US regional banks' earnings to test investor nerves after jitters over credit risks

By Manya Saini (Reuters) -After a turbulent week in which some regional U.S. banks flagged bad loan and fraud issues, investors are now awaiting for more earnings reports from the lenders to check for signs of a wider strain across the sector. Since the 2023 banking crisis, investors have little patience for uncertainty, analysts said. Even isolated loan or fraud troubles now trigger broad-based selloffs as traders rush to reduce exposure. "Years of easy credit and low transparency have left investors uncertain about where risks truly lie, even small negative surprises can spark outsized repricing," Tim Hynes, Global Head of Credit Research at Debtwire. The KBW Regional Banking Index has dropped 6.1% this month and 4.8% in 2025, lagging the KBW Bank Index, which tracks large-cap banks and is up 13.5%. Last week, banks stocks seesawed sharply after Zions Bancorporation disclosed losses tied to two loans and Western Alliance initiated a lawsuit alleging fraud by Cantor Group V, LLC. Cantor has denied the allegations. Zions is set to report third-quarter results after the bell on Monday. The lender's stock, which has lost 12% of its value so far this month, ticked up in low volumes in premarket trading. Among regional lenders, Washington Trust Bancorp is set to report results before the bell on Monday. The bank had earlier disclosed that its third-quarter profit will be hit by $11.3 million in loan losses. 'ADDITIONAL COCKROACHES' Even before problems surfaced at Zions and Western Alliance, investor confidence had taken a hit by the twin bankruptcies of auto parts maker First Brands and subprime lender Tricolor. Fifth Third booked a $178 million loss last week tied to the bankruptcy of Tricolor, while JPMorgan Chase wrote off $170 million. "Asset quality metrics across banks have been deteriorating but have held up better than we expected. Losses have been low, so these recent numerous larger loan problems have raised fears of a broader deterioration," said Michael Driscoll, credit rating officer, Global Financial Institutions Ratings at Morningstar DBRS. "But one of the lessons from 2023 regional bank failures was that banks' funding can unravel faster than in the past if sizable issues emerge." But many including Fifth Third CEO Tim Spence have downplayed comparisons to the 2023 regional banking crisis, when Silicon Valley Bank's failure sparked a broader turmoil. Large Wall Street banks last week described the recent stress as idiosyncratic, but investors worry that problems emerging in quick succession point to deeper cracks in credit quality. "A wave of additional 'cockroaches' could reset risk tolerance across markets, pressuring valuations and tightening financial conditions further," Hynes said. Analysts said markets have taken note of JPMorgan CEO Jamie Dimon's recent comment about the potential for more cases like First Brands, amplifying investor anxiety about weaknesses in the industry's more opaque corners. "When you see one cockroach, there are probably more, and so everyone should be forewarned of this one," Dimon said last week. (Reporting by Manya Saini in Bengaluru; Editing by Arun Koyyur)

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