Shares of two regional US banks experienced significant declines after both companies revealed they were victims of fraud related to loans issued to funds investing in distressed commercial mortgages. This development has intensified concerns about potential vulnerabilities within the credit markets.
Zions Bancorp experienced a notable downturn following its disclosure of a $US50 million charge-off for a loan underwritten by its subsidiary, California Bank & Trust. Zions Bancorp is a financial institution that provides a range of banking and related services. Western Alliance Bancorp also saw its shares tumble after announcing that it had extended loans to the same borrowers involved in the alleged fraud. Western Alliance Bancorp delivers a full spectrum of financial solutions and services.
These disclosures compound recent loan losses, including the bankruptcy filing of subprime auto lender Tricolor Holdings, which resulted in significant debt wipeouts, and the subsequent bankruptcy of auto-parts supplier First Brands Group. Major financial institutions like JPMorgan Chase & Co and Fifth Third Bancorp have reported substantial losses linked to Tricolor, while Jefferies Financial Group has disclosed its exposure to First Brands.
While larger US banks can readily absorb these losses, the impact is more pronounced for regional lenders. According to Mike Mayo, an analyst at Wells Fargo & Co, loan issues are minor for giants like JPMorgan Chase, but can significantly impact smaller banks’ financial health.
