Echo of crisis: US regional banks hit hard again, market reenacting Silicon Valley bank panic script?

Investors are worried that the regional bank sector in the US will see a scale of sell-off not seen since the collapse of Silicon Valley Bank. Regional bank leaders Zions Bancorp (ZION.US) and Western Alliance Bancorp (WAL.US) are facing credit troubles that have pushed preferred stocks of regional banks to the forefront of financial market turbulence, as these preferred stocks seem to be a target for market frustration and are facing massive sell-offs. On Thursday, Zions' preferred stocks plummeted, marking the largest drop since May 2023 and hitting an 18-month low; one of Western Alliance's preferred stocks also saw its largest drop since April 2024. Bid prices indicate that these securities will continue to decline on Friday. These two lending institutions stated that they encountered fraud in lending to distressed commercial mortgage funds, triggering a 10% drop in their common stocks. The credit asset troubles faced by these two regional banks caused a sharp drop in the entire US regional bank sector on Thursday, with benchmark indices tracking these banks posting their second worst trading day since the collapse of Silicon Valley Bank in March 2023. The crisis facing US regional banks actually originated from Zions Bancorp's disclosure of $60 million in provisions and write-offs for two loans, which equate to 5% of its 2025 market expected earnings. Court documents indicate that this is the third suspected fraud case revealed in a month and a half, following the collapse of subprime auto lending institution Tricolor Holdings and auto parts supplier First Brands Group, affirming JPMorgan Chase CEO Damon's warning of "more than one credit cockroach". The disclosures by these two regional banks come at a time when investors were already very tense due to the default of subprime auto lender Tricolor Holdings and the bankruptcy of auto parts supplier First Brands Group. Coupled with JPMorgan Chase CEO Damon's warning about credit "cockroaches", Wall Street traders remain cautious about all bad news, opting to sell first and ask questions later. Goldman Sachs Group, Inc. pointed out that the intense market sell-off triggered by the disclosure of a single borrower seems "a bit crazy", but clients are now saying "it's been three times already". Many US regional banks have not yet released financial reports, and Goldman Sachs Group, Inc. financial expert Christian DeGrasse noted that the market is highly vigilant about NDFIs (Non-Depositary Financial Institutions) loan exposure of regional banks until answers are obtained. There are still many US regional banks that have not released financial reports, and Goldman Sachs Group, Inc. expects NDFI loan exposure to be a key focus of earnings conference calls and financial report disclosures. The intense sell-off triggered by the US regional banking crisis in 2023 has also fueled these concerns. This historic banking crisis began with the rapid collapse of Silicon Valley Bank SVB, which then spread to devour other lending institutions. "These events are isolated cases," said Suvi Platerink Kosonen, Senior Financial Industry Analyst at ING Groep NV Sponsored ADR (ING Bank), in a report on Friday. "But they do raise some alarms about potential credit quality, with a lot of money chasing assets and possibly low attention to credit asset risk management." Preferred stocks of some regional banks are troubled by credit fraud Zion Bancorp's perpetual preferred securities with a yield of 4.819% plummeted by 6.36% to $20.38, while Western Alliance's 4.25% preferred securities declined by 2.87% to $20.83. In the US market, banks prefer issuing preferred stocks to raise additional capital, similar to the issuance of other more complex Additional Tier 1 (AT1) bonds by foreign banks. Traders differentiate the preferred stocks of the "big six" currency center mega-banks from those of other issuers in the market. According to the latest data compiled by institutions, the preferred stocks of these large lending institutions (regardless of face value of $1,000 or $25) were largely unchanged on Thursday. In contrast, preferred stocks issued by small banks were significantly impacted, with an average decline of about 0.7% for those with a face value of $25 and aimed at the so-called retail market. In the latest round of large-scale market sell-offs, small lending institutions suffered a disproportionately severe blow - but on Thursday, the preferred stock prices of the "big six" banking giants remained largely stable. The liquidity crisis of Silicon Valley Bank in 2023 occurred when the Fed significantly raised lending costs, causing interest rates to rise and squeezing the US bond portfolios of Silicon Valley Bank (SVB) and other regional small to medium-sized banks. As depositors began to panic and make massive withdrawals, Silicon Valley Bank was forced to sell assets at huge losses, eventually leading to its rapid bankruptcy and complete market liquidation. Its demise spilled over to other US regional banks, and panicked investors indiscriminately sold stocks of US small to medium-sized regional lending institutions at the time, even major commercial bank giants like Wells Fargo & Company were also dumped at that time.