Banking stocks slide as US credit worries jolt investors

By Alun John and Ankur Banerjee

SINGAPORE/LONDON (Reuters) -Shares in global financial stocks dropped on Friday following a rout in U.S. regional banking shares on worries about mounting risks and credit quality.

The banking sector’s exposure in two recent U.S. auto bankruptcies rekindled concerns about lending standards more than two years after Silicon Valley Bank’s failure, when high rates drove paper losses on its bonds.

A selloff that started on Wall Street gathered pace in Asia and Europe on Friday, casting a spotlight on a surge in stock markets in what some analysts say may have created a bubble.

European banks fell 2.5% in early trade, with Deutsche Bank (DB) falling 4% and Barclays (BCS) down over 2%, while Societe Generale (GLE.PA) slid 4.6%.

Citigroup (C,TRVC) shares fell 1% and 3% in Frankfurt, albeit in thin trading, JPMorgan shares tumbled 3%.

The SPDR S&P regional banking ETF dropped 2.4% in premarket trading, a day after its steepest one-day selloff in six months. Zions Bancorp shares slid 1.7%.

Japanese banks and insurers also sunk, with Tokio Marine, Mizuho and Mitsubishi UFJ Financial Group all down nearly 3%, and Australian insurer QBE off 9%.

The U.S. regional banking index slumped 6% on Thursday as two small banks disclosed separate issues.

Zions Bancorporation said it would take a $50 million loss on two commercial and industrial loans from its California unit, while Western Alliance disclosed it had initiated 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,” James Rossiter, head of global macro strategy at TD Securities.

Wall Street analysts drew parallels from Zions’ disclosure with the recent collapse of auto parts maker First Brands, which exposed gaps in lenders’ oversight and raised questions about credit market transparency.

They also pointed to JPMorgan Chase (JPM) CEO Jamie Dimon‘s comments this week about anxiety in the credit market following the bankruptcies of First Brands and subprime lender Tricolor.

The collapse of those lenders has focused attention on risks in private credit, a booming but less regulated market where companies have borrowed heavily in recent years.

“When you see one cockroach, there are probably more, and so everyone should be forewarned,” Dimon said.

Investors are also trying to assess whether we are seeing the early stages of a 2023-style event, when Silicon Valley bank’s woes sparked a global banking stocks rout.

Big U.S. banks have largely reported strong earnings in recent days, but their shares have performed well and with valuations across equity markets already sky high, nervous investors are watching closely.

“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 OCBC Bank’s managing director of investment strategy Vasu Menon.