"One cockroach is not yet a trend": why isn't Moody's worried about banks' bad loans?

Despite investors' anxiety about the quality of loans in mid-tier banks, there are no signs of a systemic problem yet and the U.S. financial crisis is not threatening, according to Moody's Ratings. U.S. stocks came under pressure after Zions Bancorp and Western Alliance Bancorp reported bad loans related to the bankruptcies of two large borrowers. However, Wall Street did not worry about this for long.

Signs of the spread of risks in the banking system, capable of causing a major financial crisis, is not observed now, said in an interview with CNBC head of global private lending agency Moody's Ratings Mark Pinto. At the same time, he recognized that there are concerns about overly lax lending standards and lower requirements that financial institutions impose on borrowers.

"When we analyze the situation deeper and try to see if the credit cycle has started to turn - which is what the market is paying attention to right now - we find no evidence," Pinto said. - That's the situation as of today. That could change, but if you look at the asset quality metrics over the last few quarters, the deterioration is minimal."

Stocks in the U.S. market fell sharply on Thursday, October 16, after Zions Bancorp and Western Alliance Bancorp reported problem loans related to the bankruptcies of the two auto lenders. Those concerns also pulled down the securities of investment bank Jefferies, which earlier said it was partly exposed to risks associated with the bankruptcy of automaker First Brands.

Investors began to fear that the scale of the problem could be wider. Jamie Dimon, head of JPMorgan Chase, characterized the situation with bad loans as follows: "If you see one cockroach, there are probably more.

"One cockroach is not yet a trend," Pinto absentmindedly entered into a polemic with Daimon.

The credit market's problems are causing anxiety for investors who remember the collapse of Silicon Valley Bank, Fundstrat founder Tom Lee explained the drop in bank stocks. "So I understand the market's 'shoot, then aim,' reaction," the analyst wrote in a note quoted by MarketWatch.

At the same time, Lee drew attention to the subdued reaction in the high-yield bond market, where spreads remain well below their April peaks. This, Lee said, "gives confidence that fundamentals are not deteriorating."

Pinto also notes: default rates on high-yield bonds remain relatively low this year, below 5%. And by 2026, according to Moody's forecast, it may fall to less than 3%. By comparison, during the 2008 crisis, defaults on such securities reached double digits.

Meanwhile, the U.S. economy has been stronger than expected despite persistent concerns about a weakening labor market and the possible impact of high trade duties on inflation and consumer demand. Pinto told CNBC that he attended a conference this week with 2,000 bankers. "One of the words I keep hearing is 'resilience,'" the analyst said.

"If we take into account GDP growth and the expected decline in interest rates, we can say that credit quality today is at a pretty good level and has the potential to improve," Pinto added.

On Thursday, Zions Bancorp's securities collapsed 13% after it reported a $50 million write-down due to two loans to troubled borrowers. On Friday, however, Baird upgraded the regional bank's rating from neutral to "above market." The $65 target price it set implies nearly 39% in upside potential relative to Thursday's closing level.

"The more than $1 billion decline in Zions' market capitalization is likely due to concerns that problems could spread to other banks, as well as liquidity worries. While to some extent we understand the sell-off, in our view the magnitude of the sell-off is excessive," said Baird analyst David George in a note quoted by CNBC. - We believe the panic selling creates an excellent buying opportunity for Zions stock."

Jefferies shares have lost more than 23% of their value over the past month, including the bankruptcy of auto parts supplier First Brands. However, analysts at Oppenheimer said Friday that they view Jefferies securities as a "long-term investment opportunity," Barron's wrote. They raised their rating on the stock from Neutral to Outperform and set a target price of $81, 66% above its value at Thursday's close of trading. The analysts attributed the revision to Jefferies' "compelling investor day presentation," which they believe dispelled major concerns about the collapse of First Brands.

This article was AI-translated and verified by a human editor