Regional Banks Crash As More Credit “Cockroaches” Emerge

Just when the market was starting to finally freak out – with a one month delay – about the Tricolor and First Brands bankruptcy following yesterday’s fingerpointing session between JPM’s Jamie Dimon and various private credit firms in which both accused each other of harboring more credit “cockroaches“, this morning the credit freak out went to 11 as two regional US banks crashed after they both disclosed problems with loans involving allegations of fraud, adding to concern that more cockroaches are indeed emerging in borrowers’ creditworthiness.

Shares of Zions Bancorp plunged 10% after it disclosed a $50 million charge-off for a loan underwritten by its wholly-owned subsidiary, California Bank & Trust, in San Diego. And Western Alliance Bancorp tumbled as much as 11% after it said it’s dealing with a borrower that failed “to provide collateral loans in first position.” i.e., there was fraud, just like in the First Brands case.

If that wasn’t enough, Western Alliance also said it also has exposure to the collapse of auto-parts supplier First Brands Group. But, and clearly nobody believed this, it doesn’t expect the issue to change its 2025 outlook. Yeah right. 

It will be ironic if WAL barely survived the 2023 banking crisis only to be destroyed because it failed to do due diligence on its clients a few years later.

“There have been a number of ‘one-off’ credit events that a number of banks have previewed going into the quarter,” Terry McEvoy, an analyst at Stephens Inc., said in an interview. “They have not gone unnoticed by bank investors.”

The news slammed the broader regional index. 

As Bloomberg notes, even if each of the credit event are isolated, banks taking losses from bad loans are making headlines more often in the past two months. After the bankruptcy of sub-prime auto lender Tricolor Holdings last month, JPMorgan wrote down $170 million and Fifth Third Bancorp wrote down as much as $200 million. 

Meanwhile, the investment bank at the center of the entire First Brands saga, Jefferies, continues to get crushed, and at last check was down over 8%.