The selling weighed on Wall Street’s main indices and futures pointed to a weaker opening, adding to investor anxiety already exacerbated by escalating trade tensions between the United States and China and renewed concerns about the global economic outlook.
The banking sector’s exposure to two recent bankruptcies in the U.S. auto sector has revived concerns about lending standards more than two years after the collapse of Silicon Valley Bank, when high interest rates caused losses on its bonds and triggered a global slide in banking stocks.
Investors are now trying to gauge whether recent troubles in U.S. credit markets will have a similar effect, as Wall Street’s overnight rout spread across Asia and Europe and highlighted the recent artificial intelligence-fueled rally in broader stock markets that some fear may have created a bubble.
Some analysts say that, for now, concerns about U.S. regional banks appear idiosyncratic rather than a sign of something more systemic.
“Some segments of the US banking sector, such as regional banks, have given the market cause for concern,” said Russ Mold of AJ Bell. “This includes Zions, which reported an unexpected loss on two loans, and Western Alliance, which alleged that a borrower had committed fraud.”
Some major U.S. banks fell in pre-market trading, ending a week of strong results from Wall Street’s major banks on a negative note. Bank of America BAC.N and Citigroup lost 0.33% and 0.4%, respectively.
European banks .SX7P lost almost 3%, with Deutsche Bank DBKGn.DE and Barclays BARC.L losing about 6%, and Société Générale SOGN.PA 4.6%, after Asian financial companies, especially Japanese banks .IBNKS.T and insurers .IINSU.T, sank.
“Despite rising hopes for further interest rate cuts this year, attention is turning to the underlying health of the economy, as emerging credit losses among U.S. regional banks raised new questions about lending practices,” said Derren Nathan of Hargreaves Lansdown.
The US regional banking index KBW .KRX closed down 6.3% on Thursday.
The latest settlement came after Zions said it will take a $50 million loss on two commercial and industrial loans from its California unit, while Western Alliance WAL.N revealed it has filed a lawsuit alleging fraud by Cantor Group V, LLC. Cantor’s lawyers denied the allegations.
These revelations do not usually affect the markets in general, but they attracted attention after the bankruptcy of two American companies, FirstBrands and Tricolor.
These bankruptcies rattled investors, concerned about the risks of private credit, a booming but less regulated market in which companies have borrowed heavily in recent years.
