Regional Banks Are Crashing
Last week was rough for banking stocks.
In particular, regional banks got hit hard.
The SPDR S&P Regional Bank ETF (ticker: KRE) dropped over 6% on Thursday.
It’s the largest one-day drop in KRE since the tariff crash in April.
Some regional banks are getting hit a lot harder than others.
Zion Bancorp (ticker: ZION), a regional bank operating in the Western U.S., was down almost 15% at one point on Thursday.
What’s going on?
Zion reports its 3rd quarter earnings after the market closes today.
But Zion’s management issued a very concerning warning last week.
Zion is going to write off more than $60 million in losses related to some bad loans.
Investors, worried about the overall credit market, dumped their regional bank stocks.
Jamie Dimon, CEO of JPMorgan (ticker: JPM), didn’t help matters either.
Dimon said, “When you see one cockroach, there are probably more.”
Dimon made these comments after JPMorgan wrote off $170 million of loans from Tricolor, a bankrupt subprime auto lender.
Regional bank stocks recovered somewhat on Friday.
Zion was up over 6% at one point.
But it appears cracks might be forming.
The FDIC (Federal Deposit Insurance Corporation) publishes a quarterly banking report.
And in its latest release for the second quarter, the FDIC reported an increase in quarterly loan loss provisions to over $30 billion.
Loan loss provisions are an expense for banks to account for loan defaults.
And loan loss provisions haven’t been at these levels since the COVID pandemic or the Great Recession in 2008.
Are you worried the credit market is about to fall apart?
Then consider these investments to protect your portfolio.
The price of gold is extremely high right now.
But buying some shares of SPDR Gold Trust (ticker: GLD) is a great way to protect your portfolio if the credit market falls apart.
Gold is up almost 60% so far in 2025, which would be its best year since 1979.
If the credit market crashes, people will jump into GLD to protect their money.
When the stock market crashed in 2008, GLD was up almost 25%!
A crashing credit market means bad news for the broader U.S. economy.
Walmart (ticker: WMT), the largest retailer in the world, will be full of price-conscious consumers looking to save money.
There’s more competition for Walmart now than in 2008, but Walmart has the brand recognition to stay ahead.
And when the stock market crashed in 2008, Walmart’s stock rose over 10%.
Plus, Walmart’s current ROE (Return on Equity) of 24% is one of the highest in the entire retail sector.
A bad credit situation in the U.S. will really hurt the auto industry.
Auto loans have some of the highest default risk, so banks and lenders will avoid issuing new auto loans to reduce their risk.
But not everyone in the auto industry will suffer.
Auto parts retailers like Autozone (ticker: AZO) will benefit from people needing to keep their vehicles for longer.
And Autozone’s industry-leading 13% profit margin will keep it ahead of every other auto parts retailer.
Do you think these credit concerns are the tip of the iceberg?
Send me a note with your thoughts!
