Underlying stress in the private credit market burst into the open, triggering a global market rout led by banking stocks. Concerns over credit quality, following a lengthy period of high interest rates, were crystallized by bad loan announcements from two US regional banks.
The immediate cause was Zions Bancorporation and Western Alliance, which reported a combined $150 million in bad loans and write-offs. This fueled heavy losses on Wall Street, which then spread to Asia, with Japan’s Nikkei and Hong Kong’s Hang Seng falling 1.6% and 2% respectively.
European markets were also hammered. The FTSE 100, Germany’s Dax, and Italy’s FTSE Mib all fell sharply. The banking sector was the epicenter of the losses, with major names like Barclays, Deutsche Bank, and Banco Sabadell dropping around 6% or more.
Analysts drew parallels to the SVB collapse, fearing a domino effect. The news comes on the heels of other credit-related bankruptcies, like Tricolor and First Brands. With the VIX “fear index” surging and gold hitting a record high, investors are bracing for more “cockroaches” to emerge from the financial system.