“When you see one cockroach, there’s probably more” - Jamie Dimon, literally

Zions Bancorp just set off another regional-bank clusterf*k after admitting it lost $50 million on two commercial loans that aged about as well as a 2021 SPAC. The bank called it an “isolated event,” which is what every CFO says right before the next guy finds the same mold behind his drywall.

(Source: Giphy) 

Because of this, Zions is taking a $60 million loan-loss provision this quarter… their biggest since 2022… because apparently, the California Bank & Trust division was handing out cash to borrowers with “apparent misrepresentations.” Translation: someone forgot to check if the collateral existed. Naturally, Wall Street didn’t even blink before nuking the sector. Upon the news, the KRE regional bank ETF fell 5.6%, Western Alliance dropped 10%, Banc of California slid 7%, and half the mid-tier banking universe started trading like a penny stock from 2009. 

(Source: MorningStar) 

What’s interesting though, is that Jamie Dimon warned everyone earlier this week about the “cockroach problem” in credit markets after JPM’s exposure to bankrupt subprime lender Tricolor. He wasn’t kidding. Now Zions is the second roach. Western Alliance might be the third. Meaning, the flashlight’s just moving down the hall. Truist called Zions’ situation a “step on a rake.” Piper Sandler described the loans as “opaque third-party credits”... which really means no one knows who’s holding the grenade. But don’t worry,  Zions says it’s hiring lawyers to “independently review the loans.” Sounds legit. 

Meanwhile, Jefferies is staring down a $45 million hit tied to bankrupt auto-parts maker First Brands, Fifth Third already wrote off $200 million from two allegedly fraudulent loans, and the entire regional banking sector is pretending this is fine while standing knee-deep in smoke. Which means… which means… this is how contagion starts. It doesn’t start with a bang, but with a bunch of mid-sized banks tripping over the same bad paper and calling it “unusual.” The truth is, the rate hikes didn’t just wreck their bond portfolios; they’re starting to crush their borrowers too. When your loan book is a collection of half-baked commercial bets and shaky C&I deals, 5% interest is the difference between “performing” and repoing their building.

(Source: Giphy) 

And that’s exactly where we are at at the moment. Whereas, everyone’s praying they’re not next while Zions is down -8% YTD and KRE’s moving like it’s allergic to sunlight this month (down -10.73% MTD). Of course, anything can happen… but the credit crisis is real, the consumer crunch is real… and if I were a betting man, I’d say this cockroach party is just getting started. Until next time, friends…

At the time of publishing, Stocks.News does not hold positions in companies mentioned in the article.