According to reports from Bloomberg, Reuters and other media, on October 16, local time, two major regional banks in the United States, Zions Bancorp and Western Alliance Bancorp, reported loan thunderstorms. Affected by this, U.S. bank stocks plummeted. The Regional Bank Index fell 6.3%, and the KBW Nasdaq Bank Index fell 3.6%, both recording their worst single-day performances since April.
On the 16th local time, Zions Bank disclosed that two commercial and industrial loans underwritten by its wholly-owned subsidiary California Bank & Trust had $50 million in bad debts. After the news came out, Zions Bank’s share price plummeted 13% that day.
California Bank and Trust information map
The bank said its investigation found that many of the notes and their corresponding real estate had been transferred to other entities. The bank expects to recognize these charges in the third quarter and has filed lawsuits in California to recover these loans.
Litigation documents show that the loan involved funds related to investors Andrew Stupin and Gerald Marcil, and Zions Bank has filed a fraud lawsuit against the relevant individuals. Lawyers for Stupin and Marcel said their clients “vehemently deny” the allegations.
On the same day, Western Union Bank confirmed that it had provided credit services to the relevant borrowers and had also filed a fraud lawsuit. The bank’s share price fell 10.8% that day.
Western Union Bank AFP
The report pointed out that the relevant situation has further exacerbated recent market concerns about credit risks, triggering large-scale selling by investors despite relatively small fraud-related losses. On the 16th, the combined market value of 74 large banks in the United States evaporated by more than US$100 billion.
U.S. Regional Bank ETF Chart CNBC
Before the exposure of these two loan fraud incidents, there had been a number of loan defaults in the United States recently, making the market uneasy about the banking industry.
Last month, subprime auto lender Tricolor Holdings filed for bankruptcy, resulting in almost total losses on some bonds; auto parts supplier First Brands Group subsequently collapsed, with debts of more than $10 billion to many well-known Wall Street institutions.
The third quarter financial report released by JPMorgan Chase showed that the group lost US$170 million due to Tricolor Holdings. JPMorgan Chase CEO Jamie Dimon warned on the 14th that investors should “prepare in advance” and more credit problems may surface. “When you see a cockroach, there are likely to be more, and everyone should be wary of this.”
