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By Alun John, Ankur Banerjee and Manya Saini SINGAPORE/LONDON (Reuters) -Fear over credit quality in U.S. regional banks rippled through markets on Friday, dragging global financial stocks lower and reviving memories of the crisis of confidence that shook sentiment just over two years ago. The selloff hit Wall Street’s main indexes, with futures pointing to a weaker open, deepening investor anxiety that was already heightened by escalating U.S.-China trade tensions and renewed worries about the global economic outlook. The banking sector's exposure to two recent U.S. auto bankruptcies has rekindled concerns about lending standards more than two years after Silicon Valley Bank's failure, when high interest rates drove paper losses on its bonds and sparked a global bank stocks rout. Investors are now trying to assess whether recent issues in U.S. credit markets will have a similar effect, as an overnight selloff on Wall Street rippled across Asia and Europe and shone a spotlight on the recent AI-led surge in broader stock markets that some fear could have created a bubble. Some analysts said, at this stage, the concerns around U.S. regional banks appeared idiosyncratic rather than a sign of something more systemic. "Pockets of the U.S. banking sector including regional banks have given the market cause for concern," said Russ Mould, investment director at AJ Bell. "This includes Zions flagging an unexpected loss on two loans and Western Alliance alleging a borrower had committed fraud. FINANCIAL STOCKS HIT GLOBALLY Some top U.S. banks fell in premarket trading on Friday, capping a week of solid earnings from Wall Street's top banks on a downbeat note. Bank of America and Citigroup declined 0.33% and 0.4% each. "What we see in the banks selling off overnight in the U.S., Asia wakes up to it, Europe wakes up to it, and so it spreads," said TD Securities head of global macro strategy James Rossiter. European banks fell almost 3%, with Deutsche Bank and Barclays sliding around 6%, and Societe Generale down 4.6%, after financial firms in Asia, especially Japanese banks and insurers sank. In pre-market U.S. trading, the SPDR S&P regional banking ETF was up 1%, a day after the benchmark tumbled 6%, its steepest one-day selloff in six months. Strong earnings from Truist Financial, Regions Financial, and Fifth Third bolstered investor sentiment, sending most U.S. regional banks higher in premarket trading. Zions Bancorp, at the heart of the investor scrutiny, recovered some lost ground, after closing down 13%. Western Alliance was also up 1.2% in early premarket trade after losing roughly 11% on Thursday. "Despite growing hopes of further rate cuts this year, attention is turning to the underlying health of the economy, as emerging credit losses amongst America’s regional banks raised further questions about lending practices," said Derren Nathan, head of equity research, Hargreaves Lansdown. The U.S. KBW Regional Banking Index closed down 6.3% on Thursday. The latest selloff came after Zions said it would take a $50 million loss on two commercial and industrial loans from its California unit, while Western Alliance disclosed it had initiated a lawsuit alleging fraud by Cantor Group V, LLC. Attorneys for Cantor denied the allegations. Such disclosures would not typically impact broader markets, but drew attention as they followed the collapse of two U.S. companies, FirstBrands and Tricolor. Those failures rattled investors who are worried about risks in private credit, a booming but less regulated market where companies have borrowed heavily in the past few years. Credit impairments in private debt have been rising and default rates have hit 5.5%, said Mark Dowding, chief investment officer at RBC BlueBay Asset Management, citing the latest available data for the second quarter. "At the same time, it has also been striking that where credit events have occurred, this has gone hand-in-hand with a weakening of covenants and investor protections, inferring larger losses on default than have historically been the case," he added. Still, the gloom spread across other pockets of the financial sector, weighing on mortgage lenders, buy-now-pay-later firms, and brokerages. Analysts say that any cracks in credit on Wall Street are likely to spill over into other areas of the financial sector. BNPL lenders Affirm and Klarna fell 2.3% and 0.4% respectively, while consumer finance firm SoFi declined 1.3%. Robinhood and Interactive Brokers fell 2.6% each. JPMorgan Chase CEO Jamie Dimon said earlier this week about credit markets: "When you see one cockroach, there are probably more, and so everyone should be forewarned." BROADER MARKET IMPACT "The market is clearly priced for perfection," said Bo Pei, analyst at US Tiger Securities. "This leaves sentiment vulnerable, so even isolated negative headlines can trigger outsized reactions like what we saw yesterday." European bank shares are up some 40% year-to-date, while world stocks have risen 16%, as investors flocked to companies that might benefit from the AI boom. Gold meanwhile hit a fresh record high, set for its best week in over 17 years. "The market has been concerned on a bubble brewing on private credit for the past few months," said Alan Devlin, Global Financials Research Analyst, Impax Asset Management. "The market is basically shooting first, asking questions later." (Reporting by Ankur Banerjee in Singapore and Alun John in London and Manya Saini in Bengaluru. Additional reporting by Kevin Buckland, Stella Qiu, Dhara Ranasinghe, Jose Joel, Pritam Biswas and Medha Singh. Editing by Mark Heinrich, Mark Potter and Nick Zieminski)

(The article has been published through a syndicated feed. Except for the headline, the content has been published verbatim. Liability lies with original publisher.)

By Suzanne McGee (Reuters) -The U.S. exchange-traded fund market is churning out new products at an unprecedented clip, creating concerns about a bubble developing – causing some investors to become more selective about which funds to support and question how many can survive. The ETF industry has exploded in size in response to regulatory changes in 2019 that allowed actively managed funds and those using derivatives to roll out new products more swiftly, while a recent regulatory decision to approve the creation of an ETF share class is likely to generate a fresh wave of products. But that rapid growth has prompted caution from some in the industry about supporting all of these new ETFs.    "We're certainly at an unsustainable level of launches, and we're going to have to start seeing product rationalization and closures," said Drew Pettit, U.S. equity strategist at Citigroup, who said the product class could be heading toward a bubble.  The explosion of product has encouraged asset managers to come up with new offerings that push the limits of what the SEC has been willing to approve in the past. Over the last ten days, a group of asset managers that specialize in offering leveraged ETFs tied to individual stocks have filed with the Securities and Exchange Commission to issue leveraged funds seeking to provide three times and even five times daily upside of a handful of individual stocks. Risk guidelines laid down by the SEC in late 2020 under then-chairman Jay Clayton had capped leverage at two times. The SEC itself on Thursday said it is "unclear" whether the new filings will be approved. Ryan Sullivan, head of buy-side Americas at FTSE Russell, an index provider, who has spent some 20 years in the ETF arena, said that financial advisers were now getting more picky about which ETFs to advise clients to buy.  "Operationally, it has never been easier to launch a new ETF, but the flip side is that having a successful launch is only getting more difficult," he said.   For most of those two decades he has worked on ETF products, he said, an ETF with $50 million to $100 million in assets typically would be on the radar screen of most financial advisers. "Now they're saying: 'Don't call me until you have the first $200 million or so'," Sullivan said. Whether the ETF industry can sustain its current torrid growth rate also relies on the market-makers, trading firms such as Citadel Securities and Jane Street Capital that buy or sell throughout the day to help ensure tight trading spreads. "Market-makers are already raising the caution flag, saying that they need to be pickier about the funds that they support because they only have so much time," said Gavin Filmore, chief revenue officer of Tidal Investment Group, an ETF issuer that works with asset managers to launch new funds.  Senior executives working for three different ETF service providers, none of whom were willing to speak on the record, citing client confidentiality, are adamant that the ETF industry does not face a capacity crunch, but they acknowledge that rapid growth creates challenges.  There is more "selectivity," said Cory Laing, managing director of Citadel Securities Institutional Equity.  Jane Street Capital, another large marketmaking firm, did not return calls seeking comment. LAUNCH TSUNAMI  Concerns are growing about the sheer number and size of products being launched in the $13 trillion U.S. market. In the first nine months of 2025, some 794 new ETFs made their debut, topping the 746 launches recorded for the whole of 2024, which itself marked a fresh record. Asset managers are on pace to roll out more than 1,000 new products in the U.S. before the end of the year. On Monday, the flow of new investor dollars into U.S. ETFs year-to-date topped $1 trillion, a milestone that took until December to reach in 2024. Matthew Bartolini, global head of research strategists at State Street Investment Management, said flows for 2025 as a whole almost certainly will smash last year's record of $1.1 trillion and could reach as high as $1.4 trillion. So far, there is little incentive for asset managers to ease up on the pace of ETF launches. Many are trying to launch model portfolios and need new ETFs to fill in some gaps. "And then, if someone has a good idea and it works, you have at least 20 copycat ETFs," said Greg Stumm, CEO of American Beacon Partners, a distribution platform for ETFs. The launches are raising concerns for Dan Sotiroff, an analyst at Morningstar.  "There are all these leveraged single-stock ETFs, and then people are adding options to those to generate income," Sotiroff said. One frequently cited source of concern by ETF industry analysts is the leveraged single-stock ETFs, which have exploded in number. In a report published on Sunday, JPMorgan equity derivatives analysts calculated that selling related to these products contributed to the market selloff last Friday. Still, others believe there are more than enough investment dollars to absorb the product. Sean O'Hara, CEO of Pacer ETFs, said his firm forges ahead with only 10% to 25% of the new product ideas it considers, and is impatient with those who fret that the ETF market is in a bubble just because there are now more ETFs than publicly traded stocks.  "After all, there are more words than there are letters in the alphabet," he points out. (Reporting by Suzanne McGee in Rhode Island; Editing by Megan Davies and Matthew Lewis)

(The article has been published through a syndicated feed. Except for the headline, the content has been published verbatim. Liability lies with original publisher.)