Plummeting bank stocks lead global selloff as fear of private credit ‘contagion’ hits across equities and the dollar

The “contagion” — as ING called it in a note this morning — has spread to Nasdaq 100 futures, which are down 1.4% this morning. The VIX “fear” index (which measures volatility) rose 32% today. It hasn’t been this high since president Trump upset the market with his Emancipation Day tariffs in April.

As of yesterday afternoon, few people outside Utah and Arizona had heard of Zions Bancorporation or Western Alliance Bank. Lenders revealed they had $50 million to $60 million in potentially fraudulent bad loans.

What happened next was extraordinary: 74 US bank stocks lost $100 billion in market value with the S&P 500 falling 0.63%. “The S&P Regional Banks Select Industry Index fell 6.3% on Thursday – the worst decline since liberalization day,” RBC’s Peter Shavrik told clients in a note this morning.

Investors are spooked by the First Brands scandal, in which the auto parts supplier took out more than $10 billion in loans in the private credit market and then declared bankruptcy.

Although Goldman Sachs, JPMorgan and Citi all used their earnings calls this week to insist that the due diligence in grading the loans they provide to companies via private credit is diversified and sound, traders this morning are running for the hills.

In Europe, the STOXX 600 and FTSE 100 lost more than a full percentage point immediately after their opening.

“The contagion to other risk assets not only shows that markets remain sensitive to regional bank concerns (the legacy of the SVB collapse in 2023), but is likely to impact the broader credit market, which has been operating on exceptionally tight margins over the past few months,” noted ING’s Francesco Pesole.

It is even hurting the dollar, which fell 0.08% this morning and has lost 0.73% of its value against foreign currencies in the past five days, as measured by the DXY index.

“Unlike in 2023, the risks appear more isolated this time, but they could feed a narrative that the US business environment and credit quality are in worse shape than the data suggests, perhaps also due to AI distortions,” Bisol said. “Expect heightened scrutiny over upcoming regional bank earnings, with any further spillover into US stocks that would lead to an extension of the dollar sell-off.”

Peter Sidorov and his colleagues at Deutsche Bank told clients that the selling moved into high-yield credit as investors turned to the safe haven of US government bonds. “Other risk assets also suffered, with US HY credit spreads widening by 10 basis points. Treasuries rose with the 2-year yield falling -7.3 basis points to a 3-year low of 3.42%,” he said.

The conversations among analysts are bleak. “Within the credit markets for more than a year, there has been a grudging acknowledgment that there are a series of credit problems that could be significant and could pose a risk to the economy as a whole,” Andrew Milgram, chief investment officer at Marblegate Asset Management, told the Financial Times.

Finally, banks unexpectedly borrowed money through the US Federal Reserve’s “repo” facility for the second day in a row. They usually only do this at the end of the month or quarter, suggesting that the supply of cash reserves at some banks is lower than expected, the Wall Street Journal said.

Here’s a quick snapshot of the markets before the opening bell in New York this morning:

• Standard & Poor’s 500 futures Down 1% this morning. The index closed down by 0.63% in its last session.
• Stokes Europe 600 It decreased by 1.58% at the beginning of trading.
• FTSE 100 index in the United Kingdom It decreased by 1.61% in early trading.
• Japan’s Nikkei 225 Decreased by 1.44%.
• China CSI 300 Decreased by 2.26%.
• South Korea Cosby It was flat.
• India stylish 50’s It rose by 0.47% before the end of the session.
• Bitcoin It decreased to $104.9 thousand.