Global Financial Stocks Plummet Amid Rising Credit Concerns

SINGAPORE/LONDON, Oct 17 (Reuters) – Shares in global financial stocks fell sharply on Friday, driven by concerns over rising credit risks and deteriorating lending standards in the United States. This drop follows a significant selloff on Wall Street the previous day.

The recent bankruptcies in the U.S. auto sector have reignited fears about the banking industry’s exposure to risky loans, which could further threaten credit quality. Analysts noted that this situation mirrors the turmoil that began two years ago when high interest rates caused severe losses in financial securities.

European banks saw substantial declines, with shares dropping 2.5% in early trading. Notably, Deutsche Bank and Barclays fell over 5% each, while Societe Generale dropped 4.6%. In Frankfurt, Citigroup shares fell 5.5%, and JPMorgan’s shares tumbled 3%.

The SPDR S&P regional banking ETF experienced a 2.4% drop during premarket trading, echoing a steep selloff from the previous day. Zions Bancorp shares, in particular, slid 1.7% after revealing a projected $50 million loss from two loans within its California operations.

As concerns about regional banks unfolded, James Rossiter, the head of global macro strategy at TD Securities, commented, “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 it spreads.”

Compounding the worries, bankruptcy disclosures from Zions Bancorporation and Western Alliance reveal potential gaps in lenders’ oversight. Western Alliance announced it has initiated a lawsuit against a borrower alleging fraud, further intensifying market uncertainty.

Major banks in the U.S. reported strong earnings, yet the performance of their stocks has sparked caution among investors, particularly as broader stock prices are already high post-pandemic. Increasing worries about regional banks may amplify existing anxieties in an already volatile market.

“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,” noted Vasu Menon, managing director of investment strategy at OCBC Bank.

The downturn in financial stocks has not only impacted shares but also led investors toward safe-haven assets. Gold prices surged to a record high on Friday, reflecting a significant shift in investor sentiment as they seek stability amid rising economic risks.

As global markets respond to these developments, investors continue to assess potential strategies in the context of changing economic indicators and credit landscapes, hoping to navigate through the unpredictable financial terrain.