruptcies of auto parts maker First Brands and subprime lender Tricolor.
"When you see one cockroach, there are probably more, and so everyone should be forewarned of this one," Dimon said.
(Reporting by Manya Saini, Arasu Kannagi Basil and Ateev Bhandari in Bengaluru; Editing by Tasim Zahid)
