Is the next Credit crisis brewing already?
- Tharindu Ameresekere
- 5 days ago
- 2 min read
Several major financial institutions are grappling with bad loans, fueling concerns on Wall Street about a potential ripple effect across the banking sector. The latest turbulence centers on Jefferies Financial Group, Western Alliance Bancorp, and Zions Bancorp, whose shares all suffered their steepest single-day declines in more than six months last Thursday. The broader market reflected this unease, with the Dow Jones Industrial Average dropping 0.65%, as investors sought safety in U.S. Treasuries, gold, and silver.
Jefferies’ troubles stem from its $45 million exposure to First Brands, an auto-parts supplier that filed for bankruptcy last month. The investment bank had provided funding through a process known as third-party factoring. However, creditors allege that First Brands reused the same invoices to secure loans from multiple lenders, effectively deceiving financiers like Jefferies. Although the bank’s exposure is relatively small, less than 5% of last year’s pre-tax income, the incident has raised doubts about whether Jefferies overlooked red flags. The case is reportedly under investigation by the U.S. Department of Justice for possible fraud.
Meanwhile, regional lenders Western Alliance and Zions are also under scrutiny. Both banks disclosed recent loan losses linked to allegedly fraudulent borrowers. Zions estimated a $60 million loss in a regulatory filing, while Western Alliance filed a lawsuit against one of its borrowers, signaling that additional loans may now be at risk of default.
The mounting wave of questionable loans has stirred fears reminiscent of the 2023 regional banking crisis. JPMorgan Chase, the country’s largest bank, also faces potential losses of $170 million tied to Tricolor, another bankrupt company accused of fraud. The growing number of such incidents has left investors wondering whether these are isolated cases, or signs of deeper systemic cracks in the financial sector.
Comments