Zions takes $50 million loan loss as another credit 'cockroach' appears. Regional-bank stocks are falling.

By Steve Gelsi

Analyst cuts price target for regional bank's shares as it discloses loan losses, days after JPMorgan CEO Jamie Dimon warned of credit-market conditions

A Truist analyst said Zions's two problem loans amount to a "step on a rake" for the regional bank.

A sharp drop in Zions Bancorp's stock price touched off declines among regional-bank stocks on Thursday, as the bank added to the noise around bad credit deals on Wall Street by disclosing a $50 million loss on two commercial loans.

In what one analyst described as a "step on a rake," Zions (ZION) said it would take a $60 million provision for credit losses when it reports third-quarter results on Oct. 20. Provisions for credit losses represent money that banks set aside to cover bad loans.

Zions Bancorp's stock was down 12.3% on Thursday, just days after JPMorgan Chase & Co. (JPM) Chief Executive Jamie Dimon raised concerns about credit-market conditions by noting that "when you see one cockroach, there are probably more," after his bank took losses on loans made to the now-bankrupt subprime auto lender Tricolor.

Zions's stock drop weighed on the SPDR S&P Regional Banking ETF KRE, which fell 5.6% and is on track for its biggest decline since April 10, when it lost 6.1%.

Western Alliance Bancorp (WAL) fell 10.5%, Hingham Institution for Savings (HIFS) declined 7.8%, Bank First Corp. (BFC) lost 7.3%, Banc of California Inc. (BANC) shed 7.2% and Great Southern Bancorp Inc. (GSBC) slid 7%.

Western Alliance said Thursday that it has enough collateral and guarantees to avoid losses from a borrower that is being sued for alleged fraud, which includes possible failure to provide first-position collateral.

Banc of California's exposure to the same borrower amounts to about $4 million, which Jefferies analyst David Chiaverini said is minimal.

"We believe the stock reactions today are overdone," Chiaverini said. "The way these loans are structured should protect the banks and lead to overall solid credit results through the cycle."

These developments followed Fifth Third Bancorp 's (FITB) disclosure last month of up to a $200 million loan loss tied to suspected fraud on two unnamed loans. Fifth Third Bancorp's stock fell 4.3% on Thursday.

And Jefferies Financial Group Inc. (JEF) said it could lose up to $45 million on its investment in bankrupt auto-parts maker First Brands, though it noted that it poses no threat to its financial condition. Jefferies's stock dropped 8.7% in recent trading.

"Zions is clearly not the only bank to step on a rake with credit this quarter," Truist analyst David Smith said in a research note. "Still, the credit charges are not helpful for Zions."

The $60 million provision that Zions disclosed for its third quarter will be the bank's highest since the third quarter of 2022, when it had a loan-loss provision of $71 million, Smith said.

In this case, the problem appears to be related to "a technical regulatory rule change as opposed to a big underlying problem," Smith noted.

Janney analyst Timothy Coffee on Thursday cut his price target on Zions Bancorp to $56 a share, from $60, on expectations of its "outsized" provision expense.

"While the company did not disclose the names of the borrowers nor the structure of the credits, investors have recently reacted first and asked questions later on opaque credits sourced from third parties that end up as credit losses on bank income statements," Coffee said.

Zions said it doesn't expect $50 million of the loan-loss provision to be paid back in what it described as an "isolated situation" around two commercial loans in California.

"The bank identified what it believes to be apparent misrepresentations and contractual defaults by the borrowers and obligors and other irregularities with respect to the loans and collateral," Zions said.

The bank said it plans to hire lawyers for an independent review of the loans. It added that it took these actions after it recently became aware of legal efforts by "several" unnamed banks against parties affiliated with the two borrowers.

Including Thursday's moves, Zions Bancorp's stock has fallen 11.3% in 2025, while the Financial Select Sector SPDR ETF XLF has risen 7.9% and the S&P 500 SPX has gained 12.9%.

-Steve Gelsi

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10-16-25 1454ET