When you can’t repay a bank loan, that’s distressing — but probably not for the bank. However, when tens of thousands of people with good credit ratings fail to meet their loan obligations, it raises concerns about the overall health of the economy. The situation becomes even more alarming when companies default on very large loans, leading to charges — money the bank writes off as a loss because it has given up on recovery — and bankruptcies. That’s when everyone needs to put on their detective hats.
In September, both First Brands, an auto parts manufacturer, and car dealership Tricolor Holdings filed for bankruptcy. Major banks such as Jefferies, UBS, and JPMorgan had exposure to one or both of these companies. “Questions are now being asked about how the demise of a relatively unknown auto parts supplier has spread across the global banking and fund management industry, where potentially billions of dollars are entangled in the collapse,” wrote CNBC’s Hugh Leask.
Worries intensified Thursday in the U.S. when two regional banks raised issues with their loans. While all of the above could be isolated incidents unrelated to each other, JPMorgan CEO Jamie Dimon warned during the bank’s earnings conference call earlier this week: “When you see one cockroach, there are probably more.”
Rotten loans rarely stay confined to the banking sector. The 2008 global financial crisis — which led to millions of layoffs and sent economies into recession — was partly triggered by the subprime mortgage crisis. Simply put, people couldn’t pay their mortgages, and then, the cockroaches ran free.
In related international developments, China has accused the U.S. of deliberately sparking “panic.” A spokesperson for China’s Ministry of Commerce said Thursday that the White House “seriously distorts and exaggerates” Beijing’s rare earth restrictions but added that China remains open to talks with the U.S.
On the trade front, tariffs will cost businesses $1.2 trillion this year. According to a report released Thursday by S&P, companies are expected to bear around one-third of these costs, meaning consumers will be hit even harder.
Fears about bad loans are now rippling through financial markets. Shares of regional banks and investment bank Jefferies slumped Thursday in the U.S. as more signs of trouble in bank loans emerged. Credit market concerns began when two auto-related companies declared bankruptcy last month.
U.S. stocks dropped on the back of these credit worries. Major U.S. indexes gave up early gains on Thursday to close in the red. Meanwhile, Europe’s regional Stoxx 600 climbed 0.69%, and the FTSE 100 gained 0.12% as data showed the U.K. economy expanded by an expected 0.1% in August.
Looking ahead, CNBC PRO highlighted stocks that tend to rise after reporting earnings. Using data from Bespoke Investment Group, they identified companies scheduled to report next week that have a history of impressing Wall Street with their results and being rewarded with share gains.
https://www.cnbc.com/2025/10/17/bad-loans-by-regional-banks-should-concern-us-all.html
