Regional banks are getting crushed.
Zions Bancorporation dropped over 10% Thursday. Western Alliance fell more than 9%. The regional banking ETF lost over 4%.
Investment bank Jefferies got hit even harder - down more than 9% in a single day. The stock has plunged 23% in October alone. That's its worst month since Covid crashed markets in March 2020.
What's causing the panic? Bad loans are surfacing.
Two auto industry-related companies went bankrupt this year: • First Brands • Tricolor Holdings
Those bankruptcies revealed that banks and investment firms had lent them massive amounts of money. Money they're not getting back.
The numbers are ugly.
Jefferies runs hedge funds that are owed $715 million from companies tied to First Brands. UBS has about $500 million in exposure.
Zions announced Wednesday it's facing a big charge from bad loans to a couple borrowers. Western Alliance claimed Thursday that one of its borrowers committed fraud.
Here's the scary part: Nobody knows how many more bad loans are hiding out there.
JPMorgan CEO Jamie Dimon summed it up perfectly on his earnings call this week: "When you see one cockroach, there are probably more."
The concern is about the private credit market.
Private credit has boomed over the past few years. It's basically non-bank lenders making loans outside the traditional banking system. Less regulation. Less transparency. More risk.
When times are good, everyone makes money. But when borrowers start failing, it's hard to know who's holding the bag.
The worry isn't just about regional banks anymore. Alternative asset managers got hit Thursday too: • Blue Owl Capital down nearly 4% • Ares Management and Blackstone each fell over 3% • Apollo Global dropped almost 3% • Carlyle Group declined more than 2%
These firms are major players in private credit. If loan quality is deteriorating, they're exposed.
Not yet - but people are nervous.
Regional banks already went through hell in 2023 when Silicon Valley Bank collapsed. That crisis shook confidence in the entire sector.
Now concerns about bad loans are bubbling up again.
The good news? Major banks seem okay. JPMorgan only fell about 1% Thursday. Bank of America dropped 2%. Those are manageable declines.
One analyst said the risk to regional banks is "idiosyncratic" - meaning it's specific problems at individual banks, not a system-wide meltdown.
But the risk to private credit "could be more systemic," especially if the economy weakens.
Two bankruptcies have Wall Street asking uncomfortable questions.
How many other bad loans are out there? Who made them? How much money is at risk?
The private credit boom happened with loose lending standards. Companies that couldn't get traditional bank loans turned to private lenders willing to take more risk for higher returns.
That works great until it doesn't.
For investors, this is a yellow flag. Not a full-blown crisis yet, but enough smoke to worry about fire.
Regional bank stocks are already getting punished. If more bad loans surface, the selling could accelerate.
Jamie Dimon's cockroach comment is the quote everyone's remembering right now. Finding one problem often means there are more hiding underneath.
The stock market stabilized later Thursday after the initial panic. The S&P 500 only saw minor losses. That suggests investors think this is contained - for now.
But keep watching regional banks and private credit firms. If more "cockroaches" appear, this story could get much worse.