Global financial stocks fell sharply on Friday after renewed concerns about U.S. credit quality triggered a selloff in regional banks, unsettling investors and reigniting fears over lending standards.
The sector’s exposure to two recent U.S. auto-related bankruptcies has raised fresh questions about credit risk, echoing the uncertainty that followed Silicon Valley Bank’s collapse more than two years ago—an event that exposed vulnerabilities tied to high interest rates and bond losses.
What began as a Wall Street selloff quickly rippled across Asia and Europe, unsettling markets already buoyed by steep gains that some analysts warn may signal a bubble. European banking shares fell 2.5% in early trade, with Deutsche Bank (TG:DBK) and Barclays (LSE:BARC) both down more than 5%, while Société Générale (EU:GLE) dropped 4.6%. In Frankfurt, Citigroup (NYSE:C) declined 5.5% in light trading, and JPMorgan Chase & Co. (NYSE:JPM) slipped 3%.
The SPDR S&P Regional Banking ETF fell 2.4% in premarket trading, extending its steepest one-day drop in six months. Zions Bancorporation (NASDAQ:ZION) lost 1.7%. In Asia-Pacific, banks and insurers were also hit hard, with Tokio Marine Holdings, Mizuho Financial Group and Mitsubishi UFJ Financial Group down nearly 3% each, while QBE Insurance Group tumbled 9%.
Source of Concern
The U.S. regional banking index sank 6% on Thursday after two smaller lenders revealed separate problems. Zions Bancorporation announced it would absorb a $50 million loss tied to two commercial and industrial loans at its California unit. Meanwhile, Western Alliance Bancorporation (NYSE:WAL) disclosed it had filed a lawsuit alleging fraud by Cantor Group V, LLC.
“What we see in the banks selling off overnight in the U.S. is that Asia wakes up to it, Europe wakes up to it and so it spreads,” said James Rossiter, head of global macro strategy at TD Securities.
Wall Street analysts noted that Zions’ disclosure drew uncomfortable parallels with the recent failure of auto parts maker First Brands, which exposed gaps in lender oversight and stirred debate about credit market transparency.
They also highlighted remarks from Jamie Dimon, CEO of JPMorgan Chase, who warned of growing unease in credit markets following the bankruptcies of First Brands and subprime lender Tricolor.
“When you see one cockroach, there are probably more, and so everyone should be forewarned,” Dimon said.
The failures have focused investor attention on private credit—a fast-growing but lightly regulated market where companies have accumulated significant debt in recent years.
Many investors are now asking whether this could mark the beginning of a repeat of the 2023 turmoil, when Silicon Valley Bank’s collapse triggered a global selloff in bank stocks.
Although large U.S. banks have posted strong earnings recently, lofty market valuations and lingering economic uncertainty are making investors more sensitive to negative headlines.
“Renewed concerns about U.S. regional banks could add to even more jitters in markets that already have a wall of worry to deal with,” said Vasu Menon, managing director of investment strategy at OCBC Bank.
Despite Friday’s drop, bank shares have enjoyed a strong year, with European banking stocks still up around 40% year-to-date.
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