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wall Street There is concern about the health of the country’s regional banks, as some of them have written off bad loans to commercial customers over the past two weeks and investors have wondered whether more bad news may be on the way.
Zions Bank, Western Alliance Bank and investment bank Jefferies surprised investors by revealing various bad investments on their books, causing their shares to fall sharply this week. JPMorgan Chase ceo jamie dimon The unease was further heightened when he warned that there could potentially be further problems for banks with bad loans.
“When you see one cockroach, there are probably more,” Dimon told investors and reporters Tuesday, when JPMorgan reported its results.
The KBW Bank Index, a group of banks tracked by investors, is down 7% this month.
There were other signs of crisis, too. data The Federal Reserve revealed banks tapped the central bank’s overnight “repo” facilities for the second night in a row, an action banks have not been required to take since the COVID-19 pandemic. This facility allows banks to convert highly liquid securities such as mortgage bonds and Treasuries into cash to help meet their short-term cash shortfalls.
Zions Bancorp shares sank Thursday after the bank forgave $50 million of commercial and industrial loans, while Western Alliance shares fell after the bank alleged it was defrauded by an entity called Cantor Group V LLC. This came on top of news from Jefferies that it told investors it owed $5.9 billion to bankrupt auto parts company First Brands. There was slight improvement in all three stocks till Friday afternoon.
Even big banks were not untouched by this. Several Wall Street banks disclosed losses in the bankruptcy of subprime auto dealership company Tricolor, which collapsed last month. Fifth Third Bank, a large regional bank, reported a loss of $178 million from Tricolor’s bankruptcy.
While the big Wall Street banks get most of the media and investor attention, regional banks are a major part of the economy, making loans to small to medium-sized businesses and acting as major lenders to commercial real estate developers. According to the FDIC, there are more than 120 banks with assets between $10 billion and $200 billion.
Despite being large, these banks can get into trouble because their businesses are not as diverse as Wall Street money center banks. They often have exposure to real estate and industrial loans, and they do not have significant businesses in credit card and payment processing that can be revenue generators when lending.
The last banking explosion, in 2023, also included medium-sized and regional banks with exposure to low-interest loans and commercial real estate. a crisis has arisen Silicon Valley Bank After failing, it was sold to Signature Bank, and ultimately to First Republic Bank in a fire sale to JPMorgan Chase. Other banks such as Zions and Western Alliance saw their shares decline during that time period.