Jefferies, Regional Bank Stocks Rebound After Sharp Selloff

Jefferies recently said it could lose up to $45 million on its investment in First Brands Group.

A Wall Street sign in New York City. Samira Bouaou/The Epoch Times

Shares of regional banks and investment firm Jefferies rebounded one day after experiencing a sharp selloff over bad loans.

Investors shrugged off non-performing loans, signaling that they do not believe poor credit bets were part of a broader crisis lurking on Wall Street.

Western Alliance Bancorp alleged in a filing that a borrower had committed fraud, causing the stock to fall almost 11 percent during the Oct. 16 trading session. The financial institution reaffirmed its guidance and 2025 outlook, which might have trimmed widespread worries.

Zions Bancorp shares dropped about 13 percent after the company revealed that it would suffer a $50 million loss in the third quarter because of bad loans.

Investors have been on edge regarding potential loan-related losses.

Jefferies sank more than 10 percent, following last week’s announcement that its Point Bonita Capital Fund faced financial risks due to its exposure to $715 million in unpaid invoices from the collapsed global aftermarket auto parts supplier First Brands.

Last month, Ohio-based First Brands Group filed for Chapter 11 bankruptcy protection, citing significant debt and liquidity shortages.

Jefferies recently said it could lose up to $45 million on its investment in the bankrupt business.

However, traders might be viewing the loans as one-time losses rather than a possible crisis in the making in U.S. financial markets, Steve Sosnick, chief strategist at Interactive Brokers, said.

“As of now, those seem isolated to those two relatively sizeable regional banks,” Sosnick said in an Oct. 16 note.

“Although they are similar in size and scope to Silicon Valley Bank, which caused a bit of a crisis about two-and-a-half years ago when it failed, there is nothing (at least so far) to indicate that these are anything systemic.”

In March 2023, Silicon Valley Bank failed following an abrupt run on deposits, fueled by client concerns over immense and unhedged bond portfolio losses. The institution invested in long-term Treasury securities and mortgage-backed securities.

The Silicon Valley Bank triggered a mini crisis across the regional banking sector. Four small- and medium-sized financial institutions shuttered: First Republic Bank, Heartland Tri-State Bank, Citizens Bank, and Republic First Bank.

However, some banks with credit issues are pretty standard.

“It’s kind of the nature of the business,” Sosnick added.

Shares of Zions Bancorp climbed more than 4 percent on Oct. 17, while Western Alliance rose about 1 percent. Jefferies also rose by close to 6 percent.

SPDR S&P Regional Banking ETF—an index that monitors the performance of the regional banking sector—also jumped by nearly 2 percent.

The wider stock market was mixed, with the tech-heavy Nasdaq Composite Index down 0.4 percent and the blue-chip Dow Jones Industrial Average little changed. The broader S&P 500 slipped 0.1 percent.

While the two instances do not create a crisis, “they serve as early tremors that suggest” there could be something forming beneath the surface, says Mark Malek, chief investment officer at Siebert Financial.

“As capital floods into private credit funds hungry for deployment, underwriting standards can soften. Deals get done faster. Documentation gets lighter. Risk gets sliced, packaged, and sold to investors chasing double-digit returns in a world of single-digit Treasuries,” Malek said in a note emailed to The Epoch Times.

For now, Malek states that he is “cautiously positive” about the situation.

But while the storm clouds might have dissipated, JPMorgan Chase CEO Jamie Dimon warned of “cockroaches” potentially traversing the U.S. economy.

“My antenna goes up when things like that happen,” Dimon told analysts during a call on Oct. 14.

“And I probably shouldn’t say this, but when you see one cockroach, there are probably more. Everyone should be forewarned on this.”

He also pointed to a persistent “degree of uncertainty” across the U.S. economy, “stemming from complex geopolitical conditions, tariffs and trade uncertainty, elevated asset prices and the risk of sticky inflation.”