"When you see one cockroach, there are probably more," JPMorgan CEO Jamie Dimon said on the company's earnings conference call earlier this week in relation to the First Brands and Tricolor Holdings fallout. These are two auto-related companies that have recently declared bankruptcy. First Brands, which is in the auto parts business, reportedly is facing a criminal investigation. Tricolor specialized in used car sales and subprime auto financing. Zions Bank said Wednesday evening that it faced a sizable charge due to bad loans to a couple of borrowers. Western Alliance then alleged on Thursday that a borrower had committed fraud.
So far, that seems like a few cockroaches, not a significant infestation. Nevertheless, the KBW Regional Banking ETF fell sharply today. The regional banks account for approximately 7.8% of the Russell 2000 index, which also experienced a decline today (chart).
The Financial sectors of the S&P 500, S&P 400, and S&P 600 have been weak in recent days (chart). The larger banks that reported their Q3 earnings results on Tuesday and Wednesday mostly beat expectations, driven by better-than-expected investment banking revenues. They are included in the S&P 500.
