Business
‘The tide went out’: How a string of bad loans has bank investors hunting for hidden risks
Big banks including JPMorgan Chase and Goldman Sachs had just finished taking victory laps after a blockbuster quarter when concerns emerged from an obscure corner of Wall Street, sending a collective shiver through global finance.
Regional bank Zions late Wednesday disclosed a near total wipeout on $60 million in loans after finding “apparent misrepresentations” from the borrowers. The next day, peer Western Alliance said that it had sued the same borrower, a commercial real estate firm called the Cantor Group, for alleged fraud.
The result was a sudden and deep selloff among regional banks, drawing comparisons to the churn of the 2023 banking crisis that consumed Silicon Valley Bank and First Republic. This time around, investors are focused on a specific type of lending made by banks to non-depository financial institutions, or NDFIs, as the source of possible contagion.
“When you see one cockroach, there are probably more,” JPMorgan CEO Jamie Dimon said this week. “Everyone should be forewarned on this one.”
Concerns over credit quality had been simmering for weeks after the September collapse of two U.S. auto-related companies. JPMorgan, the biggest U.S. bank by assets, this week reported a $170 million loss tied to one of them, the subprime auto lender Tricolor.
But it wasn’t until a third case of alleged fraud around loans made to NDFIs that investors were jolted into fearing the worst, according to Truist banking analyst Brian Foran.
“You now have had three situations where there was alleged fraud” involving NDFIs, Foran said.
Dimon’s comments “really resonated with people who were like, ‘Oh, man, the tide went out a little bit, and now we’re seeing who was lacking their swim trunks,” Foran said.
What are NDFIs?
The episode cast a spotlight on a fast-growing category of loans made by regional banks and global investment banks alike. Rules put into place after the 2008 financial crisis discouraged regulated banks from making many types of loans, from mortgages to subprime auto, leading to the rise of thousands of non-bank lenders.
Moving riskier activities outside of the regulated bank perimeter, where failures are backstopped by the Federal Deposit Insurance Corporation, seemed like a good move.
But it turns out, banks are a major source of funding for non-bank lenders: commercial loans to NDFIs reached $1.14 trillion as of March, per the Federal Reserve Bank of St. Louis.
Bank loans made to non-bank financial firms were the single fastest-growing category, rising 26% annually since 2012, according to the St. Louis Fed.
“The surge in NDFI lending was really because all these different regulations added up to say there are a bunch of loans banks can’t do anymore, but if they lend to someone else who does them, that’s OK,” Foran said.
“We really don’t know much about these NDFI books,” Foran said. “People are saying, ‘I didn’t know it was so easy for a bank to think they had $50 million in collateral and find out they had zero.'”
‘Overreaction’ or early?
Part of what’s spooking investors is that, while some of the loan losses disclosed by regional banks have been relatively small, they’ve been near total wipeouts, said KBW bank analyst Catherine Mealor.
“NDFI lending, because of the collateral involved, typically has a higher loss rate, and the losses can come very quickly and out of nowhere,” Mealor said. “It’s really hard to wrap your mind around these risks.”
Mealor said investors have been inundating her with questions around the level of NDFI exposures in her coverage universe, the analyst said. Firms including Western Alliance and Axos Financial are among those with the highest proportion of NDFI loans, according to an August research note from Janney Montgomery.
Still, regional banks are benefitting from an improving interest rate environment and rising mergers activity, which underpin valuations, Mealor said, adding she thinks this week’s stock selloff was an “overreaction.”
“You want to avoid companies that show up high in the screen for NDFI loans,” she said. “There are plenty of high-quality companies in the KRX that are trading at a massive discount.”
The UK must not “cut ourselves off” from trade opportunities in China despite security and business risks, the head of the Confederation for British Industry has warned.
CBI chief Rain Newton-Smith highlighted that British businesses see increased trade with Chinese firms as an opportunity to drive growth.
Her remarks came as business leaders were questioned by MPs on Parliament’s Business and Trade Select Committee regarding the UK’s economic relationship with China.
Last December, Prime Minister Sir Keir Starmer admitted China poses security threats to the UK but urged for greater business ties.
Ms Newton-Smith, chief executive of one of the UK’s largest business groups, was positive about the Government’s engagement with China.
“You can’t have a growth strategy without a strategy for China,” she said.
“China has the biggest contribution to global growth, is the third largest trading partner, and the world’s largest consumer market.
“The UK is second largest exporter of trade and services.
“We are mindful as all businesses are of security risks but it is really important that we have a strategy towards China.
“This Government has increased the economic engagement with China and including business within this does help us as a country.”
She added: “If we think about the future economy, there is a huge market in China and I think we mustn’t cut ourselves off from some of the opportunities there, even if in some areas there are difficult conversations and negotiations that need to be had.”
Peter Burnett, chief executive of the China-Britain Business Council, told the committee: “There are risks associated with technology advancement, AI, industrial development that they need to assess.
“Increasingly you will find them saying that they need to engage more in China to understand those risks and to develop some of the technologies along some of those risks themselves.”
Business
Trump says he’d be disappointed if Fed pick doesn’t cut rates; Warsh vows to be ‘independent actor’ – The Times of India
US President Donald Trump on Tuesday said he would be disappointed if his nominee for Federal Reserve chair, Kevin Warsh, does not cut interest rates right away after taking office if confirmed by the Senate. Trump, during an interview with CNBC’s “Squawk Box,” also said “we have to find out” about the construction costs of the new Federal Reserve building.Warsh, a former Federal Reserve official and financier, is currently facing Senate confirmation hearings where he has stressed his independence from political pressure.“The president never once asked me to commit to any particular interest rate decision, and nor would I agree to it if he had,” Kevin Warsh said under questioning by the Senate Banking Committee, as quoted by LA Times. “I will be an independent actor if confirmed as chair of the Federal Reserve.”Warsh told lawmakers that fighting inflation would be one of his main priorities if confirmed.“Congress tasked the Fed with the mission to ensure price stability, without excuse or equivocation, argument or anguish,” Warsh said. “Inflation is a choice, and the Fed must take responsibility for it.”The comments come as investors closely watch his confirmation hearing, with inflation remaining at 3.3% annually and global tensions, including the war in Iran pushing up gas prices, adding pressure on the economy. Higher inflation typically leads the Federal Reserve to keep interest rates steady or raise them rather than cut them, as rate changes affect mortgages, auto loans, and business borrowing.Democrats on the Senate Banking Committee accused Warsh of shifting his stance on interest rates over time, supporting higher rates under Democratic presidents and lower rates during Trump’s presidency.Warsh, if confirmed, would take over at a time when inflation pressures make it difficult for the Federal Reserve to cut rates, even as Trump continues to push for lower borrowing costs. Trump has repeatedly urged rate cuts and has long clashed with current Fed chair Jerome Powell over monetary policy. Powell has also been the subject of a Department of Justice criminal probe after refusing Trump’s requests for faster rate cuts. Trump told CNBC that he does not plan to pressure the Justice Department to end that probe.
NEW DELHI: Nestle India reported a 26% increase in net profit to Rs 1114 crore on its highest ever domestic sales of Rs 6,445 crore for the fourth quarter ended March 31, 2026, led by premiumisation, penetration and higher ad spends.“This performance was powered by double-digit volume growth, driven by over 50% increase in advertising spends, whilst delivering a healthy EBITDA margin of 26%’’, Manish Tiwary, chairman and managing director, Nestlé India said.Total sales and domestic sales for the quarter increased by 23% each, while all product groups contributed to the performance, he said.For FY26, total sales increased by nearly 15% to Rs 23,071 crore, while the net profit jumped nearly 7% year-on-year to Rs 3545 crore. The company on Tuesday also declared a final dividend of Rs 5 per equity share.The West Asia conflict is likely to have a limited impact on most packaged food companies’ Q4 performance, as it was confined to March. However, companies have flagged higher input costs driven by the rise in crude oil prices.Elaborating on the commodities outlook, he said “Edible oil prices are firm and have moved higher in line with global crude oil prices, supported by increased diversion to biodiesel’’.Meanwhile, unseasonal rains have impacted wheat production, resulting in a delayed harvest and lower quantity and quality.Commenting on coffee prices, the company said it expects prices to continue to trend lower, supported by a favourable crop in Vietnam and the forthcoming crop in Brazil.
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