US bank stocks plunge as investors grow uneasy about mounting risks
By Manya Saini, Arasu Kannagi Basil and Ateev Bhandari
(Reuters) -U.S. bank stocks, including Zions Bancorporation, Jefferies, and Western Alliance, fell sharply on Thursday as investors grew uneasy about risk in the sector, which has been shaken by exposure to two auto bankruptcies.
Zions sank 12% after disclosing it would take a $50 million loss in the third quarter on two commercial and industrial loans from its California division. Western Alliance's stock slumped almost 11% after the bank separately disclosed it had initiated a lawsuit alleging fraud by Cantor Group V, LLC.
Investment bank Jefferies, which held an investor day on Thursday, plunged 9%. The firm has disclosed exposure to bankrupt auto parts maker First Brands, and its stock has fallen by more than one-fifth since First Brands' bankruptcy announcement.
"It shows you can't take credit quality for granted, and poor performing credit quality at one bank can drag down the group quite fast," said Stephen Biggar, a banking analyst at Argus Research.
JEFFERIES LEFT 'QUESTIONS UNANSWERED'
Jefferies' investor day was closed to the press. Morgan Stanley analyst Ryan Kenny said in a note that Jefferies' investor day was positive on the core business, "but left some questions unanswered on what exactly went wrong with First Brands and whether or not JEF could have mitigated risk in advance."
Jefferies did not respond to a Reuters request for comment. Zions did not respond to a request for comment.
"It appears that investors are electing to sell first and ask questions later regarding Jefferies, a selloff that soon threatens to be overdone," said Sean Dunlop, bank analyst at Morningstar Research, in a note
The situations shook the broader market, with the regional banking index dropping 5.8% and the S&P 500 losing nearly 1%.
Wall Street analysts drew parallels from Zions' disclosure with the collapse of auto parts maker First Brands, which exposed gaps in lenders' oversight and raised questions about credit market transparency.
Brokerages pointed to JPMorgan Chase CEO Jamie Dimon's comments this week about anxiety in the credit market following the bankruptcies of First Brands and subprime lender Tricolor.
As major global lenders file unsecured claims, the issue has become a key test of transparency and management in the rapidly expanding private credit market.
JPMorgan wrote off $170 million in the third quarter related to the Tricolor bankruptcy and said it was reviewing its controls.
"When you see one cockroach, there are probably more, and so everyone should be forewarned," Dimon said.
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