"The tension between Wall Street and Main Street was on display this week as the country's top banks reported blowout earnings, while regional lenders spooked investors about risks lurking in their loan books. In a regulatory filing on Thursday, Zions Bancorporation disclosed that it believes there were misrepresentations by certain borrowers who did business with its California Bank & Trust unit."
"Shares of both banks tumbled Thursday, dragging down other lenders along with the broader market, as Wall Street turned fearful about potential threats elsewhere and relived memories of Silicon Valley Bank's implosion just two years ago. But analysts said the selloffs were overblown. Raymond James said it views Zions' disclosure as a "one-off credit hiccup" and not a systemic credit issue."
"Still, they acknowledged the "optics" are not great, given how Zions specializes in small commercial and industrial loans but just revealed a large loan to a shady borrower, raising questions about underwriting standards and risk management policies. Zions will likely share more details when it reports full third-quarter results on Monday. Similarly, RBC Capital Markets said Zions is a conservative bank with sufficient loan reserves and capital levels, and called the decline in Western Alliance stock "overdone" since its fraud warning appears to be an isolated issue."
Top national banks posted strong earnings while regional lenders triggered investor worries about loan-book risks. Zions Bancorporation disclosed suspected misrepresentations by borrowers at its California Bank & Trust unit, prompting a $60 million loss provision and a $50 million charge-off. Western Alliance alleged fraud in a lawsuit but said the disputed revolving credit facility is secured by commercial real estate loans and cash. Shares of both banks fell and weighed on lender stocks broadly. Analysts called the market reaction overblown, noted adequate reserves and capital at Zions, but flagged optics and underwriting questions that merit further detail.
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