Investors around the world are side-eyeing US financial institutions after claims of questionable corporate lending came to light. Two regional banks are accusing investment funds tied to the firm Cantor Fitzgerald of fraudulently taking out multimillion-dollar loans to buy distressed commercial mortgage loans, the banks disclosed this week.
Salt Lake City-based Zions Bancorp is suing to recover more than $60 million, and Phoenix-based Western Alliance Bancorp is trying to get back ~$100 million. The people running the Cantor funds “vehemently deny” the allegations, their lawyer said.
Teed up for panic
Regarding loan quality, Wall Street was already feeling as nervous as a dress code misinterpreter after suspicions of loan fraud arose earlier this week against bankrupt auto supplier First Brands. Then, Zions’s announcement triggered a widespread crisis of confidence in US credit lending. Bloomberg reports that on Thursday:
Zions and Western Alliance led all US regional banks but one—the aptly named Triumph Bank—into the red.In the big leagues, 74 of the largest US banks collectively lost more than $100 billion in market value.
Internationally, Europe’s index of 600 major banks took its biggest spill since Aug. 1, and Asian bank stocks also stumbled yesterday. But in the US, a fresh slate of strong earnings reports from regional banks helped the American sector regain ground during yesterday’s trading session.
Jamie Dimon, lowkey psychic: “When you see one cockroach, there are probably more,” the JPMorgan CEO said on Tuesday regarding the collapse of First Brands and the earlier bankruptcy of auto lender Tricolor…but his words also could have led people to more closely monitor disclosures and to look for holes in the less well-regulated private credit market this week.
Big picture: Bankers, executives, and analysts insist that the tree isn’t rotten—just a few bad apples that seem to be falling at once. Another reassuring sign is that several major banks aren’t ramping up their provisions, aka emergency funds, which suggests that they’re not bracing for a crisis. Still, there is an element of “smile and wave, boys” afoot: “Perception sometimes becomes reality or it mirrors reality,” Wells Fargo analyst Timur Braziler told the Wall Street Journal.—ML