NEW YORK: Wall Street is concerned about the health of the nation’s regional banks, after a few of them wrote off bad loans to commercial customers in the last two weeks and caused investors to wonder if there might be more bad news to come. Zions Bank, Western Alliance Bank, and the investment bank Jefferies surprised investors by disclosing various bad investments on their books, sending their stocks falling sharply this week.
JPMorgan Chase CEO Jamie Dimon added to the unease when he warned there might be more problems to come for banks with potentially bad loans. “When you see one cockroach, there are probably more,” Dimon told investors and reporters on Tuesday, when JPMorgan reported its results. The KBW Bank Index, a basket of banks tracked by investors, is down 7% this month.
There were other signs of distress. Data from the Federal Reserve shows that banks tapped the central bank’s overnight “repo” facilities for the second night in a row, an action banks have not needed to take since the Covid-19 pandemic. This facility allows banks to convert highly liquid securities like mortgage bonds and treasuries into cash to help fund their short-term cash shortfalls.
Zions Bancorp shares sank Thursday after the bank wrote off $50 million in commercial and industrial loans, while Western Alliance fell after the bank alleged it had been defrauded by an entity known as Cantor Group V LLC. This came on top of news from Jefferies, which told investors it might experience millions of dollars in losses from its business with bankrupt auto parts company First Brands. All three stocks recovered a bit Friday. Jefferies CEO told investors that the company believes it was defrauded by First Brands and there were no broader concerns in the lending market.
