1 day ago
11
Global stock markets fell sharply and gold hit a record high after two US regional banks said they had been left exposed to millions of dollars of bad loans and alleged fraud.
Signs of credit stress rattled markets across Europe and Asia. In London the FTSE 100 fell 1.5%, Germany’s Dax fell 2%, the Ibex in Spain was off 0.8% and France’s Cac 40 dropped 1.5%, before recovering some ground.
Concerns over credit stress in the network of loans to businesses across the world’s largest economy fuelled heavy losses on Wall Street on Thursday, followed by Asian markets, with Japan’s Nikkei 225 falling 1.6% and the Hang Seng in Hong Kong dropping 2%. US markets are expected to open down later on Friday.
Jittery investors turned to safe haven assets, with gold hitting a new record of $4,378 (£3,262) an ounce, a weekly gain of almost 8.5%, its biggest since the 2008 financial crisis.
US banking stocks plunged on Thursday after Zions Bancorporation, a Utah-based lender, said it would write off $50m on two loans, and Phoenix-headquartered Western Alliance said it had started legal proceedings over a bad loan said to be worth $100m.
Shares in Zion plunged by more than 10%, while Western Alliance Bancorp dropped more than 9%.
“While this was an ostensibly isolated story at two banks each with less than a $10bn market cap, the event drew inevitable comparisons to the regional bank stress that followed the collapse of Silicon Valley Bank in 2023,” said Jim Reid, an analyst at Deutsche Bank. “[That] raised broader questions over potential credit quality issues after a lengthy period of elevated rates and expansion in private credit.”
He added that markets were especially wary of a domino effect as the issues faced by the two banks followed the bankruptcy of the sub-prime automotive lender Tricolor last month.
The US regional banking industry has been under scrutiny after First Brands, an auto parts supplier, filed for chapter 11 bankruptcy in late September over creditor concerns.
In its bankruptcy filing, First Brands disclosed that it had at least $10bn to $50bn in liabilities against $1bn to $10bn in assets, the product of what appeared to be risky off-balance-sheet financing.
after newsletter promotion
Richard Hunter, the head of markets at Interactive Investor, said: “There are increasing signs of storm clouds gathering over markets, with little relief from the building wall of worry.
“Already grappling with stretched stock valuations in the AI space, an unresolved government shutdown and a deteriorating relationship between Beijing and Washington, investors were exposed to a new source of concern in the form of lending practices and bad loans for US regional banks.”
Derren Nathan, the head of equity research at Hargreaves Lansdown, said: “Despite growing hopes of further rate cuts this year, attention is turning to the underlying health of the economy, as emerging credit losses among America’s regional banks raised further questions about lending practices.”
On the FTSE 100, nearly every stock fell in early trading. Banks were among the top fallers, with Barclays down 4.7%, Standard Chartered losing 4.3% and NatWest off 3.1%. The asset manager ICG has lost 5%.
