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What is the story about?
Shares of two US-based regional lenders, Zions Bancorp and Western Alliance Bancorp tumbled up to 13% on Thursday, October 16, after they disclosed being victims of fraud on loans given to funds that invest in distressed commercial mortgages.
Zions Bancorp saw its stock fall over 12% after it disclosed a $50 million charge-off for a loan that was underwritten by its wholly-owned subsidiary named California Bank & Trust in San Diego. Western Alliance Bancorp fell 11% after revealing that it also made loans to the same borrowers.
The alleged culprits? Investment funds tied to Andrew Stupin and Gerald Marcil, among other parties, who borrowed the funds to finance their purchase of distressed commercial loans.
Not only shares of the two regional lenders fall, it took down with them a regional banking ETF that is closely tracked by 6% on Thursday. The top 74 banks of the US also shed $100 billion in market capitalization on Thursday as an aftermath.
The disclosures come after recent blowups in the US credit market. Car dealership Tricolor and auto parts supplier First Brands recently filed for bankruptcy, with the latter having pending dues worth over $10 billion. Even JPMorgan Chase & Co., the world's largest bank by assets had exposure to First Brands, which resulted in elevated credit costs during the most recent quarter and prompted CEO Jamie Dimon to issue a warning on its earnings call. "When you see a cockroach, there are probably more..." Dimon said.
Western Alliance also had an exposure to First Brands, but said that these issues will not affect their 2025 outlook.
“So far these seem one-offs, but you get enough one-offs and people start looking for more,” said Mike Mayo, managing director at Wells Fargo. “There’s not too much margin for error when you had this sort of exuberance in credit markets — very good times are when bad loans are made. And so I think it is caution winning today over optimism.”
(With Inputs From Agencies.)
Zions Bancorp saw its stock fall over 12% after it disclosed a $50 million charge-off for a loan that was underwritten by its wholly-owned subsidiary named California Bank & Trust in San Diego. Western Alliance Bancorp fell 11% after revealing that it also made loans to the same borrowers.
The alleged culprits? Investment funds tied to Andrew Stupin and Gerald Marcil, among other parties, who borrowed the funds to finance their purchase of distressed commercial loans.
Not only shares of the two regional lenders fall, it took down with them a regional banking ETF that is closely tracked by 6% on Thursday. The top 74 banks of the US also shed $100 billion in market capitalization on Thursday as an aftermath.
The disclosures come after recent blowups in the US credit market. Car dealership Tricolor and auto parts supplier First Brands recently filed for bankruptcy, with the latter having pending dues worth over $10 billion. Even JPMorgan Chase & Co., the world's largest bank by assets had exposure to First Brands, which resulted in elevated credit costs during the most recent quarter and prompted CEO Jamie Dimon to issue a warning on its earnings call. "When you see a cockroach, there are probably more..." Dimon said.
Western Alliance also had an exposure to First Brands, but said that these issues will not affect their 2025 outlook.
“So far these seem one-offs, but you get enough one-offs and people start looking for more,” said Mike Mayo, managing director at Wells Fargo. “There’s not too much margin for error when you had this sort of exuberance in credit markets — very good times are when bad loans are made. And so I think it is caution winning today over optimism.”
(With Inputs From Agencies.)
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